Last week, General Motors Co. and China’s Sichuan Tengzhong Heavy Industrial Machinery Co. finalized a deal to sell GM’s premium all-terrain vehicle manufacturer Hummer to Tengzhong.
According to the agreement, 80 percent of Hummer would go to Tengzhong and 20 percent would be owned by Suolang Duoji, a private investor from Hong Kong.
Although financial details of the deal were not publicly revealed, analysts estimated that GM would receive around $150 million.
GM’s strategy is to sustain its existence by selling off some of its less profitable brands like Hummer and Saab, while concentrating on its four major brands—Chevrolet, Cadillac, Buick and GMC. Faced with either eliminating or selling the Hummer brand, the latter one proved far more profitable.
According to the agreement, Tengzhong will keep Hummer plants within the United States, including all of its current workforce of 3,000. The current CEO of Hummer, James Taylor, will continue to manage the business.
The company "recognizes the importance of continuing investment in Hummer’s heritage as a U.S.-based and branded company with a view toward capitalizing on global opportunities,” said Taylor in a statement. “We are going to be able to focus on providing customers with more efficient models that deliver Hummer’s promise of authentic, purpose-built design and engineering,” he added.
Surprisingly, Tengzhong does not have any experience in making automobiles. It produces heavy machinery and equipment for building roads, bridges and construction.
“This transaction marks an exciting step for both Tengzhong and Hummer, as we invest in a business that has significant opportunity in the U.S. and around the globe”, said Yang Yi, the CEO of Tengzhong.
It still remains to be seen whether the deal would stand after both the U.S. and Chinese governments review the agreement. Prior to the deal, the Chinese communist government was against state-owned Tengzhong acquiring Hummer, mainly due to the fact that it lacks any experience in this area.
Another criticism of the Hummer deal is it's very enormous fuel consumption and high CO2 emissions. With Tengzhong’s acquisition of Hummer, the company will likely market the product to Chinese consumers, thereby putting a strain on the country’s petroleum supplies and cause high environmental pollution.
Critics argue that China is already struggling to remove its world’s top polluter label, and this deal is not helping its cause.
To address this issue, Hummer is working on creating a hybrid engine that would allow alternative fuel in combination with petroleum. This first hybrid engine for Hummer—called E85 FlexFuel—would be available in 2010 for H3 and H3T models.