GM signs agreement to sell Hummer brand to Chinese company
General Motors Co. said it signed a definitive agreement to sell its Hummer sport utility brand to a Chinese heavy-equipment maker, potentially achieving an important goal in the U.S. auto company’s post-bankruptcy makeover.
Sichuan Tengzhong Heavy Industrial Machinery Co. intends to purchase Hummer through an investment entity, in which it would hold an 80% stake, GM said in a statement Friday. Suolang Duoji, a private entrepreneur, would hold the remaining 20%. Duoji’s holdings include Lumena Resources Corp. in Hong Kong.
Although terms of the deal weren’t disclosed, reports published in China said Tengzhong would pay $150 million for Hummer. The deal follows lengthy talks that were first disclosed in June, when GM and Tengzhong said they had reached a preliminary agreement.
The Chinese company, based in Sichuan province, would acquire the Hummer brand and trademark, as well as a license to manufacture the vehicles. It also would inherit the existing Hummer dealership agreements.
Signing an agreement is no guarantee a transaction will be completed -- as GM learned last week when the deal to sell its Saturn unit to a U.S. auto dealership chain fell through.
“In the auto industry that we’re in today, nothing is final until it’s final,” said analyst Rebecca Lindland of IHS Global Insight. “Whether it’s Saturn or this deal, the risk is always there that it will fall through.”
Selling Hummer is part of GM’s post-bankruptcy plan to focus on four key auto brands: Chevrolet, Buick, GMC and Cadillac. GM is in talks to sell its Sweden-based Saab unit and is closing its Pontiac division. It also will shut down Saturn now that the deal to sell it to Penske Automotive Group Inc. is dead.
About 3,000 jobs in the U.S. are tied to building and selling Hummer vehicles. Under terms of the deal, assembly plants in Louisiana and Indiana would continue to produce Hummers under contract for Tengzhong until June 2011, with an optional one-year extension until June 2012.
It’s unclear where production will be located after that, although Tengzhong spokeswoman Christina Stenson said the company was “looking for a long-term U.S. manufacturing solution.”
“The U.S. is the biggest market for Hummer, so they need to be manufacturing vehicles here,” she said.
It was Penske’s failure to come to terms with a manufacturer that caused the deal to buy Saturn to fall apart.
Tengzhong may open a Hummer assembly plant in China at some point, Stenson said.
Lindland noted that in recent years, the hulking Hummer SUVs have become a target of environmentalists because of poor fuel economy. The 2010 Hummer H3 has a combined city-highway fuel economy rating of 15 miles per gallon, according to the Environmental Protection Agency.
Hummer sales plummeted almost 82% in September and are down almost 64% this year.
“This deal is a new lease on life for the brand, but it’s a brand that has a lot to overcome in terms of image,” Lindland said. “Hummer epitomizes where the economy was pre-recession, and it’s going to take some pretty creative marketing to change people’s perception of the brand.”
That said, the Hummer brand may survive whereas the more eco-friendly Saturn is history. And despite its image problems in the U.S., the Hummer brand carries considerable cachet in China. Yang Yi, Tengzhong’s chief executive, said in June that the brand is “synonymous with adventure, freedom and exhilaration.”
The deal will require regulatory approval from the U.S. and Chinese governments. The transaction is expected to close late this year or early next year.