China's Changfeng had talks on GM's Hummer: source

SHANGHAI (Reuters) - General Motors Corp GM.N has had preliminary talks with Hunan Changfeng Motor Co 600991.SS on a possible sale of its Hummer brand but the Chinese sport utility vehicle (SUV) maker has backed off, a source with direct knowledge of the matter said.

Hummer vehicles are displayed outside a dealership in Chantilly, Virginia, June 3, 2008. REUTERS/Kevin Lamarque

GM, struggling against a downturn in the North American auto market and high oil prices, has explored a sale of its gas-guzzling SUV brand with potential buyers in Russia and India as well as in China, sources familiar with the situation have said.

Changfeng, partly owned by Mitsubishi Motors Corp 7211.T, decided not to proceed with the talks after a tour of Hummer's U.S. production facility, as it saw only limited potential for it to market the vehicle, the source said.

“The Hummer is way too expensive for the Chinese military and demand from civilian buyers is not big enough to justify a purchase, especially with oil prices running near an all-time high,” the source said.

Changfeng supplies its Leopard SUV to the Chinese military at a unit price of no more than 200,000 yuan ($29,120), only a fraction of the cost of a Hummer, according to the source.

GM’s China spokesman declined to comment and a Changfeng spokesman could not immediately be reached.

Other Chinese automakers, including market leader and GM's China partner SAIC Motor Corp 600104.SS and number three Chinese auto maker Dongfeng Motor Group Co 0489.HK, which makes cars with Honda Motor 7267.T and Toyota Motor 7203.T, have also said they had little interest in Hummer.

GM, which lost more than $51 billion over the past three years, said in June it was reviewing the Hummer brand, which has undermined its image at a time when consumers are demanding more fuel efficiency. Hummer’s U.S. sales fell 40 percent in the first half of this year.

GM Chairman Rick Wagoner told reporters last week there was significant interest in the automaker’s planned sale of up to $4 billion assets including Hummer, although no deal was expected to be concluded immediately.

GM has also had exploratory talks on Hummer with India's Mahindra & Mahindra MAHM.BO and Russian oligarch Oleg Deripaska, according to sources familiar with the situation.

($1=6.869 Yuan)

Reporting by Fang Yan; Editing by Edmund Klamann