Archive for October, 2009

GM Agrees to Sell Hummer

General Motors has reached an agreement to sell its Hummer brand to Sichuan Tengzhong Heavy Industrial Machinery, the company announced Friday.

The American automaker, now largely owned by the U.S. government, has been shedding brands in an effort to refocus its operations.

It recently announced that it would wind down the Saturn brand.

The price for Hummer was not disclosed, but according to sources familiar with the negotiations, it was $150 million, far less than the $500 million price once envisioned.

For a transition period, GM will continue to make Hummers and help manage the company in a deal that will “secure” more than 3,000 U.S. jobs, according to GM.

“Hummer is a strong global niche brand and this agreement signifies another important milestone in writing the next chapter for both GM and Hummer,” GM chief executive Fritz Henderson said in a statement.

The transaction is subject to regulatory approvals by government agencies in the United States and China, the company said.

If the deal is consummated, GM’s plants in Shreveport, La., and Mishawaka, Ind., will continue to make the vehicles until June 2011, with an optional one-year extension.

Tengzhong intends to buy Hummer through a company in which it will hold an 80 percent stake. Suolang Duoji, a private entrepreneur, will hold the other 20 percent stake, GM said.

Tengzhong expects to spend an additional $800 million to $2 billion to bolster Hummer and establish a manufacturing facility in China, said one of the sources, who asked to remain unnamed to preserve business and government relationships.

The source said Tengzhong has ambitious plans for Hummer, perhaps including a cheaper mass-market version for Chinese motorists.

“How can Tengzhong run an auto business?” he said. “It’s like a child riding a bicycle and the agreements with GM are the training wheels.”

The gas-guzzling Hummer was a lucrative GM brand when fuel prices were low in the early part of the decade, but last year’s spike in prices dampened demand.

GM vowed when it went into bankruptcy earlier this year that Hummer would be one of the brands it would sell. At the time, it estimated that it might receive as much as $500 million for the line of off-road vehicles.

Tengzhong’s quest to acquire Hummer has been seen by many as a test of China’s commitment to reining in emissions of greenhouse gases. Some observers expect China’s regulators to bar the acquisition.
Sourced via washingtonpost.com

Motorbike Funnies

Tengzhong may finalize Hummer deal Friday

Chinese carmaker set to pay GM about $150-million

China’s Tengzhong may finalize a deal to buy General Motors Co.’s Hummer business for about $150-million (U.S.) on Friday, a source familiar with the deal said, China’s biggest brand acquisition since Lenovo bought IBM’s PC unit in 2005.

A completed deal would also mark the first major acquisition of distressed U.S. auto assets in the global downturn by Chinese firms seeking to acquire high-profile names and Western technology.

“GM and Tengzhong may close the deal as early as today,” the source with knowledge of the talks told Reuters. GM declined to comment and Tengzhong could not be reached immediately for comment.

The Hummer sale is part of a drastic restructuring plan by the Detroit auto maker, which also involves the disposal of its Saab, Opel and Saturn operations as part of a government-sponsored bankruptcy recovery plan.

Sichuan Tengzhong Heavy Industrial Machinery, a little known heavy machinery maker, has been in detailed negotiations with GM since it announced an initial plan in June to acquire the rights to the premium off-road Hummer brand from its U.S. owner.

Tengzhong still needs approval from the Chinese government, including the Ministry of Commerce, which industry and government officials say holds the ultimate authority over the deal.

“I think the Tengzhong-Hummer deal is very likely to go through as commerce ministry officials had said repeatedly that overseas acquisitions would be rational behaviour amid the global financial crisis,” said Yi Junfeng, an analyst with Changjiang Securities.

Many of China’s fledgling automakers, including Geely Automobile Holdings, are keen to establish a global profile and secure quick access to technology, and are taking a look at established global brands put up for sale by industry giants struggling to survive the recent slump.

They have often confronted obstacles to buying nationally prominent overseas names, however, with media reporting of opposition in Sweden to a sale of Ford Motor’s Volvo car unit to the Chinese. Geely had in September confirmed its interest in the Swedish brand.

