Will China Build a Fuel-Efficient Hummer?

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Alexander F. Yuan / AP

Customers walk past Hummers in the parking lot of a Beijing auto dealer on June 3, 2009

The sale of General Motors' Hummer division to a Chinese buyer has yet to be finalized, but one thing about the future of the iconic American brand seems clear: the era of Hummers as street-clogging gas hogs is over. Analysts say the brand's future lies in either slimmed-down SUVs or large special-purpose vehicles not unlike the military-troop carriers that formed Hummer's roots.

In the first public statement from Hummer's Chinese bidder, Yang Yi, CEO of Sichuan Tengzhong Heavy Industrial Machinery, said his company "will be investing in the Hummer brand and its research and development capabilities, which will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S." (See the 50 worst cars of all time.)

The deal, the price of which has not been disclosed, comes a day after GM filed for Chapter 11 bankruptcy protection. The U.S. automaker says the sale of Hummer, which GM valued at $500 million, should allow it to preserve more than 3,000 American jobs. Tengzhong says it plans to maintain Hummer's existing senior management team and will enter into long-term assembly and supply agreements with GM. (Read "China's Auto Bailout Takes a Different Route.")

The slump faced by U.S. and European automakers has encouraged Chinese companies — buoyed by China's ranking as the world's largest car market in the first quarter of 2009 — to hunt for buyout candidates overseas. "It's definitely a good time to buy Hummer," says Liu Chang of Sinomind Management Consulting in Beijing. "GM wouldn't sell it if it was in better shape." But China's previous results from acquisitions of foreign automakers have been poor. In 2004, Shanghai Automotive Industry Corp. paid $500 million for a 49% stake in South Korea's Ssangyong Motors, which declared bankruptcy in January.

So how does Tengzhong, a private company based in China's southwestern Sichuan province, hope to revive Hummer? The company has offered few details. It manufactures heavy machinery, road and bridge construction equipment, and special-use vehicles like dump trucks and cement mixers. With fuel prices remaining high, Tengzhong may restrict Hummer to some type of specialized application, rather than position the vehicle as a toy for wealthy consumers, says John Bonnell, director of Asia Pacific forecasting for J.D. Power and Associates. "I think the future is something outside a normal passenger vehicle for the Hummer," says Bonnell.

The Hummer, which was based on the humvee vehicle produced for the U.S. military by AM General, was first sold as a civilian vehicle in 1992. GM bought the line in 1999 and later introduced the smaller H2 and H3 models. After the SUVs became a rolling symbol of hip-hop bling and celebrity excess, Hummer in 2006 registered peak sales of 71,524 for all models. But with higher gas prices and the onset of recession, sales plunged 22% in 2007 and 50% in 2008.

In China, Hummers are rare among the compact and midsize vehicles that jam city streets. Last year, just over 500 were sold on the mainland. As in the U.S., in China large SUVs have a certain cache, but with high taxes on imports, there is little demand. "To drive a Hummer, for rich people it fulfills a certain dream," says Yale Zhang, a Shanghai-based analyst with CSM Worldwide, an auto-industry consulting firm. "In China, it's a niche market for sure. It's too big; it consumes too much gasoline. The price is very high, and very few people can afford it." The H3, the most popular Hummer, averages 15 miles per gal.

The SUVs that did sell well in China last year were only popular in sizes not much larger than ordinary sedans. That may influence the design of future Hummers. "I expect that after the deal, Hummer would be much better tailored to the Chinese market," says Liu. "If anything, its price might be much lower and more acceptable to the Chinese consumer."

Tengzhong CEO Yang's comments about fuel efficiency are a recognition that the Hummer has to change its image if it wants a future in the U.S., where the public has soured on gas guzzlers, and in China, where gas-mileage standards are high and are expected to increase. "They see that great weakness in the vehicle and the movement in China toward more fuel efficiency," says Bonnell. "We know they have to address that if they want people to buy."

With reporting by Jessie Jiang

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