GM, Honda Latest To Boost Production as Cash for Clunkers Resuscitates Small-Car Sales
By Bill Visnic August 18, 2009General Motors Co. and Honda Motor Co. Ltd. are the latest automakers to spool up U.S. vehicle production to answer inventories depleted by the ongoing "Cash for Clunkers" new-vehicle rebate program.
GM will add one day shift at the Orion Township, Michigan, plant that assembles the Chevrolet Malibu midsize sedan; the plant currently is on a four-day work week. Also ramping up with the addition of a two-shift day will be the automaker's plant in Lordstown, Ohio, that produces the Chevrolet Cobalt compact cars, Dow Jones reported.
GM is expected to announce more production increases as it adjusts a third-quarter output that had been drastically reduced from year-ago levels. In extending the Car Allowance Rebate System, the official name of Cash for Clunkers, from the original $1 billion in funding to a total of $3 billion, the program has put unanticipated pressure on the stock of many of the most popular vehicles purchased by those trading clunkers.
Meanwhile, Bloomberg cited reports in Japan as confirming Honda also will increase production at its assembly plants in East Liberty and Marysville, Ohio, and Lincoln, Alabama. The Ohio sites produce the Civic compact car and CR-V compact crossover, two models in the top 10 new vehicles purchased in Cash for Clunkers transactions, according to the National Highway Traffic Safety Admininstration, the government agency administering the CARS program.
At the Lincoln plant, Honda presumably seeks to build up inventory of the Odyssey minivan, although the company also makes the Ridgeline midsize pickup and Pilot crossover at the site. Last month, Honda also shifted almost all production of V6-powered Accord midsize sedans to the Lincoln plant. Honda's Fit subcompact also is among the top 10 new vehicles NHTSA says lead the CARS program (Edmunds.com recently generated a top 10 list that differs slightly), but the Fit is built in Japan.
Ford Motor Co. confirmed last week it would ramp up output of the Focus compact car and the Escape compact crossover as it scrambles to balance output with the Cash for Clunkers depletion of inventories.
Increasing Production -- With Caution
The unanticipated Cash for Clunkers-driven demand for small and relatively fuel-efficient vehicles caught automakers more than just unprepared for such a development -- most had been working on schedules of curtailed production on a wide scale to address radically reduced demand brought on by the nation's economic slowdown.
Moreover, before Cash for Clunkers, most of compact and fuel-efficient vehicles populating the top 10 list of new vehicles purchased under the program were suffering disproportionate sales declines -- despite the popular contention the eroding economy would drive consumers to less-expensive, smaller vehicles that also use less fuel.
Prior to the Cash for Clunkers start near the end of July, these were the first-half sales figures for vehicles enjoying the above mentioned increased production, several of which also are in the top 10 models purchased under the program:
First-half 2009 sales
Chevrolet Cobalt: -54.8 percent
Chevrolet Malibu: -14.4 percent
Ford Escape: -17.0 percent
Ford Focus: -43.8 percent
Honda Civic: -41.8 percent
Honda CR-V: -24.2 percent
No wonder, then, automakers are being circumspect in adding production of these models. Cash for Clunkers resuscitated demand, to be certain, but the makers' manufacturing experts now are faced with two problems: first, the CARS program is slated to stop at the end of August. And second: In two weeks when the program ends, will demand slump back to pre-Cash for Clunkers levels for the very models for which production now is being hiked?
New Pricing Power?
Automakers fought hard to reduce bloated inventories prior to the Cash for Clunkers phenomenon. The nation's recession effectively forced them to an action they could never undertake voluntarily, and the result was an inventory reduction that was beginning to generate a newfound pricing power. Data from Edmunds.com indicates that Chrysler Group LLC, for example, was commanding marked increases in vehicle average transaction prices during the first week of Cash for Clunkers.
The reduced inventories also meant many automakers were able to cut their Edmunds.com-calculated Total Cost of Incentives in July -- and TCI reductions had been hard to sustain with the industry's pre-CARS inventories.
Edmunds.com data show that the industry's TCI figure in July was $2,706 -- the second-lowest figure of the year. And the average discount from MSRP dropped from 15.4 percent to 14.7 percent.
The industry was beginning to reap pricing benefits from curtailed production prior to the Cash for Clunkers acceleration of the inventory rundown, so they almost surely will be careful to maintain caution -- and flexibility -- with the recently announced production increases. -- Bill Visnic
PHOTOS:
1. According to the National Highway Traffic Safety Administration, the Honda CR-V is one of the top 10 new vehicles purchased with Cash for Clunkers rebates; Honda is ramping up production at the CR-V's East Liberty, Ohio, plant. (Courtesy of Honda Motor Co. Ltd.)
2. Ford is increasing production of the Focus, a model whose first-half sales had plunged 43.8 percent. (Courtesy of Ford Motor Co.)
3. Chevrolet Cobalt: essentially dead in the water prior to Cash for Clunkers; now, paradoxically, GM is increasing production to expand inventories. (Courtesy of General Motors Corp.)
LEAVE A COMMENT
The "eroding economy" is driving people not necessarily to purchase cheaper (smaller, more fuel-efficient) cars, but to hold on to their older cars longer. That means that even when the economy starts its upturn, car sales will be slow to follow. I'd plan on 10 million a year for the next couple years at least, assuming no increase in government intereference in market conditions.
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