Fri, June 19, 2009
Business > Industries > Chinese firms' global move

Hummer set to go clean and green after sale

2009-06-18 23:55:39 GMT2009-06-19 07:55:39 (Beijing Time)  China Daily

Hummer already has expertise and experience - all it needs is cash.

That was the message from CEO Jim Taylor this week as he mapped out a bright, green future under Chinese ownership.

Negotiations are under way between General Motors (GM) and Sichuan Tengzhong Heavy Industrial Machinery over the proposed purchase of the luxury car brand.

Taylor expects the deal to be done by the end of the third quarter and, although he refused to discuss the amount of money involved, he told China Daily that cash-strapped GM Corp had set financial clout as the main criteria for bidders.

"All I need is cash," he said. "We were looking for companies with the resources to fund our future development and keep the brand and dealers alive. I'll bring all (the experience and expertise) to the table."

If sold to Tengzhong, the brand will belong to a foreign company with no background in car manufacturing. But Taylor said the Chinese firm was happy to simply pay the bills and leave the vehicle-end of operations to Hummer's existing management, engineering, marketing and advertising teams.

The deal is a perfect fit, he said: Tengzhong will get an auto business and GM will get the brand off its books.

Whether the product is what China needs is subject to heated debate, with many analysts predicting Hummer will never return to the glory days of the early 2000s.

Hummers are high-end, rugged sport utility vehicles that have become symbols of opulence among the rich and famous. GM's decision to sell the brand came after a sharp fall in car sales during the recession. During the first quarter of this year, worldwide sales of GM vehicles dropped 28 percent to 1.6 million, the firm said, with Hummer sales plunging 62 percent to just 5,013.

The auto giant bought the Hummer brand in 1999, when the dot-com economy was still booming and gas prices were under $2 a gallon. Fans at the time included movie star-turned-Governor of California Arnold Schwarzenegger, who was reported to have once owned as many as seven.

Soon after, GM began offering scaled-down models to boost its customer base, with these snapped up by celebrities such as socialite Paris Hilton, basketball star Shaquille O'Neal, Playboy magazine founder Hugh Hefner, England soccer star David Beckham and former world heavyweight boxing champion Mike Tyson.

A spike in fuel prices and increasing fears over the environmental impact of GM's other SUV models have since dented the brand, while the stringent new fuel economy standards US carmakers will have to meet in the coming years is also expected to pose a challenge.

Meanwhile, many countries have mandated their own fuel economy standards. But Taylor said more environmental awareness in the automotive industry was a positive thing and vowed Hummer would be reborn with new eco-friendly, smaller and fuel-efficient models rolling off the production line.

"The Hummer of tomorrow is not as the same as the Hummer of today," he said. "It has to be more fuel efficient, it is a must, and with an (new) investor we are going to change the image of Hummer."

That will not be an easy task, with Hummers widely regarded as gas-guzzling, road-hogging, oversized machines rich people buy to flaunt their wealth.

For the time being, production of the H2 and H3 models has been halted, while the more compact H3 will be made alongside the Chevy Colorado and other pickup vehicles at the GM plant in Shreveport, Louisiana, until the end of 2010. At that time, Hummer can stay, leave or buy the plant.

In his first public statement, Yang Yi, CEO of Sichuan Tengzhong Heavy Industrial Machinery, said his firm "will invest in the Hummer brand and its research and development capabilities, which will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the US".

Tengzhong has repeatedly insisted it has the financial resources to strike a deal and Yang said: "The public should not judge a private company's financial capability from its registered capital. We have the resources for the Hummer deal from our own capital and also funding from some financial institutions."

That position may be further boosted as Suolang Duoji, who it was said could put his own money towards the Hummer deal, saw his wealth increase by HK$315 million ($40.6 million) after chemicals manufacturer Lumena Resources, of which he is chairman, launched its IPO in Hong Kong on Tuesday.

The new owners may also find a niche market in another part of the world, such as the Middle East, or devise a way to retool the brand to be more affordable and fuel efficient.

Any such efforts would be costly, however, while a more eco-friendly Hummer would be a tough nut to crack, especially since the brand's fans will likely expect future models to uphold its rough-and-tumble nature.

While GM's desire to offload Hummer is obvious, Tengzhong's interest in buying it remains a mystery.

Analysts say the purchase will help the four-year-old company boost its image in China and abroad, but earlier acquisitions of foreign automakers by Chinese firms have so far not ended well.

In 2004, Shanghai Automotive Industry Corp paid $500 million for a 49-percent stake in South Korea's Ssangyong Motors. The latter went bankrupt in January.

Even though GM has no authorized Hummer dealership in China, 700 to 800 vehicles have been sold in the country, said Taylor, who is confident of a bigger consumer base for Hummer when Tengzhong takes on the brand.

If Tengzhong moves the Hummer lines to China, it will find it difficult to get the vehicles onto United States soil, though. When GM announced plans to sell 17,300 China-made cars in the US in 2011 and 51,500 units by the year 2014, it received a backlash from the US Congress and United Auto Workers union.

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