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Hummer sale could veer off-road

2008-08-20 11:40

Jui Chakravorty Das

General Motors has not even officially put Hummer up for sale yet, and likely buyers are already backing away.

Three carmakers that held exploratory talks with GM on a possible Hummer sale are now expressing disinterest, meaning only one thing is certain: Hummer is going to be a tough sell.

Hummer is not a particularly attractive asset as petrol prices squeeze drivers worldwide and environmental concerns increasingly trump any other notion of what's cool.

Modelled on US military vehicles widely deployed in the Gulf War in 1991, the Hummer sports utility vehicle made its debut shortly after, when US petrol prices were less than half what they are now.

Sources had earlier told Reuters that GM held exploratory talks with India's Mahindra & Mahindra, whose interest in the gas-guzzling brand was muted due to its plans to launch its own truck and SUV in the US market next year. The automaker had declined to comment directly thus far.

But then Mahindra announced on Monday it was "not pursuing" Hummer.
Further underlining the challenge GM faces, Russian oligarch Oleg Deripaska's car unit, Russian Machines, denied a strategic interest in Hummer after sources said last week the tycoon had expressed initial interest.

In a triple whammy, another source said on Monday Hunan Changfeng Motor had held preliminary talks with GM, but the Chinese SUV maker backed off after touring Hummer's US factory, citing limited potential to market the vehicle.

"The Hummer is way too expensive for the Chinese military and demand from civilian buyers is not big enough to justify a purchase, especially with oil prices running near an all-time high," the source said.
The same reasoning would probably apply to other Chinese automakers as well - many of whom have been the subject of speculation as possible Hummer buyers.

"Fuel prices have changed buyers' attitudes," said Kevin Reale, automotive analyst at Endeca Technologies. "Unless someone is going to acquire it for military use, I just don't see it being a viable product line."

Aside from fuel prices, the brand's biggest strength is also its biggest weakness: it is a niche model with a limited product line. That's not ideal for any automaker buying the brand to gain a US presence.
"Hummer needs a complete product overhaul," said Erich Merkle, automotive consultant at Crowe Chizek. "Then again, if you do a complete overhaul, you would take Hummer away from what defines it and makes it the brand that it is."

Battle hardened

The original Humvees were multipurpose, off-road military vehicles, but maker AM General launched Hummer for civilians in 1992. GM bought the brand in 1999 and went on to sell the H1, H2 and H3 models.

California Gov. Arnold Schwarzenegger once boasted a fleet of eight Hummers, and he memorably referred to them while debating rivals during the state's gubernatorial race.

But as oil prices have risen, sales have plunged. US demand - comprising the bulk of all Hummer sales - is down 44% so far this year. Schwarzenegger has sold his fleet.

Another challenge a prospective buyer of the brand would face is access to a dealer network. Most
Hummer dealerships are combined with Saab and Cadillac showrooms, so a buyer could be limited to selling only Hummer vehicles in its US showrooms.

Perhaps in response to that potential problem, GM is negotiating with some Hummer dealers to buy out stores, making deals ranging from $2 million to $5 million depending on the size of their businesses, some dealers have told Reuters.

That could indicate GM plans to stop selling Hummer in the US market eventually or it could mean GM hopes to make things more attractive for a buyer by letting it launch its own independent US dealer network.

But the dealer buyouts and preparations to sell the brand come as GM gears up to launch a new Hummer product: the H3T.

The mid-sized Hummer pickup truck will enter a weak market. US sales in that category are down 23 percent through July.

GM, which has lost more than $51 billion in the past three years and aims to raise up to $4 billion through asset sales, needs to get rid of poorly performing brands to raise cash.

But with no interest from the Russian, Indian and Chinese carmakers, and GM's very public financial crisis, anybody still interested in the brand is likely to make a lowball offer.

So short of giving the brand away for pennies on the dollar, it's hard to see what GM might do.
GM CEO Rick Wagoner recently said there is "significant interest" in the automaker's assets, including Hummer.


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