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GM to sell Hummer to China’s Tengzhong
Published on: 2009-06-03
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June 3 (Bloomberg) -- General Motors Corp., seeking to shed assets to emerge from bankruptcy, agreed to sell the Hummer sport-utility vehicle brand to China’s Sichuan Tengzhong Heavy Industrial Machinery Co.
Tengzhong will assume Hummer’s dealer agreements and a senior management team, the companies said in a joint statement yesterday. GM and Tengzhong also plan to form a long-term contract assembly and supply agreement. Hummer is worth an estimated $500 million, GM said in bankruptcy court documents.
Selling Hummer will secure more than 3,000 U.S. jobs and help GM move toward a goal of offloading four U.S. brands to exit bankruptcy as a leaner, more profitable company. The deal may also help Tengzhong grow in China’s SUV market, which surged 25 percent last year on rising affluence.
“There are a lot of new rich in China who like niche brands such as Hummer,” said Ricon Xia, a Daiwa Institute of Research (H.K.) Ltd. analyst in Shanghai. “A lot of private companies like Tengzhong have emerged because of the economic boom and they will strike more surprising deals like this one.”
Detroit-based GM has won court approval to sell assets as soon as next month after collapsing under $172.8 billion in debt and failing to adapt to consumer demands for cars that use less fuel. GM also plans to sell Saturn and Saab and wind down the Pontiac line. Sixteen potential buyers have expressed interest in Saturn, Chief Financial Officer Ray Young said on a conference call yesterday.
Tengzhong’s Expansion
For Tengzhong, a privately owned maker of special-use vehicles, structural components for highways and bridges, and construction machinery, buying Hummer will add a brand with cachet it can use to expand in emerging markets, said Desmond Wong, chief executive officer of Chicago-based Sino Strategies Group.
“This is a good acquisition for Sichuan Tengzhong and a good sale for GM,” said Wong. “They can do the manufacturing and marketing in the U.S., but in addition to that they can produce Hummer elsewhere for markets such as China, India and the Middle East.”
The Hummer sale should be completed by the end of the third quarter. Credit Suisse Group AG is acting as financial adviser and Shearman & Sterling is serving as international legal counsel to Chengdu, China-based Tengzhong. Citigroup Inc. is acting as financial adviser to GM.
Chinese Deals
Tengzhong follows SAIC Motor Corp., China’s biggest domestic automaker, and Geely Holding Group Co. in pursuing overseas acquisitions as Chinese automakers seek technology to build more sophisticated and profitable vehicles.
Sichuan, where Tengzhong is based, is also a mountainous province full of winding roads suitable for off-road vehicles.
Still, Chinese automakers haven’t always benefited from overseas deals. SAIC bought rights for cars designed by U.K. automaker MG Rover Group Ltd. in 2005 to temper its reliance on partners GM and Volkswagen AG. Last year, GM and Volkswagen vehicles still accounted for more than 90 percent of sales. SAIC’s South Korean unit, Ssangyong Motor Co., entered receivership in February after sport-utility-vehicles sales plunged.
Geely, China’s biggest private automaker, in March agreed to buy Australian gearbox-maker Drivetrain Systems International. The carmaker is also in talks to buy Ford Motor Co.’s Volvo Car Corp. unit, according to people familiar with the situation.
U.S. Support
GM is getting more than $50 billion of loans from the U.S. government to help reorganize after filing for bankruptcy earlier this week. Bill Burton, deputy White House press secretary, reiterated in an e-mailed statement President Barack Obama’s pledge to take a “hands-off” approach to GM.
The U.S. government “is not going to get involved in the day-to-day business decisions of GM -- and this is an example in which it did not,” Burton said. “GM reached an agreement that will keep thousands of Americans working in a situation that could have ended instead with a devastating liquidation of this company.”
GM bought the license for the Hummer brand from AM General in 1999 and started selling the $140,000 H1, a 7,600-pound (3,400-kilogram) SUV patterned after the all-terrain military vehicle popularized for road use by actor Arnold Schwarzenegger, now California’s governor.
While the H1 never sold more than 875 units a year, the model won enough of a following for GM to add the 6,600-pound H2 in 2002. The 4,700-pound H3 followed in 2005. GM also started building the H3 in South Africa in 2006 for Europe, the Middle East and Africa.
Rising gasoline prices eventually eroded demand. GM halted production of the H1 in 2006 as sales dwindled.
Hummer’s U.S. deliveries peaked at 71,524 that year, according to Autodata Corp. U.S. sales of the SUVs, which start at about $31,000 for the H3, fell 51 percent in 2008 and 67 percent this year through April.
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