General Motors Co. says the sale of its Hummer brand to China’s Sichuan Tengzhong Heavy Industrial Machinery Corp. is stalled while the companies wait to see if the Chinese government will approve the deal.

Kevin Wale, president of GM’s China unit, tells the Automotive News World Congress in Detroit that he remains “optimistic” about gaining approval.

Beijing is reviewing applications closely as it tries to consolidate an auto industry glutted with carmakers and capacity. Wale says Tengzhong faces tough scrutiny because it is a producer of road and construction equipment, not an established automaker. A source close to the negotiations tells AutoBeat Daily the deal could still go through.

Tengzhong and GM reached a preliminary deal in June and signed a definitive agreement in October. GM originally hoped to close the deal by September and then shifted the target to year-end. If the Hummer sale were to collapse, it would be GM’s fourth failed asset sale in less than six months. Deals to sell the Saturn and Saab brands fell apart in September and December, respectively. In November GM called off the sale of its Opel unit to Canada’s Magna International Inc. and Russia’s OAO Sberbank.

Separately, GM says it will stop production of Hummer SUVs at its Shreveport, La., assembly plant early next week until the sale is complete. The company had a seven-month supply of Hummers at year-end—plenty to meet customer demand in the interim. The Shreveport plant, which makes the H3 and H3T, also produces midsize pickup trucks for GM.

Chairman and CEO Ed Whitacre has authorized a major overhaul of General Motors Co’s fullsize pickup trucks, which analysts say could cost as much as $1 billion.

GM delayed a redesign of the Chevrolet Silverado and GMC Sierra big pickups last year to conserve cash as it struggled unsuccessfully to avoid bankruptcy. Tom Stephens, vice chairman for global product operations, says the company’s top management recently approved the request for redesign funding in less than two weeks—a big change from GM’s old regime, where product decisions could drag on for months.

The Silverado and Sierra, which were last redesigned in 2006, compete against the fresher Ford F-150 and Dodge Ram pickups, which were revamped in late 2008. GM has earned some of its fattest profit margins on big trucks in recent years. But sales in the segment fell 48% since 2007 to 1.1 million units last year, battered by high gasoline prices and the construction slump.

GM believes demand for the trucks, which are favored by contractors, will revive as construction activity increases. The company reportedly plans to re-engineer the trucks, which won’t arrive until 2012 or 2013, to improve fuel economy and safety, and to update their sheet metal and interiors.

Tycoon Wilbur Ross, whose International Automotive Components Group has been scooping up distressed supplier assets over the past three years, is calling on the U.S. government to introduce a second “cash-for-clunkers” program to encourage consumers to trade in older vehicles for new, more-fuel efficient models.

Speaking at the Automotive News World Congress in Detroit yesterday, Ross argued that a “more generous” clunkers program would stimulate the economy and bolster auto sales.

Transportation Secretary Ray LaHood told reporters earlier this week that the Obama administration would leave any decision about another round of car-buying incentives to Congress, which created the original program. U.S. Rep. Betty Sutton (D-Ohio), who sponsored the measure, says new legislation is an “open question.”

Without clunker incentives, Ross expects U.S. light vehicle sales to increase to almost 12 million units this year from 10.4 million in 2009. But he says that jump wouldn’t be enough to avert additional supplier collapses.

Ross says 60 auto suppliers filed for bankruptcy last year and another 200 simply closed their doors. He notes that IAC Group acquired business from 12 insolvent suppliers last year. Ross predicts his company will turn a profit this year after losing money in 2009.

Automakers recalled 16.4 million vehicles in 492 campaigns in the U.S. last year, up from 10.5 million vehicles in 684 campaigns in 2008, says The Detroit News, citing the National Highway Traffic Safety Administration.

The number of vehicles recalled last year was the highest since 2005 but barely half the record 31 million units recalled in 2004, the newspaper notes. Toyota Motor Corp. recalled the most vehicles last year: 4.9 million in nine actions, including 4.3 million recalled in November to fix a sticky accelerator pedal. Ford Motor Co.’s recalls tripled to 4.5 million vehicles as it completed the last phase of a 14-million unit recall to repair faulty cruise control deactivation switches.

Crude oil futures, which topped $83 per barrel a week earlier, fell $1.14 per barrel yesterday on the New York Mercantile Exchange to close at $79.65.

Analysts attribute the decline to yesterday’s report from the U.S. Energy Information Administration, which showed that crude inventories increased by an unexpected 1.1% last week. Gasoline supplies jumped 1.7% to almost a two-year high. Stockpiles of distillates, including heating oil, increased nearly 1% despite the recent cold snap. Analysts credit the inventory increases to a 1.4-point week-over-week jump in refineries’ capacity utilization to 81.3%.

The trend hasn’t reached the retail level yet. The average U.S. price for gasoline has increased to $2.76 per gallon nationwide, up 7 cents in the past week and 13 cents higher since the year began, according to the AAA Daily Fuel Gauge Report.

Chrysler Group LLC is likely to post year-over-year declines in vehicle sales until about mid-year because incentives inflated volume in the year-earlier period, says CEO Sergio Marchionne. He says the company can stay afloat until its new vehicles arrive because it has $5 billion-$6 billion of cash reserves and is maintaining a tight budget.

