Hummer elevates small Chinese company to the world stage

NBC News World Blog, June 4, 2009

by Ed Flanagan

While the announcement that General Motors is selling its Hummer line to a Chinese manufacturer brought a collective sigh of relief that another major U.S. brand would be spared from collapse, here in China the first ever purchase of a U.S. auto brand by a Chinese company raised a number of questions.

Chiefly, who is this mysterious buyer, Sichuan Tengzhong Heavy Industrial Machinery Co.? And what does it want with a brand largely derided as a symbol of GM’s financial troubles and the failed scheme of pushing fuel-inefficient cars in a time of increasingly green consciousness?

Previous sales: a dump truck
Prior to Tuesday’s surprising announcement, Tengzhong, a company that is a mere five years old, was a largely unknown manufacturing company based in Chengdu, the provincial capital of Sichuan.

Specializing in heavy machinery for road construction, plastics and other industrial products, Tengzhong was not a heavy hitter in the Chinese automobile industry. In fact, it was a non-entity: its previous entry into the vehicle market is a dump truck. The Hummer line will represent Tengzhong’s first foray into the personal automobile market.

Despite their inexperience in auto-making, it was no surprise to many auto industry insiders that a Chinese firm would be the eventual winning bidder.

"It was largely anticipated that Chinese firms would have interest in purchasing assets from the Big Three, but the real surprise is that it would first be this [Hummer] asset and would come from a company that just one day ago was largely unknown outside of Sichuan province," Bill Russo, former vice-president of Chrysler’s Northeast Asia division and now president of Synergistics Ltd., a China-based auto industry-consulting firm wrote in an email to NBC News responding to questions about the purchase.

Pointing out Tengzhong’s lack of experience in the auto industry, Russo noted, "This is an organization that will pretty much rely completely on those who remain in the Hummer organization to run the company because they do not have people, to my knowledge, who can replace them."

Breaking new ground
Tengzhong is not alone as a Chinese car manufacturer lacking experience. China’s automobile market is still very much in its infancy with dozens of small Chinese companies competing to break into this lucrative and increasingly growing market.

In fact, as NBC News reported earlier this year, one of China’s largest domestic car manufacturing companies in China, Build Your Own Dreams Auto (BYD), started out as a small battery manufacturer before diversifying into cars, proving that the path to market dominance in China can come in the most unorthodox ways.

Skeptics note though car manufacturers like BYD were at least involved peripherally in auto-making via their advanced development of battery technology, Tengzhong truly is starting from scratch.

"It isn't obvious to me right now how a Hummer acquisition and entry into the automotive sector represents a logical extension for a company like Tengzhong," Russo noted. "Based on what I know now, I cannot even remotely find similarity between the Tengzhong case and what BYD is doing."

Tengzhong clearly sees a benefit from this merger though. The company appears intent to bring Chinese technological expertise to an aspect of Hummer where it has been roundly criticized: green tech and fuel efficiency.

In a statement earlier this week from GM, Tengzhong’s chief executive, Yang Yi, said they will be investing in research and development to make more fuel-efficient vehicles for sale in the U.S.

Buying market share
Entry into the U.S. and other western markets has been a direction that a handful of Chinese automakers have been working towards and the purchase of an established western auto brand is seen as a viable way to break into those markets.

However, for most Chinese automakers, large and small, jostling for position in the wide-open China auto market remains the primary goal.

In this sense, upstart Tengzhong’s Hummer purchase allows it to make a splashy entry into the domestic market with an international brand that is surprisingly well recognized and well regarded in China.

In the past few years, the blogosphere here in China has been awash with stories of motorcades of Hummers being purchased by newly moneyed Chinese and being used for lavish weddings parties.

Just like in the U.S., in China the Hummer represents a masculine car that appeals to an increasingly opulent niche market – a market that still has millions of new first time car buyers.

In 2008, domestic car sales were around 9.38 million units, and sales for the first quarter of 2009 show a robust 2.7 million vehicles were sold. Despite the economic crisis, the Chinese government has offered generous tax breaks to encourage car sales.

While Tengzhong purchase of Hummer does not seem to fit in with China’s vision of greener cars, it will still likely be supported by Beijing for the technological boost that it will provide China’s fledgling auto industry.

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