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New problem for automakers: Not enough cars

After a lot of heartbreak, the nation's automakers aren't looking to commit.
Image: Honda Assembly Line
Honda is considering increasing the number of Civics it makes at its Greensburg, Ind., plant. The small car is the top vehicle purchased under the Cash for Clunkers program.  Tom Strattman / AP
/ Source: The Associated Press

After a lot of heartbreak, the nation's automakers aren't looking to commit.

They're taking small, tentative steps to raise production to meet the revived demand for new cars and trucks sparked by Cash for Clunkers. Carmakers are offering overtime or Saturday shifts at slack plants, but aren't willing to go as far as opening shuttered factories, concerned that demand may ebb when the program ends.

It typically takes a month for factories to ramp up for a full-fledged sales revival, and automakers worry current levels of demand won't last that long. Sales are usually dry in the early fall anyway, when the next model-year's vehicles hit dealer lots and summer clearance sales end.

"It's like dating versus getting married," said Jeremy Anwyl, CEO of the auto Web site "Over time you can go for a while and then stop, but opening a plant is a much more serious commitment."

It's a delicate balancing act for automakers. Build too few cars and dealers are stuck turning away customers. Build too many, and they have to slash prices to get rid of inventory — the same situation many in the industry were stuck with earlier this year.

"They're watching (sales) daily," said Ron Harbour, partner in charge of the North American automotive practice at consulting firm Oliver Wyman. "No one's going to get caught with their shorts down again."

General Motors Co. and Chrysler Group LLC shut down nearly all of their factories during their time under bankruptcy protection. Chrysler is now adding overtime at most of its plants to respond to expected demand for its 2010 models, spokesman Max Gates said.

Ford, meanwhile, is also working to raise production. Spokeswoman Angie Kozleski said the company is "taking some action to add production" at its assembly plant in Wayne, Mich., but declined to offer specifics. The plant makes the Ford Focus, the No. 2 Cash for Clunkers seller.

Foreign automakers with U.S. plants are taking similar steps. Honda Motor Co. is adding Saturday overtime shifts at its auto assembly plants in East Liberty, Ohio; Lincoln, Ala.; and Greensburg, Ind. Honda spokesman David Iida said the company has seen a resurgence in demand for vehicles like the Ridgeline truck, the Odyssey minivan and the Pilot SUV, along with the Civic sedan, all of which are built in the U.S.

Toyota Motor Corp. last month began increasing production of "core" models such as the Corolla sedan — the best-selling new model for traders of clunkers — the RAV4 crossover and the Tacoma truck at its U.S. plants. And Hyundai Motor Co. is recalling more than 3,000 employees at its plant in Montgomery, Ala.

GM is being more cautious. Mark LaNeve, GM's vice president of U.S. sales said the company is doing careful analysis on whether to increase production but no final decisions have been made. Inventories are low, he said, because GM slashed production earlier in the year. But it's unclear whether July's sales momentum will continue through the remainder of the year.

"We're not going to oversupply our dealers and the market," he said.

Some dealers say the pickup in sales is causing shortfalls in their inventory — a problem that many showrooms haven't faced in a long time.

Bill Feinstein, general manager at Planet Honda in Union, N.J., said he expects to sell nearly twice as many Civics as he usually does in August thanks to the program. The sedan is the third most popular Cash for Clunkers vehicle.

"We're begging the factory for more," said Feinstein, whose stock of Civics is about half the size it normally would be in August.

Other vehicles, even larger ones like the Ridgeline and the CR-V crossover, have picked up too, which he credits to stable gas prices.

"I think consumer demand shifted from the smaller vehicles," Feinstein said. "That market came back very robustly."

Honda had a 44-day supply of Civics at the end of July, down from 81 at the end of June. Ford had only a 25-day supply of Focuses, while Toyota had a 13-day supply of the Prius gas-electric hybrid, the No. 4 Cash for Clunkers seller. The industry average is a 48-day supply, according to Ward's AutoInfoBank.

Cash for Clunkers offers consumers up to $4,500 to trade in vehicles getting 18 mpg or less to buy new, more fuel-efficient models. The program got $2 billion in additional funding from the federal government last week. But experts have questioned whether the program is fostering new demand or simply stealing business from later periods.

If the latter is true, automakers could be in for a big drop-off in sales later in the year. Standard & Poor's analysts said in a report released Monday that there's no reason why the popularity of Cash for Clunkers can't continue for "several more weeks, if not months."

"However ... we believe the boost in sales may be short-lived, and there is even a risk that the program may pull demand from future periods," the analysts wrote, noting that similar programs in Europe have also been followed by a sharp drop in sales.

When the program kicked off last month, frenzied customers fearful that the program's funding would run out flocked to dealerships in droves. But some dealers said foot traffic has now begun to slow, with consumers no longer so worried that the program's end is imminent.

"It seemed that there was more sense of urgency prior to passing the bill," Anthony Ciuffo, sales manager at Crown Ford in Lynbrook, N.Y., said Saturday. "People feel that they have a longer window of opportunity."'s Anwyl said he expects demand to die down in September, but said that drop may be tempered if the economy rebounds. However, it's also possible that an economic rebound could send gas prices and interest rates up, driving even more people away from new cars and trucks.

So when it comes to planning production, Anwyl said he doesn't envy the decisions the auto executives have to make.

"At the end of the day, you might as well roll the dice," he said. "There's no science to this."