GM CFO sees risks to economy, but no recession

By David Bailey

DETROIT (Reuters) - General Motors Corp GM.N does not expect recession in the United States, but the automaker's chief financial officer said further action by the Federal Reserve is needed to soothe financial markets.

"I would think the fragility of the market would suggest that they may take another step," Fritz Henderson told reporters at an Automotive Press Association lunch here.

He said he expects the Federal Reserve to make another interest rate cut on Wednesday, at the end of its scheduled two-day monetary policy meeting.

The Fed implemented an emergency cut of three-quarters of a percentage point last week, sending the federal funds target rate to 3.50 percent, its lowest level since September 2005.

"At this point, I think, action to make sure that we don't fall farther -- that we actually resume or start to address some of the issues and frankly provide some liquidity back into the markets -- is very much needed," Henderson said, but he added, "We do not expect a recession here in the U.S."

Henderson said the risks of a recession were higher, but, he said, "What is encouraging is there does seem to be a recognition of the risk there. Whether it is a monetary stimulus or fiscal stimulus, we are encouraged by the fact that policymakers view that something has to be done."

While U.S. markets have shown "incredible volatility" and financial transactions are "locked down" for all but the most financially sound companies, the rest of the economy has shown more stability, Henderson said.

"Our forecast is that there is probably more risk in the environment than there is upside, certainly in the next 12 to 18 months," he said.

Worried about a recession, investors have been counting on the Fed to cut rates to cushion an economy squeezed by the housing slump, a credit crunch and weakening consumer confidence.

The weak U.S. housing market is expected to remain a significant drag on the economy for the next 12 months, but it is only one part of the economy, Henderson said.

"Our 2005 results were a disaster any way you look at it," Henderson said. "We have shown consistent improvement, but that is not the goal."

Henderson said GM has improved a lot since 2005, but added that was "a low bar" to beat. The company reported a $10.4 billion net loss in 2005.

Earlier this month, the Detroit automaker said in a presentation to Wall Street analysts that it sees significantly improved operating earnings and cash flow in the next two to three years, but expects high fuel prices and declining consumer confidence to be a drag on U.S. sales this year.

At that time, Henderson said GM had adequate liquidity through 2008 to sustain operations, capital spending and employee buyouts even under a downside scenario on U.S. industry vehicle sales. GM estimated its liquidity at the end of 2007 was more than $27 billion.

GM has said it expects U.S. industry sales to come in slightly above 16 million vehicles this year. It projects global industry volume to grow to a record 73 million vehicles, up 2 million from 2007.