While a decision by General Motors Corp. to
draw down $3.5 billion from an existing credit line is surely not positive news from the struggling automaker, industry watchers on Monday generally agreed with the company's spin that the decision has as much to do with current credit market conditions as it does with GM's health.
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The automaker, which had previously called its $4.5 billion credit facility arranged in 2006 by J.P. Morgan Chase & Co. and Citigroup Inc. a reserve, said it was tapping the lines out of fear that the money might not be available later should the nation's banking crisis worsen. GM had $21 billion in available cash and borrowings as of the end of the second quarter, but it has said it needs to raise an additional $15 billion through cost cuts, asset sales and new borrowings to weather the current financial storm and complete its transformation to be a maker of smaller, more fuel-efficient vehicles.
Investors saw the draw down as a danger sign, sending shares of GM down more than 5%, or 75 cents, to $12.33. And indeed the news could get worse for GM should the company be unable to tap credit markets in the coming months to gain the liquidity it needs to survive what figures to be a difficult 2009. But company watchers were quick to downplay the significance of the draw down, arguing that the situation, though challenging, is no worse now than it was Aug. 1 when second-quarter earnings were released.
"It is ugly, but it isn't dire," an automotive restructuring expert said Monday. "Better to take the cash now when it is available and face some backlash today than to explain later that they sat on their hands and let the cash get away." - Lou Whiteman
See Wall Street Journal story on GM's draw down
See Dealwatch: Autos
