Hummer to China. Why In The World?
The—mind you, tentative—agreement of Government Motors to sell Hummer to China’s Sichuan Tengzhong Heavy Industrial Machinery has people worried. No, it’s not the Americans who are scared of military secrets escaping to China. “The deal has observers in China worried,” writes Forbes. And worried they should be. The deal as it is makes little sense for a Chinese manufacturer. Especially for a manufacturer that has never built passenger cars. Tengzhong makes heavy industry vehicles, highway and bridge components, construction machinery and energy equipment.
What worries the Chinese is exactly what made GM so happy: According to the Memorandum of Understanding, Tengzhong will keep Hummer’s core management and operations team and existing dealership network. Reuters reports GM saying that “the buyer of Hummer would contract to build the H3 model SUV and the H3T pickup truck at GM’s plant in Shreveport, Louisiana — through at least 2010.” Why, oh my?
Contract manufacture in Louisiana makes some sense. The contract won’t be signed and sealed before the third quarter of 2009, or later. It will take a while before a maker of bridge pontoons gears up for production in China. But why keep the dealers in the USA if they could be easily thrown to the wolves by the name of C11?
“It will be difficult for Chinese to develop this well,” Forbes quotes Liu Sheng Wang, Shenzhen-based analyst for China Merchant Securities. Bigger Chinese companies have failed abroad. “There have been no successful cases in the past” of such acquisitions says Liu. SAIC’s adventure with South Korea SUV maker Ssangyong Motor ended in a costly “defeat,” he said. Ssangyong filed for bankruptcy in February.
Li Chunbo, Beijing-based analyst for CITIC Securities, is likewise scratching his head: “If the cars are built in the US and sold to China, that will be good for American employees, but the Hummer won’t successfully enter the Chinese market.” Hummers ain’t cheap, and China levies a 40 percent tax on big bore imports.
And selling a Hummer owned by the Chinese to the few remaining hardcore Hummer adherents? “As a Chinese company, Tengzhong could face a challenge in presenting the deal to American Hummer owners,” muses the New York Times. “The brand has long sought to emphasize patriotism, stressing that the Hummer H1 was essentially the same vehicle built in the same factory as the Humvee that carries American soldiers into battle in Iraq and elsewhere.”
The always highly patriotic UAW doesn’t share the NYT‘s qualms: “We’re just excited that Hummer may live on,” said Morgan Johnson, president of UAW Local 2166, which represents workers at the GM plant.
A cheaper, non-imported, Hummer could work in China. The “Chinese are not as environmentally conscious as American consumers, so Hummer does not face the same consumer backlash,” said Shaun Rein, head of China Market Research Group. A cheaper, Hummer-badged SUV could also be an export hit to other world markets that don’t apply the same stigma.
There is not much know-how changing hands. The Chinese are perfectly capable of building Hummer-inspired trucks themselves. The only thing of value would be the Hummer brand and the fact that the trucks have received regulatory approval in world markets.
GM said Tengzhong will also enter into a long-term contract assembly and key component and material supply agreement with GM. Sounds great to the casual observer. Parse the sentence carefully. According to Forbes, Tengzhong “will also clinch a long-term agreement to become a GM supplier.” Could it be that Tengzhong took Hummer off Government Motors’ hands in return for a nice parts—and possibly contract manufacture—deal?
But then why keep the Hummer dealers in the US around? Did anybody explain the US dealer franchise laws to Tengzhong? Here’s guessing that someone will before the contracts are signed.
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