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Can Tengzhong Save Hummer?

The New Owner Must Act Fast to Leverage the SUV Brand in China, Says Yang Jian at Auto News China.

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SHANGHAI (AdAgeChina.com) -- Last week, Sichuan Tengzhong Heavy Industrial Machinery Co. surprised the world by disclosing its attempts to buy Hummer from General Motors Corp.

Now the question is whether the otherwise little known private Chinese company has the ability to rescue the troubled brand.

That's a difficult question, but one thing is certain. The key to Hummer's revival will be the speed with which Tengzhong can start to build Hummer vehicles in China and adapt them to the domestic market.
Yang Jian
Yang Jian
In a statement last week, Tengzhong pledged to keep Hummer's existing management and dealership network and to invest in research and development.

But that won't be enough to return Hummer to profitability any time soon, given the dire prospects the brand faces in its home market. The U.S. economy is still deep in recession.

What's more, unlike sedan makers, Hummer faces another daunting challenge in the Obama administration's new energy efficiency requirements for motor vehicles, due to be fully enacted by 2016.

On the positive side, China is one of the few auto markets in the world that is still growing. As a young and emerging market, China's demand for SUVs has remained strong.

In 2008, a total of 438,360 SUVs were sold in China, a 22% year-on-year increase, well above the market average of 7%, according to Automotive Resources Asia, a unit of J.D. Power & Associates.

But due to hefty new taxes implemented in September 2008 on large imported vehicles, the most effective way to tap the Chinese market for SUVs is to build them in China.

Under the existing tax policies in China, large imported vehicles are subject to a consumption tax of 25% or 40%, depending on engine size.

So constructing a new plant to build Hummer SUVs in China is the first step Tengzhong should take after acquiring the brand.

In the longer term, the company needs to develop new products on its existing vehicle platforms to better accommodate the needs and tastes of Chinese motorists.

That's the lesson every international brand shifting production to China has learned.

The days when Chinese motorists were naive enough to swallow foreign products are long gone. Market leader Volkswagen, for example, now produces two cars, the Bora and the Lavida, designed exclusively for the local market and has more Chinese-specific models in the pipeline.

To date, Tengzhong has disclosed quite a bit of what it will do to the Hummer brand in the U.S. But the company has yet to hammer out a plan on how to develop the domestic market for Hummer, which is essential to the brand's revival.

Yang Jian is the managing editor of Automotive News China, a publication of Crain Communications.


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