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HUMMER Sale Nixed By China; GM Gets New Offers?

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2010 Hummer H3T

2010 Hummer H3T

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UPDATE:  GM has just confirmed the sale to Tengzhong will not take place and that it will begin wind-down operations for the HUMMER brand. More to come -- the entire release follows at the end of this post.

UPDATE 2: The Wall Street Journal says that General Motors is evaluating two late offers for the HUMMER brand. We're in the process of checking out the WSJ piece, and we'll post our take on the possibilities shortly.

General Motors is having a win-some/lose-some kind of week: a day after the company wrapped up its drawn-out sale of Saab, GM has confirmed that its attempts to sell another brand -- HUMMER -- have been foiled by the Chinese government.

Not to toot our own horn, but we've been suspicious of GM's arrangement with Sichuan Tengzhong Heavy Industrial Machinery Co. for a while. Discussions between the two companies have dragged on for a very long time, even though the HUMMER sale was approved by GM and U.S. regulators months ago. The only hurdle left to clear has been winning the elusive approval of the Chinese government -- though curiously, China's Ministry of Commerce has consistently said that it never received an application from Sichuan Tengzhong to approve the sale. We became even more skeptical of the deal when no agreement had been reached by GM's self-imposed deadline of January 31, which GM opted to extend to the end of February. This morning, we envisioned three possible outcomes of the situation:

1) China's Ministry of Commerce could be telling the truth, in which case Sichuan Tengzhong could file the necessary paperwork and earn approval.

2) Sichuan Tengzhong could wash its hands of the whole deal and walk away from the bargaining table, in an effort to save face before China 86es the deal.

3) China's Ministry of Commerce could have quietly killed the sale some time ago, leaving Sichuan Tengzhong to give up the sale entirely or to pursue alternate means of acquiring HUMMER.

Outcomes #1 and #2 were pretty unlikely. If the lag were the result of a simple bureaucratic slip-up, Sichuan Tengzhong would've resolved the situation ages ago. And given the energy and resources that Sichuan Tengzhong has put into the deal, it's unlikely that the company would've back out without a fight.

Outcome #3 seems to have the final result. The Chinese government isn't known for its transparency, so Beijing likely nixed the deal some time ago without going public. Why would China do such a thing? Well, for starters, China is already home to an abundance of automakers -- around 100 at last count -- and with car sales projected to decline from their unsustainable highs of 2009, the government would understandably like to see the number of manufacturers shrink. Adding another automaker to the mix -- especially one with zero experience in the auto industry -- would run counter to China's goals for the sector.

Also, China has said very publicly that it is moving toward greener environmental policies. In fact, the government is urging consumers to purchase smaller vehicles, and it's offering sales tax reductions to get them to do so. Unfortunately for HUMMER, China views the company and its vehicles as environmentally unfriendly.

So, what's left for HUMMER? An orderly wind-down, as GM puts it, along the lines of those planned for Pontiac and Saturn. True, Saab was saved at the last minute -- but it was saved by a government keenly interested in preserving thousands of jobs. Only the state of Louisiana or Indiana, where some HUMMERs are built, could leverage what's left of the brand in a last-ditch effort to rescue it, and neither seems likely to do that. Even if Louisiana's small-government-minded governor were keen on the idea, the state probably lacks the capital and other resources to jump in. Indiana isn't under much pressure to save the automaker, since it already has Honda, Subaru, and Toyota plants humming within its borders.


 
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Comments (2)
  1. Just because the Chinese government is not transparent doesn't mean outcome #3 is a "distinct possibility". In fact, since they are promoting green vehicles then by publicly blocking the Hummer deal they'd be sending a strong message to car manufacturers of what the government wants; this analysis is amateurish at best.
     
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  2. @smh: I'm sorry, maybe I need more coffee, but I don't follow your logic. I wasn't saying that outcome #3 was likely BECAUSE the Chinese government lacks transparency. I was saying that of the three outcomes, #3 was the most viable one. China's oblique communications system didn't CAUSE the rejection; it simply explained why the negotiations had dragged on so long with no official word from Tengzhong or GM, who were likely trying to call in some last-minute favors to get Beijing to reconsider.
    _
    I agree that China is sending a message to automakers, but what that message is remains vague and pretty diluted. IMHO, it's not a "strong message" at all. If China aims to become a true economic powerhouse and innovator, it's going to have to do better at encouraging innovation, relaxing censorship, and being more open across the board. Otherwise, the central government will continue throwing money at growth programs until China becomes a failed, bankrupt state like its former peer, the USSR.
     
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