Could Hummer Be Headed For The Heap?


Could Hummer Be Headed For The Heap?

GM’s Hummer division has commanded attention ever since the vehicles first
appeared on American highways at the height of the sport utility boom.

The Hummer brand, however, could be on the road to extinction if GM cannot
soon finish a deal with China’s Sichuan Tengzhong Heavy Industrial
Machinery, the only bidder for the controversial brand. GM announced plans
to spin it off while reorganizing under bankruptcy protection this past
summer.

GM spokesman Chris Preuss acknowledges GM won’t complete the sale of
Hummer by the end of September as it originally planned, but it still hopes
to finish the negotiations soon, he says.

The tentative plan is for GM to continue building Hummer vehicles through a
transitional period. The length of the transition is one of the unresolved
issues. Longer-term, Hummer is hoping to replace its gas guzzlers with new
models that use lighter weight materials and advanced power trains, and
maybe even hybrid vehicles. The plan is to continue building Hummers in the
U.S., not in China where the prevailing wages, $12 to $25 per day, are
significantly less.

For now, the Hummer H3 is built at a GM plant in Shreveport, La., which is
scheduled to close sometime next year, while the hulking H2 is made at a
plant in Mishawaka, Ind. belonging to AM General, which also builds the
Humvee for the U.S. Department of Defense.

GM staff still assigned to the Hummer continue to work at turning the
castoff brand into an independent company that could continue to sell
vehicles around the world. They have lined up a $20.4 million grant from the
state of Michigan to put its headquarters in or around Detroit. The grant,
however, is contingent on the completion of the deal with Tengzhong Heavy
Industrial Machinery, according to Michigan state officials.

However, there are signs that the Chinese government might have
reservations about the deal, observers note. Among the sticking points,
China”s National Development and Reform Commission has said publicly the
purchase of Hummer is inconsistent with China’s effort to become greener. In
addition Sichuan Tengzhong has no experience building vehicles for the
retail market.

Another risk: GM CEO Fritz Henderson is under pressure from GM’s new board
of directors to turn around the company’s fortunes quickly, and he has
indicated the automaker is prepared to drop Hummer if it can’t finish the
deal relatively soon. “If it doesn’t get sold, we’ll close it,” says one GM
official.

GM, which was considering abandoning Hummer even before its financial
meltdown, pulled its advertising in the spring and then shut down a Hummer
production line in South Africa. Hummer sales have dropped 64% so far this
year, more than any other brand in what overall has been a disastrous year
for new-vehicle sales. In August, when sales of new vehicles got a boost
from the cash-for-clunkers programs, Hummer sales continued to sink, falling
61%. In 2006, Hummer’s best year, GM sold more than a 70,000 but this year
it might sell only 10,000 units. “Hummer is not much of a priority for GM,”
says Alan Baum, a Detroit-based analyst and consultant.

Tom Webb, chief economist for Atlanta-based Manheim, one nation’s
principal used-car auctions, says “orphan” brands such as Hummer, Saturn and
Saab have felt the brunt of adverse consumer reaction to the GM bankruptcy.
In addition, Hummer’s dealer network is in disarray and used Hummers have
lost value, Webb notes.

Nevertheless, the Hummer brand has retained a certain appeal, according to
a new study in the Journal of Consumer Research by Marius K. Luedicke from
the University of Innsbruck, Austria, Craig J. Thompson of the University of
Wisconsin and Markus Giesler of York University in Toronto. “Hummer drivers
believe they are defending America’s frontier lifestyle against
anti-American critics, ” the study notes, adding that Hummer owners employ
the ideology of American foundational myths, such as the “rugged
individual,” and the “boundless frontier”.

Yet the study also notes that the Hummer brand has produced an intense
backlash, including one Internet site where people have posted thousands of
photographs of middle fingers directed at Hummer vehicles and their drivers.
“I think GM’s board should kill Hummer,” says Dan Becker, director of the
Safe Climate Campaign at the Center for Auto Safety and a Hummer critic.

Jim Hall, managing director of 2953 Analytics in Birmingham, says,
“Short-term Hummer has some serious problems but they are solvable.”
Hummer’s future, though, is probably in overseas markets such as Russia,
China, Brazil, South Africa and other emerging markets where conspicuous
consumption isn’t going out of style, he says.

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