Tengzhong May Cancel Bid for Hummer

General Motors was to sell Hummer to China's Sichuan Tengzhong Heavy Industrial Machinery. According to Tengzhong's statement, the entire transaction will be completed in the third quarter of 2009.

Up to now there is no further progress about that deal. How will such an important acquisition deal end?

It is highly likely that the Ministry of Commerce will not grant such a deal, according to the 21st Century Business Herald. When Tengzhong handed in the documents to the Ministry of Commerce earlier, the authorities refused to accept the material with the excuse that the procedures were not correct. The Commerce Department of Sichuan Province tried to mediate between two sides but there was no good effect.

Such a result was in accordance with most people's anticipation. Tengzhong has been plagued with doubts and questions since it made its debut into people's vision .Although Tengzhong once expressed its hope that Hummer could be saved since in China the production cost was much lower, the acquisition deal was fractured in terms of business logic. First of all, Tengzhong had no experience in automotive industry. In addition, Hummer suffered from severe downturn in the United States. What's worse, the products of Hummer belong to the high-emission and fuel-consumption category.

All the people inside GM were trying to abandon Hummer. At the same time, Chinese government said it would shoulder more responsibilities to tackle the issue of global climate change. China may be criticized by western countries due to the acquisition of Hummer.

In terms of Tengzhong's bid for Hummer, some people saw the clues that Tengzhong may be used as a tool by some international investment banks. In accordance with Tengzhong's commitment, the current management and production and operation teams of Hummer will be retained. Tengzhong signed some long-term contracts with GM, covering the issues of assembly and production of main parts. Tengzhong has pointed out that the existing dealerships of Hummer would be retained as well. GM will get about 100 million dollars in cash, plus other commitments.

According to some sources, the fund for the acquisition of Hummer primarily came from Tengzhong's own fund and the financing offered by financial institutions. If Hummer's business and operations stayed the same, how could Tengzhong gain profit? Many people believe that Tengzhong may sell Hummer after the international economic environment improves.

Till now China auto industry has only conducted two overseas acquisitions-SAIC bought Rover and Ssangyong. The result is that the acquisition of Rover is successful while the case of Ssangyong is a total defeat. The key reason for Rover’s success is that SAIC has played the role of a rescuer. SAIC acted as a doctor in the case of Ssangyong, resulting in the failure.

SAIC took away some useful parts of Rover and reused them. In this way, the transaction cost was pretty low and it was a one-time payment. Ssangyong was like a dying patient and refused treatment. SAIC spent a lot of money but the contradiction was still unavoidable. Finally SAIC had to give up all the efforts.

The experience of SAIC showed that for Chinese enterprises it was easier to rescue another automaker rather than cure it. At present Hummer is like a dying patient with various complications and due to the absence of surgical experience Tengzhong wants to use the non-surgical conservative therapy.

Except the 100 million dollars, Tengzhong's acquisition could hardly make any difference. Sometimes the occupation is not equal to failure, while the withdrawal can be a victory. (Qinghua/Hanxin)

　　See original Chinese report Please click