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GM close to selling Hummer to Tengzhong for $150 million

8 October 2009 No Comment

General Motors Co., seeking to shed brands after emerging from bankruptcy, is nearing an agreement to sell its Hummer sport-utility vehicle business to China’s Sichuan Tengzhong Heavy Industrial Machinery Co. for about $150 million, said three people familiar with the deal.

The parties are trying to reach a deal today, said the people, who asked not to be identified because the negotiations are private. GM estimated the brand’s value at $500 million in bankruptcy court documents.

Selling Hummer would give GM tangible progress toward its restructuring plan after the sale of the Saturn brand to Penske Automotive Group Inc. fell through last week. For Tengzhong, a deal would propel the industrial manufacturer into the global auto industry.

“It’s important for GM to get some cash, without a doubt,” said Joseph Phillippi, president of AutoTrends Consulting Inc. in Short Hills, New Jersey. “Any appreciable amount they can get means more reserves, means keeping your powder dry until this economy improves.”

Tengzhong, based in Chengdu, China, said in June that it was in talks to buy Hummer as part of GM’s plans to shed half of the eight brands it sells in the U.S. The companies said the deal would protect more than 3,000 U.S. corporate, manufacturing and dealership jobs.

Regulatory Hurdles

The sale requires the acceptance of regulators in the U.S. and China. Tengzhong plans to apply for Chinese approval once a binding agreement with Detroit-based GM is made, one of the people said.

Nick Richards, a Hummer spokesman, and Christina Stenson, a New York-based spokeswoman for Sichuan Tengzhong, declined to comment.

Tengzhong will assume Hummer’s dealer accords and a senior management team, and it plans to use GM for contract assembly. The purchase is the first entry into the passenger-vehicle business for Tengzhong, a closely held maker of special-use vehicles, structural parts for highways and bridges, and construction machinery.

Credit Suisse is the financial adviser and Shearman & Sterling LLP is international legal counsel to Tengzhong. Citigroup Inc. is advising GM.

GM emerged from bankruptcy on July 10 and is keeping its Chevrolet, Cadillac, Buick and GMC brands for sale in the U.S.

Koenigsegg Automotive AB, the Swedish maker of exotic sports-cars, has agreed to buy Saab, while Pontiac and Saturn are being eliminated.

Hummer History

The automaker bought the license for the Hummer brand from AM General in 1999 and started selling the $140,000 H1, a 7,600- pound (3,400-kilogram) SUV patterned after the all-terrain military vehicle popularized for road use by actor Arnold Schwarzenegger, who is now California’s governor.

Rising gasoline prices eventually eroded demand. GM halted production of the H1 in 2006, when Hummer’s U.S. deliveries peaked at 71,524, according to Autodata Corp. U.S. sales of the SUVs, which start at about $31,000 for the H3, fell 51 percent in 2008 and 63 percent this year through September.

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