The US launched a US$200 billion program on Tuesday to rev up consumer lending as automakers reported heavy sales declines and investors regrouped after a rout that sent stocks to multiyear lows.
The US Treasury and Federal Reserve said the effort, which could increase to US$1 trillion, aims to break a credit crunch by buying up asset-backed securities linked to credit cards, auto loans and other types of consumer credit.
Called the Term Asset-Backed Securities Loan Facility (TALF), the program is designed “to catalyze” credit markets that have been “virtually shuttered since the worsening of the financial crisis in October,” a joint statement said.
The program aims to jump-start lending in key areas for consumers and small businesses, and could ease the credit crunch that is choking off economic activity, officials said.
Ryan Sweet at Economy.com said the program could help revive economic activity.
“The TALF is another effort to unclog credit markets, lower interest rates, and resume the flow of credit,” he said. “If the TALF works as intended, it could become the blueprint for future programs to combat the financial crisis.”
As the launch was announced, US Federal Reserve Chairman Ben Bernanke said that this and other efforts by the central bank along with a huge stimulus program should over time provide “solid gains” for the recession-plagued economy.
Appearing before the Senate Budget Committee, Bernanke said the short-term economic outlook remains troubling but that the various stimulus efforts and moves to stabilize the financial system will eventually help lift activity.
“Although the near-term outlook for the economy is weak, over time, a number of factors should promote the return of solid gains in economic activity in the context of low and stable inflation,” he said in his prepared remarks.
Major automakers meanwhile reported steep sales declines in the US market for last month. General Motors (GM) reported a 53 percent slide to 127,296 vehicles, Ford sales fell 48 percent to 96,044 vehicles and Toyota’s dropped 37 percent from a year earlier to 109,583 vehicles.
Overall sales for the US market were down 41 percent from a year ago to a weak annual pace of 9.12 million vehicles.
GM, which last month asked the US Treasury for an additional US$16.6 billion in emergency loans on top of the US$13.4 billion approved in December, announced plans to slash second-quarter production by 34 percent.
“This remains a very challenged industry that is a reflection of the severe economic crisis we’re in,” Mike DiGiovanni, head of industry analysis at General Motors, said in a conference call.
“These are obviously unsustainable levels which are causing almost every major automaker across the globe to ask for government aid,” he said.
Ford, which has said it has sufficient cash reserves to survive the downturn without government aid, announced plans to slash second quarter production by nearly 40 percent to 425,000 vehicles from 685,000 vehicles in the second quarter of last year.
“It may be that this month represents the bottom but there is no economic anchor to allow us to make that call definitively,” Ford economist Emily Kolinksi Morris said in a conference call.
Chrysler, which recently asked the US Treasury for another US$5 billion in loans to supplement the US$4 billion it received in January, also posted sharp losses on a year-over-year comparison — down 44 percent at 84,050 vehicles.
Chrysler appears to have won a large chunk of that market share from Toyota, which said it would not need to make any more significant production cuts at its US facilities on top of those made earlier this year.
While Toyota does not expect a significant recovery in auto sales this year, it is “still optimistic that we’ll pull off the bottom” sometime this summer said Bob Carter, general manager of the Toyota Division for Toyota Motors Sales USA.
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