Questions for Tengzhong's Hummer business

[hugo.j.diego]

By GoChinaAuto

Last morning a new progress worked out by both Tengzhong and GM. The two companies jointly published the confirmation of transaction agreement of Hummer from GM to Tengzhong. According to the agreement Tengzhong will acquire Hummer’s brand, trademark and intellectual property rights. The agreement also enables Tengzhong to use current Hummer's distribution network. An investment company will be setup for the acquisition business and eventually Tengzhong will has 80% of all Hummer business. The rest of the share will belong to Mr. Suolang Duoji.

The results looks perfect at least the arrangement for all parties. But there are still some uncertainties.

1. How about the final approval from Chinese government?
All though the agreement has been signed both the seller and the buyer said that the business has to be officially approved by Chinese and US authorities. This is no different by the published information four months before. According to the published terms of the agreement we can learn that the difficulties from government reduced. Firstly the assets bought from GM are intellectual property rights and brand, this is what the government encouraged. Secondly the agreement does not mention to transplant Hummer to China to produce, this can avoid the name to produce high fuel consumption vehicles. The third is the low price. From the original 500 million USD to 150 million USD, Tengzhong looks not so stupid by domestic comments.
GoChinaAuto.com thinks that the possibility for China eventually denying the deal is tiny but before the final approval many alternative risks may rise up.

2. Can Hummer localized eventually?
From the agreement GM will continue produce Hummer before 2012 and provide relevant services to Hummer customers. This enables Hummer to keep jobs in US for several years. Besides, the administration will be kept and Hummer is still an American company for a long time. But how long it can last? Tengzhong and the banks behind it don't want to keep the high cost of Hummer and the long term strategy needs Hummer vehicles sell to market with a much lower cost.
In China Sichuan local government attitude is always positive for localize Hummer there. And from the acquisition cases before, the buyers always tends to localize the cars in China after controlled the new company well.
GoChinaAuto.com comments: It's not a easy job to transfer the production lines from US to China not only because of the long distance between the two counties but the tech transplantation can not be done within several years by Tengzhong which only produced one unit sedan in its history. Think of this maybe in the future a third party will join to help Tengzhong to localize but who knows.

3. Can Hummer becomes green?
Current products lineup is not what Tengzhong and Chinese government want. It will be a very bad sample if China allows the Gas Guzzler to localize in China.
Both sides mentioned to produce fuel efficiency product is the direction of new Hummer and after transaction Hummer will be the first carmaker who can provide new energy power to all products. The vision looks very beautiful but when it comes true we have to put here a big question mark.