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Hummer deal doesn't clear some issues

(China Daily)
Updated: 2009-10-14 07:59

General Motors signed a deal on October 9 to sell its famous Hummer brand to Sichuan-based Tengzhong Heavy Industrial Machinery. But payment and the absence of technology transfer are worrisome parts of the deal, says an article in Beijing News. Excerpt:

The most controversial part of General Motors' (GM) deal with Tengzhong Heavy Industrial Machinery, of Sichuan province, to sell its Hummer brand is payment and absence of technology transfer.

Since the financial aspects of the deal have not been made public, we can only guess its terms on the basis of media reports. Associated Press said Tengzhong bought Hummer for 1.02 billion yuan ($150 million), which amounts to three times the buyer's registered capital. Even if a calculation is made on the average asset-liability ratio of Chinese industrial enterprises (about 50 percent) Tengzhong has to make a down payment of 409.5 million yuan ($60 million). We can't help thinking whether this will throw the Sichuan-based company in a vortex of debt?

Related readings:  Tengzhong has a bumpy road ahead to break in Hummer  Hummer deal nod likely soon  Iconic Hummer brand sold to Chinese manufacturer  MOC: No application for Hummer deal made

The absence of technology transfer in the deal is confusing, too. Though Tengzhong has bought Hummer, it hasn't bought the core technology needed to make the vehicles. It is true that the original equipment manufacturer can help solve this problem. But proprietary technology is the soul of manufacturers with high technology content. In the technology intensive vehicle industry, will Tengzhong end up borrowing technology from others forever?

What makes the problem even more complex is the US-China relationship. In fact, the US, home of GM, has been trying to prevent Chinese firms from taking over American companies. Because of this, Chinese firms and relative departments both should take note of the potential political risks involved in deals such as the one for Hummer.