09 June, 2009

The Hummer Deal

On a clear day, you won’t see General Motors any more. At least the GM of yore. GM is being cut apart and fed to any meat eater in the vicinity. One titbit, Hummer, is going to an unexpected place.

Hummer, for the auto uninitiated, is a gas guzzling Sport Utility Vehicle, particularly loved by the Americans. It was very popular, but is no longer so – its global sales declined by 62% in Q1. A few days back it was announced that Hummer would be acquired by Sichuan Tengzhong, a Chinese company based in Chengdu.

This is not the most obvious of deals – lets put it that way. Why is an unknown Chinese company doing this acquisition ? The deal looks shaky for a number of reasons.

Firstly Sichuan Tengzhong makes highway and bridge structural components, construction machinery , energy equipment and yes – trucks carrying cement mixers. What has this got to do with American SUVs ? Where is the business fit ?

Secondly, Hummer is a gas guzzler on a steep decline. What will Tengzhong do with it. The CEO of Tengzhong says the deal "will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S." Really ? Where’s the strategic fit ?

Thirdly Tengzhong operates in China. Hummer is sold mostly in the US. Where’s the geographical fit ?

And finally, and most important of all, these two companies are literally, and figuratively, a world apart. I am willing to bet that few people in Hummer can point to Chengdu on a map. Equally few people in Tengzhong may be able to point to Detroit on a map. Where is the cultural fit ?

M&A is a difficult business. More acquisitions fail than succeed. This seems a particularly difficult one. Methinks the deal was done because of the “kick” it gave a Chinese company to get a famous American brand and business and because GM will sell anything to anybody provided he/she/it/whatever shows the cash. Difficult to see how this deal will succeed.

For the sake of the brand and the people associated with that business, I hope I am dead wrong.


PS – I am 100 not out today – this is my 100th post. I am a relative baby in blogging terms – having taken to it only a little while ago. To use the cricket analogy, there have been streaky shots galore, edges that have not carried, catches dropped but an occasional elegant cover drive for four. Sometimes rain has threatened to stop play, but somehow the clouds have always cleared . On the way, I have made lovely new friends – Aparna, Rads, Adesh, Zoobie, Le Embrouille Blogueur, Hang, Ajay, Mark, Kanmuri, Reva , Chris, ….. and cemented many old friends – Kiwibloke, Dada, Hassan, Aashish, Preeti ….. and the others who read and ping me but don’t comment. To all of you, a big heart felt Thank You , Xie Xie. I have been touched by your warmth and support. And like a good cricketer, I am taking guard again, head down and waiting to play the next ball.

20 comments:

Hang said...

Ramesh, congratulations on reaching the 100th post!

Many critics in China share your view. They are dubious about the motives of the deal. I'm also one of those who don't think the deal will succeed.

A journey called Life said...

*clap, clap clap*- 100th post.. awesome!! wishing you many more such milestones as well.. and may your fan base increase..
btw chotu says clappie clappie too..

Ajay said...

Congratulations Ramesh!! For 100 not out :) May you score a lot many more tons :)

I totally agree with you on the Hummer deal. It's probably a publicity gimmick for the firm. The Hummer is dead. Long live the Hummer :)

Ramesh said...

Hang, AJCL, Ajay - Thanks very much. Very big thankie thankie to Chotu

Preeti Shenoy said...

You may be a baby but you have taken Giant strides!
Hearty conrats!
Cheers
preeti

le embrouille blogueur said...

100 "baby steps' for you,are like giant leaps for the bloggerkind ....lol.I think you summarized it best when you said - "Methinks the deal was done because of the “kick” it gave a Chinese company to get a famous American brand ".Hummer is one of the worst vehicles on American roads.I do not wish to stereotype, but my observation is - you have to extremely environment ignorant, stinking rich,high roller etc etc to be paying a good $100 to fill up tank on regular day in Detroit and vicnity where gas is a $2.62/gal.This acquisition makes no sense at all.Keep the good stuff coming Ramesh.We love your blog.

Adesh Sidhu said...

Congratulations!!!!

I am sure many more elegant drives and super shots will take your blog to new heights.

Keep them coming!!!!

rads said...

CONGRATS! OMG you already reached 100 posts??? I'm blogging since 2006 but not even cmpleted 50 :D you're a true blogger keep it up...

Zoobie Sidhu said...

Congrats on the century... wishing you many more blog posts.

Your posts are very thought provoking... keep up the good work

Ramesh said...

@ Preeti - Thank You.

@ LEB - There's the French flair showing up - due apologies to Neil Armstrong, I'm flattered. And I thought you would be a good Hummer customer , at least the stinking rich bit !!

Ramesh said...

@ Adesh & Zoobie - Many thanks. Hugely appreciate your support

Ramesh said...

@ Rads - Thanks a lot. Since every one of your posts is like a David Gower cover drive, your 50 is better to watch (read) than most 100s !

thethoughtfultrain said...

100th post and I visit you for the first time! :-) I am adding you to my blog now - I need to learn about business trends and I get the feeling I ll learn a couple things from you. Congratulations on the 100th post and wishing you a century more in few overs!!

Ramesh said...

Thanks for visiting thoughtful train. Appreciate yoour leaving the comment.

le embrouille blogueur said...

"Stinking" ..probably ...."rich"...no way .... I wish ..congratulations again.

kiwibloke said...

Congrats chief, keep blogging, very often your blogs are the bright spot of the day, when you sit up and think!

Mark said...

Hey Ramesh. I saw an article on Sichuan Tengzhong yesterday - http://www.reuters.com/article/ousiv/idUSTRE5570UW20090608.

Also, I was reading a book I brought from my college library to China this week - "Asian Power and Politics: The Cultural Dimensions of Authority" by Lucian Pye.

The following quote caught my eye:

"During Mao Zedong's rule the ideal of national autarky was carried out to the point of trying to make every province self-sufficient. The stated goal was the absurd idea that eventually every province would have its own automobile industry, and the ideal was that there should be no inequalities among the provinces."

So it looks like China is just now living out the fantasy of a budding car industry that Mao had decades ago.

And congrats on the awesome blog! You do a great job with it.

Ramesh said...

Thanks Mark for the Reuters link and the quote from the book. What a thought by Chairman Mao!

Thanks for your nice words. Coming from a superb blogger such as yourself, it means a lot.

Neelesh said...

100 not out!!! That is something everybody would dream of touching in any field., but only few would be lucky enough.

Hope to see more of these, Congrats on this.!!

Ramesh said...

Many thanks Neelesh