Hummer goes to China

by: tonywtsh
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When the world eyes Tengzhong's deal to buy Hummer, this little-known company became famous within a day throughout the global automotive industry. Is such a company, who has not even established its position on China's automotive industry, able to run General Motor's Hummer? What is its purpose behind this deal?

While the answers to these questions are not clear, the only certain thing is that the world's automobile industry is shifting to China. When global recession continued and the world's major auto markets experienced negative growth this year, China still saw a positive year-on-year growth of 14% on the auto sales, with its sales of the automobile reaching 4.95 million in the first five months of 2009. By now, China has surpassed the U.S. and become the largest auto market in the world.

Indeed, China experienced a boom in the automobile market in recent years. From 2001 to 2008, strong demands for automobiles could be found in this country, growing at an average annual speed of 24.5%, much higher than the 4.2% of the world's level.

In hundreds of Chinese cities, Chengdu is the home to the Hummer's buyer, Tengzhong. Being the southwestern Sichuan Province's capital and China's fourth largest city by population, Chengdu emerges as the largest automobile market in west China. By the end of 2008, Chengdu's sedan reserve ranks 3rd in the nation.

Meanwhile, Chengdu also has lots of high-end cars. At present, there are over 2,000 high-end cars whose prices are at least RMB 2 million (US$292,826), including 31 Ferrari, 59 Maserati, 17 Lamborghini, 62 Bentley, 13 Rolls-Royce, 3 Aston Martin 3, 110 Porsche, etc.

Although Chengdu is considered to have large market, it is not a major auto manufacturing base. In 2008, Chengdu's automobile output was 71,000, much lower than Beijing and Guangzhou. Chengdu also does not have any leading domestic auto manufacturers like Beijing Motor or Guangzhou Automobile.

The market potential in Chengdu has already drawn the attention of the overseas investors in recent years. Moreover, presences of an aggregation of auto parts manufacturers and the local government's support are also bonuses for whole vehicle manufacturers, just like Toyota and Volkswagen, who have invested there. In 2009, despite the downturn of global auto market, these two manufacturers increased their investments in Chengdu. Their new plants, which are jointly set up with the First Auto Works, will increase Chengdu's output of autos by 30,000 and 150,000 units respectively.

No matter whether Tengzhong is able to run Hummer, the worldĄŻs automotive market is shifting to China. China's central and western regions, where there is less impact from the recession than the coastal areas, will be highlighted in this market.

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Tony Wang Analyst

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