Chinese Government Blocks Sale of Hummer

General Motors Co. said it will close Hummer after Chinese regulators blocked Sichuan Tengzhong Heavy Industrial Machinery Co.’s purchase of the brand, whose military-style vehicles clash with government policy.

A Tengzhong purchase of Hummer would have bucked China’s promotion of fuel-sipping small cars, which includes cutting the sales tax on vehicles with engine displacements of less than 1.6 liters. The H2 Hummer has a 6.2-liter V-8 engine.

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“The government still wants overseas acquisitions as long as it fits into its plans,” said Wang Liusheng, Shenzhen-based analyst at China Merchants Securities. “This is a standalone case.”

Winding down the brand will take several months, Nick Richards, a GM spokesman, said yesterday. Some of the 3,000 people now employed at Hummer work on other vehicles, so GM doesn’t know how many jobs will be lost, he said.

Tengzhong hasn’t provided China’s Ministry of Commerce with a reasonable purchase plan and the government seeks to encourage renewable, green and environmentally friendly energy consumption, Yao Jian, spokesman for the ministry, said at a briefing today in Beijing, without elaborating. Tengzhong’s proposal failed to provide information about its investment model and fund raising plans, Yao said.

‘Doesn’t Fit’

“The Hummer brand was very much a product of its time,” said Aaron Bragman, an analyst at IHS Global Insight in Troy, Michigan. “In today’s much more environmentally conscious world, it’s a brand that just doesn’t fit in.”

The company had planned to finance the deal using cash and loans, Chief Executive Officer Yang Yi said in June. He didn’t say how much the SUV-maker would cost. Chinese and Western banks are backing away from funding the deal, the New York Times reported yesterday, citing people close to the transaction.

Tengzhong was “unable to obtain clearance of the transaction from the Chinese regulators within the proposed deal time frame,” according to a statement from the Chengdu-based company. The sale was worth $150 million, people familiar with the matter said on Oct. 8, a day before GM and Tengzhong announced a deal.

Bridge Parts

Tengzhong, a closely held manufacturer whose products include bridge parts, would have vaulted into the passenger-auto industry by buying Hummer. The company had said it wanted to expand the unit into China and other markets outside the U.S., which accounted for about two-thirds of Hummer’s sales under GM.

Richards, the Hummer spokesman, said GM would consider “viable alternatives for all or part of the brand during wind down.” GM also had said in December it would shut Saab, only to revive talks and reach an agreement with Spyker Cars NV on Feb. 23.

Unloading Hummer was part of GM’s plan to cut its U.S. brands to four from eight after bankruptcy. Absent a last-minute buyer Hummer will join Saturn and Pontiac in being shut as GM focuses on its top-selling domestic vehicle lines.

China is encouraging automakers to build more fuel- efficient cars including hybrids to help win sales overseas and to reduce oil imports and pollution at home. Incentives for smaller vehicles combined with rural subsidies boosted nationwide sales in China last year to 13.6 million, helping it supplant the U.S. as the world’s largest auto market.

Government Agency

A Chinese government agency indicated that it wouldn’t give approval for Tengzhong to buy Hummer, said three people briefed on the deal, who asked not to be identified because the talks weren’t public.

GM first said it planned to sell Hummer at its June 2008 annual meeting as record fuel prices prompted the biggest U.S. automaker to focus on developing more fuel-efficient cars. U.S. sales for the unit fell 67 percent last year as the economy faltered, GM slid into a 40-day government-backed bankruptcy and Hummer’s fate was unresolved.

Hummer sales began in 1999 with the $140,000 H1, a 7,600- pound SUV (3,400 kilograms) patterned after the all-terrain military vehicle popularized for road use by actor Arnold Schwarzenegger, now California’s governor. The 6,600-pound H2 debuted in 2002, followed by the 4,700-pound H3 in 2005.

“Closing Hummer simultaneously improves the health of GM, China and the planet,” said Daniel Becker, director of the Safe Climate Campaign at the Center for Auto Safety, an advocacy group in Washington. “Hummer should rest in pieces.”

U.S. deliveries for Hummer peaked at 71,524 in 2006, according to Autodata Corp., an industry researcher based in Woodcliff Lake, New Jersey. Last year’s total was 9,046.

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