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2009 has been a turbulent year for the automobile industry. When record high oil prices in July 2008 caused car sales to nosedive, the gradual demise of the U.S. car industry became obvious. Even though oil prices had plummeted from $147 / barrel on July 11th, 2008 to less than $40 a barrel in January 2009, making it more affordable again to fill up the tank of a thirsty S.U.V., the crisis of the car industry had just begun.

As investments were wiped out, jobs lost and credit tight because of the recession, car makers´ struggle to survive intensified. Government intervention helped them survive, but the bankruptcy of GM and the fundamental shift of demand towards more efficient, smaller cars is turning the industry upside down.

China has surpassed the U.S. as the world´s largest car market, GM is cooperating with the Indian company REVA to make electric cars (GM goes electric in India) and now the Hummer brand is sold to the Chinese.

The Chinese manufacturing company Sichuan Tengzhong Industrial Machinery acquired the Hummer brand from GM for about $150 million. The deal still needs to be approved by the Chinese and U.S. governments.

This deal shows that Chinese companies are gaining power in the international car market. Furthermore, the acquisition of GM gives the Chinese direct access to the North American car market, technologies and the know-how to run an international car brand.

Hummer´s new parent company has the financial resources to develop more fuel-efficient models which is necessary to meet the needs of clients in the U.S. and around the world. Nevertheless it won´t be easy turn Hummer into a profitable company anytime soon.

On the one hand Hummer may become a prestigious brand in China, on the other hand, however, it contradicts with China´s effort to become more energy efficient.

Another issue is fuel subsidies. In order to make gasoline affordable for China´s many first time car owners, China spends billions on fuel subsidies every year. What Chinese drivers and politicians have become aware of recently is that those who drive the most inefficient gas guzzlers indirectly receive the most subsidies. This highlights the necessity for China to abandon subsidies encouraging people to consume more energy, but it also shows a potential risk involved in establishing a new S.U.V. brand in the people´s republic.

Tengzhong plans to build a manufacturing plant in China - the ideal opportunity to get experienced in consumer vehicle manufacturing - while keeping Hummer´s current headquarters, management, engineers and existing plants in the U.S.

In my view, it is the right step for GM to sell Hummer. Hummer is a relic of the old GM. It simply doesn´t fit into the new GM which has the potential of becoming a more dynamic and profitable manufacturer of  efficient and cutting-edge cars. The Chevrolet Volt or GM`s new Bare Necessities initiative (check my previous post: the new GM: efficiency & simplicity) are much more promising than an H2.

Kicking Tires: It’s Official: GM Strikes Deal To Sell Hummer

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This entry was posted on Sunday, October 11th, 2009 at 3:31 PM and is filed under Electric Cars & Auto Industry. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.