GM, Domino's Say Wall Street's Woes May Ripple Through Economy

By Mike Ramsey, Greg Bensinger and Mark Clothier

Sept. 17 (Bloomberg) -- Executives at companies from General Motors Corp. to Domino's Pizza Inc. and Novell Inc. say Wall Street's upheaval may stunt demand as a credit crunch ripples through the U.S. economy.

The cost of borrowing in U.S. dollars surged to the highest level since 2001 following Lehman Brothers Holdings Inc.'s collapse, Merrill Lynch & Co.'s takeover by Bank of America Corp. and a cash shortage at American International Group Inc. that threatened to plunge the insurer into bankruptcy. The U.S. government agreed late yesterday to lend AIG as much as $85 billion in exchange for a 79.9 percent stake in the company.

``Lending has come to about a screeching halt as the industry itself is trying to sort this out,'' said David Brandon, chief executive officer of Domino's Pizza in Ann Arbor, Michigan. He said his company doesn't currently need access to debt markets.

GM CEO Rick Wagoner said consumer financing is now ``much tighter'' and urged the Federal Reserve to cut interest rates. Fed Chairman Ben S. Bernanke and colleagues left the main rate unchanged at 2 percent yesterday and signaled they will continue to monitor the market turmoil.

``We'll have to see the impact from all the bad news out of Wall Street in terms of the consumer psyche,'' Wagoner said in an interview on Bloomberg Television yesterday. ``But right now we are watching every day and reading the markets. Sales this month are OK. I would say more like August and July.''

GM, the biggest U.S. automaker, is pushing for $25 billion in government loans for the industry to help it convert to more fuel-efficient vehicles in a bid to stem losses.

Ford Motor Co., the second-biggest U.S. automaker, said in a filing yesterday that it's assessing the impact of Lehman's bankruptcy on $1.13 billion in loan agreements with the New York- based investment bank.

`Scary Ride'

The fallout on Wall Street will probably have the biggest impact on New York, said Brad Anderson, CEO of Richfield, Minnesota-based Best Buy Co.

``You've got high-income people who have kind of a scary ride right now in terms of what's happening with their careers,'' Anderson said. ``I would expect you would see an effect on the whole community, as has happened historically in New York.''

Best Buy, the largest U.S. electronics retailer, also insures its extended warranties through AIG and is watching that situation ``with interest,'' he said.

The cost of borrowing in dollars overnight more than doubled as banks hoarded cash amid speculation more financial institutions will fail. The London interbank offered rate, or Libor, soared 333 basis points to 6.44 percent yesterday, its biggest jump, according to the British Bankers' Association.

`Downward Spiral'

By pushing up the price of money, the meltdown may further depress consumer spending that was propped up last quarter by tax rebates.

Tim Manganello, CEO of BorgWarner Inc., said the Lehman bankruptcy and Merrill takeover will have ``a significant global impact.'' BorgWarner, based in Auburn Hills, Michigan, makes automotive turbochargers. Manganello said he expects automotive sales in North America and Europe to be hurt as credit likely will become tougher to obtain and consumer confidence will fall.

``This could be a significant downward spiral caused as much by perception as reality,'' Manganello said. ``Nobody feels comfortable if they think their savings are at risk.''

Software Insurance

Dana Russell, chief financial officer of Waltham, Massachusetts-based Novell, said the economy has hurt the company's ability to sell software that runs corporate networks. He said he's also concerned about the status of AIG, since the company insures many software makers.

``If AIG is insolvent, we'd have to go and find another primary carrier,'' he said before the Federal Reserve announced it would take control of AIG yesterday. ``Prices could go up. Who knows what will happen.''

Banks have already tightened credit for consumers and companies this year after $515 billion of asset writedowns and credit losses since the start of 2007 amid the worst housing slump since the Great Depression.

``From a business perspective it doesn't affect us, but it may affect access to the credit markets and the ability to borrow money,'' said Keith Istre, CFO of billboard company Lamar Advertising Co. in Baton Rouge, Louisiana.

Lehman's bankruptcy will make it harder for corporations and individuals to borrow money, hurting the economy for ``an extended period,'' said Richard Bove, an analyst at Ladenburg Thalmann & Co.

``We are in uncharted territory,'' Bove, based in Lutz, Florida, wrote in a Sept. 14 note. ``It seems likely that all financial firms that extend credit will be pulling back on their credit lines.''

Borrowing Costs

Film studio Lions Gate Entertainment Corp. shouldn't be aversely affected by Wall Street's crisis after raising money for films last year, Vice Chairman Michael Burns said in an interview. The company also has a $340 million credit facility with JPMorgan Chase & Co. and Wachovia Corp., and more than $250 million in cash and cash equivalents.

Lions Gate, based in Vancouver and run from Santa Monica, California, has become more conservative with how it invests its money and sticks to government securities, Burns said.

``There's too much volatility in the marketplace,'' he said. ``Now we only park money in places that closely resemble Caesar's wife -- beyond reproach.''

To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6bloomberg.net; Greg Bensinger in New York at gbensinger1@bloomberg.net; Mark Clothier in Atlanta at mclothier@bloomberg.net