Why the Hummer deal should be approved

Admittedly I have always been quite critical when it comes to plans of Chinese auto manufacturers to acquire an international brand. In all the discussions around such a deal there is too little visibility about how the foreign brand should be integrated into the overall company strategy, and this is why the capabilities of a Chinese buyer to determine the fate of a famous brand is quickly questioned.

Basically the same applies for the Hummer deal. Most observers deny Tengzhong automotive competence, and there is only little belief that the company from Sichuan would be able to turn the Hummer brand into a success.

But here is why the time is right that this brand acquisition is supposed to be a win-win situation for all stakeholders – companies, governments, and the consumers.

If approved, GM is able to get back a little return on their investment in this brand. It will help them to pursue their restructuring efforts, and contribute to ease the way back into a prosperous enterprise. Tengzhong, on the other hand, receives the entrance ticket into the passenger vehicle segment, and is able to develop new business from there. Thinking of BYD’s entrance into the auto industry just a few years ago to become the most successful Chinese car maker, I cannot see why the chance to create such a success-story should be denied to Tengzhong – despite all consolidation efforts in the industry. In any case, all the entrepreneurial risk lies with the private investor, and if he is not able to turn the brand around, an ultimate market exit is programmed.

There is no doubt about an approval by the US government, as the deal fulfills part of GM’s obligations in the restructuring process. For the next 2 or 3 years, even several thousand jobs are secured in the United States. On the other hand, we hear a lot about probable reasons, why the Chinese government is likely to disapprove, mainly referring to Hummer’s gas guzzling vehicles. High fuel consumption is not really the core idea of the Hummer brand, though, and therefore, can be appropriately addressed without losing its brand personality. The Hummer brand idea was developed on the basis of adventure, excitement and freedom, after American Hum-Vees enjoyed extensive TV coverage in the first Iraq war in the early 1990s. Later, an effective promotion by action film star Arnold Schwarzenegger contributed to its icon status. At that time, nobody cared about fuel consumption, and the “thirst” of these vehicles just came with their large engine displacement. Making this the key characteristic of the Hummer brand misses the point. But how about this: imagine, Chinese Tengzhong arrives at developing Hummer’s brand personality by successfully implementing fuel-efficiency and even alternative powertrain technology - China would have achieved where the US have failed. A nice market economic victory!

This brings us back to the real challenge for Tengzhong, not only to finance the acquisition and take over Hummer’s operations, but to develop a sustainable vision and turn it into a tangible market offer. The potential and fast market development speaks for China. We observe a growing group of consumers who embrace more extroverted behaviours and choose brands and products in search of self-gratification and self expression. They certainly also care for the environment, and the Hummer brand – why not – can be the market offer that responds best to their needs.

Even if SUV-type of vehicles, and in particular a Hummer, will remain niche products, they complement the range of market offers in a modern economy which is why the Hummer brand deserves to live on! Despite all the challenges, it is worth giving Tengzhong the chance to show that they are capable to produce appealing products. This is why the Hummer deal should be approved.

About the authour: Klaus Paur, Gasgoo's columnist, is Regional Director Automotive for North Asia at TNS China who has over 20 years of experience in marketing and market research, 13 of which have been spent specialising in the automotive industry.

Chinese version