Analysts: Hummer deal fated to fail

16:49, March 01, 2010      

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Since obscure Chinese heavy machinery maker Tengzhong first announced that it would buy Hummer from General Motors (GM) last year, widespread doubts about the acquisition continued to circulate.

Skeptics can now take a breather and be pleased with their foresight. The deal is finally dead after nine months of twists and turns.

GM said in a statement last week that it will begin the orderly wind-down of the money-losing Hummer operation as Sichuan Tengzhong Heavy Industrial Machines Co Ltd was unable to complete acquisition of the sports utility vehicle brand.

Tengzhong announced that it has withdrawn the bid and terminated an agreement it signed with GM in October last year after failing to win approval from Chinese regulators within the mandated timetable.

"It (the outcome) is quite normal," said Zhang Xin, an automotive analyst with Guotai Jun'an Securities. "The whole thing should not have happened."

Zhang noted that the wrong buyer coupled with the wrong objective led to this "inevitable" failure.

"If the buyer was, for example, Geely or SAIC, the result likely could be different," said Zhang, adding that access to the auto industry in China is strictly regulated and Tengzhong - a heavy machinery maker - has no qualification to produce cars.

Unlike the flawed Hummer deal, domestic carmaker Geely's bid to buy Volvo from Ford has strong support from the government.

Any plan to make the gas-guzzling Hummer in China ran counter to government policies for energy-efficient, low-emission vehicles, said Marvin Zhu, a senior market analyst at JD Power Consulting (Shanghai) Co Ltd.

"If the deal was approved, it would have had an adverse public impact," he said.

Shortly after GM agreed to sell Hummer to Tengzhong, Finbarr O'Neill, president of JD Power and Associates, voiced his concern whether a market for vehicles like the Hummer really exists in China.

"Hummer is really a niche product," he said.

At the end of last year, Beijing Automotive Industry Holding Corp (BAIC), China's No 5 motor group, paid $200 million to purchase some of Saab's assets from GM, including production lines for the Saab 9-3 and 9-5 models and Saab's powertrain technology.

BAIC's plan to use the Saab assets to develop its own brand has garnered wide praise from industry analysts.

The prerequisite for Chinese carmakers to have successful acquisitions is to figure out what they indeed need, said Yale Zhang, director of Greater China Vehicle Forecasts for CSM Worldwide Corp, a US auto industry consultancy.

There were also comments that the whole deal was a publicity ploy by Tongzheng.

Just a few days before Tengzhong's announcement that it withdrew its bid, media reports cited anonymous insiders saying the company was considering use of offshore investment to buy Hummer if it did not get the green light from Chinese regulators.

"To produce Hummer outside China is a viable plan but I don't know why they (Tengzhong) gave up," said Zhang.

He added the certainty is that Tengzhong's attempt to buy Hummer was not in line with the government's intention for green vehicles as well as further consolidation in China's auto industry.

Source: China Daily
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