General Motors’ Henderson sees short-term contraction

The bankruptcy filing of investment bank Lehman Brothers Holdings Inc. and the pressure on the financial sector will mean a short-term “contraction” in credit markets for borrowers, General Motors COO Fritz Henderson said.
Henderson, who was speaking to the Reuters Autos Summit in Detroit, said that the credit markets have been effectively closed to corporate borrowers except those with the highest credit ratings, but said the turmoil in the U.S. financial sector could add to the pressure.
“I would say things have been difficult already,” Henderson told Reuters. “Capital markets have been quite difficult, and this is just going to make it more so.”
He added: “We’re in for some rough waters here at least for this week if not the next couple of months.”
As part of a plan announced in July, GM is targeting cost reductions of US$10 billion, and up to US$5 billion in a combination of asset sales and new borrowing to shore up its liquidity position between now and the end of 2009.
Henderson said GM, like other companies in restructuring, was already facing tough credit market conditions at a time when equity financing and private equity firms have also been in retreat.
“In terms of raising capital, you’ve got pretty much closed debt markets for anything other than triple-A-rated companies. You don’t have that avenue available to you,” Henderson said. “If you look at any company that’s got business challenges, the markets are very difficult to deal with.”
Henderson said the difficulty accessing capital markets made it more urgent for the U.S. Congress to approve funding that would clear the way for US$25 billion in low-cost loans for the auto industry to fund plant retooling and other investment in fuel-saving technology.
The framework for that loan program was included in last year’s energy law that established the first large increase in fuel economy targets since the auto standards were introduced more than 30 years ago.
Lawmakers must appropriate about $3.8 billion to cover default risk to issue the loans, and Congressional Democrats have said they would like to pass the legislation to do that by the end of the month.
Henderson said GM would continue with its own restructuring plan regardless of what Congress does with funding for the US$25 billion loan program or the rules that govern how much of that total GM would be eligible to borrow.
“The actions in July are necessary to transform our business. We have to do those. It’s all about self-help,” Henderson said. “The ability to access financing to finance these projects certainly would help — actually, it would help a lot in the short term — but it wouldn’t at all change the actions that we’ve announced.”