Chinese Firm Acquires Hummer
By Tom
Ryan
A
Chinese heavy-equipment manager last week reached an agreement to acquire
the Hummer off-road vehicle from General Motors, marking China’s first
major entry into the U.S. car manufacturing business.
Sichuan
Tengzhong Heavy Industrial Machinery Corp. agreed to pay $150 million
for the brand. GM’s bankruptcy filing last summer
estimated that the oversized SUV-brand could bring in $500 million
or more. The investors will also get Hummer’s nationwide dealer network.
Under
the terms, GM will continue to manufacture the vehicles until no later
than 2012, when Tengzhong will take over production. Hummer’s current
management team will stay with the new company, which will be headquartered
either in Detroit or Auburn Hills, Mich.
The
U.S. and Chinese governments still must approve the deal. Chinese regulators
had expressed concerns regarding Tengzhong’s ability to bring the brand
to profitability and how Hummer ownership would fit with the country’s
national push for energy efficiency.
“One
of the big issues we have is to convince them Hummer will not stay
as is,” Jim Taylor, who will remain Hummer’s chief executive, told
the Wall
Street Journal. “That
it can be a lot greener and a lot more fuel-efficient than it is.”
Sales
of the Hummer, which epitomized America’s gas-guzzling habit, peaked
at 71,524 in 2006 before gas prices started rising. Only 8,193 Hummers
have been sold in the U.S. through the first nine months of the year,
down 64 percent from a year earlier.
In
an interview with The Associated
Press,
Mr. Taylor said the key to any turnaround will be quickly rolling out
more fuel-efficient models that get over 20 miles per gallon. Hummer’s
smallest model now gets 16 mpg.
Hummer,
he said, has been in a state “suspended animation” since GM announced
in June 2008 that it would be sold or closed. Funds for marketing,
new products and lease financing all dried up, he said. Nonetheless,
Mr. Taylor said 1,000 Hummers were sold in some months, proving that
fans are out there.
“There’s
still a loyal customer base underneath there that loves Hummer,” he
said.
Discussion
Questions: What do you think of a Chinese firm buying Hummer?
What’s the likelihood that Chinese firms will be increasingly buying
more U.S. brands? What do you think of the chances
for Hummer’s turnaround?
I think as long as we’re not using Hummers for military purposes, and as long as we’re selling off parts of the industry, it might as well go to China. The future is in more efficient vehicles anyway.
BUT if we’re still using Hummers to carry our troops around, I have a real problem with it. On some level, the notion is completely insane–outsource your weapons and other survival tools to another country that has the potential to become an enemy. I don’t think we’re allowed to do that with uniforms (I seem to remember a uniform manufacturer telling me that)…why would we do it with vehicles?
It’s not surprising that the Chinese stepped up as a buyer of last resort for Hummer. There is still economic growth there and plenty of capital. Given the size and growth in the Chinese economy, and some of the corresponding challenges here (that are not abating as soon as we would all like them to), there’s no reason that this won’t continue, other than possible government intervention.
Chinese ownership of Hummer is rolling heavy with irony. However, this is a global economy, and if the brand maintains its quality, image, and points of differentiation, it has a chance to survive and thrive.
With the U.S. Treasury’s pattern of a “weak U.S. dollar,” and China owning massive amounts of our debt (Treasury bills in excess of $800 billion), China will be looking to spend some of that devalued money on U.S. Brands, as well as commodities around the world.
The Hummer Brand is not likely to have a strong resurgence in the U.S. given its narrow consumer audience.
Hopefully, the U.S. Government and General Motors (guess they are one and the same), will closely monitor any military technology that can be gleaned from this acquisition. With GM manufacturing only through 2012, we need to know what technology goes back to China–the technology is where the value exists, not the brand.
Paula brings up an interesting issue and one worthy of some debate. But in the end, China (which I don’t completely trust either) has too much invested in the U.S. dollar and the republic for which it stands. Having said that, I would be careful to put in some additional oversight on Hummers for military use to make sure they are up to spec.
Frankly, American makers of munitions aren’t doing the greatest job either, considering reports that the M-4, one of the primary weapons of the ground war, keeps jamming on our soldiers.
