Cash for Clunkers Could Tempt Automakers to Overdo It

The outlook sure can change fast in the auto industry, as some analysts now worry that after months of cutting production, the manufacturers could overdo it in reaction to "Cash for Clunkers" and crank up production too much.

"I think it's a big risk," said Haig Stoddard, manager, North American light-vehicle production, for the Global Automotive Group of IHS Global Insight.

Ford announced yesterday, Aug. 13, that it is hiking production 15 percent in the third quarter and 33 percent in the fourth quarter, in response to "Cash for Clunkers." Others are expected to follow.

The automakers will be strongly tempted to cram as many sales as possible into the 2009 calendar year, to improve their financial results, Stoddard said in an Aug. 13 conference call. He warned the automakers against "giddiness ... well, giddiness probably isn't the word."

Thanks largely to the scrappage program, IHS Global Insight hiked its 2009 U.S. auto sales forecast to about 10.3 million, from around 9.8 million. However, the research and consulting firm also trimmed its 2010 forecast by around 400,000 units at the same time, expecting some sales that would have taken place in 2010 will be pulled ahead into 2009. The makes the current 2010 forecast around 13 million.

George Magliano, director, North American automotive industry research for IHS Global Insight, said that even though 2009 sales are down, the firm was pleasantly surprised that bankruptcy didn't affect sales for Chrysler and General Motors worse.

"We were deathly afraid of bankruptcy. We expected a 70 to 80 percent decline in volume. Certainly, that was not the case," he said.