MacFadyen: Hmmmr
June 3, 2009
When Chinese manufacturer Tengzhong emerged as the buyer for GM’s Hummer unit, it surprised at least a few dealmakers. Why would a Chinese maker of industrial vehicles and machinery want to buy a gas-guzzling SUV brand? My first instinct is that it was a concession that China’s infrastructure and highways still need some work, but there are at least few reasons why this deal could make sense, all of which don’t necessarily overshadow the difficulty Tengzhong will have making it work.
Mergers & Acquisitions actually wrote about this for the most recent cover story.
At its core, the premise behind this deal may not be too far off from the acquisition of Delphi’s brakes unit by BeijingWest. With a wind at its back, provided in large part by the Chinese government’s stimulus efforts, China has become the world’s largest market for automobiles. Of course, the government’s tax cuts for fuel efficient autos may not help Hummer, but the purchase will give Tengzhong a brand to build around to compete with homegrown players such as Shanghai Automotive Industry Corp., Chery Automobile and Geely Automobile.
Beyond the brand, Tengzhong is gaining the IP necessary to enter the automotive space. And the leap from the “special-use” vehicles the company already makes to Hummer may not be that large, considering that only in recent years has the brand become synonymous with housewives and rappers.
So where might Tengzhong trip up? Chinese buyers have historically had a tough time capturing the value of major brand purchases. TCL, BenQ and Lenovo all have some stinkers to point to.
They key to Hummer, though, may be in its intellectual property, and that’s why some deal pros anticipate Chinese buyers are going to be particularly active suitors of US distressed assets.
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