Other Chinese industries have also confronted problems in their efforts to acquire Western brands and assets.

Deals for sensitive U.S. technology and energy assets have been derailed by political opposition, with even the successful $1.25-billion purchase of IBM’s PC business by Lenovo Group in 2005 running into issues. The U.S. State Department limited the use of thousands of computers purchased from Lenovo due to security concerns.

Tengzhong, which harbours ambitions to break out of its southwest China base where it makes infrastructure equipment, is expected to retain Hummer’s existing senior management and operational team, saving more than 3,000 U.S. jobs, according to terms of a preliminary agreement.

It will also keep the dealership network of the U.S. sport utility vehicle unchanged. Hummer is currently sold in more than 30 countries, including China.

Bankers familiar with the situation have said Hummer could fetch about $100-million of cash in addition to other commitments, far less than the $500-million GM had expected Hummer to bring when it went on sale in June 2008.

It would also be the first successful purchase of a famed Western auto brand by a Chinese company following recently aborted acquisition attempts by other Chinese auto groups, including Beijing Automotive Industry Holdings’ (BAIC) failed bid for Opel.

BAIC was shut out of GM’s discussions with other bidders for Opel but later reached a tentative pact to take a minority stake in Swedish luxury sports car maker Koenigsegg, which had struck a deal to take over loss-making Saab from GM.

Sourced vai theglobeandmail.com

‘Future of SA’s motor industry under threat’

THE “honeymoon period after the miraculous transformation” of South Africa is about to end – and to attract investment and survive the country’s motor industry must become world competitive within a very short period of time.

That was the “clear truth” delivered by National Association of Automobile Manufacturers (Naamsa) president David Powels to 350 delegates at an Automotive Week conference in Mandela Bay yesterday.

And the survival of the industry depended on efficiencies improving not only in the industry but in all sectors.

He said Transnet needed to cut its costs dramatically as its charges were up to 10 times more than in China. Ports there charged $80 (about R600) a 40-foot container, while local ports charged $821 (R6150).

Powels, the managing director of Volkswagen in Uitenhage, was also highly critical of government plans to impose “punitive penalties” on motorists whose vehicles did not comply with high- level emission standards. He was equally critical of local oil companies which said they could not provide the quality of fuel the low-emission engines required, describing it as a “disgraceful situation”.

Powels urged a review of the planned legislation and a change of attitude by the oil companies.

Commercial banks also came under fire for being too restrictive in their lending practices, and he called for them to review their policies.

Overall, Powels said, the motor industry needed help to survive and solutions had to be found in the next two years.

A combination of global over-supply, high costs, low productivity, a lack of certainty over government support and the collapse of the market were all threatening the future of the domestic industry.

“There must be a clear acknowledgement of the seriousness of the situation,” he warned.

South Africa had suffered a 47% drop in the local market from the peak of more than 600000 vehicles a year to 453000 now.

Exports had also dropped by 39%.

Powels said it was becoming increasingly difficult for locally based manufacturers to justify the continuation of operations in this country when the same vehicles could be imported from places like China or India at a lower overall cost.

“In the global context”, the South African market made up less than 1% of total vehicle sales.

But Powels was confident solutions could be found, and assured delegates – the majority of them senior executives in the local component, vehicle manufacturing and retail industries – that the industry was determined to survive.

“We haven’t given up,” he said, adding that “silver bullets” should be provided to help ensure survival.

These should include:

Average produced volumes per platform being increased to more than 50000 and ideally from 75000 to 100000 units

Local content levels increasing to 70%.

Supplier competitiveness improving at least to the levels of Western Europe in two to three years.

A major “industrialisation strategy” being adopted by the supplier industry, with government support.

Productivity improving dramatically from 20 cars per employee a year to 30.

“Massive investment” being made in training and skills development at all levels.

Meanwhile, in one major setback at the conference, senior union representative Irvin Jim cancelled his participation at the last minute.

Sourced via weekendpost.co.za