In China we have become quite used to good and exciting auto market news: Sound growth potential in the long term, successfully operating vehicle manufacturers, and Chinese domestic car makers that quickly progress to be at eye-level with their international peers by the end of the new decade at the latest.
In this context, the recent failure of Sichuan Tengzhong to purchase General Motors’ Hummer brand appears to be a bit of a setback. Yet, it is self-made, as the Chinese regulatory authorities have rejected the acquisition plan, and Sichuan Tengzhong has withdrawn its purchase offer.
The discussion has begun as to why the deal could not be brought to a successful completion. One reason put forward is the fact that Sichuan Tengzhong does not have enough auto industry experience. It is true that the company has not yet engaged in passenger vehicle production, but makes heavy machinery and special-purpose vehicles, such as dump trucks and concrete mixers. However, this alone cannot be sufficient for rejection. Think about BYD, a Chinese battery manufacturer, which started only a mere five years ago with car production after it had purchased a small automobile company two years earlier. In 2009, it has become the largest Chinese domestic brand in terms of passenger vehicle sales, providing the top-selling F3 model with almost 290,000 newly registered vehicles of this type alone. In addition, as first Chinese vehicle manufacturer it has launched a mass-produced hybrid car (F3 DM) and is about to launch an all electric vehicle in 2010, the e6. Lack of experience does not necessarily mean being short of success.
Another suspicion why the regulatory authorities have not approved the proposed takeover is the gas-guzzling image of the Hummer brand. Its product portfolio entirely consists of vehicles with high fuel consumption while China wants to promote and establish an auto industry based on fuel efficiency and environmental sustainability. There is no doubt that Hummer vehicles are very “thirsty”, however, the high fuel consumption is not really the core of this brand. The Hummer brand idea was developed on the basis of adventure, excitement and freedom, after American Hum-Vees enjoyed extensive TV coverage in the first Iraq war in the early 1990s. Later, an effective promotion by action movie star Arnold Schwarzenegger contributed to its icon status, at a time when nobody cared about fuel consumption. Couldn’t Hummer’s brand personality be further developed by implementing fuel efficiency and even alternative power train technology?
In the end, both of these aspects may have played a role, but is comes down to one point: Sichuan Tengzhong’s proposal for Hummer’s brand acquisition was not good enough, and has not convinced the authorities. But why were not more efforts put in to submitting a striking proposal, given the fact that this brand purchase would have offered a good opportunity to diversify the corporate activities and enter the promising passenger vehicle market at a bargain price?
A doubt appears: Did Sichuan Tengzhong ever seriously consider purchasing the Hummer brand? With all the media attention that it has achieved since a first preliminary agreement with General Motors was announced in June 2009, it has managed to raise its own brand awareness, and made its name well known across the world. This increases its chances to attract potential overseas investors.
All in all, Sichuan Tengzhong has quite benefited from its proposal for this international acquisition, despite its eventual withdrawal. For GM the collapse of the Hummer deal is another failure to sell one of their brands, after attempts to spin off Saturn and Pontiac. The latter were wound down, and the market is now going to witness the death of another iconic brand. Hummer and its employees are the real losers.
For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com
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