General Motors Co.'s beefy Hummers will join its Pontiac and Saturn in the scrap yard of failed brands after a $150 million deal to sell the line to a Chinese equipment maker collapsed.
Sichuan Tengzhong Heavy Industrial Machinery Wednesday failed to win approval from Chinese regulators for its bid. GM said it would wind down Hummer operations after concluding Tengzhong would not be able to finalize the deal.
"We are disappointed that the deal with Tengzhong could not be completed," said John Smith, GM vice-president of corporate planning and alliances. GM sold just 9,046 Hummers in the U.S. last year, down from more than 71,000 in 2006.
The Detroit auto maker's efforts to sell its Saturn brand unexpectedly collapsed last year. Later the company reversed plans to sell its Adam Opel European unit after months of intense negotiations failed to produce a favorable deal.
Wednesday's decision follows months of uncertainty about Tengzhong's bid, which was first announced last June and accepted by GM in October. Around the time of the June announcement, Tengzhong applied for approval from the provincial government of Sichuan, where it is based, according to a person familiar with the matter. From there, the application was supposed to be sent to the National Development and Reform Commission, the central government's top planning agency, and to the Ministry of Commerce, among other agencies.
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But it is now clear that the application made little or no headway in the intervening eight months. On Wednesday, Assistant Commerce Minister Wang Chao said his ministry never received an application from Tengzhong, echoing other comments from the ministry in recent months. An official in the foreign affairs department of the NDRC said the commission also hasn't received any application.
"It looks like no one took responsibility" for the deal inside the bureaucracy, said the person. But since Tengzhong's application "was never formally received" by regulators, "it's not going to be formally rejected." The person said that officials didn't give a specific reason for withholding approval but that it's "reasonable" to assume—as analysts have speculated since the deal's announcement—that Hummer's reputation for "not being green" doesn't fit with Beijing's efforts to promote fuel efficiency and green technologies in its auto industry.
Lawyers and others involved with deals in China say the failure of the Hummer bid reflects in part a regulatory process that remains remarkably opaque despite China's enormous economic clout and its status as one of the world's biggest sources and recipients of global capital.
"The official approval process is a big barrier to getting a deal through" in China, said Antony Dapiran, a China-based partner at law firm Freshfields Bruckhaus Deringer LLP who advises Chinese companies investing overseas and foreign companies investing in China. Mr. Dapiran said one of the first questions investors ask about deals is what they can do to boost their chances of approval. But "there's not a lot of concrete advice, guidance or steer you can give clients," he said, citing a "fairly low degree of transparency on how decisions are made."
In addition to approvals from the provincial government, the NDRC and the Commerce Ministry, deals as big and prominent as the Hummer bid may need clearance from other agencies, such as the Ministry of Industry and Information Technology and the State Administration of Foreign Exchange, which would have to approve any conversion of Chinese yuan into dollars. or other foreign currency that most global deals involve.
China's murky approval process has also affected foreign investments coming into the country, such as Coca-Cola Co.'s $2.4 billion bid for China Huiyuan Juice Group Ltd., which was rejected last March on antitrust grounds after a lengthy wait. The process has even hobbled well-connected government companies. State-owned China Development Bank, for instance, had to abandon its planned multibillion-dollar investment in Citigroup Inc. in early 2008 after the government rejected it.
Tengzhong and its main co-investor, Sichuan tycoon Li Yan, had intended to make Hummer, currently focused on North America, a more global brand, expanding its reach into mostly untapped markets such as Australia and Russia and especially China, where it currently sells very few vehicles.
To reinvigorate the brand, whose sales have languished in recent years because of high gasoline prices, Tengzhong had hoped to add a manufacturing plant in China that could export vehicles to Russia and Australia and set up a network of dealers to quickly expand sales here, executives have said.
