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Hummer deal doesn't clear some issues

(China Daily)
Updated: 2009-10-14 07:59

General Motors signed a deal on Oct 9 to sell its famous Hummer brand to Sichuan-based Tengzhong Heavy Industrial Machinery. But payment and the absence of technology transfer are worrisome parts of the deal, says an article in Beijing News. Excerpt:

The most controversial part of General Motors' (GM) deal with Tengzhong Heavy Industrial Machinery, of Sichuan province, to sell its Hummer brand is payment and absence of technology transfer.

Related readings:  Tengzhong has a bumpy road ahead to break in Hummer  Tengzhong begins approval process for Hummer buy  Hummer deal nod likely soon  Tengzhong may finalize Hummer contract 'soon'

Since the financial aspects of the deal have not been made public, we can only guess its terms on the basis of media reports. Associated Press said Tengzhong bought Hummer for $150 million (1.02 billion yuan), which amounts to three times the buyer's registered capital. Even if a calculation is made on the average asset-liability ratio of Chinese industrial enterprises (about 50 percent) Tengzhong has to make a down payment of 409.5 million yuan. We can't help thinking whether this will throw the Sichuan-based company in a vortex of debt?

The absence of technology transfer in the deal is confusing, too. Though Tengzhong has bought Hummer, it hasn't bought the core technology needed to make the vehicles. It is true that the original equipment manufacturer can help solve this problem. But proprietary technology is the soul of manufacturers with high technology content. In the technology intensive vehicle industry, will Tengzhong end up borrowing technology from others forever?

What makes the problem even more complex is the US-China relationship. In fact, the US, home of GM, has been trying to prevent Chinese firms from taking over American companies. Because of this, Chinese firms and relative departments both should take note of the potential political risks involved in deals such as the one for Hummer.

(China Daily 10/14/2009 page9)