China’s Hummer acquisition makes no sense

By Cong Cao
Column: Notes on China

Published: June 09, 2009

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New York, NY, United States, — On June 2, one day after General Motors filed for bankruptcy protection, Tengzhong Heavy Industrial Machinery, a little-known Chinese company located in the hinterland Sichuan province, announced that it would buy Hummer from GM. While this may be music to the ears of GM, the Chinese move doesn’t make sense.

Hummer is a brand inspired by or mimicking Humvee, the tough U.S. military vehicle. However, Humvee is made by AM General, a company not related to GM. That is, Hummer has nothing to do with the military brand and is unlikely to have technology spun off from Humvee that the Chinese military may be interested in acquiring.

More problematic is that although Tengzhong will own the brand, the operations – manufacturing, sales and management – will stay in the United States. In other words, Tengzhong will not only put money into a business that was abandoned by GM – apparently for its failures on the financial front – more than a year ago, but will also help keep some 3,000 jobs in the United States.

Established in 2005 as a privately owned engineering company, Tengzhong has expertise in the manufacturing of heavy machinery equipment such as special-use vehicles, road and bridge construction equipment, and construction and energy industry equipment. It is understandable, therefore, that the company needs help in its transition to a different business. Even if it uses its own money, to borrow a Chinese saying, the purchase is like buying fireworks but letting others shoot them off.

There is no denying that Chinese car lovers are enthusiastic about owning a Hummer, the symbol of American might and culture. For example, a female Chinese friend of mine once indicated that she would like to drive a Hummer. The fact of the matter is that, although many newly rich Chinese could afford a Hummer and would love to have one to show their status, the total number of Hummers sold in China between 2002 and 2008 was less than 350. In fact, in 2008 only 27,500 Hummers were sold in the United States, down from a high of 71,000 in 2006.

Therefore, the Hummer brand will be financially unsustainable in the future, as it is already. If Tengzhong acquires it, it will end up putting money into a bottomless pit.

Moreover, the Hummer is an environmental failure. The brand is notorious for fuel consumption and its demise in the United States and elsewhere has corresponded to the dramatic rise in fuel prices in recent years. The stalled sales of Hummers in China might also suggest that it is not politically correct to drive a Hummer on Chinese roads.

On one hand, China has been under great pressure to clean up its environment and to alleviate its dependence on foreign oil; on the other, its recent moves in granting tax breaks and subsidies to greener, smaller vehicles has clearly pointed the direction for China’s car industry. Given these facts, the Hummer acquisition definitely runs counter to mainstream concerns.

In a word, Tengzhong’s intention to acquire Hummer from GM is irrational and irresponsible financially, politically and environmentally.

(Cong Cao is a senior research associate with the Neil D. Levin Graduate Institute of International Relations and Commerce at the State University of New York. He received his PhD in sociology from Columbia University in 1997 and has worked at the University of Oregon and the National University of Singapore. Dr. Cao is interested in the social studies of science and technology with a focus on China. ©Copyright Cong Cao.)