Automakers boost production, but for how long?

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The popularity of the Obama administration's "cash for clunkers" is leading General Motors to boost output at three plants that make compact and midsized sedans. GM is adding shifts in plants in Ohio, Michigan and Kansas that make its Chevrolet Malibu and Cobalt, Saturn Aura and Pontiac G5 and G6 sedans to replenish depleted stocks of newly popular vehicles. Ford (F) and Chrysler are also increasing production, as are foreign car makers Hyundai, Toyota (TM) and Honda (HMC), all of which operate plants in the U.S.

Foot traffic at the nation's new-car showrooms has picked up considerably since the inception of the program last month. Consumers, eager to cash in on rebates of up to $4,500 when they trade in older, gas guzzlers, have picked dealers' lots clean of some models, necessitating that auto makers increase production to replenish them. The most popular models include the Toyota Corolla and Ford Focus, both of which get as much as 35 mpg, according to EPA estimates.
Cash for clunkers, known formally as Car Allowance Rebate System, or CARS, has been wildly popular, burning through the first $1 billion allocated for the program within days of the legislation being signed into law July 24. That required the administration to briefly put CARS on hold until Congress added an additional $2 billion to the program. It isn't clear whether the additional funding will see the program through to its suggested end date of November 1.

Whether automakers are wise to boost production in response to the short-lived program isn't clear, said Jack R. Nerad, executive market analyst for the Kelley Blue Book. After an initial gush of enthusiasm, interest in new-care deals has slowed, he said, as Americans digest a recent spate of bad economic news and Wall Street's reaction to it.

On Monday, the Standard & Poor's 500 stock index lost 2.4% percent in value. The Dow Jones Industrial Average and Nasdaq composite index saw similar declines.

Adding to the angst are rising crude-oil prices. As Nerad noted, "We're seeing a little ebb and flow with regard to consumer sentiment." Another factor is that those Americans most keenly interested in the CARS programs are the ones who have already made deals, Nerad said.

Interest has been building since the program was first discussed by lawmakers early in the year, he said.

In response to dwindling inventories of cars on dealer lots, the government said last week that consumers can now order cars from the factory. Rebate programs, such as those offered by manufacturers, typically require vehicles be purchased from existing inventory to qualify.

Autoworkers aren't the only employees getting more work these days. The federal government plans to triple the number of workers employed to process claims under the CARS program, according to a report by the Associated Press.
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