Retailers Will Suffer Under Coming Credit Crunch

Just in time for the critical fourth quarter, the current financial crisis hits retailers right where they live: access to capital.

Speaking at the Reuters Autos Summit in Detroit on Monday, General Motors President Fritz Henderson predicted the bankruptcy of Lehman Brothers and turmoil at Merrill Lynch, AIG, and elsewhere, will close credit markets to all borrowers save those with triple-A credit ratings.

Credit will cost more for those who can get it. On Tuesday, a key credit metric, the LIBOR interbank borrowing rate, more than doubled to 6.44 percent -- the biggest jump since markets collapsed after the 9/11 terrorist attacks in 2001. In June, it was 2.07 percent.

Meanwhile, the Fed declined to cut interest rates today, citing the need to balance inflation and growth.

Tighter, more expensive capital will hurt retail businesses that run on revolving credit -- especially at this time of year, with orders placed and inventory arriving for the holiday season.

"I would say things have been difficult already," Henderson told Reuters. "Capital markets have been quite difficult, and this is just going to make it more so. ... We're in for some rough waters here at least for this week, if not the next couple of months."

GM and other automakers have appealed to Congress to fund $25 billion in low-cost loans to finance plant conversion to hybrids and other high-mileage products. Will the retail industry need a federal bailout before this downturn is done?