Kelly Post 6 - Hummer

As Deadline Nears, G.M.’s Sale of Hummer Faces Several Big Obstacles

By KEITH BRADSHER
Published: February 23, 2010

HONG KONG — Hostility from Chinese regulators and financing problems are increasingly likely to scuttle plans by an obscure Chinese machinery company to buy the Hummer division from General Motors, people close to the negotiations said on Tuesday.

General Motors has already extended repeatedly its deadline for completing the deal, with the current deadline at the end of this week; the original deadline was last September. But the buyer, the Sichuan Tengzhong Heavy Industrial Machinery Company, has failed to win regulatory approval for the deal at a time when senior Chinese officials are trying to put a new emphasis on limiting China’s dependence on imported oil and protecting the environment.
Chinese banks are now pulling back from offers to lend money to Tengzhong for the deal and Western banks are leery of becoming involved, people close to the transaction said. Auto industry analysts are deeply skeptical the deal will be completed.

“The deal is on the ropes, if it’s not on the canvas yet,” said Michael Dunne, the president of Dunne & Company, a Hong Kong auto consulting firm.

Tengzhong is still trying to complete the transaction by setting up a subsidiary outside China to buy Hummer, according to Chinese media reports on Tuesday that were confirmed by people close to the deal. These people asked for anonymity because of the political and financial sensitivity of the deal.

“As long as they are talking, they are going to try to make a deal,” said one of these people.
General Motors and Tengzhong declined to comment.

Tengzhong had been prepared to pay $150 million to $200 million for Hummer, and would not assume debts as part of the planned transaction.

Providing new details on the proposed deal, people close to the negotiations said that the biggest obstacle to emerge in the last few days was not regulatory approval, as suggested by the Chinese media, but rather bank financing.

Regulators have informally agreed not to object if Tengzhong makes the purchase through an offshore subsidiary, said another person knowledgeable about the transaction. But if an offshore subsidiary is used, Hummer would not qualify as a Chinese company after the deal and would not be able to open a low-cost assembly plant in China any time soon to supplement production in the United States.

China only allows foreign automakers to set up 50-50 joint ventures with Chinese car companies, and each of these deals also requires individual approval from regulators.
While Tengzhong has the cash to pay for the Hummer brand, it needs bank financing to operate the division, redesign vehicles and set up new production facilities in China. Some of China’s biggest banks had agreed to provide that financing, but have now pulled out partly because they prefer to lend to projects with Beijing’s blessing and partly because of concerns about whether Hummer can be run profitably without a factory in China, one of the people close to the transaction said.

Tengzhong has been desperately trying to persuade Western banks in the last few days to lend it the money to operate Hummer while keeping it outside China, but has found little enthusiasm so far, this person added.

Hummer sales have plunged in the last two years because of the combination of high gas prices and the slump in the global economy.

G.M. had planned to keep making the Hummer H3 and H3T for Tengzhong through 2012 in Shreveport, La.

I found this article in the New York Times. I found it to be very interesting because though Sichuan Tengzhong Heavy Industrial Machine Company wants to purchase Hummer; it appears they are going through many obstacles.

If people in China are not custom to driving those types of vehicles, would they still try to market to the United States? Also mentioned in the article, China is starting to look into environmental effects caused from these types of large vehicles, so that is also putting a damper on this deal. Hummer's are definitely not environmentally friendly and the government may be concerned it will not thrive in China since it's having so much trouble in the United States.