Detroit's Output Plans May Lack Economic Punch

With U.S. motor vehicle sales speeding up in August, the Big Three auto makers and the foreign-owned plants that produce cars in North America have announced plans to boost light-truck and car output in the fourth quarter to 3.9 million vehicles--8.3% above the year-earlier level. Some economists figure that should be enough to add a percentage point or two to economic growth in the final three months of the year.

Economist Sam I. Nakagama of Nakagama & Wallace Investment Management Inc. is dubious. He says that some of the largest percentage gains last month were scored by cars with inventories far above the normal 60-day supply. These include Oldsmobile, Buick, Cadillac, and Chrysler's LH series lines. This suggests, he says, that "the pickup may have reflected the use of hefty incentives to get rid of unwanted inventory."

More important, Nakagama notes that "domestic" production projections include vehicles made in Canada and Mexico as well as the U.S. In fact, the latest plans call for Canadian output by the Big Three to jump 31.7% from year-earlier levels in the fourth quarter, but for U.S. output to rise only 4.3%.

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