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Oracle of Delphi

The Future of Hummer Is In Foreign Hands

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Posted by: David Kiley on August 17

The iconic Hummer brand could soon be in the hands of Eastern Europeans.

Reuters is reporting that General Motors, which markets civilian vehicles under the Hummer brand has been in talks with Russia’s richest man, Oleg Deripaska, to sell the brand. Separately, sources have told Businessweek that Indian automaker Mahindra and Mahindra, as well as a Turkish private equity group have also inquired about buying the brand.

GM announced last June that it was evaluating the future of Hummer, which is code for seeking buyers. GM is hurting for enough cash to see it through its current woes and economic downturn in the U.S. It lost more than $15 billion in the second quarter alone.

Hummer, when gasoline was $2.00 a gallon and less, quickly became a hot brand, especially among a certain consumer that gravitates to gun culture, off-roading and adventure vacations. According to GM, the Hummer H2, when it launched in 2002, was a vehicle that many wealthy households would buy as a third, fourth or fifth car.

The Hummer H2, and H3, are modeled on the Humvee military vehicle built by AM General since before the first Gulf War. That military vehicle became a star on TV coverage of the war, leading AM General to build a street-legal version. GM bought the rights to the Hummer brand for street-legal vehicles in 1998.

Hummer sales are down about 40% this year. Besides higher gas prices, GM has seen Hummer become a kind of poster-brand for U.S. dependence on foreign oil. “Hummer Bummer” tee-shirts can be seen in many a U.S. city.

Deripaska’s interest makes sense. Besides being assembled by AM General in South Bend, Indiana, the H2, which is built off the same chassis as the Chevy Tahoe SUV, the enormous vehicle has also been assembled in Kaliningrad, Russia, by Avtotor. The plant produces a few hundred vehicles annually, with sales limited to local consumption.

While Hummer sales have declined precipitously in the U.S., sales and interest is holding up abroad, especially in Eastern European and Middle Eastern countries where gasoline is much cheaper and in some cases subsidized by the government. Too, audacious looking vehicles like Hummer, often decked out in expensive after-market equipment, are popular with the growing number of wealthy Russians, including the “gangster class.”

The value of the worldwide rights to the Hummer brand vary depending on whom you ask. Analysts and executives familiar with GM discussions say it could be around $1.5 billion depending on how much cross-bidding there is. One thing is for certain, though, and that is the future value of Hummer is much more in overseas markets than the U.S.

According to Reuters, Deripaska, an aluminum magnate who has bought a stake in auto supplier and contract manufacturer Magna International, is worth an estimated £14 billion. It would be simple for him to leverage Magna’s capability to build whole vehicles, which it does for companies like BMW, to manufacture Hummers.

Hummer military vehicles are still manufactured by AM General. But the company’s future in that arena is somewhat clouded as the U.S. Army is reviewing new designs for a Humvee replacement. Industry sources have said in recent weeks that the company that emerges with control over the civilian Hummer brand may also be interested in acquiring AM General, which is privately held, as a way to be a bigger player in overseas military vehicle sales. That is especially the case with Mahindra, which is already in the military vehicle business, as well as Deripaska.



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