China May Block Hummer Deal

GM may have announced a tentative deal to sell its unprofitable Hummer brand to China’s Sichuan Tengzhong Heavy Industrial Machinery, but some sources claim the deal is likely to fail.

“A new entrant in the car industry is not something they’re looking to see,” said Chip Chaikin, a managing director of Shanghai-based Blue Point Capital Partners Asia. He says it’s “pretty unlikely” the deal will be finalized.

State-owned Shanghai Securities News also reported that the deal was unlikely to go through, without citing sources. According to the magazine, the government is encouraging companies to buy overseas parts makers – not automakers.

The Chinese government wants to see the country’s 100 or so automakers consolidate, not expand. And the Hummer brand is comprised of fuel-inefficient SUVs and trucks, vehicles that go against China’s goals of developing an industry focused on fuel-efficient vehicles, some analyst say.

Tengzhong will also need to convince Chinese government agencies that it can make Hummer a profitable company before clearance for the deal will be granted, says Zhang Xin, an analyst with Guotai Junan Securities in Beijing.

“There are many uncertainties about the deal and one of them is whether Chinese authorities will approve it,” said Zhang. “The big issue for Tengzhong is how long it will take to make a profit from the investment.”

Tengzhong, for its part, remains optimistic.

“Some people may have views and speculation but the Chinese government has a process that we respect,” said Tim Payne, a spokesman for the company. “We have only just signed an MOU but as we develop our proposals with GM and Hummer we will continue to work with the appropriate authorities.”

GM CFO Ray Young said yesterday that the American automaker predicted no problems with the sale.

“We don’t expect any problems in terms of the sale process,” he said. “In fact, we’re feverishly working to finalize agreements.”

Although the details of the agreement have not been released, it is speculated that GM will receive no more than $500 million for its Hummer brand.

Source: Bloomberg

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