GM strikes Hummer deal with China's Tengzhong

DETROIT/NEW YORK Tue Jun 2, 2009 5:46pm EDT

1 of 2. A technician walks by a Hummer H3 in for service at the Burt GM auto dealer in Denver, June 1, 2009. RTEUTERS/Rick Wilking

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DETROIT/NEW YORK (Reuters) - General Motors Corp said on Tuesday it reached a tentative deal to sell its Hummer brand to a privately held Chinese company, part of an effort to drop four unprofitable vehicle lines and leave bankruptcy as a leaner company.

GM, a day after filing for bankruptcy, said in a statement that it reached a memorandum of understanding with Sichuan Tengzhong Heavy Industrial Machinery Co for the sale. Tengzhong said it will retain Hummer's senior management and operational team.

GM said Tengzhong will also enter into a long-term contract assembly and key component and material supply agreement with GM.

Under the deal, which is subject to regulatory review and is expected to close in the third quarter, Tengzhong will assume Hummer's existing dealer agreements.

Financial terms were still under discussion and will not be disclosed, GM said. Bankers have said Hummer could fetch about $100 million in cash in addition to other commitments.

The deal marks the first time that a Chinese buyer has acquired a brand from one of the struggling U.S. automakers.

Chinese parts suppliers and automakers have shopped for U.S. automotive assets, including those at also-bankrupt Chrysler LLC, but no deals have been completed despite the enormous pressure on U.S. automakers in recent years to cut costs.

Based in the Chinese province of Sichuan, Tengzhong makes special-use vehicles, highway and bridge structural components, construction machinery, and energy facilities.

Tengzhong will expand into the premium off-road vehicle segment, according to the joint statement from it and GM.

Tengzhong's website did not indicate whether the company has experience running plants overseas or of producing passenger vehicles of any kind.

GM said earlier on Tuesday that the buyer of Hummer, whom it did not initially identify, would contract to build the H3 model SUV and the H3T pickup truck at GM's plant in Shreveport, Louisiana, through at least 2010.

In addition, GM said the investor would fund future vehicles for Hummer and invest in alternatives to the heavy gas-guzzling engines that are the hallmark of the brand.

In Shreveport, where 800 workers work on a single shift building Hummer H3 and H3T models, there was relief that a new buyer would keep the line running for at least a while longer.

"We're just excited that Hummer may live on," said Morgan Johnson, president of UAW Local 2166, which represents workers at the GM plant.

DIMINISHED EXPECTATIONS

GM had expected Hummer to fetch more than $500 million when it went up for sale in June 2008.

The automaker said in a court filing on Monday that the sale could not proceed on "reasonable terms" due to tight credit and concerns about GM's financial condition.

Part of the problem has been that the military-derived Hummer has become an emblem of excess, turning consumer tastes against the brand's macho styling and prices that can top $71,000.

U.S. sales were off by more than two-thirds during the first four months of the year.

First seen as multipurpose, off-road military vehicles, Hummers were originally built by AM General. Its first model was the Humvee, built for the military. GM bought the Hummer brand from AM General in 1999. AM General still makes the Humvee for the U.S. military.

After losing $88 billion since 2005, GM is in the process of cutting debt, workers and brands in bankruptcy.

It is seeking to sell its Saab and Saturn brands by the end of 2009 and plans to discontinue Pontiac by the end of 2010.

That would leave a smaller GM to be rebuilt around the Chevrolet, Cadillac, GMC and Buick brands. Together those account for more than 80 percent of current sales.

Credit Suisse is acting as exclusive financial adviser and Shearman & Sterling is international legal counsel to Tengzhong on the transaction. Citi is financial adviser to GM.

(Additional reporting by Kevin Krolicki and Chris Kaufman; Editing by Gerald E. McCormick, Patrick Fitzgibbons and Matthew Lewis)

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