GM fails to win approval from Chinese regulators to sell Hummer brand

  General Motors Co. failed to win approval from Chinese regulators to sell its Hummer brand to Sichuan Tengzhong Heavy Industrial Machinery Co., said two people briefed on the deal.

A government agency indicated that it won’t provide approval for Chengdu, China-based Tengzhong to purchase the Hummer line of sport-utility vehicles from GM in China, said the people, who asked not to be identified because the decision hasn’t been made public.

A rejection would mark the latest hurdle for Tengzhong as it seeks to tap into China’s expanding market for passenger vehicles. The government is promoting small cars by reducing the sales tax on those with 1.6 liter engines or below, compared with the military-style Hummer that can weigh as much as 7,600 pounds (3,400-kilograms).

“It’s only normal for the Chinese government not to approve the deal,” said Lin Huaibin, a Shanghai-based analyst for IHS Global Insight. “To allow this type of vehicle on a large scale isn’t in line with government policy.”

Reports that China’s government blocked Tengzhong’s bid to buy GM’s Hummer unit are “not accurate,” Wang Chao, assistant commerce minister, said today at a briefing in Beijing. China’s Ministry of Commerce has not yet received an application for the acquisition, Wang said.

Commerce Ministry

The commerce ministry vets all overseas investments worth more than $100 million. Smaller deals go through local regulators. The State Administration of Foreign Exchange also looks at all overseas investments by Chinese companies.

Hummer CEO James Taylor and Christina Stenson, a spokeswoman for Tengzhong in New York, each declined to comment.

Chinese and Western banks are backing away from funding the deal, the New York Times reported yesterday, citing people close to the transaction.

Extending Deadline

GM and Tengzhong agreed Jan. 31 to extend the deadline to complete the deal until the end of this month while they await regulatory approval.

Suolang Duoji, Tengzhong’s investment partner in pursuing Hummer, has holdings that include 38 percent of Hong Kong-based Lumena Resources Corp., according to data compiled by Bloomberg.

China is also encouraging automakers to build more fuel- efficient cars, including hybrids, to help win sales overseas and to reduce oil imports and pollution at home. The 3.7-liter Hummer H3T gets 14 miles to the gallon in city driving, according to the U.S. Environmental Protection Agency.

Incentives for smaller cars combined with rural subsidies boosted nationwide sales in China last year to 13.6 million, helping it supplant the U.S. as the world’s largest auto market.

Tengzhong has said it wants to extend Hummer into China and other expanding markets outside the U.S., which accounted for about two-thirds of the brand’s sales under GM. It also wanted to target more fuel-efficient model to revive the sport-utility vehicle brand, Chief Executive Officer Yang Yi said in June.

U.S. Jobs

The deal is expected to secure more than 3,000 U.S. jobs related to the manufacture and sale of Hummer vehicles, Tengzhong said.

“The key element here is that both parties want to do the deal,” said Rebecca Lindland, an analyst with IHS Global Insight in Lexington, Massachusetts. “None of these deals to sell car brands are simple. If they still want to do it, it’s still possible it will happen.”

Hummer is among four brands, along with Pontiac, Saab and Saturn, that Detroit-based GM is unloading to focus on Chevrolet, Buick, GMC and Cadillac in the U.S. after exiting bankruptcy on July 10.

Tengzhong, a privately owned maker of special-use vehicles, structural components for highways and bridges, and construction machinery, agreed to buy the Hummer brand from GM in October. The transaction is worth $150 million, people familiar with the deal said at the time, about 70 percent less than GM valued it in court.

Arnold Schwarzenegger

GM bought the license for the Hummer brand from AM General in 1999 and started selling the $140,000 H1, an SUV patterned after the all-terrain military vehicle popularized for road use by actor Arnold Schwarzenegger, now California’s governor.

While the H1 never sold more than 875 units a year, the model won enough of a following for GM to add the 6,600-pound H2 in 2002. The 4,700-pound H3 followed in 2005. GM also started building the H3 in South Africa in 2006 for Europe, the Middle East and Africa.

Rising gasoline prices eventually eroded demand. GM halted production of the H1 in 2006 as sales dwindled.

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