China's Hummer "Purchase." Yeah, We Bad. We Bad.

I hate to gloat (that's a lie, I really love to) but I cannot resist mentioning that way back in September, 2009, we came out and, in our post entitled, "Our First China Hummer Post. Our Silence Said It All," we emphatically stated that the Hummer deal would never go through:

Which brings me to Hummer. I can see a Chery buying Volvo to increase company prestige and to improve their in-house technology. I just never believed a Chinese purchase of Hummer would go through because I never thought it made sense. I did not think it made sense because I could see no logical reason for a Chinese company to buy Hummer with the intention of keeping its production in the United States, especially when the Chinese company is not in the auto business. I therefore never bothered to write about it until now because I did not see it as indicative of anything of much import.

I just do not see it. Do you?

I then talked about the sorts of Chinese outbound investments we have been seeing and those that actually make sense:

Chinese companies looking to buy American companies are usually looking for a valuable technology or commodity or, to a much lesser extent, a strong brand name. If the company you are pitching has neither, the chances of a Chinese company buying it are really slim. People have told me that Chinese companies "have to be" interested in companies with really good marketing people. They tell me Chinese companies are terrible at marketing and so they obviously will be buying American companies that are good at it. That's true in theory, false in reality.

There are a few oddball purchases and formations out there and those generally consist of the following.
-- The wealthy Chinese businessperson who owns a Chinese company and wants to buy an American company so his son or daughter can go to UCLA. These purchases tend to be more random.
-- Haier. Even though I am convinced Haier's setting up production in the United States is a money losing proposition, I still think it was brilliant. I believe Haier came to the United States despite its doing so hurting the bottom line. I believe Haier came to the United States so as to minimize export/import risk in the long term, so as to improve its reputation in the United States, so as to learn from the United States, so as to improve its marketing in the United States and the West and so as to be better perceived in the United States. In other words, it did what Toyota and Honda did when they built US car plants back in the 1970s. This sort of prescience from a Chinese company has so far been vary rare, but I do see it slowly increasing.

Goodbye Hummer and good riddance.

UPDATE: ChinaBizGov Blog did an excellent post, entitled, "Hummer rejection: It's all right there in the policy," explaining how the Chinese government's rejecting Sichuan Tengzhong's proposed purchase of Hummer should have been no surprise. The post also does a good job explaining a bit the system of securing government approvals, and how the big thing is not the application itself, but what leads up to it.

FURTHER UPDATE: Paul Maidment over at Forbes Magazine has an excellent article on the failed sale, entitled, "Hummer's Doomed Sale." Maidment cites this post and agrees that this deal never made much economic sense and that helped doom it.