A deal sours, and the Hummer bites the dust

Thursday, February 25, 2010 - 10:55am

GM's efforts to sell its Hummer brand to a little-known Chinese company have fallen apart, the U.S. automaker announced Wednesday. As a result, GM will begin to dismantle a brand of gas-guzzling SUVs that were synonymous with pre-financial crisis wealth and excess.

Specific reasons for the failure of the deal, first announced last June, were not released. But Chinese regulators had frowned on the purchase for much the same reason that U.S. consumers shunned Hummer; the vehicles size and poor fuel economy were incompatible in an era of high fuel prices, general economic weakness and greater concern about the harmful effects of vehicle emissions on the environment. (See the 50 worst cars of all time.)

The Chinese government also wants to control a sprawling domestic auto industry that has expanded to more than 100 carmakers nationwide. The purchase of Hummer by Sichuan Tengzhong Heavy Industrial Machinery, a private company that manufacturers heavy vehicles and road building equipment, would have only contributed to the diffusion. "The purchase of this brand is not a match for China," says Yale Zhang, a China market analyst auto-industry consultants CSM Worldwide. "The government's general policies about efficiency and environmental protection and number two about consolidation, it is all about these two very broad, general policies. This purchase does not match those."

The Chinese company indicated that it wanted to put the Hummer on a diet and produce a leaner, more fuel-efficient version of the behemoth vehicles, which topped out at 15 miles per gallon for the once-popular two-and-a-half ton H3 model. A descendant of the U.S. military's humvee, which was built by AM General, Hummer peaked in popularity in 2006, when it sold more than 70,000 vehicles. By last year sales had fallen to 9,000. (See pictures of the best-selling cars in China.)

GM first put the brand up for sale in 2008, hoping to raise as much as $500 million. The Tengzhong offer was estimated to be closer to $150 million. "We have since considered a number of possibilities for Hummer along the way, and we are disappointed that the deal with Tengzhong could not be completed," John Smith, GM's vice president of corporate planning and alliances, said in a written statement released Feb. 24. "GM will now work closely with Hummer employees, dealers and suppliers to wind down the business in an orderly and responsible manner."

Over the past year China has encouraged the sale of economy cars. As part of its stimulus efforts, the government halved taxes on vehicles with engines smaller than 1.6 liters. Combined with the relative health of the Chinese economy, car sales soared. In 2009 mainland consumers bought more vehicles than their American counterparts, making China the world's largest car market for the first time. Even so, Hummer was a little too big for their tastes.

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