No deal, unless sanctioned by the government

By: Linda Luo   2010-03-10

General Motors officially gave up selling its Hummer brand to China's little-known Tengzhong Heavy Industrial Machinery Co., Ltd. (Tengzhong) late last month. The once sensational deal came to an abrupt end after nine months without much explanation.

GM stated that the deal "could not be completed" before the agreed deadline. Tengzhong said in a company statement that the deal failed because they could not get approval from the Chinese regulators. But a spokesman from the Ministry of Commerce said on February 25 that they had never received Tengzhong's application for the acquisition.

Tengzhong was picked as the savior of Hummer by GM just two days after the U.S. auto giant announced bankruptcy protection. GM president Fritz Henderson said in his blog that Tengzhong offered the best acquisition scheme overall. Although the private Chinese company has no automobile manufacturing license, the deal must be good news for its woeful owner at that time.

Tengzhong planned to enter passenger vehicle manufacturing through the investment, and even locally produce the Hummer SUVs in China. But the plan seemed to be "mission impossible" when China made it a national strategy to develop fuel-efficient and green energy vehicles.

Local media reports said that Tengzhong might have sent informal material to the Ministry of Commerce sometime last year. But the proper application procedure for any such deals would have to be initiated at the provincial-level authorities first. Tengzhong as a company cannot deal directly with the Ministry of Commerce.

Industry analysts doubted from the outset that the Hummer deal would be approved by the Chinese government. For little known Tengzhong, pursuing such a deal would be nice PR whether successful or not.

But GM, with many years of successful operations in China, should have known better that no major business deals could have happened without the sanction of the government. Unfortunately due to the pressure of restructuring, it had to keep its hopes up for the unlikely deal.

When asked about the prospects of the deal, Dr. Wayne Xing, publisher of this publication, told Detroit reporters during the January North American International Auto Show that Tengzhong did not have a good chance in receiving the green light from the Chinese authorities.