General Motors has agreed to sell its premium all-terrain Hummer brand to Chinese firm Sichuan Tengzhong Heavy Industrial Machinery for a rumored 150 million US dollars. Should the deal go ahead it would represent China's first fully-fledged acquisition of an auto brand in the wake of the global economic crisis. But some experts have doubts the Chinese authorities will approve the deal and even if they do whether the Chinese company is able to revitalize the troubled auto brand. Yingying has more.
Under the proposed terms of the agreement, Tengzhong will take ownership of the Hummer brand, trademark, as well as specific intellectual property license rights necessary for the manufacture of Hummer vehicles. The Chinese company will also assume the existing dealer agreements relating to Hummer's dealership network.
Tengzhong would purchase Hummer through an investment entity, in which it will hold an 80 percent stake. A private entrepreneur will hold the remaining 20 percent stake. However, the deal needs approval from the US and Chinese governments.
Bill Russo, president of Hong Kong based Synergistics Limited, an international business development advisory firm, says the Chinese company is limited in the ways it can help the US brand.
"What Hummer needs to do is to become well established in the market. I doubt the Sichuan Tengzhong can do much to help them in the auto side. I think it does more to help Tengzhong become more recognizable as a company. It does not provide them with excess technology; they are just going to help them in their core products areas. I do not think it helps with establishing Tengzhong as an automotive company because there is not much can be transferred from Hummer."
Hummer would contract vehicle manufacturing, key components and business services from GM during a defined transitional time period. GM's US assembly plants would continue to assemble the Hummer H3, H3T and H2 until June 2011 with an optional one year extension until June 2012.
What's more, Hummer will continue to be managed by members of its existing leadership team.
Bill Russo says the US government could be more likely to approve the deal than their Chinese counterparts.
"I think the US government will welcome the acquisition. Hummer as a brand really does not fit GM's product portfolio any longer and it does not really fit in the market GM is trying to serve. From the standpoint of the Chinese government, they have a policy this year to encourage people to purchase smaller and more fuel-efficient cars. I really don't understand how (the purchase of Hummer) fits the interest of this market."
Some analysts say the major obstacle for the deal could be Tengzhong's lack of experience in producing passenger vehicles.
Yet Yang Yi, chief executive officer of Tengzhong, who is confident the deal will go ahead, believes that the new Hummer is likely to change its gas-guzzling image and create the next generation of more fuel-efficient vehicles.
According to a spokesman with China's commerce ministry last week, the government has not yet received an application from Tengzhong for the acquisition of Hummer.
While a Tengzhong spokeswoman has said earlier that the transaction was expected to be finalised late this year or early next year.
In recent years, many Chinese companies have showed an ambition to acquire foreign auto brands and stage their presence in the global auto market. But the question remains as to whether Chinese companies such as Tengzhong would be able to revitalize troubled auto brands, especially given their limited experience running global operations.
Bill Russo, president of Synergistics Limited says acquiring foreign car brands can be a commercial minefield.
"The risks are significant. One is the financial risk. These companies are not for sale because they are successful. They are for sale because they are under financial stress. So the expectation on the part of foreign companies is only that Chinese companies continue to fund their operations. Another significant risk is usually when a company is acquired, there is a risk of management."
General Motors is in the process of selling and winding up a number of brands as it looks to reorganize after emerging from bankruptcy protection in July.
Hummers were originally built as military off-road vehicles. GM bought the Hummer brand ten years ago, but sales have suffered recently as the gas-guzzling performance and military image have become less popular.
For Biz China, I'm Yingying.