June 3, 2009 / 3:53 AM / 10 years ago

UPDATE 5-GM strikes Hummer deal with China machinery maker

 * China's Sichuan Tengzhong Heavy Industrial is buyer
 * Hummer deal comes a day after GM bankruptcy filing
 * US consumer tastes eventually soured on macho brand
 (Adds details, statement from Sichuan Tengzhong in paras 9-10)
 By Poornima Gupta and Jui Chakravorty
 DETROIT/NEW YORK, June 2 (Reuters) - General Motors Corp
GMGMQ.PK said on Tuesday it reached a tentative deal to sell
its Hummer brand to a privately held Chinese heavy machinery
maker, 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
 GM said Tengzhong will also enter into a long-term contract
assembly and key component and material supply agreement with
 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
 Based in the Chinese province of Sichuan, Tengzhong makes
special-use vehicles, highway and bridge structural components,
construction machinery and energy equipment.
 Tengzhong was formed in 2005 through a series of mergers
and, according to its website has 4,800 employees, compared
with GM's 243,000. The Chinese firm said in a joint statement
with GM that it would expand into the premium off-road vehicle
 "We will be investing in the Hummer brand and its research
and development capabilities, which will allow Hummer to better
meet demands for new products such as more fuel-efficient
vehicles in the U.S.," Tengzhong CEO Yang Yi said.
 Tengzhong's website
(www.sctengzhong.com:8080/tengzhong/weben/gytz.jsp) 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, who 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.
 GM had expected Hummer to fetch more than $500 million when
it went on sale a year ago.
 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 fell by more than two-thirds in
 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 this year 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 in DETROIT, Chris
Kaufman in NEW YORK and Fang Yan in SHANGHAI; Editing by
Matthew Lewis & Ian Geoghegan)

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