Sunday, June 7, 2009

Who Knows Hummer? How about Tengzhong?

Yesterday, my sister Maple sent me an email from Shanghai,saying the news that a Sichuan private enterprise is purchasing Hummer sparked a huge reaction in China, even students in her art class kept commenting on it. "'America is finished,'said one. 'That [Sichuan] enterprise surely will produce a Hummer brand steam roller,' said another. et cetera. I don't know what Hummer's status is in the mind of Americans; in China it represents the life style of the highest-level bourgeoisie. It seems that, to car lovers, owning a Hummer is like owning the entire world."

I had seen the Hummer news, but it was my sister's email that got me really interested in the deal. Even though it is not a done one yet (it still awaits government approval, and the government doesn't sound happy about it), people in China seem to be very excited. One reason is that the Sichuan enterprise named Tengzhong Heavy Industrial Machinery Co. is an "obscure China firm," as WSJ calls it (I couldn't read the complete article because I'm not a subscriber). Given the competitive attitude between Chinese and Americans, an obscure China firm dares to acquire a big American (though bankrupt) brand, it is kind of newsworthy. But what more is in it beyond emotion? Here are some things I found on the Chinese internet:

Where did Tengzhong get the money to purchase Hummer? says part of it was from Morgan Stanley. Behind Tengzhong is the 12-year-old Huatong Investment Ltd., says. In early 2008 Morgan Stanley helped Huatong to finance its IPO by purchasing under 20% of its stock, paying US$80 million and issuing $200 million in bonds; that's a total of $280 million.

The report seems to imply that the provincial government of Sichuan supports the deal, but not the central government: "A relevant government official disclosed that, a Sichuan province leader once orally mentioned the Hummer acquisition business to a relevant committee of the Party central, but got a rejection on the spot." The reasons? "The government encourages our enterprises to acquire or merge with foreign enterprises that make parts, but not enterprises that manufacture entire cars. This is based on the consideration of cost and future operation issues."

According to the report, Tengzhong will spend $1 billion on this project, of which 0.55 billion goes to Hummer, and the remaining 0.45 billion will be used in building a new assembly line in Chengdu.

Reactions on the internet are varied. Here are a few views:

From For a long time, China's automobile industry has been under constraints of Western countries' big brands. Now Tengzgong dares to acquire a big brand, no matter what the result, it shows private enterprises is are leading the revitalization of Chinese automobile industry. reruns a report that says the registered capital of Tengzhong is only 300 million RMB (about US$ 44 million), and some people suspect this whole thing is hype.

A skeptical report from raises the question whether this is a two-man show played by Tengzhong and Hummer.

Nanfang Daily reports that a poll shows over 50% out of 70,000 netizens think this a lose-money deal. Another report calls it "a snake swallowing an elephant."


pug ster said...

TengZheng Heavy Machine Insdustrial Co. doesn't sound like a sexy name anyways. I won't be surprised that they would change their name to Hummer and they could probably work with another Chinese car company to produce cars under its name.

Thomas said...

According to a report in the Financial Times (German edition) a few days ago, the purchase price was revised downwards to 100 m US$, and everything is still "tentative".

Anonymous said...

Just wonder what makes you tell that 'people in China seem to be very excited', while I saw a lot of people just think it's stupid and more like a hype?

Magnus said...

Lots of questions that everyone has! I also heard shortly afterward that America won't let this happen... but who knows. check out the comic that was inspired by the story! hummer made in China from June 5th... on MandMX dot com

Anonymous said...

Since you mentioned not knowing what the status of the Hummer is in the mind of Americans, I thought I'd throw in my two cents as an american from Northern California. A good portion of americans regard hummers as atrocities and definitely do not see them as the epitome of the high life. Albeit, it is easy to see how citizens of another country may come to see them that way because they indeed are the epitome of senseless waste, an unfortunate characteristic of some portions of american society (not all). In truth, though, some americans do view them as status symbols but I'd like to believe that these are mainly the newly rich who go for expensive toys and brands just to show off rather than an intelligent person who is willing to spend a lot, but only on things that are inherently high quality and enjoyable that retains it's worth even if all branding is removed. Status symbols and showing off is for people pretending to have more money than they actually have.