I guess I have no problem with buying Hummers from the Chinese. Just don’t buy toothpaste or drywall from them.
I agree with Paula. I have no problem with the acquisition as long as our Military does not continue to source its all-purpose vehicles from Hummer. Some foreign militaries are already using the JK Jeeps.
Both sabotage and tracking devices come to mind when considering the sourcing of military Hummers from China. Am I being paranoid? No…just cautious. Plus, we need to support American business to keep our economy alive. Considering how much the US government has invested to bail out the auto industry of late, there really is no choice!
I think they bought a lemon. The Hummer brand is a relic of the past when gas guzzlers roamed the streets of America. The vehicles were never practical. Since its introduction, Americans have moved in a different direction, and they will not return to their old habits.
Chinese manufacturers will continue to look at brand and channel acquisition as a natural growth and transition from simple “shop floor” assembly over time. The fact that the economy is weak and so are many targets will only accelerate this. When one sees that very large companies like Hon Hai (Foxconn) operate at under a 10% gross margin, it is easy to understand the desire to diversify and move up the margin scale.
Acquiring international companies and brands is a logical way to not only fill the shop floor with more profitable work, but also to build in more sustainability. This is a familiar cycle and we will see it again, given enough time. We saw some of this once with Japan, and we have seen it with Europe.
The part of this story that I seized upon is the idea of a greener Hummer for consumer use. The obvious irony here is the tenuous possibility of consumers touting their environmental cred while driving a vehicle that weighs 8,600 pounds. It should be interesting to see how the new Chinese Hummer attracts the Whole Foods crowd.
As to quell the worries, military versions are not included and are held by AM General. Sold at a mere 18 percent of its original predicted value, GM (The US Government) had little choice at this point to take pennies on the dollar and run.
The decision to sell is not really a decision, it’s a mandate–sell or close–just as with Pontiac. Sadly, Pontiac was likely a nameplate (brand) worth more than Hummer. Nevertheless, the entire GM brand will likely not see the completion of the next decade.
While there seems to be concern whether our defense would be impacted if the Hummer brand is sold, there should be far more concern regarding the dwindling of our manufacturing base altogether. Should GM not see 2020–and I don’t believe they will–there should be grave concern over our defense.
Far more technology has been given to the Chinese than our Hummer vehicle. The intense growth of the military in China should be of grave concern based on our debt, yet seems unnoticed; as long as we are able to maintain consumption at low prices it seems okay.
China and others will continue to erode US brands as long as we have an insatiable desire to consume at any cost.
Let ’em have it. The Hummer vehicles for the consuming public are a cultural embarrassment, and GM should feel fortunate to salvage a few million for the brand.
In my view, nothing communicates your congenital bad taste like a four-ton urban assault vehicle.
Now, for the record: Hummer and Humvee are not the same thing.
Humvee military vehicles are still manufactured by AM General Corp., South Bend, IN.
“Although GM acquired the HUMMER brand, they do not own any part of AM General.” (This is a direct quote from the AMG Web site.)
The Chinese acquired the GM Hummer brand, and that has nothing to do with the military vehicles.
This is a great deal for both parties. This is a failing brand that needs new direction–sell it! GM has other worries and this brand offers no value in regards to the rest of its lineup. There is nothing wrong with allowing China to purchase this company any more than a VC group or another company. This is a consumer truck. If the other owners can allow it to succeed by other means than GM, then that is good for the brand. New models, different markets, and better efficiencies (i.e. lower prices) can all help breathe more life into this brand.
I don’t understand Hummers (or why people purchase them) and why China would now want to own them. None of it works for me. Are they going to make a mini-Hummer?
Isn’t it odd that the Chinese are buying our Hummer manufacturing when the planet is going green? I guess they’re not as smart as we thought…NOT! This is a big coup for the Chinese and lousy news for us. Nobody wants the green cars that our government-owned automakers are pushing and the Chinese know it. How smart we are to take the moral high ground and only produce planet-friendly cars, even if nobody wants them! And to Paula’s point a more ominous question; will they be making our military vehicles as well?