Automakers to boost compact car production

The Associated Press
Aug 31, 2011

Automakers are gearing up to make more compact cars this year. It's another bet on a part of the car market that has thrived this year as consumers fret about the economy but still want a new set of wheels.

General Motors is adding Saturday shifts in the fourth quarter at an Ohio factory that makes the compact Cruze, two people briefed on the matter said Monday. Ford, Toyota and Hyundai also have scheduled overtime at compact-car plants.

That might seem chancy with consumer confidence at a two-year low. But the car makers are expecting sales of compacts to increase as nervous consumers go for lower sticker prices and better gas mileage to save money. Compacts sell for $16,000 and up, and can get around 40 mpg in highway driving.

Also, car companies are trying to steal sales from Honda and Toyota, whose factories are just now recovering from parts shortages due to the March earthquake in Japan.

The strategy might pay off. As anxious as consumers say they are about the future, a survey released Tuesday by the Conference Board showed that, compared with July, more of them plan to buy a car within six months.

At Hyundai of New Port Richey near Tampa, Fla., there were only two Elantra compacts on the lot Tuesday, and President Scott Fink expected them to sell quickly.

"As the Elantras come in, nine out of 10 of them are pre-sold," Fink said. "So we really don't have any in stock."

At the New Port Richey dealership and three others in Fink's group, customers stung by Florida's steep drop in house prices are trying to cut their monthly payments.

"Even if they have a job, they just want to reduce their debt and improve their cash flow," Fink said.

Yet they don't want to give up the amenities they have in their current cars. As shoppers look at these smaller cars, they're finding that new compacts such as the Elantra, Cruze and Ford Focus are quiet, handle and ride well, and come with navigation systems, leather seats and all the bells and whistles that previously were available only in larger vehicles. And the Cruze, for instance, has a starting price of $16,525, about $3,700 less than the cheapest midsize Toyota Camry.

As a result, automakers sold nearly 1 million compacts through the end of July. That's up 12.8 percent from a year earlier, an impressive gain considering the scarcity of the most popular compact models, the Toyota Corolla and Honda Civic. Civic sales are down 9.7 percent and Corolla sales are off 8.1 percent, according to Autodata Corp.

Cruze sales are up 74 percent over the car it replaced, the Chevrolet Cobalt. Elantra sales have risen 56 percent and the Nissan Sentra are up 33 percent. In June the Cruze, which GM introduced last year, was the top-selling car in the country.

At its in Lordstown, Ohio, which already is working around the clock on weekdays to make the Cruze, GM plans to add Saturday shifts in the fourth quarter, two people briefed on the plans said. One said five Saturdays will be added, while another said only two had been scheduled but more are possible. Neither wanted to be identified because workers have not been told of the plans.

For the workers, it means giving up a weekend day. But it also means more pay.

At current sales rates, GM dealers have only enough Cruzes on their lots to last for 27 days, far lower than the 60 days considered optimal to give customers enough selection.

Hyundai also has added one Saturday shift per month at its Montgomery, Ala., factory that makes the Elantra. Toyota has added Saturday shifts and weekday overtime at a plant in Cambridge, Ontario, that makes the Corolla. Ford workers also are on overtime some Saturdays at the Focus plant near Detroit.

The boost in production comes even as analysts and car companies cut their 2011 forecasts for U.S. auto sales because of the sputtering economy. IHS, for instance, has dropped its forecast from 12.7 million cars and trucks to 12.5 million.

Aaron Bragman, an analyst with IHS Automotive, said consumers could benefit later in the year as automakers try to keep market share and sell the extra cars. He expects Honda and Toyota to start discounting to win back sales that were lost while factories were slowed by the earthquake.

"It's expected they are going to be piling some incentives on the hood," he said.

Other automakers won't say whether they'll match the incentives, but Fink, the dealer near Tampa, said they will respond.

"I don't think Hyundai is going to walk away from a fight," he said.