Carmakers are starting to boost production again, restocking dealerships in a move that could give a boost to the whole US economy.
The shift from idle mode to expansion mode became official Thursday, as Ford Motor Co. said it is ramping up production levels by 10,000 vehicles in the current quarter and raising production in the year's final quarter as well.
Ford isn't the only carmaker that needs to rev up the pace on its assembly lines, because the government's 'Cash for Clunkers' stimulus program has worked faster than expected to deplete dealership inventories. And as factories hum faster, that has a ripple effect beyond Detroit. It means new orders for struggling auto-supply firms, more demand for rail and trucking firms, and more money being spent in affected communities on everything from French fries to fishing lures.
The clunkers program, which gives car shoppers a pile of cash if they trade in an old fuel-hog for a new, more efficient car, is also increasing sales activity at dealerships, helping towns across the US.
The effect is biggest in automotive states, mainly in the Midwest and South. But to some extent it's nationwide. Mr. Bragman says the clunkers program has had some of its biggest impacts on dealerships in the Northeast.
Success of clunkers program
Industry analysts expect that GM and Chrysler will also increase production because of clunker-related demand. According to the Associated Press, Toyota has recently moved to raise output of in-demand models at its US plants, and Honda is adding Saturday overtime shifts in East Liberty, Ohio, Lincoln, Ala., and Greensburg, Ind.
The clunkers program surprised Congress by running through its cash within a couple of weeks, rather than several months. Congress approved more money to keep the program going, but analysts aren't sure how many more consumers will participate in Round 2.
Carmakers aren't sure, either. They're not going overboard with the production boosts. Ford's ramp-up amounts to a 2 percent increase for the third quarter. It's been the most successful among Detroit's three US-based carmakers, gaining overall market share in recent months.
If the recession and the clunkers program have tilted consumers toward smaller cars and crossover sport-utility vehicles, plenty of people still need pickup trucks. Ford has sold more F-Series trucks in the first seven months of the year than it has of the Focus and Escape combined.
Impact of the auto economy
An automotive turnaround won't lift the nation out of recession by itself. But the industry still has important impacts because it is so cyclical. In the first quarter of this year, for example, America's economy would have shrank at a 4.7 percent pace – versus the actual 6.4 percent – had it not been for the decline in motor vehicle production. Add in wider ripple effects, and the impact would be greater.
The clunkers program is a mixed blessing. Taxpayers are shelling out money to help a narrow slice of car consumers. The extra demand for cars is, to some extent, pushing down consumer spending in other areas – a trend seen in retailer sales numbers released Thursday.
But the program may be helping to make the recession's rough road a bit smoother. Thousands of extra cars have been purchased at a time when dealerships desperately needed sales. The program is one reason why economists at Merrill Lynch recently bumped up their forecast for third-quarter Gross Domestic Product. They expect the economy to grow at an annual pace of 2.3 percent or better in each of the next six quarters.
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