GM in advanced talks with China’s Tengzhong over Hummer sale

General Motors first confirmed the sale of its Hummer brand last August and followed up the announcement with the release of an official document for potential buyers just one month later. Poor sales, growing public concern for the environment and the recession have all added up to weaken Hummer's sales chances, but there is hope that a company based in emerging markets like China, India or Russia could still be interested.

Today, GM, which entered bankruptcy proceedings earlier this week, confirmed that it has entered advanced talks with China’s Sichuan Tengzhong Heavy Industrial Machinery Co. (Tengzhong) over its Hummer sale, and has also signed a memorandum of understanding (MoU). The sale is expected to close by the end of third quarter of this year and is subject to customary closing conditions, including receipt of applicable regulatory approvals.

The deal is expected to secure more than 3,000 U.S. jobs in manufacturing, engineering and at Hummer dealerships around the country. The transaction also includes plans by the investor to aggressively fund future Hummer product programs, including possibly a compact H4 model.

Under terms of the MoU, Tengzhong will acquire the rights to the Hummer brand, along with a senior management and operational team. It will also assume existing dealer agreements relating to Hummer’s dealership network. It is contemplated that Tengzhong will, as part of the transaction, enter into a long-term contract assembly and key component and material supply agreement with GM. Hummer will continue to maintain its headquarters and operations in the U.S., and will continue to be managed by its existing leadership team. The team intends to expand Hummer’s dealer network worldwide, particularly into new markets such as China.

Hummer will also continue to contract vehicle manufacturing and business services from GM during a defined transitional time period. For example, under the proposed agreement, GM’s Shreveport Assembly plant would continue to assemble the H3 and H3T through at least 2010.

Hummer brand vehicles sold 62% fewer vehicles in May 2009 than they did the year before, and overall sales are down almost 40% through the first half of the year. Hummer’s dealers have expressed their displeasure with the public way GM has chosen to handle the sale, arguing that airing the nameplate's dirty laundry won't help it weather the short term. Whether the brand can survive in the long term - whoever ends up owning the name - will depend on its ability to adapt to the changes facing the industry as a whole.

Based in the Chinese province of Sichuan, Tengzhong is a privately-owned company and a leading domestic manufacturer of road, construction and energy industry equipment.