The Hummer Bummer

Posted by: David Welch on August 22, 2008

At a media event in Lordstown, Ohio, earlier this week, General Motors Chairman and CEO Rick Wagoner told reporters that the Hummer brand has some interested suitors. GM said earlier in the year that the company plans to sell it. The reasons are easy enough to see. GM can ill afford to feed its eight brands with new vehicles and marketing schemes. Hummer, with its line of militaristic gas guzzlers, is out of step with the times. So GM wants out.

But who will buy it? News reports already say that automakers in China and India have begged off. Who wants a gas hog brand when oil prices keep going up? But there’s another problem Hummer has. Its dealer network. At the beginning of the decade, when gasoline was cheap and big suvs were en vogue, Hummer was hotter than a $2 pistol. Dealers ponied up as much as $15 million to build the flashy Quonset hut-styled showrooms on expensive real estate for the new premium, badder-than-bad suv brand. They expected GM to build a full line of Hummers so that the dealers could pump up sales of expensive utes and fetch a fat return on their investment.

With Hummer sales off 40% in the U.S.—by far its biggest market—keeping those dealers happy will be some trick. Any buyer will have to invest hundreds of million, if not billions, to upgrade current models and come up with some new ones. Otherwise, they’ll be trying to sell Hummers through a network of angry retailers. Getting out of Hummer isn’t easy, either. If the brand’s buyer failed and wanted to walk away, they could be subject to lawsuits from dealers who invested in the franchise. GM coughed up more than $1 billion when it closed down Oldsmobile a few years ago. With a deterrent like that, it’ll take some big discounts to sell this franchise.