Fate of Hummer Brand May Rest Upon Tengzhong Creating Offshore Subsidiary

General Motors may have just closed the deal to offload Saab, but its work to sell the Hummer division to the Sichuan Tengzhong Heavy Industrial Machinery Co. could be in trouble.

Although the deadline for the sale was extended last month, GM representatives said at the time they saw "enough progress" in seeking Chinese regulatory approval of the transaction. Today, The New York Times reports that same hurdle is what may nix the deal altogether. Citing Chinese media sources, the NYT says Tengzhong failed to win approval from the government for a host of reasons.

Still, there may be some hope. Tengzhong, which has the $200 million needed to buy Hummer, is reportedly investigating the possibility of creating an offshore subsidiary that could purchase the brand. This loophole could carry side effects of its own. The shell company would be viewed as a foreign automaker by the Chinese government, and Hummer production within China would have to be arranged as a 50-50 joint venture with a "native" company (likely not Tengzhong). Also, in order to appease the government, Chinese banks -- which previously promised to invest in the new venture -- may be reluctant to extend Tengzhong loans.

The Times says both sides are still discussing the matter, but if a deal can't be reached, GM has promised to instigate an orderly wind-down of the Hummer brand, just as it did to Saturn and Pontiac last year.

Source: New York Times

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