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February 26, 2010

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China decides - no deal on Hummer sale

GENERAL Motors Co will wind down its iconic but tarnished Hummer brand after a US$150 million bid by an obscure southwest Chinese machinery maker to buy the money-losing SUV line collapsed.

GM had been trying to complete the deal by the end of February after reaching a definitive agreement in October to sell Hummer to Tengzhong, a little-known heavy-machinery company based in Sichuan Province.

The collapse of the deal represents another setback for GM, which had been working to shed unprofitable models and focus on its four core brands - Chevrolet, Cadillac, Buick and GMC - after emerging from bankruptcy last July.

The closure of Hummer would put about 3,000 jobs at stake, including workers, dealers and staff members, Reuters quoted GM spokesman Nick Richards as saying.

"We have considered a number of possibilities for Hummer along the way, and we are disappointed that the deal with Tengzhong could not be completed," John Smith, GM vice president of corporate planning and alliances, said in a statement.

Questions raised

GM would continue to honor Hummer warranties, while providing service support and spare parts to Hummer owners around the world, Smith said.

Tengzhong said it and GM had decided to terminate the deal after failing to win regulatory approval within the proposed time frame.

Industry experts and sources with knowledge of the situation told Reuters Tengzhong had faced questions in China over how a firm with no international experience could buy and turn around a struggling foreign brand like Hummer.

Many also said that regulators might balk at letting a Chinese firm acquire a United States company known for making gas-guzzling vehicles at a time when China was emphasizing the development of more environmentally friendly technology.

The privately owned Tengzhong was formed in 2005 through several mergers and has fewer than 5,000 employees.

Limited impact

Analysts said China would remain open in encouraging overseas acquisitions as long as they were in line with long-term industry strategy.

"I am not surprised at the final result," said independent auto analyst Zhong Shi.

Yao Jian, spokesman for the Ministry of Commerce, said at a briefing yesterday in Beijing that the ministry had yet to receive a formal purchase application from the Chinese company.

He also indicated that Tengzhong's proposal failed to provide information about its investment model and fund-raising plans.

Chinese car makers have sought overseas acquisitions since last year when the global economic crisis prompted international rivals to cut operations and save costs.

"The failure of the GM-Tengzhong deal is not expected to cause a negative impact on other overseas purchases," Zhong said.

"China is still encouraging overseas acquisitions but the focus is on advanced, green technology."

China's Geely Holdings Group, for example, has been selected as the preferential buyer of Ford's Volvo unit.

Geely said it had received tentative government support, including financial aid.


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