General Motors Co signed a deal on Friday to sell its iconic but tarnished Hummer brand to an investment partnership headed by an obscure Chinese machinery maker in an agreement that underscores the fast rise and global ambition of the Chinese auto industry.

The deal with China's Sichuan Tengzhong Heavy Industrial Machinery caps a year-long struggle by GM to shed a military-derived SUV brand that had become synonymous with gas-guzzling excess.

It marks the first time that Chinese investors have stepped in as buyers into the distressed U.S. auto industry.

The sale also comes at a time when China has emerged as the world's largest auto market and GM remains majority-owned by the U.S. government after being driven into bankruptcy.

The long-term game plan is to ride the China wave, said Jim Taylor, the GM executive who has helped steer the sale and will remain in Detroit as the new company's chief executive.

The deal remains subject to regulatory review in the United States and China. Chinese officials have signaled that the deal would be treated favorably, Taylor said.

Financial terms were not announced. A person familiar with the deal said earlier on Friday that the Hummer business would be sold for about $150 million, far less than GM's early estimate that Hummer could fetch more than $500 million.

Under the deal, Lumena Resources Corp <0067.HK> chairman and founder Suolang Duoji would hold 20 percent of the investment vehicle buying Hummer.

Tengzhong would hold the remaining 80 percent.

The Hummer sale is part of a drastic restructuring plan by GM, which also involves the disposal of its Saab, Opel and Saturn operations as part of U.S. government-sponsored restructuring in bankruptcy.

Tengzhong, a little-known heavy machinery maker, has been in detailed negotiations with GM since it announced an initial plan in June to acquire the premium off-road Hummer brand.

Tengzhong executives, including Chief Executive Yang Yi, have been in Detroit for more than a week for the final round of negotiations after GM missed an initial goal of completing the deal by the end of September.

Aaron Bragman, an auto analyst with IHS Global Insight, said GM's move to jettison Hummer would help the automaker rebuild its image as more environmentally responsible.

Hummer has become a bit of an albatross around their neck, Bragman said.

GM, which emerged from bankruptcy in July after taking $50 billion in U.S. government funding, is cutting its stable of brands in half to focus on Chevrolet, Cadillac, Buick and GMC.

A KINDER, GENTLER HUMMER?

Hummer's sales peaked in 2006 but have been hit hard since by a slumping U.S. economy, higher gasoline prices and a shift in U.S. consumer tastes away from Hummer's heavy-duty SUVs and its military-derived styling.

Through September, Hummer's U.S. sales were down 64 percent this year.

Analysts said the new Hummer faces a difficult task of revamping a macho brand associated with the excess of the past economic boom in the United States.

The brand had its origins in a multipurpose vehicle known as the Humvee that was used by the U.S. military. Those were made by a company called AM General.

GM bought the Hummer brand from AM General in 1999 and went on to sell the H1, H2 and H3 and H3T civilian models.

California Gov. Arnold Schwarzenegger, who won fame as bodybuilder-turned-Hollywood-action-hero before moving to politics, added to the profile of the brand as an early buyer.

If I'm GM and I can sell it, I'm doing a jig, said Autoconomy.com analyst Erich Merkle. There was a time when Hummer was quite popular, but that was earlier in this decade when people wanted McMansions and suburban assault vehicles.

GM's Taylor said it would take months for the new Hummer to set up for sales and distribution in China, a market where the brand has no established sales network.

In the meantime, he said, the image of the Hummer brand would have to become more green and deliver better fuel economy. It's something we have to address, he said.

GM will continue to manufacture the existing Hummer models and provide engineering support for Tengzhong on a contract basis. That provision of the deal preserves about 3,000 U.S. manufacturing jobs until at least the middle of 2011.

GM's Shreveport, Louisiana, plant will continue to assemble the H3 and H3T. A plant in Indiana operated by AM General will continue to produce the older H2 model.

Those contract manufacturing deals run until June 2011 and can be extended for a year, GM and Tengzhong said.

Credit Suisse has been the financial adviser to Tengzhong. Shearman & Sterling has been the Chinese company's legal advisor. Citi was financial adviser to GM.

(Reporting by Kevin Krolicki and Bernie Woodall, editing by Gunna Dickson and Matthew Lewis)

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