Posted by: Frederik Balfour on October 10, 2009
GM’s iconic Hummer brand has been acquired by a Chinese heavy construction equipment maker for about $150 million, marking another step in the long march by China to develop a world class local automobile industry. The deal, which was announced on the General Motors website, stipulates the manufacture of all Hummer brand vehicles will continue at its U.S. plants until 2011, ensuring 3,000 workers will keep their jobs. Sichuan Tengzhong Heavy Industrial Machinery Co. will take 80% and a Chinese entrepreneur from Sichuan province in China’s interior, Suolang Duoji will take 20%.
Tengzhong was an obscure private company until it made headlines in June announcing it was in talks with GM to buy Hummer. Initially the official Chinese press conveyed Beijing’s displeasure over such a deal, claiming that the purchase of the gas guzzling Hummer brand was not in keeping with the country’s goal of cleaning up its environment. However insiders said that what really rankled the authorities was that Tengzhong did not seek approval from the central government before making the bid. All overseas investments require the government’s blessing, and Beijing is particularly sensitive to how attempted overseas purchases would be perceived by a world that is increasingly wary of the country’s growing economic might.
Though Tengzhong has no previous record in assembling cars, it will have a couple of years to learn things from the inside before attempting to move operations to China. The holy grail for Chinese automakers has been the intellectual property and full design capability of international brands, which has made other investment targets nervous about doing deals with them. Beijing Automotive had attempted to by the Opel brand from GM during the summer, but the transfer of design know how became a deal breaker in the end. No doubt Credit-Suisse, which advised Tengzhong on the deal, made sure that details about the transfer of technology were clearly spelt out. It will want to ensure it doesn’t repeat the mistakes made by Shanghai Automotive Industrial Corp. which bought a majority stake in Ssangyong Motors in Korea, a company which is now in bankruptcy. The Korean side accused SAIC of trying to steal its technology. Chances are there will be more attempts by Chinese automakers to acquire overseas capabilities. Geely Automotive was rumored to be interested in buying either Saab or Volvo, and is likely to continue scouring the globe for auto assets.