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China bid for Hummer triggers scepticism

The announcement from little-known Chinese company Tengzhong that it wants to buy the Hummer brand from troubled General Motors has led many to question just how plausible the deal really is.

What has perplexed Chinese analysts the most is the company’s lack of expertise in either international trade or making cars.

“Tengzhong is just a privately owned company that has no experience in the car industry and Hummer is a niche brand that suits a small group of people,” said Zhu Junyi, an auto analyst with Shanghai Information Centre, a think tank.

Even China’s state-owned media have been quick to point out that Tengzhong, based in south-west China’s Sichuan province, specialises in making machinery to build roads and bridges, as well as equipment for the energy industry.

Tengzhong “has no experience in producing passenger vehicles, adding difficulties for the company to manage the brand,” Xinhua news agency quoted Zuo Xiaolei, an economist with China Galaxy Securities, as saying.

The headline of a recent commentary printed in the English-language Global Times said “China’s Hummer fever should come to a stop.”

“The purchase comes at a time when China should be buying fewer Hummers, not more,” the commentary said. “The deal deserves criticism more than it does pride.”

The low fuel efficiency of the Hummer was one of the main reasons that North American sales of the sports utility vehicle have tanked in recent years.

And although the Hummer is a status symbol in China, the four-wheel-drive modelled after the US military’s Humvee has also become a symbol of pollution in a nation already beset with serious environmental problems.

That could be one problem for Tengzhong, which sees the Chinese market as key to its hopes of reinvigorating the Hummer brand.

“The company’s strategy is to take the Hummer brand global and that should certainly include the Chinese market,” said an official with Tengzhong’s public relations agency. The agency asked not to be identified.

Analysts also questioned whether the group based in the city of Chengdu has the know-how to manage an international brand, citing the 2004 purchase by Shanghai Automotive of South Korean car maker Ssangyong.

Ssangyong, which has been under court receivership since February, is expected to cut 36% of its workforce, or 2 646 workers, as part of a restructuring plan.

“I don’t see how a Chinese car maker can acquire companies like Volvo or Hummer,” said John Zeng, a market analyst with Global Insight.

“It is not realistic either financially speaking or from a management standpoint.”

The international experience of most Chinese companies is in their relations with foreign firms in China, not in managing foreign companies overseas, he said.

“The failure of Shanghai Automotive in its purchase of Ssangyong has affected the reputation of other Chinese companies in South Korea,” said Jia Xingguang, an analyst at the China National Automobile Industry Consulting and Development Corporation.

The final hurdle for the Hummer deal will be gaining approval from Chinese regulators, who state media said may be opposed to the purchase.

But even a red light from the regulators could be in Tengzhong’s interests, some analysts said, suggesting the offer for Hummer was little more than a bid for some free publicity.

“Market talk has it that Tengzhong’s takeover of the Hummer brand is pure hype,” the Shanghai Information Centre’s Zhu said.

“The company knows the plan won’t get approval from the authorities, but the news can turn it from a little-known company to a household name in China. Even multimillion-dollar ads will not be able to achieve a similar effect.”

Three hundred workers at General Motors South Africa (GMSA) stand to lose their jobs following the sale of the Hummer H3 brand. The workers are based at GMSA’s Port Elizabeth plant.

About 1 000 workers have already been laid off since last year.

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