June 3, 2009 / 12:30 PM / 8 years ago

Chinese machine maker's Hummer buy raises eyebrows

SHANGHAI (Reuters) - A little-known player in China’s heavy machinery industry emerged from nowhere to agree to buy General Motor’s GMGMQ.N Hummer brand, raising eyebrows among peers who question whether it can turn around the U.S. auto maker.

<p>A Hummer vehicle sits outside of a dealership in Scottsdale, Arizona June 2, 2009. REUTERS/Joshua Lott</p>

The tentative deal with privately-held Sichuan Tengzhong Heavy Industrial Machinery Co, announced on Tuesday, just one day after GM’s bankruptcy filing, surprised Chinese industry executives and analysts.

“Who is Tengzhong? Why does it want to buy Hummer? What are they going to do with it?” asked a senior executive with Hunan Changfeng Motor Co 600991.SS, a sport utility vehicle specialist based in Hunan province, next to Tengzhong’s home turf in Sichuan province.

Changfeng, which makes low- and mid-range SUVs, expressed initial interest in Hummer last year but did not follow through after a tour of its U.S. plant.

“We want to tap the higher-end segment and we thought Hummer could be an opportunity. We were impressed with the plants and the facilities, but we didn’t think we could keep it up and running and -- most of all -- turn it around,” said the Changfeng executive, who asked not to be identified because of the sensitive nature of the comments.

Tengzhong, formed in 2005 through several mergers, makes special-use vehicles such as dump trucks and fuel tankers, as well as construction machinery, energy equipment, and structural components for highways and bridges.

It has 4,800 employees, according to its website, about the same as Changfeng. The site does not disclose any financial data.

LACK OF EXPERIENCE

Analysts said Chinese companies, with little success in overseas acquisitions, lack the experience and expertise to take over foreign auto brands that their owners have abandoned.

SAIC Motor Corp (600104.SS), China’s largest automaker and a partner of GM and Volkswagen AG (VOWG.DE), was badly burned by its investment in South Korea’s Ssangyong Motors (003620.KS), which filed for bankruptcy protection.

Its acquisition of Britain’s MG-Rover succeeded mainly by providing technology to the in-house development of a new brand, while most production was moved to China from the UK.

Tengzhong said Hummer’s operations would stay in the United States and would be run by existing management after the takeover. It pledged to invest in new product development, including more fuel-efficient vehicles, and expand its dealer network globally.

“If it were a big Chinese state auto group like SAIC Motor, it could be a different story, but I doubt that Tengzhong, a company which popped up from nowhere, is big enough to swallow Hummer,” said Zhang Xin, an analyst with Guotai Junan Securities.

A representative for Tengzhong said the purchase, expected to be closed in the third quarter, would be funded from Tengzhong’s internal resources and bank loans, although she gave no details.

She declined to comment on whether Tengzhong had Chinese government backing for the deal or on the chances of winning approval from U.S. regulators, who in 2005 vetoed the sale of Unocal to China’s offshore oil specialist CNOOC.

Hummers were originally multipurpose off-road military vehicles. After GM bought the brand from AM General in 1999, AM General continued to make the Humvee for the U.S. military.

The Tengzhong representative said the company currently was not a supplier to the Chinese military, although a statement on the company’s website said it was certified by the government as a qualified manufacturer of military armaments in March.

“The certificate is of great significance for Tengzhong Heavy Industrial, as it has laid a solid foundation for the firm’s next move to enter into production of military equipment,” it said.

Editing by Rupert Winchester

Our Standards:The Thomson Reuters Trust Principles.
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