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Eyebrows raised over Hummer purchase

THE tentative deal for a little-known Chinese company to buy Hummer, a gas-guzzling SUV brand under General Motors, has triggered scepticism from some Chinese analysts.

Sichuan Tengzhong Heavy Industrial Machinery Co, which said last Wednesday that it was buying Hummer, has no experience in the passenger-vehicle market and mainly produces industrial machinery.

"I had never heard of the company and was surprised at the news," said Yang Cheng, general manager of Sanhe Hummer Sales Center, one of two branches that sells Hummer in Chengdu, capital of Sichuan Province.

Yang said he was not optimistic about the deal.

"Sales of some brands, including Hummer, have been dropping since General Motors reported financial trouble in 2005. Though new, energy-efficient models have been developed, they haven't been put on sale yet, possibly because of gloomy market prospects," Yang said after Tengzhong's announcement of the plan.

"To rejuvenate the brand, the buyer will have to put a lot of money into research, development and marketing," Yang said.

Zuo Xiaolei, an economist with China Galaxy Securities, said the bankruptcy of General Motors was related to the amount of gas most of its models consumed.

"Producing gas-guzzling brands is against the current trend toward energy-saving and emissions-reduction," Zuo said on Saturday.

"(Tengzhong) has no experience producing passenger vehicles, which adds to the difficulties it faces in managing the brand."

Wang Yukun, a researcher with the Yangtze River Delta Research Institute under Beijing-based Tsinghua University, said it would be hard for the buyer to "digest" Hummer.

"Tengzhong plans to maintain the current management team for Hummer and develop more energy-efficient models, but this is just a fantasy. If the current team could prevent the brand from slumping in any way, they would have done so before," Wang said.

"Some companies just look at the size of a business and the fame of its brand and make acquisitions as a shortcut to grow and boost their brand," said Wang. "For example, Lenovo purchased IBM's PC business, but it still reports losses for the business now."

Retain employees

"It's difficult for a company to digest something dumped by others," Wang said.

The transaction is expected to close in the third quarter of this year and is subject to closing conditions and regulatory approvals, said a statement from Tengzhong.

Tengzhong will retain Hummer's 3,000 employees, the statement said.

The financial details of the deal will not be made public at the moment.

A poll conducted among 56,000 respondents by China's leading Internet portal showed 49.4 percent were not optimistic about the purchase, and 40.2 percent supported the purchase.

"Chinese companies should not buy companies that are already failing in the market and be rational in acquiring overseas brands," commented one Netizen.


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