June 30 (Bloomberg) -- The cost to wind down what remains of General Motors Corp. after an asset sale to a U.S. Treasury- backed buyer may top the $950 million set aside by GM and the government, Chief Executive Officer Fritz Henderson testified.

GM and the Treasury agreed to leave behind $950 million in cash after the sale to cover administrative claims and a wind- down. Henderson said today at a hearing in U.S. Bankruptcy Court in New York that environmental liabilities may drive the cost as high as $1.2 billion.

“It may be short to a certain degree,” Henderson said, referring to the money set aside. “We would hope the amount that was allocated would be sufficient.”

The executive was the first witness to testify at the Detroit-based automaker’s sale hearing where it is seeking approval of sale terms that would give the U.S. government 60 percent of the new GM for making $50 billion in bailout loans. A worker fund would get a 17.5 percent stake for giving up health-care benefits, and Canadian government entities would get 11.7 percent for their loans. Bondholders and unsecured creditors would share 10 percent of the equity, plus warrants.

Henderson said that while retail sales were down substantially from the prior year, they are meeting or exceeding current forecasts, largely because of the belief the company’s stay in bankruptcy will be short. Marketing efforts “focused on loyal GM customers,” the company’s product line and the government’s decision to stand behind GM’s warranties also deserve some credit, he said, before winding up his testimony at 5:30 p.m.

Fleet sales of cars are down due to buyers’ uncertainty about doing business with a company in bankruptcy, Henderson said.

Speedy Sale

The Treasury is pushing for a speedy sale because it and GM are “concerned about the business status of the company in a bankruptcy,” Henderson said.

The Treasury has said it won’t continue to fund the $33 billion bankruptcy loan provided to GM if the judge doesn’t approve the sale of most of its assets by July 10. If the government pulled its funding, GM would liquidate, Henderson said.

The negotiations over the sale with the Treasury were long and difficult, Henderson said.

“I’ve not seen a more dedicated group than the auto task force,” he said. “They were tough on us when they needed to be. They were very powerful.”

Henderson’s predecessor Rick Wagoner was asked to step down by Steven Rattner, the head of the Treasury’s auto task force, in a one-on-one meeting, Henderson testified.

“Mr. Wagoner indicated to me he was asked to step down,” the executive said. GM’s board didn’t ask for Wagoner’s resignation at a March meeting, said Henderson, who is a board member.

Other planned witnesses for the hearing include Evercore Partners LLC managing director Stephen Worth and auto task force adviser Harry Wilson.

The case is In re General Motors Corp., 09-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Christopher Scinta in New York at csinta@bloomberg.net.

Last Updated: June 30, 2009 18:15 EDT