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Thursday, June 04, 2009

China buys Hummer: Simply stupid!

I don't know what's the drive behind the purchase. But unless the Chinese company can make Hummer gas efficient and clean in the already very polluted country, the purchase was simply stupid.  I hope Chinese government won't let the deal pass.

Comments from Wall Street Journal:


A Rough Drive With the Hummer

The idea of an obscure Chinese heavy equipment maker buying up Hummer is entertainingly left field for most onlookers.

Chinese government officials will likely be tearing their hair out.

For sure, Beijing is keen for Chinese companies to expand overseas. But they're also hoping for some common sense.

Vice Premier Wang Qishan recently railed against Chinese acquisitions made by managements with little overseas experience, in markets where they don't understand labor relations or even the language.

Yet here is Sichuan Tengzhong Heavy Industrial Machinery – a company whose key overseas markets are Vietnam, Pakistan, and Bangladesh, and whose management speaks little English – venturing to turn around a struggling American icon.

Having a Chinese company bid for the mother of all gas-guzzling car manufacturers isn't exactly a snug fit with Beijing's efforts to promote a more environmentally friendly image for the country.

Those familiar with the so-far unheralded Sichuan Tengzhong point to its decent track record in manufacturing a variety of industrial products, having steadily accumulated businesses in China.

The bid for Hummer, it's said, has been carefully considered, with due attention to cultural differences: The Chinese company will leave Hummer management in place, treating the deal almost like a private equity investment.

That's as it may be. But the track record of cross-border auto sector deals, especially in niche markets like the Hummer, isn't great.

Tata Motor's travails with Land Rover and Jaguar spring to mind as recent less-than-favorable examples. Hummer's market even in the U.S. is fading fast, with sales halving last year.

Sichuan Tengzhong's bet is that the market can recover: the Hummer may seem antediluvian these days, but there may be enough takers when the economy recovers.

In financial terms, this is a small deal, even at the upper end of the estimated $500 million price tag.

But it's a deal rich with symbolism. That won't have escaped the Chinese leadership – the pressure is truly on Sichuan Tengzhong to make this deal a success.