June 03,2009

Tengzhong Buys American Car Icon Hummer

By CT Johnson

On the same day that General Motors, once America's largest car-maker, filed for bankruptcy, Sichuan Tengzhong Heavy Industrial Machinery Co., Ltd (Tengzhong) became the first Chinese company to enter the US car market with its purchase of HUMMER from GM.  While a number of Chinese firms have purchased US auto parts manufacturers, Tenzhong is the first to acquire a maker of vehicles. 

The sale, part of GM’s effort to shed four underperforming brands (HUMMER, Pontiac, Saab and Saturn), is a disappointment to the company, which had expected to realize up to $500 million for the luxury off-road brand when it was originally put up for sale in June 2008.  Although the details of today’s sale have not been confirmed by either party, industry insiders-speculate that the price is closer to $100 million.

HUMMER has struggled over the past few years, with sales declining more than 50% from 2008 levels.  The brand, synonymous with financial excess and poor gas mileage, has lost favor with consumers since sales peaked in the early 2000s.  The HUMMER H1, H2 and H3 trucks, styled on the Humvee military vehicle produced by A.M. General for the US armed forces, rose to popularity thanks to high-profile sponsorship by celebrities like Arnold Schwarzeneger.

Despite its connection to military vehicle maker A.M. General, which supplies Humvees to the US armed forces, it does not appear likely that the sale will face opposition from the Committee for Foreign Investment in the US, which has jurisdiction over the sale of strategic US assets to foreign investors.

Tengzhong’s acquisition of HUMMER comes as a surprise to most industry observers.  The privately held Company, based in Chengdu, Sichuan, does produce special-use vehicles for use in heavy construction, but it has no experience in making or selling passenger vehicles.  It is better known for producing structural components for bridges, highways and energy facilities.  In a joint statement by GM and Tengzhong, Tengzhong indicated that it would use HUMMER as a platform to enter the luxury off-road vehicle segment.  The Company also said that it would leverage the company’s R&D resources and investigate new product lines.  "The HUMMER brand is synonymous with adventure, freedom and exhilaration, and we plan to continue that heritage by investing in the business, allowing HUMMER to innovate and grow in exciting new ways under the leadership and continuity of its current management team," said Yang Yi, CEO of Tengzhong. Mr. Yang continued, "We will be investing 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 U.S."

It is also noteworthy that Tengzhong was established in 2005 and since then it has kept acquiring state-owned enterprises of heavy machine & equipment, at a pace of one year a deal. Now it is swallowing such a big animal. 

Tengzhong also indicated that it will keep HUMMER’s senior management in place and keep open its production facility in Shreveport, Louisiana.  The production line, which employs about 800 workers, is currently running on a single shift.  GM was quick to emphasize the preservation of US jobs, including an additional 2,200 jobs in support industries like HUMMER’s 153 US dealerships.

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