Hummer's buyer has no plan for China plant

Sichuan Tengzhong Heavy Industrial Machinery Co Ltd (Tengzhong), a private Chinese firm who has struck a preliminary deal with General Motors Corp (GM) for the premium SUV brand Hummer, said Wednesday it has no plan to manufacture Hummer in a Chinese plant.

"Rather than setting up a plant in China, Tengzhong will use the current facilities including their employees in the United States," said Zhao Xiaolu, spokesman for the ongoing transaction for Tengzhong, a leading manufacturer of road, construction and energy industry equipment based in southwestern China's Sichuan province.

Zhao works for the Brunswick Group, which is handling the public relations matters for the Tengzhong deal. Tengzhong's managers were not available for comment on the transaction, which was disclosed Tuesday, a day after GM filed Chapter 11 bankruptcy.

According to an overall restructuring plan, the US-based automaker GM will shed off its none-core assets including Hummer, Saturn, Saab and Pontiac.

The preliminary deal allows Tengzhong to keep the management and operational team along with the Hummer brand, and secure more than 3,000 jobs in the United States. The Chinese buyer will also assume existing dealer agreements relating to Hummer's dealership network.

Tengzhong CEO Yang Yi said in a statement Tuesday that the company will "allow Hummer to innovate under the leadership and continuity of its current management team".

James Taylor, Hummer chief executive officer, went to Chengdu and Deyang, Tengzhong's current base and new base under construction, to discuss project cooperation with local officials in March.

"This transaction, if successful, will allow us to embark on a more aggressive global expansion, ensuring a successful future with our new partners," said Taylor in a statement Tuesday.

According to Zhao, Tengzhong will use internal fund and bank loans to make the transaction, which will be a "strategic move for the company to expand into the premium off-road vehicle segment". Formed in 2005 through a series of mergers, Tengzhong currently has more than 4,800 employees.

"It is probably more attractive for Chinese enterprise like Tengzhong to learn from the foreign brand's past successful experience in research, design, marketing and service," said Guo Guoqing, a professor with the School of Business, Renmin University of China.

Xu Zhaohui, head of the Sichuan's department of commerce, said the officials will "strive to serve the transaction", which is expected to close in the third quarter of this year and is subjected to customary closing conditions and regulatory approvals.

In recent years, there have been several headline purchases of foreign auto brands by Chinese enterprises.

In 2004, Shanghai Automotive Industry Corporation Group (SAIC) purchased 48.9 percent equity of Ssangyong Motor, the fourth largest automaker in the Republic of Korea (ROK). In 2005, Nanjing Automotive bought collapsed British brand MG. And this March, China's largest independent carmaker Geely Automobile acquired Drivetrain Systems International, the world's second largest auto transmission supplier.

"Acquisition of overseas brands by Chinese enterprises could help these brands go over operational dead end, and expand in the vast Chinese market," said Guo.

All the world's main auto markets are in decline except for China. In the first quarter, almost 2.68 million vehicles were sold in China, which marked a 3.88 percent increase year on year.

However, not all foreign auto brands revived under Chinese management. In February, a Seoul court granted Ssangyong Motor bankruptcy protection. SAIC was deprived of management control despite its 51 percent ownership.

"Declining asset prices amid the financial crisis do not always mean a good bargain for the buyer," said Zhang Zhiyong, the chief adviser on auto market with Mingyuan Consultancy in Beijing, "a Chinese automaker should choose a foreign brand with conforming strategy and similar culture for possible acquisition."

The fuel-hungry brawny Hummer also pose new challenges for Tengzhong to control cost and boost competitiveness after takeover. Statistics from local vehicle management section showed that Hummer vehicles are only owned by about 10 people in Sichuan's capital Chengdu currently.

"We will be investing in the Hummer brand and its research and development capabilities," said Yang Yi in a Tuesday statement, " which will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles."

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