Post 'Clunkers,' Automakers Raising Production - Carefully
August 27, 2009

Prior to the Cash-For-Clunkers sales explosion, the last thing automakers would have considered was increasing production in their North American factories.

In answer to the worst industry sales slide in more than a generation, most had for more than a year being doing just the opposite - slashing production schedules - in an attempt to reduce bloated inventories suddenly and catastrophically out of line with consumer demand.

But Cash-For-Clunkers changed all that: in just four weeks, the federal incentive program squeezed more than a half-million buyers into showrooms. So much for that troublesome inventory.

Now the auto industry has to deal with the wholly unpredicted consequence of Cash-For-Clunkers' success: almost overnight, nobody has enough new vehicles to sell. And the equally ironic solution: raise production.

Production Hikes For All

Several of the makers of new vehicles popular with Cash-For-Clunkers buyers - General Motors Co., Ford Motor Co. and Chrysler Group LLC, with an estimated collective 39 percent of the program's new-vehicle sales and many of the Asian automakers that collectively accounted for the majority of clunkers sales - have announced production boosts.

But some industry analysts say the vehicles won't reach deserted dealer lots for weeks or even months - and when those new models do arrive, they might be just in time to once again languish, as the Cash-For-Clunkers program already "stole" many of the buyers who would have purchased in the coming months.

Haig Stoddard, auto analyst for IHS Global Insight in Troy, MI, says it will take two months of newly jacked-up production to rebuild industry inventories back to normal levels. It's a job that has to be done - but done carefully.

That's because recovery in the auto industry - and the broader U.S. economy - is predicted to be slow and stilted. Industry leaders and economists are unsure of the ultimate effects of the Cash-For-Clunkers sales "spike."

And although Stoddard said IHS Global Insight is projecting a healthy 238,000-unit production increase for the rest of this year thanks to the Cash-For-Clunkers effect, the program's lasting repercussions are projected to actually lead to production cuts in 2011 and 2012.

  Ford, one of the lead beneficiaries of the Cash-For-Clunkers program, was one of the first to officially announce a production hike for this year. Through the end of the year, replenishing stocks of the Focus compact lineup, Fusion midsize sedan and Escape compact crossover and expected demand for new 2010 models means the company will produce approximately 85,000 units more than originally planned.

GM says it will add production shifts at the Lordstown, Ohio, plant that produces the Chevrolet Cobalt, a popular choice for buyers replacing a "clunker," and at its CAMI facility in Ingersoll, Ontario, Canada, that assembles the new 2010 versions of the Chevrolet Equinox and GMC Terrain compact crossovers. The company also will add overtime and reinstate previously scheduled downtime at other plants.

In all, GM said it expects to add about 60,000 units of increased production.

Chrysler will boost output of Ram pickups and and Honda Motor Co. Ltd. also will increase production, though neither issued specific numbers.

A Toyota Motor Sales USA spokesperson told AutoObserver the company also has cranked up it's U.S. manufacturing levels.

"Increased production was ordered several months ago, to increase stock for our traditional August sales event and the last half of the year, for which we see slow but steady recovery of the market," said the Toyota spokesperson.

"These vehicles are starting to arrive right now, so they will be very timely and help stabilize inventory. As the market recovers and the CARS program winds down, we expect to see less of the mix and inventory swings experienced last year."

Toyota said it has been flexible and worked closely with its U.S. assembly plants and "has obtained manageable inventory levels."

High-Stakes Balancing Act

In the coming weeks after Cash-For-Clunkers, the need to manage inventory will place a hyperintensive scrutiny on production strategies and tactics. Automakers need to replace depleted stocks - but after working diligently to align production with the drastically downsized demand of the past year, they don't want to overreact to the Cash-For-Clunkers frenzy, which may have pumped August's Seasonally Adjusted Annual Rate of sales to a level that may exceed by 50 percent or more the average monthly SAAR in 2009.

Stoddard said IHS Global Insight is projecting Cash-For-Clunkers will contribute 600,000 incremental sales this year - half of which are sales that would have occurred in 2010 - resulting in a projected 2009 light-vehicle sales total of 10.3 million units.

Whether - and how much - those 300,000 "pull-ahead" sales affect the degree of 2010's expected auto-industry recovery may be in the hands of those now massaging automaker production schedules. - Bill Visnic

Posted by Bill Visnic at 3:00 AM under Analysis , Chrysler , Companies , Featured , Ford , GM | Comments (2) | digg this | Seed Newsvine

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