Sichuan Tengzhong Heavy Industrial Machinery’s $150 million bid for GM’s Hummer division has fallen through having failed to win approval from Chinese regulators. GM says it will begin winding down the iconic brand. The Commerce Ministry, as we predicted, was uncomfortable with the proposed deal and seems to have seen it off by not approving it rather than rejecting it outright. It has been an open secret that some officials weren’t keen on a Chinese company buying the poster child for American gas guzzling extravagance, while others felt uneasy about private vehicle makers expanding abroad ahead of state-owned ones.
Update: Some thoughts on Chinese investments in the U.S. that make sense at China Law Blog.
Beijing has long been dragging its feet over approving Sichuan Tengzhong’s proposed purchase of GM’s Hummer business. The Commerce Ministry is only one set of bureaucrats still to pass judgment. It is an open secret that some officials aren’t keen on a Chinese company buying the poster child for American gas guzzling extravagance, while others are uneasy about private vehicle makers expanding abroad ahead of state-owned ones.
We may be joining the faintest of dots, but an unsourced item in Shanghai Securities News prompts us to think approval will never come. The newspaper says that official oversight of investment and expansion plans by auto, farm, vehicle and engine companies will be tightened with approval required not only from the National Development and Reform Commission, which oversees strategic economic development, but also from the Ministry of Industry and Information Technology.
Tengzhong Heavy has at last struck its deal to buy Hummer from GM. The troubled U.S. carmaker confirmed the sale subject to regulatory approval but did not disclose the price. This Bystander understands it to have been $150 million, about half the original asking price, and well below the $500 million GM said last year in its bankruptcy filing the brand was worth.
Privately-held Tengzhong will take an 80% stake in the company. Tengzhong shareholder (via Sichuan Huatong Investment Holding Co.) Suolang Duoji, will pick up the other 20% directly. The multi-millionaire Sichuanese also has mining interests and is founder chairman of Hong Kong-listed but Chengdu-based industrial chemicals maker Lumena Resources, which runs thenardite mining and production businesses in China (thenardite is one of those obscure but omnipresent chemicals used in manufacturing products as diverse as detergent powders and laxatives). It is likely that it is Suolang’s wealth that is bankrolling the deal.
Tengzhong gets the Hummer brand and intellectual property license rights to manufacture Hummers. It will also take over Hummer’s existing dealer agreements (more on the industrial logic behind the deal for Tengzhong ). Formal regulatory approval is still awaited. Shouldn’t be a problem on the U.S side. Officials in the Ministry of Commerce, who will have the final say, while uneasy with a Chinese company buying the poster child for gas-guzzlers when they are trying to turn the country’s car companies green, may just hold their noses.
Update: A Ministry of Commerce official said the ministry is awaiting a report on the deal from the Sichuan provincial office, knows nothing of the detail, and hasn’t yet received a formal application to approve it. More conspiratorial minds than mine will have to read the significance, if any, of that statement and whether it is signaling roadblocks or is just bureaucracy moving at its customary sedate pace.
Sichuan Tengzhong’s bid to buy General Motor’s Hummer division has been stuck in limbo for some months awaiting Chinese regulatory approval while the U.S. carmaker has focused on off-loading its Saturn operation to Penske Automotive. But now that deal has fallen through, GM is anxious not to let the same fate befall Hummer. South China Morning Post (via Reuters) says Tengzhong executives are in Detroit and an announcement is expected within days. However, though the National Development and Reform Commission has given the Ministry of Commerce the final regulatory say, which makes a deal more likely, there is still no word of formal approval from the ministry.
There was no way that a Chinese car company was going to be announced as the buyer of GM’s Hummer division. For one, an industry trying to build its future on some sort of green credentials could scarcely take on the poster child for American gas guzzling and automotive overextravagence; one highway, zero city, as the TV cartoon show The Simpsons once described the Hummer’s fuel consumption rating. For another, Chinese car companies had all passed on the division when GM’s bankers started shopping it around last year.
There is some sort of industrial logic to Sichuan Tengzhong Heavy Industrial Machinery Co. Ltd buying Hummer, as it is now in talks with GM to do. The Chengdu-based engineering conpany would get a U.S. distribution network and the management to run it. It also gets a distribution network in regions where there is an attractive mix of wealth and lots of new infrastructure construction.
Though the Hummer has fallen from fashion in the U.S., it still finds a market in the blingier parts of Russia and the Middle East, and to a lesser extent Africa, where a bit of armour plating doesn’t do much to the overall weight. There is a thriving grey market in the first two in particular, and which has even reached China (which the deal, if completed, will turn into a white market).
Tengzhong already makes construction machinery and special-use vehicles, like cement mixers and tipper trucks, to which the Hummer brand could be appended (replacing the Mercedes-reminiscent three pointed star badge). That would take Hummer back closer to its roots as an all-terrain vehicle, which it was for the U.S. Army before GM bought a licence in 1999 from AM General to turn the Army’s Humvee it into a monstrous (3,400 kilogram) $140,000 SUV for civilian road use. (The Humvee military business is not included in the deal with Tengzhong, as that is not GM’s to sell.)
Tengzhong’s roots as an engineeing company stretch back 40 years, but it has grown rapidly by acquisition since 2006 when it adopted its current name. GM valued Hummer at $500 million when it first put it on the block. No price for the sale has been announced (indeed final details are still being negotiated), but Tengzhong is likely to be paying a lot less than that for its latest acquisition.
Bloomberg reports that Dongfeng Motor has heard from General Motors about buying assets the beleaguered U.S. automaker wants to sell. GM has started shopping its Hummer business. Saab and Saturn are also candidates to be sold.
This Bystander understands that GM talked to a couple of Chinese car companies during its first round of pitches for Hummer to potential buyers around the world, but that both were as lukewarm about buying it as everyone else. So while Dongfeng, like Shanghai Automotive Industries, has expressed interest in buying foreign marques, don’ t expect either of them to be on the short list for a second round of discussions about Hummer.
Another reason that Chinese investors are wary now of venturing abroad was summed up by Lou Jiwei, chairman of China Investment Corp. “I don’t dare to invest in financial institutions now,” he told an conference in Hong Kong. His two investments in U.S. bank Morgan Stanley and New York private equity group Blackstone have lost $6 billion. The two firms’ share prices are down 75% since he bought the stakes. That, though, is less than GM is seeking in bailout funds from the U.S. Congress.
China, by the way, is one of the brightest markets for GM, where Buick is a star performer, popular with top officials and not a staid brand driven by the silver haired set. Last year GM sold almost twice as many Buicks in China as it did in the U.S., 332,000 vs 186,000.