Why GM opts Tengzhong as Hummer buyer

Shanghai, July 1 (Gasgoo.com) General Motors is eager to sell off its Hummer brand to a private Chinese company -- Sichuan Tengzhong Heavy Industrial Machinery Co. Why has GM chosen Tengzhong as its Hummer buyer?

Based in the Chinese province of Sichuan, Tengzhong makes special-use vehicles, highway and bridge structural components, construction machinery and energy equipment. It is not a professional automotive company. Money may be the key factor for GM selling its Hummer brand to a non-auto manufacturer.

As GM has declared bankruptcy, this is supposed to lower its Hummer brand's value in the eyes of professional automakers. But GM will not sell its Hummer as a cheap brand. Meanwhile Tengzhong, a little-know private Chinese company, expects a global brand name to boost its corporate publicity.
 
"All I need is cash," Hummer CEO Jim Taylor told China Daily last week. Money is the first precondition the cash-strapped GM has set for bidders of Hummer. "We were looking for those companies that have the financial resources to fund our future development, and keep the brand and dealers stay and survive," Taylor said.

This means Tengzhong does not need to have any auto-making expertise and staff. "I'll bring all that to the table," Taylor noted. The Chinese company's lack of experience in either global trade or passenger car manufacturing is also not important, he said.

Tengzhong is hoping to complete the takeover, valued at around $500 million, by the third quarter this year after winning the approval of Chinese regulators, who have urged the machinery company to finalize its Hummer plan first with GM before applying for the regulatory approval.

What can Tengzhong finally gain from Hummer? According to Tengzhong, it will own the right to use this brand and acquire Hummer's top management and operations team. Besides, Tengzhong will take over all current contracts with dealers in the Hummer's sales network.

On the other hand, as part of the deal, Tengzhong will be able to discuss and negotiate with GM long-term contracts in terms of assembly, components and materials supplies.

However, "using" the Hummer brand is not the same as "owning" this brand, let alone gaining the Hummer's production technology, but the auto industry involves a long production chain, from manufacturing parts to assembly to sales.

Having the right to use the brand name Hummer does not mean you have bought the Hummer. It appears that Tengzhong is playing with words, said Ma Guangyuan, a senior lawyer in Beijing, adding that if the price was $500 million, Tengzhong is just squandering money.

In April, the global market evaluated the Hummer brand at less than $200 million. So logically, only a very high bid price would justify GM's decision to cooperate with an unknown Chinese enterprise, Ma said.