Almost three months after disclosing its initial agreement signed with General Motors on the purchase of the Hummer brand, Sichuan Tengzhong Heavy Industrial Machinery Co. has yet to clear the deal with government regulators in China.
During this time, doubts about Tengzhong?s motives and the wisdom of its purchase have grown; both inside government think-tanks and in the domestic media.
Some commentators say Tengzhong made its bid to garner publicity. Others are of the opinion that it is socially irresponsible for a Chinese automaker to acquire a car that has become the very symbol of gas guzzling.
Well, I beg to differ. As long as it abides by all the existing rules and regulations, a private company like Tengzhong has the right to take its own risks and decide what it wants to own. For that reason, the government should allow the deal to happen.
Although the terms of the transaction have not been disclosed, I believe Tengzhong has good reasons for buying the troubled U.S. brand.
Tengzhong executives and the deal?s instigator Mr Li Yan (also known as Suolang Duoji) are smart and successful businessmen. They have made many mergers and acquisitions on the domestic market.
They alighted on Hummer for purely commercial reasons. According to sources interviewed by Automotive News China, Tengzhong?s owners were working with Credit Suisse in Hong Kong on another deal when the European investment bank told them Hummer was for sale.
These people believe the Hummer brand will be a good investment and they are willing to take a long-term approach towards reviving it.
Through investment and patience, they believe they can solve the twin challenges of re-engineering the vehicle to meet new fuel efficiency standards in America, and designing a localized range of Hummers to satisfy increasing demand for SUVs in the China market.
On top of these considerations, there is another reason why government regulators should give the go-ahead to the deal. Whatever its outcome, it would offer valuable lessons to other domestic Chinese companies wanting to go international.
Auto manufacturing is a highly globalized industry. To survive in the long term it will be essential for Chinese automakers to expand abroad; especially into the markets of the developed world.
One way to make this expansion would be through the successful takeover and incorporation of a first-world automaker. Yet no Chinese company has managed this so far.
Nanjing Automobile (Group) Corp. failed to return the MG brand to profitability after it acquired it in 2005. Shanghai Automotive Industry Corp. was deprived its control of Ssangyong Motor Co. earlier this year after Korean SUV maker filed for bankruptcy protection. Beijing Automotive Industry Holding Corp.?s bidding for Opel was rejected by GM in July.
It is no coincidence that all three of these pioneers in the acquisition of foreign automakers have been state-owned companies.
One big difference between a state-owned company and a private one when making overseas acquisitions is that the former can draw on government-arranged funding while the latter has to come up with finance on its own.
Now we see a private Chinese company willing to risk its own money to acquire an international brand in the auto industry.
However risky it is, such an effort should be respected, instead of being blocked.
Source: http://www.gopctex.com/2011/tengzhong-deserves-a-chance-to-try-its-luck-with-hummer/
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