GM never REALLY intended to sell Hummer

General Motors knows that helping a competitor in the booming Asian automobile market is a bad move

By InvestorPlace Feb 25, 2010 12:36PM

By Louis Navellier, Investorplace.com

 

We learned yesterday that GM’s tentative deal to sell Hummer has run out of gas, and that Chinese auto upstart Sichuan Tengzhong Heavy Industrial Machines will not get the iconic SUV brand as originally planned.

 

Forgive me if I don’t act surprised. To be honest, when GM’s deal to peddle Saturn to Penske fell through way back in September, I started to doubt how likely it was that the company could successfully shed its defunct brands.

 

But in particular, the $150 million deal between Hummer and Sichuan Tengzhong really struck me as a pipe dream.

 

At a time when General Motors is struggling to emerge from bankruptcy and Asian vehicle sales remain the lifeblood of most automakers, it would be a real bonehead move to help another company get into the highly profitable Chinese marketplace.

 

You would think that General Motors would be eager to peddle off its defunct brands to stop the bleeding and get back to profitability. But selling off all the assets at fire sale prices could not only hurt GM by setting it back in terms of the scale of its business, but could really shoot the company in the foot in terms of product development and research. Much like the tech industry, the auto sector is very focused on the latest in consumer trends and strives for constant updating of its existing product lines. This product development is costly and very time consuming, and execs would be giving Sichuan Tengzhong the rope to hang GM with if such a deal went through.

 

After all, this Chinese machinery company isn’t even technically an automaker right now. The company makes a wide range of road equipment, such as bridge piers and highway construction components. SC Tenghzhong has been moving more into heavy trucks and oil tankers recently, but still is a long way from being a consumer-focused car company.

The GM deal, however, would have made this company a legitimate player in China.

 

General Motors knows better than to throw the baby out with the bath, and letting the Hummer deal fall through was probably for the best. The company has to be prudent as it divests itself of its own brands—such as the recent Spyker-Saab deal that allows General Motors to be a partner in the profits for seven years through interest bearing preference shares.

 

Just because GM’s bankrupt doesn’t mean it needs to wave a white flag. Refusing to sell Hummer for a short term gain at the cost of long-term success could prove to be a very prudent move.

 

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