GM (GM) said yesterday that it might want to raise some capital. Today, Lehman indicated that the car company may not have a choice.
According to Reuters, an analyst at the broker said "GM will need to refinance close to $8.7 billion of debt due between now and January 2010, as well as absorb additional cash burn of close to $11 billion."
In this environment, with tight credit, a company which has a junk rating is likely to have trouble raising money. When the capital does come in, the coupons are certain to be very high.
The news from both GM and Lehman is a tacit acknowledgment that North America will be a market where it is nearly impossible to make money, at least for the next several years.The domestic market is shrinking too fast. Some estimates are that only 14.5 million cars and trucks will be sold this year compared to 16.1 million in 2007.
The competition for each sale becomes more fierce as the pie shrinks. Toyota (TM) and Nissan have already said they expect a difficult year or two in the US.
Detroit’s problems are bigger than auto execs are willing to say. But, everyone else has already figured it out.
Douglas A. McIntyre