Tuesday, September 1, 2009

Sale of Hummer to Chinese company still pending

by M. Ulric Killion

In early June of 2009, General Motors Corp. (GM) announced the confirmation and details of its proposed transaction, or perhaps more accurately, the memorandum of understanding (MOU) for the sale of the off-road Hummer brand, along with a senior management and operational team (Shenzhen Evening News, 悍马被卖了,买家是中国民营企业, 2009年06月03日, Hummer sold to a Chinese company). GM announced that the buyer will be a privately owned Mainland China company, which is Sichuan Tengzhong Heavy Industrial Machinery Co., Ltd (Tengzhong, 腾中重工) (Shenzhen Wan Biao, June 3, 2009). (Photo/GM Hummer.com). 

Under the terms of the proposed agreement or MOU, Tengzhong will assume existing dealer agreements that relate to Hummer’s dealership network. Tengzhon will also execute a long term contract assembly and key component and material supply agreement with GM. In addition, GM, though the final details of the agreement are still pending, also earlier announced that it anticipates that the agreement will help to secure more than 3,000 US job. 

As for Sichuan based Tengzhong, according to its CEO, Yang Yi, “The HUMMER brand is synonymous with adventure, freedom and exhilaration, and we plan to continue that heritage by investing in the business, allowing HUMMER to innovate and grow in exciting new ways under the leadership and continuity of its current management team.” Yang Yi further announced, “We will be investing in the HUMMER brand and its research and development capabilities, which will allow HUMMER to better meet demand for new products such as more fuel-efficient vehicles in the U.S.”


Hummer, pursuant to earlier terms, though still pending finalization, will continue to maintain its headquarters and operations in the United States, while also continuing under the management of its present leadership team. The Hummer management team intends to expand Hummer’s dealer network worldwide, including a new market in China. 

The parties to the pending agreement intended to close the deal by the third quarter of 2009. However, Tengzhong is still waiting for approval of the terms of the agreement from China’s government. As of August 2009, China government officials, who refused to be named, when commenting on recent media reports of approval by China’s Ministry of Commerce (MOC) announced that the government has not yet given approval for the transaction or MOU (Xinhua, Chinese company’s purchase of Hummer not yet approved: Officials, Aug. 24, 2009). 

As Xinhua (2009) reported, “Sichuan Tengzhong did not say in its application to the National Development and Reform Commission that it would produce Hummer in China, or acquire Hummer's assets or stake in parent company General Motors (GM). An MOC official also denied media reports the ministry had given a green light to the deal, saying Tengzhong had only said it would purchase the Hummer brand in its application. The ministry has asked Tengzhong to make clear whether it intended to buy the Hummer's patent or its technology.” 

Although these privately owned companies (GM and Tengzhong) mutually perceive benefits (i.e., profit, profit maximization, growth potential, employment opportunities, etc.) attributable to finalization of the terms of the agreement or MOU, the concerns of China’s government (i.e., production in China, Tengzhong acquiring assets of parent-GM, Tengzhong acquiring Hummer patent/technology) may, ultimately, constitute deal breakers. 

As for the concerns of the US government, there are, of course, the paramount concerns of the survival of GM following its July 10, 2009 emergence from a Chapter 11 bankruptcy reorganization, and also GM's plan to make an initial public stock offering (IPO), which will occur in 2010 (John D. Stoll and David McLaughlin, General Motors Aims for IPO Next Year, Wall Street Journal, July 2, 2009), notwithstanding the potential loss of more jobs in America. 

Moreover, one reasonably suspects that there are parties on both sides of the great transpacific, and within and without the governments of the United States and China, who either approve or disapprove of the finalization of the proposed transaction between GM and Tengzhong. For these reasons, the pending transaction is interesting, while also, eventually, presenting what will be an interesting episode in free and fair trade confronting protectionist trade policies and barriers on both side of the transpacific (i.e., the legislative-enacted Buy American variety, and the Buy China requirement as an inclusion in its domestic stimulus package, see cf. M. Ulric Killion, The Chinese trade regime: will the prey become hunter or vice versa?, Aug. 8, 2009). 

Copyright © Protected - All Rights Reserved M. Ulric Killion, 2009.

No comments:

Post a Comment