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THE GM BANKRUPTCY

Chinese buyer will expand Hummer lineup, keep dealers, Hummer CEO says

Jamie LaReau
Automotive News
June 2, 2009 - 12:01 am ET
UPDATED: 6/2/09 4:24 p.m. ET

DETROIT -- The Chinese manufacturer planning to buy General Motors' Hummer will expand the brand's lineup -- including alternative powertrains -- and retain its U.S. dealers, Hummer CEO Jim Taylor said today.

Taylor said that GM plans to sell its Hummer brand to Chinese equipment manufacturer Sichuan Tengzhong Heavy Industrial Machinery Co., of Sichuan province.
"The brand lives another day," said Taylor, who added he would be retained by the new owners. Terms of the deal were not immediately disclosed.
The news comes just a day after GM filed for Chapter 11 bankruptcy protection in New York, the third largest corporate bankruptcy in history. The automaker has spent nearly a year seeking a buyer for Hummer.
"We've been in talks with these guys for over six months," Taylor told Automotive News in an interview. "The reality is in China you have folks that are willing to make investments all over the world and they go on a world search for a business that would be complementary for them.
"They see a lot of growth potential with this brand both inside and outside of China."
The preliminary agreement means Hummer's 150 U.S. dealerships will be safe as long the sales goes through, Taylor said.
"This is good news for them," Taylor said. "Nothing happens to them, and in a good way. They're saved."
Concerns about CAFE
Taylor said he remains concerned that upcoming stricter corporate average fuel economy requirements will be a challenge for Hummer in the United States. Hummer is known for its large SUVs. Hummer's smallest vehicle, the H3, gets 14 mpg city and 18 mpg highway, for example.
"The immediate challenge is to regain our sales momentum," Taylor said. "Then we have to go after some product changes that will get us into that space where we are compliant with new federal regulations."
That will mean some model and powertrain changes, said Taylor, who added that nothing specific has been decided yet.
"You'll see a broader lineup, that means more models and alternative powertrains that meet the federal regulations," he said.
The new Hummer will have to set up its own engineering shop and provide the marketing for the products worldwide, Taylor said. Where those will be located remain to be determined, but he says it will be inside the United States.
Sichuan Tengzhong is a privately owned company known in China for making a wide range of road equipment, from bridge piers to highway construction and maintenance machinery, according to the The New York Times.
GM is also in the process of selling its Saab and Saturn brands by the end of 2009, and plans to discontinue Pontiac by the end of 2010. GM has said it will focus on the Chevrolet, Cadillac, GMC and Buick brands, which make up more than 80 percent of current U.S. sales.
In bankruptcy, GM will be divided in two: a "New GM" made of its best assets and "Old GM," which will include excess plants, brands and equipment that will eventually be sold or liquidated under court protection.
GM said the Hummer transaction was set to close by the third quarter of this year and should secure more than 3,000 jobs in manufacturing, engineering and at Hummer dealerships around the United States.
Those were the days
Hummer's SUVs cost roughly $31,000 at the low end and go up to about $72,000 with options.
The multipurpose, off-road military vehicles were originally built by AM General. Its first model was the Humvee, for the U.S. armed forces.
GM bought the Hummer brand from AM General in 1999, and AM General continues to manufacture most Hummers. GM went on to sell the H1, H2 and H3 civilian models that became a symbol of coolness.
California Gov. Arnold Schwarzenegger added to the image by boasting of a fleet of eight Hummers. He brought the brand into every American living room when he famously referred to it while debating rivals during his gubernatorial race.
But as oil prices rose, Hummer sales collapsed. U.S. demand -- which comprises the bulk of total Hummer sales -- has plunged 30 percent so far this year. Even Schwarzenegger sold his fleet.
Under the proposed deal, Hummer will continue to contract vehicle manufacturing and business services from GM during a defined transition period.
Also, GM's Shreveport Assembly plant in Louisiana would continue to assemble the H3 and H3T on a contract basis through at least 2010.
Buying the brand
In court documents filed on Monday, Henderson said the automaker had expected Hummer to fetch more than $500 million when it went up for sale in June 2008, but the sale could not proceed on "reasonable terms" due to tight credit and concerns about the automaker.
Investment bankers have said Hummer would fetch about $100 million in cash, down from initial expectations of $500 million to $750 million.
Hummer's valuation has suffered because of the weakening economy, continued tightness in credit markets and a lack of interest. The overall value of automotive assets has also declined dramatically over the past year.
GM sold about 27,485 Hummers in the United States in 2008, down 51 percent from the previous year.
Reuters contributed to this report.
PRESS RELEASE: Tengzhong In Advanced Talks To Purchase HUMMER From GM In Strategic Acquisition
Industrial Machinery Company To Invest in Growth and Global Expansion of Premium Off-Road Vehicle Brand; Deal is Expected to Secure Over 3,000 US Jobs
DETROIT and SICHUAN, June 2, 2009 - Sichuan Tengzhong Heavy Industrial Machinery Co., Ltd (Tengzhong) and General Motors Corp. today confirmed details of their proposed transaction, pursuant to which, Tengzhong, a major industrial machinery group, will acquire the rights to the premium off-road HUMMER brand, along with a senior management and operational team. It will also assume existing dealer agreements relating to HUMMER's dealership network. It is contemplated that Tengzhong will, as part of the transaction, enter into a long-term contract assembly and key component and material supply agreement with GM. In an earlier statement, GM said it expects the deal if successful to secure more than 3,000 US jobs. The final terms of the deal are subject to final negotiations.
Based in the Chinese province of Sichuan, Tengzhong is a privately-owned company and a leading domestic manufacturer of road, construction and energy industry equipment. It will expand into the premium off-road vehicle segment through what will be a strategic acquisition for Tengzhong and a catalyst for HUMMER's growth in the U.S. and around the world.
"The HUMMER brand is synonymous with adventure, freedom and exhilaration, and we plan to continue that heritage by investing in the business, allowing HUMMER to innovate and grow in exciting new ways under the leadership and continuity of its current management team," said Yang Yi, CEO of Tengzhong. Mr. Yang continued, "We will be investing in the HUMMER brand and its research and development capabilities, which will allow HUMMER to better meet demand for new products such as more fuel-efficient vehicles in the U.S."
HUMMER will continue to maintain its headquarters and operations in the U.S., and will continue to be managed by its existing leadership team. The team intends to expand HUMMER's dealer network worldwide, particularly into new and underserved markets such as China.
"Today HUMMER is a globally recognized brand with excellent growth prospects, both in terms of new markets and new products for our existing markets," said James Taylor, HUMMER chief executive officer. "With Tengzhong's investment and strong support, we will be able to make our visions a reality. This transaction, if successful, will secure more than 3,000 U.S. jobs, and allow us to embark on a more aggressive global expansion, ensuring a successful future with our new partners."
The transaction is expected to close in the third quarter of this year and is subject to customary closing conditions and regulatory approvals. Financial terms of the agreement will not be disclosed at this time.