Toyota Motor Corp. says it is reviving plans to produce its Prius hybrid sedan at an almost-finished assembly plant in Blue Springs, Miss., when the U.S. economic recovery hits “full stride.”

The company mothballed the $1.3 billion factory and suspended the Prius project indefinitely in December 2008 as U.S. auto sales began to slump. Yoshi Inaba, president of Toyota’s North American unit, also says the company is considering moving additional production to North America.

Russia’s largest automaker OAO AvtoVAZ, whose auto output plummeted 63% in 2009, is forecasting an increase of nearly 50% in production this year as the recession eases and a government scrappage program boosts demand. That would hike output to 497,000 vehicles in 2010, still far short of the 920,000 vehicles it made in 2008.

The North American automobile industry is beginning to emerge from perhaps its biggest crisis ever. But it won’t be a return to business as normal. Profound changes were unleashed

Jim Plemmons

in 2009, and they will continue to ripple through the industry for years. To thrive, companies must continue to be proactive. In many cases, the issues facing companies in the industry’s traditional Midwest base are very different than those in the “new auto industry” of the South.

Dickinson Wright PLLC provides broad legal counsel for more than 200 automotive clients in both regions from its offices in Detroit, Bloomfield Hills, Grand Rapids, Lansing and Ann Arbor, Mich., Washington, D.C., Nashville, Phoenix and Toronto. The firm has an exceptional understanding of the regional and regulatory issues impacting the industry. Its automotive practice is led by Jim Plemmons. He and several members of his team describe issues facing carmakers and their suppliers in the new year and beyond.

What is the single most important thing for the industry to know this year?

Nobody should assume the worst is over. We will have as challenging a 2010 as what we saw in 2009. Restructurings of suppliers’ capacity (decreases) and cost effectiveness (increases) remain to be completed this year and next.

Today’s economic conditions continue to push the auto industry to focus on weak processes that have hurt them. Companies are becoming more sophisticated about the legal side of their business, and they want support in many areas beyond consolidation, workouts and liquidation.

Which are the biggest changes to come out of last year’s crisis?

Government involvement is certainly one of them. The massive loans Washington made to the industry resulted in much more government monitoring, and it has raised questions about how the government will influence the industry in the future.

Taxes are another big issue. Clients are searching for tax breaks, not just ways to plan future tax liabilities. Washington, D.C.- and Detroit-based Dickinson Wright tax expert Will Elwood recently won a major decision in this area concerning the use of R&D tax credits on tooling manufactured and sold to an OEM. Many large accounting firms were telling clients not to claim tax credits on these items, but the new ruling means there is an opportunity for suppliers to file a refund claim.

Intellectual property issues, which have been somewhat ignored while companies struggled with larger economic challenges, are back. Dickinson Wright IP expert Rick Jones is seeing a significant increase in due diligence in this area among companies that use mergers and acquisitions to gain technology. There is more “patent mapping”—checking to see which patents are truly owned by a target for acquisition. Dickinson Wright also helps buyers determine if the technology they seek from another company was developed with government funds. If so, the ability of the acquiring company to capitalize on it may be limited.

International trade issues are another growing area, especially for smaller suppliers who are being pushed to go global. Dickinson Wright international automotive trade and customs expert Bruce Thelen gives an example that an assembly made in Mexico could be treated as Chinese if it contains components from China that define the ‘essential character’ of the final product. We help companies make smart sourcing decisions that can help avoid high tariffs and take advantage of NAFTA and other preferential trade arrangements.

What issues are especially big in the South?

The carmakers in the South are relatively recent arrivals, and some of the issues that northern companies have dealt with for years are new to them. Dickinson Wright Nashville-based automotive attorney Kim Stagg notes that OEMs and their suppliers are making new investments in the South. They want to make prudent investments, and they want to make sure they have processes in place now to avoid problems later.

The traditional Big Three carmaker supply base has become expert in dealing with such issues as Chapter 11 and “363” sales, Stagg continues. However, these are newer experiences for many companies and OEMs in the South. Not long ago a carmaker or tier one supplier rarely did much financial due diligence on a supplier that bid on a contract. It has become commonplace in the North and even with certain new domestic OEMs, but many suppliers in the South are just setting up those processes now.

Similarly, Dickinson Wright automotive contract expert Roger Cummings says suppliers are focusing on avoiding gaps between the terms of their purchase contracts with lower-tier suppliers and the terms they have with their own customers. This includes everything from indemnification and IP rights to contract duration and pricing adjustments.

Has M&A activity peaked in the auto industry?

Volume remains high, but it doesn’t get as much publicity. Companies are definitely cherry-picking facilities because there are so many plants and other assets on the market. There is significant shifting of machinery from unstable to stable suppliers, for example, but it’s mostly behind the scene. There has been a major upswing in stronger tier one and tier two suppliers doing this in the past six months.

To learn more about Dickinson Wright’s automotive practice, please contact Jim Plemmons in Detroit at (313) 223-3106 or e-mail jplemmons@dickinsonwright.com.