by Jing Zhao Cesarone

    CHICAGO, June 9, (Xinhua) -- Facing the double challenge of reviving the negatively-perceived Hummer brand and surviving the long global recession, Tengzhong, the Chinese company that is reported having reached a tentative agreement on purchase of General Motors (GM) Hummer brand, may have a rough road ahead, cautioned industrial experts.

A salesman passes by a Hummer at a dealer in New York, the United States, May 27, 2009. General Motors Corp (GM) announced on June 2 that it has entered into a memorandum of understanding (MoU) with a buyer for HUMMER, its premium off-road brand, a day after it filed for bankruptcy protection.(Xinhua/Gu Xinrong) Photo Gallery>>>

    "A negative perception may exist in the American public regarding Chinese ownership," CPA Paul Oetter told Xinhua in an interview on Tuesday.

    An Audit Partner at Chicago's Blackman Kallick accounting and consulting firm, Oetter added "There is also doubt about the credentials of the buyer and their ability to complete the transaction."

    Further, Oetter explained that the lack of new product pipeline and the doubts about the viability of the existing product line-up are hurdles as well. "As long as gas prices stay at 3 U.S. dollars or more, there will be little demand for Hummers in the United States, and any hybrid or electric power train is years away," said Oetter.

    As a seasoned expert and team leader for merger and acquisition engagements, Oetter serves a large and diverse client base consisting of manufacturers, automotive suppliers and value added distributors.

    "Lack of direct industry experience or extensive overseas dealings, plus limited understanding of the U.S. market and cultural compatibility may bring sizable challenges to the Chinese buyer," Stella Su, the head of Blackman Kallick's China Practice and director at Corporate Finance Consulting Group, told Xinhua.

    Su was a presenter at the recent Midwest Entrepreneur Forum in the Shaping the Future of Manufacturing seminar to discuss globalization and surviving the recession. She said "Many 'textbook' strategic deals failed at the post-close integration, where a larger industry player purchased a small competitor in the same country."

    "The task will be even tougher for Tengzhong. For a company that has not had experience surviving an economic downturn, Tengzhong, the potential Chinese buyer of Hummer, is faced with double challenges: growing the Hummer brand, which GM failed, and survive the long global recession."

    Su further explained "I don't see Hummer being a high volume brand in China or Europe, where the gasoline prices are already higher than those in the U.S.. There is no obvious high investment return strategy that can be identified at this moment."

    Su suggested that Tengzhong will have to demonstrate the ability to learn very quickly and take steps to acquire local management talent with industry expertise to help them over the steep learning curve. In addition, Tengzhong will need to invest in information systems and management processes in order to effectively manage off-shore assets, as well as invest in new product development and technology that can overcome negative product stereotypes and create competitive advantages.

    Considering many American brands still represent quality and demand high value, Chinese businesses buying foreign brands can get instant access to the foreign market, Su said.

    Bill Russo, founder and president of Synergistics Limited, said "This deal does not help China achieve its policy objectives of consolidating down to 'Top 10' larger, stronger Chinese car companies. It also does not support the idea of developing smaller, more environmentally friendly cars."

    Russo has extensive experience in the automotive and electronics industries. His viewpoints on the China automotive industry have been frequently published online and his viewpoints have aired on National Public Radio. He said "While the price paid for Hummer is unknown and may be quite low compared with what GM has invested, Sichuan Tengzhong is taking on a fair amount of operational and financial risk."

    On the positive side, Oetter believes that there are valuable aspects to the Hummer deal for the Chinese buyer.

    "Hummer is a distinctive, highly recognizable brand in America. The U.S. dealer network is very new, with new and attractive dealerships from which to sell vehicles. And its operations are in place and ready to produce vehicles immediately. GM will most likely be willing to share design and engineering for the foreseeable future," he said.

    The largest U.S. automaker GM announced that it had reached a tentative agreement with Tengzhong on the sale of its Hummer brand to Tengzhong on June 3.

    Hummer is one of four brands that GM, which filed for bankruptcy protection on June 1, plans to drop. GM bought the rights to the Hummer brand in 1999 and began making somewhat smaller Hummers. Last year, sales of Hummers fell 51 percent, and they are down 67 percent so far this year.