Bet on smaller companies to lead China foray
Chairman Mao used to say the truth is always kept by the minority. A little-known private Chinese machinery company's bid for a GM marque has been sneered at by even the patriotic Chinese media, but the deal could succeed where mightier plays such as Chinalco's for Rio Tinto have failed.
True that private sector firms face an uphill battle in China against more dominant state-backed firms, but it seems like double standards when Western observers, who extol the virtues of the private sector taking the driver's seat, praise Chinalco's deal but dismiss Tengzhong's bid for Hummer.
Chinese media's disapproval of Sichuan Tengzhong Heavy Industrial Machinery's move has tempered concerns about technology and job transfers to China, as well as questions whether China's military was behind the bid.
This could give Tengzhong more bargaining power with bankrupt General Motors. Underestimation of Tengzhong could prove beneficial to the buyer in an environment where there are worries about Chinese deals not being completely driven by commercial interests.
No matter how carefully the now busted Rio deal was structured, Chinalco should know that buying pricey and highly political targets like resource companies is going to be greeted by the rest of the world with a great deal of suspicion. Beijing's promotion of Chinalco's former boss Xiao Yaqing to the State Council, or cabinet, only served to reinforce that perception.
In contrast with the outspoken Xiao, the man behind the Hummer bid Li Yan, who now goes with a Buddhist name Suo Lang Duo Ji, tries his best to hide from the limelight, but that does not mean he does not have a plan.
HUMMER LIFT
If the deal goes through, the key question is whether Tengzhong has good strategy to turn around a tarnished GM brand.
What Tengzhong could do is negotiating full rights to the Hummer brand and extending Hummer's powerful brand image to a broader line of industrial vehicles.
Industrial vehicles from airport trucks to oil-field trucks are selling like hot cakes, riding the country's construction boom. If the Sichuan company, which already makes fuel tankers, dump trucks, tow trucks and fire trucks, wants to compete against the likes of Caterpillar in this niche market, will it have a better chance branding its vehicles as "Tengzhong" or "Hummer"?
While the Hummer brand has indeed become a lightning rod for critics of America's love for SUVs, the brand has also won acclaim as outperformers on rugged roads. By using Hummer for industrial vehicles, Tengzhong can bypass Hummer's gas-guzzler image problem.
The company is talking about selling a greener version of Hummer and extending to emerging markets.
If Tengzhong could further broaden Hummer's offerings to include small SUVs, their sales are likely to jump in China, a country just starting to fall in love with big cars. China's SUV sales rose 25 per cent in 2008, outpacing the 18 per cent increase of passenger cars.
Of course, the global auto industry has had its fair share of cash-rich investors who tried to revive ailing brands and failed, but Chinese entrepreneurs should not be underestimated.
Critics had scoffed at Geely Automobile's founder Li Shufu about 15 years ago. After Li dropped out of school, he made refrigerator parts, then refrigerators and motorcycles, before pushing to make cars for the masses.
Today, Geely is one of the few Chinese automakers that export – Geely now supplies London's black taxis.
Defying media reports that regulators in China might block the Hummer deal, China's Ministry of Commerce said that Tengzhong's bid for Hummer is normal behaviour for a company seeking to take advantage of the global downturn to broaden its horizons.
- The author is a Reuters columnist. The opinions expressed are her own.
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