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AFTERMATH OF WAR : War Hasn’t Whipped Economic Enemies on the Home Front

TIMES STAFF WRITER

The war is nearly over. Now, what about the peace dividend?

With guns silent in the Persian Gulf, businesses and consumers interviewed Thursday said they still face an elusive enemy in tight credit, rising unemployment, sluggish auto sales, an overbuilt real estate market, a battered banking system and scores of other problems that still entangle the economy. And no Schwarzkopf-style economic assault is poised to wipe out those problems quickly.

“I can’t increase my spending. I’m broke,” said Bill Bennett, an unemployed construction worker from Reseda.

Indeed, the good news from the Gulf on Thursday was tempered by still more troubling economic announcements. Ford Motor Co. disclosed that it will slash its costs by $3 billion and eliminate an unknown number of white-collar jobs. The giant insurance company Aetna said it will speed up plans to cut 2,600 jobs. Citicorp, the nation’s biggest bank, disclosed a sharp rise in problem commercial loans.

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Still, the final shots of the war remove a cloud that hung over business and consumer decisions ever since Saddam Hussein’s forces stormed Kuwait on Aug. 2. The next seven months saw the mother of all economic roller-coasters as oil prices rose and fell and stock prices fell and rose. Anxiety and uncertainty among consumers and travelers grew.

Hilton Hotels Corp. said its reservations, for example, plunged 15%, mostly because of the war. Reservations at the Beverly Hills-based hotel chain’s giant 2,525-room resort hotel at Waikiki were off by 25%. Retailers and home builders suffered as the invasion came right as their businesses were slowing anyway.

“We can trace the drop-off in sales almost to the day that Hussein invaded Iraq,” said Rick Sherman, senior vice president and general counsel for William Lyon Co. of Newport Beach, one of California’s largest home builders.

Able Industrial Products in South El Monte put its expansion plans on hold as a result of the war. Owner Harold H. Martinez is considering selling a piece of property and is nursing along an ailing 6-year-old Cadillac with the help of a friendly mechanic.

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Martinez expects business to bounce back if the peace holds, “but it will be a slow process.”

Still, the larger question remains: Will patriotic feelings about sweeping the Iraqis out of Kuwait in less than a week translate into more auto, clothing, housing and airline ticket sales?

“It’s possible that the end of hostilities and the clear victory by the allies could convince consumers that there’s light out there after all. I wouldn’t dismiss it. But as a retailer, I’m not counting on it,” said Stephen E. Watson, president of Minneapolis-based Dayton Hudson Corp., which owns the Mervyn’s and Target chains.

At a Mervyn’s department store in Northridge, business Thursday was as slow as it’s been since fighting erupted in January, despite a big sale on baby-related merchandise, store manager Jeannette Grodsky said.

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“People haven’t come running out shopping just because the war is over,” Grodsky said.

Auto makers are among the biggest question marks. Traders pushed the price of auto stocks up Thursday as they bet that consumer confidence will be restored.

But in a televised message to employees, Ford Chairman Harold A. Poling said that although confidence may improve, “we believe any recovery in automotive sales will be slow for the balance of the year.” In London, Matthew Butler, a spokesman for Rolls-Royce maker Vickers PLC, said car sales remain slow because of three factors: recession in the United States, a slowdown in Britain and the Persian Gulf War.

“Now, one of those causes has been removed,” Butler said.

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Whirlpool Corp. in Benton Harbor, Mich., the No. 1 home appliance maker, needs a broad economic recovery, not a military victory, to revive sales. The outbreak of hostilities didn’t change the company’s forecast of a 5% decline in 1991 industry unit sales, compared to 1990.

But some believe that if any war can boost consumer confidence, this one can.

“This war has made people feel good about themselves again, and we are seeing the result,” said Lloyd Greif, vice chairman of the San Francisco-based investment firm Sutro & Co.

Philippe Kahn, chief executive of software publisher Borland International in Northern California, said that the success of high-tech weapons in the war bodes well for U.S. technology firms.

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“However,” he added, “the challenge is for the U.S. to build products that live up to the promise demonstrated by the high-tech victory in the war.”

Some businesses most affected by the war are already seeing signs of recovery. The Ojai Valley Inn and Country Club resort in Ventura County has no March cancellations. Contrast that with February when about 500 guests canceled, resulting in $200,000 in lost revenue.

Fred Sands, president of Fred Sands Realty in Brentwood, said sales loosened up after the war started Jan. 16 as people grew more optimistic. “Now that the war is over I expect the (housing market) to really open up,” Sands said.

Despite the bad news from Detroit in the past few weeks, dealers in auto showrooms reported a clear uptick in traffic and sales dating to the start of the ground war and gaining steam this week.

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One Los Alamitos car importer, Daihatsu America Inc., hopes to improve the mood of its employees by giving them a day off to celebrate. The company’s 115 U.S. employees will have a choice of taking today or Monday off.

Charles D. Peebler Jr., chief executive of the New York ad agency Bozell, said he expects airlines and hotels to vastly increase their advertising to try to lure new business.

Disneyland President Jack Lindquist said he sees a strong summer. The Persian Gulf conflict sharply cut the number of foreign visitors to Disneyland, causing the park in January to cut ticket prices for Southern California residents. Rather than fear of terrorism, Lindquist said, most Japanese and other Far Eastern tourists stayed away because they thought it would be disrespectful to be seen having a good time in a country that was at war.

The reconstruction of Kuwait also offers a shot in the arm for some businesses. Major domestic banks, for example, said they are eager to help finance the reconstruction. Thomas E. Jones, a senior executive at Citicorp, the nation’s largest bank holding company, said that because of the domestic recession there is a shortage of big transactions requiring bank financing. He said a number of Citicorp’s corporate customers undoubtedly will participate in the rebuilding.

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The Los Angeles law firm Gibson, Dunn & Crutcher expects to send one of its lawyers back to its Saudi Arabian office. Ronald S. Beard, Gibson Dunn’s chairman-elect, said the firm most likely will be involved in the work of rebuilding Kuwait, as counsel to contractors, financial institutions and even Kuwaiti state agencies.

At many companies, of course, the end of the war has had no noticeable effect. Computer makers and even defense contractors say the war had virtually no short-term effect because those businesses depend on lengthy purchasing agreements.

And a few businesses saw a boost from the war but now may face a decline. New cable television installations, which were higher than normal in the New York area in January and February as viewers signed up for CNN, are expected to subside, said Edward Adler, a spokesman for Time Warner Inc.

One business directly affected by the end of hostilities, however, is the Shirt Stop in Montebello. Owner Michael Moreno said sales of Desert Shield and Desert Storm shirts and caps have slowed since the weekend, and he doesn’t plan to order any more.

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“I haven’t sold one today,” Moreno lamented.

Contributing to this story were Times staff writers Nancy Rivera Brooks, Michael Cieply, Alan Citron, Denise Gellene, Bruce Horovitz, Greg Johnson, Chris Kraul, Kathy M. Kristof, Maria L. La Ganga, Carla Lazzareschi, Michael Parrish, Tom Petruno, Jesus Sanchez, Jube Shiver Jr., Stuart Silverstein, Ralph Vartabedian and Donna K. H. Walters in Los Angeles; Gregory Crouch, Michael Flagg, James S. Granelli, Cristina Lee, John O’Dell, Anne Michaud, Dean Takahashi and Chris Woodyard in Orange County; Amy Harmon and Donald Woutat in Detroit; Greg Johnson and Chris Kraul in San Diego; Scot J. Paltrow and Victor F. Zonana in New York; Robert A. Rosenblatt in Washington, and Jonathan Weber in San Francisco.


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