GM is a 100-year-old company, but "It's had "significant leverage for only the last 10 or 15 years," Liddell told reporters at the Detroit Auto Show. "For a large part of the time, it was (debt-free). All I'm doing is returning it.
"I don't think this is an industry that lends itself to high debt," Liddell said. "(That) increases risk enormously. We've got evidence of that, in a company that went bankrupt."
GM CFO Chris Liddell
During 2010, GM reduced its debt from about $14 billion at the start of the year to about $5 billion today, so the company is obviously on the right path. Liddell noted that the auto industry is a cyclical one in which suppliers, dealers and customers all rely heavily on debt, so that "in credit crises the (manufacturer) is the lender of last resort." For that reason alone, it is important in the up cycles to pay off debt, in order to be better prepared for the inevitable down cycle.
Liddell's strategy also involves enhancing GM's credit rating and long term, readjusting its approach to pension funding.
"I think we can get back to investment grade" he said. "Whether we can do it as quickly as this year is going to be tough." While the company could well achieve acceptable financial metrics this year, rating agencies want "to see a track record," which may stretch out the upgrades, Liddell indicated. "Getting a strong credit rating in the upswing will be incredibly important when we're in a downswing," he said.
As for the pension plan, GM is currently underfunded. Pension funding standards depend on three factors: the discount rate, investment returns and contributions; a company can only fully control the third factor. Liddell noted that GM is particularly vulnerable to pension fund concerns because it is a company of 70,000 workers that supports a pensioned retirement community with 700,000 members.
His goal, he said, is to more closely match assets with liabilities in the fund -- in other words, to generally invest in bonds and fixed-return instruments rather than in equities. "Once fully funded, assets would equal liabilities in maturity and risk profile," Liddell said.
On a personal level, Liddell said he is enjoying his work. Last year, when the company
, "was fantastic; the idea of helping bring back an iconic company to the public markets," he said. "I'm happy -- I'm doing something impactful and interesting."
-- Written by Ted Reed in Detroit
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