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Hummer sold to China group, stays in USA

UPDATE ON FEB. 24, 2010: The Hummer deal has fallen through.

If it’s possible to learn lessons about humans by observing their interactions with tofu, it’s also instructive to watch the arc of the hulking, all-terrain vehicles made by Hummer.

Back in 2003, the company’s H2 model was so heavy that it actually qualified for a federal tax deduction of nearly $38,000 for small-business owners and the self-employed, as I reported.

On Friday, General Motors, which was in bankruptcy protection, announced it had sold the Hummer brand to Sichuan Tengzhong Heavy Industrial Machinery Corp., according to The Associated Press, Bloomberg and other outlets.

Media reports placed the sale at $150 million, though bankruptcy court papers had estimated Hummer’s value of at least $500 million.

One analyst told Bloomberg that it’s good for General Motors to get the cash.

Why is following this Hummer arc so important or interesting?

As we know, the Hummer is the civilian version of what the U.S. military uses as a utility vehicle. Its profile and wide body are distinctive.

Some people  have criticized the heavy vehicles, which can weigh thousands of pounds, for poor fuel efficiency.

They’ve been converted into stretch limousines with glittering, luxurious interiors by many companies.

One looks like it’s ready to travel over snow. Someone stuffed an Xbox into the back of another one.

California Gov. Arnold Schwarzenegger has been photographed in a green H1 model but apparently converted one to use vegetable oil.

The sale, though, illustrates cyclical – and sometimes, surprising – shifts in the global economy.

With this shift, companies in China are emerging in the world as major investors, owners and players.

And there is no doubt that government leaders around the world are studying these shifts as closely as possible.

For people in the United States, this shift of once famous brands is not entirely new: IBM agreed to sell its personal computer division to Lenovo, a Chinese company.

Decades ago, U.S. residents watched as Japanese automobile companies offered competitive models worldwide – and that people were buying them for fuel efficiency.

Japanese companies once made a splash in the United States by buying real estate, including golf courses.

What the Hummer purchase also shows is another step of how fast-growing economies can move up the ladder in terms of production, research and design and business focus.

University of Washington economics instructor Debra Glassman, who is very knowledgeable about global trade, once explained to me that as countries develop, their economies evolve and companies begin moving into new territory.

So, China might have started out with making clothing, toys and small items in factories in Southern China – and still make them, though it’s become more challenging with the global slowdown.

Yes, quality for some products is questionable by U.S. standards, and some items are dangerous, such as toys with lead in them.

When I was in graduate school, I remember what some economic instructors argued: It’s fine for other countries to absorb the manufacturing industry or back office operations from the United States.

Free trade would occur. U.S. residents could still benefit, even though those industries had left the country.

Other countries had lower costs, which could be passed on to U.S. consumers and others in the world – even if it required cargo ships packed with goods to cross oceans and destination trips by train and truck.

Or, at least, businesses could save money from the offshoring and could use the savings for other initiatives.

This model has worked in many cases. Trade also is not new in the world – think the Silk Road or Spanish galleons in the Pacific Ocean. 

Then, the United States and other developed countries could focus on higher-end industries that require human capital, the super educated and research and development.

But I’ve attended meetings in which trade officials have talked about biotechnology development in China. I’ve heard about emphasis on environmentally-friendly technology.

Online shopping is sprouting up in China. Government and business officials are paying for world-class architecture. 

I acknowledge that the Chinese government has introduced its own stimulus plan worth hundreds of billions of dollars to boost economic activity.

But what apparently is occurring is that China’s unique way of operating in the world economy – by using many free market principles blended with Chinese Communist Party characteristics – is catapulting it at a much faster rate than many in the West expected.

With the Hummer example, there are probably two simple ways to view the sale.

First, the brand will continue, the company will remain in the United States and its leadership is expected to stay in Michigan.

Second, the company once seen as an offshoot of U.S. military strength has new owners – in China.

If anything, as my wife points out, the new owners might find good use for a Hummer in Sichuan province.

Despite the vehicle’s fuel efficiency - compared to other SUVs - the area is quite rugged and remote.

Bloomberg notes it will take about six months to have the vehicles ready to be sent to the Chinese market.

Tengzhen chief executive Yang Yi told the news agency:

We are really looking to expand our global reach to tackle some of the high-growth markets, particularly the China market, in which we expect to enjoy explosive growth.

And I wouldn’t be surprised if stretch limousines, either shipped to China or made there, begin showing up in the world’s third-largest economy – at least in Shanghai and its other big, shiny cities.