The General Motors/Sichuan Tengzhong deal to sell Hummer is “frankly more than a little puzzling”, IHS Global Insight auto analyst Aaron Bragman said in a note to clients on Monday.
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“The entire deal is frankly more than a little puzzling, given what it entails exactly,” he wrote. “For the rumoured sum of US$150m, Sichuan Tengzhong is taking a back door route to becoming the first Chinese automaker present in the United States.
“But Sichuan Tengzhong is not an automaker. The only thing that the company brings to the party is money, and although money may help Hummer, it will not change the brand’s situation anytime soon. The company now has basically two years to find a way to engineer, build, and deliver its own vehicles, or to work out a deal with another automaker to build and deliver some trucks.”
Bragman noted that GM has said it will build and assemble Hummers for two years under contract but after that “it (understandably) is no longer interested in propping up the brand”.
“This was the same basic condition that led to the collapse of the deal for Penske Automotive Group to buy Saturn; Roger Penske was unable to find a partner that could deliver vehicles in the incredibly short timeframe of two years. How Hummer is going to do this is still unclear,” Bragman said.
He added: “Moreover, Hummer faces a massive marketing problem. The brand must find a way to deal with the fact that big, massive SUVs have fallen out of favour with the US public, which is now moving downmarket into smaller crossover and sedan segments.”
“Sad to say, but Hummer is a damaged brand in the United States, and has never been viewed favourably by the majority of the developed world outside of the US market. The Chinese government has even stated its opposition to Sichuan Tengzhong going forward with this investment, but GM maintains that the word from the Chinese government now is positive, and that the deal is proceeding as planned,” the London-based analyst wrote.
“The company’s environmental credentials are non-existent (E85-capable vehicles are irrelevant, as nobody fills up with E85 given its poor fuel economy results), as any benefit from having flex-fuel vehicles is far overshadowed by the fact that Hummer’s biggest offering (the H2 SUV) is classified as a medium-duty commercial truck because of its weight and is therefore not even required to publish its fuel economy results.
“Given the enormous barriers to success that Hummer faces, it becomes clearer why certain elements within the Chinese government have voiced their opposition to the Sichuan Tengzhong deal to acquire the brand.
“Hummer’s one chance at success may centre on it reinventing itself. It is true that few brands have such an ‘outdoorsy’ image as Hummer (with the exception of Jeep), but in order for Hummer to have any relevancy in a new global environment where ecological friendliness and sustainability are major concerns around the world, it must somehow change its image from ‘flatten the wilderness’ to ‘flatter the wilderness’.
“A line of lightweight, fuel-efficient, smaller SUVs that still maintain Hummer’s legendary off-road capabilities would be a perfect way to reintroduce the brand to the world. The problem with such a scenario is that Hummer does not have the time or resources to create anything like this, aside from perhaps continuing with plans to introduce the HX concept seen last year, a kind of smaller Jeep Wrangler-esque SUV.
“Such a line-up would take well over two years to create, but if Hummer is to be a success, reinvention of the brand will have to happen a lot faster than that.”
