This can't be good. :|
DETROIT (Dow Jones)--General Motors Co. on Friday finalized an agreement to sell its Hummer truck brand to a Chinese manufacturer, which would mark China's first major entry into the U.S. auto market.
Sichuan Tengzhong Heavy Industrial Machinery Co. bought Hummer in a $150 million deal, according to several people familiar with the deal. Under the terms, GM will continue to manufacture the vehicles until no later than 2012, when Tengzhong will take over production.
But before the deal is complete, Chinese regulators must be convinced the brand can become profitable and that the massive SUVs fit a national strategy to improve energy efficiency.
"One of the big issues we have is to convince them Hummer will not stay as is," said Jim Taylor, who will stay on at Hummer chief executive. "That it can be a lot greener and a lot more fuel-efficient than it is."
Taylor hopes to close the deal in the next 30 days.
Chinese companies have continued to invest in U.S. manufacturing through the global recession, in part to "recycle" the country's huge foreign exchange surplus, said John Rogers, president of the Chicago-based Midwest US-China Association, a not-for-profit interest group.
Rogers said that while Hummer would be the first high-profile U.S. brand to be acquired by a Chinese company, he still has doubts about whether the buyers can overcome Chinese government reservations.
"There is nothing about a Hummer that is green or energy efficient, and the Chinese government is very sensitive to that," he said, noting that China has fallen behind on a pledge to boost energy efficiency by 4% a year over five years.
In Hummer, Tengzhong says it hopes to create a stable of trucks that are more fuel-efficient and environmentally friendly than the current lineup, which had become synonymous with America's addiction to gas-guzzling SUVs. The company is working to develop a diesel-powered Hummer to go on sale outside North America.
Financial terms of the deal weren't disclosed. Tengzhong will acquire the Hummer brand, trademark and intellectual property rights needed to make the vehicles. Hummer brand dealers will continue to operate under the same contracts they had in place with GM. GM provided no financing, Taylor said.
A finalized deal would have important overtones in the wake of the global economic crisis, which sent some auto makers such as GM teetering further.
India's Tata Motors Ltd. (TTM, 500570.BY)) last year bought Ford Motor Co.'s (F) premium Jaguar and Land Rover brands. China's Geely Automotive (0175.HK) is interested in buying Ford's remaining international brand Volvo Cars.
A flurry of such potential deals highlights Chinese companies' global ambitions, but a question remains as to whether Chinese companies such as Tengzhong would be able to revitalize troubled auto brands, especially given their executives' limited experience running global operations.
Hummer's turnaround will likely prove a challenge, especially in the U.S., where the market for SUVs has fallen dramatically in recent years. Hummer sales are down 64% from a year ago. GM sold just 426 Hummers in September nationwide.
Taylor acknowledged the difficulty Hummer faces in reviving sales. "We've done about everything we could to throw every curve at this brand," he said.
GM halted Hummer production, leaving dealers with little inventory. The advertising budget was frozen, and uncertainty over the brand's future further damped demand, he said.
Jim Lynch, owner of Lynch Hummer in St. Louis, Mo., said the sale at least provides clarity to customers.
"There were people who were considering purchasing a Hummer but waiting because they didn't know if the brand would be around or not," Lynch said. "I don't know if it matters where the headquarters is based so long as (Tengzhong) has someone in charge of the day-to-day operations that understands the strengths and weakness of the brand."
Tengzhong is buying 80% of Hummer, with local tycoon Li Yan buying the rest through Lumena Resources Corp. (0067.HK). The 46-year-old is chairman of the Sichuan-based company, which he founded and successfully listed on the Hong Kong Stock Exchange in June. Lumena is one of the world's biggest producers of sodium sulphate, a key raw material used in detergents, glass and pharmaceutical products.
Finalizing the sale for Hummer comes little more than a week after its planned sale of the Saturn brand to Penske Automotive Group Inc. (PAG) fell through. GM is also trying to sell the Saab brand as part of its restructuring, while the Pontiac line will be phased out the next year.
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532; firstname.lastname@example.org.