Washington - Major US companies that for months had been at
the mercy of the government, or their creditors, are starting to
emerge from under a devastating economic crisis, but economists
caution that the downturn is far from over.
It has been a positive few days of news: US carmaker Chrysler put
the finishing touches Wednesday on an alliance with Italian company
Fiat, which will allow it to exit bankruptcy in less than two months.
A group of Chrysler's bondholders had tried to block the merger,
but the deal was formalized after the US Supreme Court refused to
intervene Tuesday night.
The speed of Chrysler's bankruptcy process came as a surprise to
most analysts and offers some hope for larger rival General Motors,
which only entered bankruptcy on June 1 but hopes to come out
healthier on the other side in 2-3 months.
'You're looking for signs of life - these are signs of life,' said
Bruce Belzowski of University of Michigan's Transportation Research
Institute. But the car industry will have a true indication of where
it stands only once GM comes through the same tortuous process, he
said.
Also this week, the Treasury Department said it would allow 10
major banks to return nearly 70 billion dollars in government loans,
which were handed out at the height of the US financial crisis last
October.
With the United States mired in its longest recession since the
1930s, bail-outs of the financial and car industries have been at the
heart of the government's efforts to keep the world's largest economy
afloat.
Starting with former president George W Bush and continuing under
his successor Barack Obama, the government has pumped about 600
billion dollars into both sectors since October and claimed
controversial equity stakes in a number of private firms in return.
The government bail-outs have been widely unpopular among the US
public and many conservative legislators, but each has been billed as
critical to the health of the wider US economy.
Wall Street's survival is considered essential to keeping credit
flowing through the wider economy. The Detroit-based car industry
accounts for about 4 per cent of US economic output and its collapse
could cause the loss of more than 2 million jobs.
This week's developments mark a sharp improvement from the early
days of the crisis in October and suggest that maybe - just maybe -
both sectors have put the worst days behind them.
'The financial sector isn't all the way back,' said Gus Faucher,
director of macroeconomics for Economy.com, a website run by credit
rating agency Moody's. 'But it's an indication that banks are more
confident about the outlook.'
Tentative signs that the US economy may be stabilizing have been
thrown about since April. Obama called them 'glimmers of hope' as
confidence among businesses and consumers inched upwards. But it is
still far too early to talk of a real recovery, Faucher cautioned.
Some of the banks now set to pay back government loans, including
Goldman Sachs and JPMorgan Chase, were likely pressured by the
Treasury Department to take the money in the first place and may have
survived without it, Faucher said.
Meanwhile, major financial firms including Bank of America,
Citigroup and American International Group are still likely to depend
on the government's support for some time.
Most US economists predict the country's 18-month long recession
will end some time towards the end of this year, but still see only
meagre growth of just over 1 per cent in 2010.
For the car industry, the bankruptcy reorganization may be giving
GM and Chrysler a new lease on life, but Belzowski warned that the
industry efforts could come to nothing if car sales in the United
States don't rebound in coming years.
Car sales across the US are expected to fall below 10 million this
year, after averaging about 16 million vehicles a year for much of
the last decade.
But the crisis also merely reinforced longer term problems in
Detroit that will not be solved merely as the economy begins to
stabilize. The US industry has been losing market share to cheaper,
cleaner foreign competitors for more than a decade.
Chrysler's answer is an alliance with Fiat that will give it
access to the Italian carmaker's smaller, more fuel-efficient line-up
of cars. GM is shedding a series of inefficient and loss-making
brands like Hummer.
The US Congress is looking to kick-start sales and green the
industry with incentives for consumers to trade in dirty cars for
cleaner alternatives. The so-called 'cash-for-clunkers' programme
passed the House of Representatives on Tuesday and now moves to the
Senate.
GM and Chrysler have also entered into new agreements with their
labour unions, which brings their fixed costs roughly in line with
workers at Asian carmakers operating in the United States.
'These are once-in-a-lifetime opportunities and challenges for
them,' Belzowski said. 'It's really just the beginning.'
USA
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