Ford Motor Co (F.N) said on Thursday it will increase production over the rest of the year after a surge in sales triggered by the U.S. government's Cash for Clunkers sales incentive program.

Ford has emerged as one of the clear winners from the $3 billion sales program, which offers rebates of up to $4,500 for consumers who trade in older and less fuel-efficient vehicles.

But like other automakers, Ford was caught off guard by the incentive-fueled jump in sales that began in late July and raised the prospect that the battered industry had hit bottom.

In response, Ford said on Thursday it will build another 6,000 Focus sedans in the current quarter by adding overtime and a Saturday shift at an assembly plant in Wayne, Michigan.

And a second plant in Kansas City, Missouri, will drop plans to shut down for two days later this month and increase output of the Escape small SUV by another 3,500 vehicles.

The moves take Ford's third-quarter output in North America to 495,000 vehicles, up 18 percent over a year earlier.

The No. 2 U.S. automaker also set a fourth-quarter production target of 570,000 vehicles. That would represent a 33 percent annual gain.

I think we were surprised by the speed and the urgency with which consumers went to dealers, said Ford sales analyst George Pipas.

The output gains will translate into higher revenue for Ford, the only U.S. automaker to have avoided bankruptcy. Shares were up 2.2 percent to $7.87 in afternoon trading.

Ford posted a sales increase for July, its first since late 2007, and the automaker has been gaining U.S. market share.

In a sign of its momentum, Ford has also taken 16 percent of the deals made under the Cash for Clunkers program, compared with a retail market share of 13 percent this year to date.

Ford and some Asian brands have been the biggest beneficiaries of the vehicle trade-in program, Standard & Poor's equity analyst Efraim Levy said in a note for clients.


Ford had previously planned to detail production plans in early September but said it had been forced to act earlier because sales remained strong in early August.

Other major automakers have also raised production. General Motors Co GM.UL said it will spell out stepped-up production plans for the rest of 2009 by the end of August. Ford executives said funding for the government's incentive program could be exhausted by late August or early September.

The program has provided a sharp boost to sales of Ford's smaller and more fuel-efficient vehicles.

Inventories of the Escape dropped to 21 days of supply at the end of July and inventories of the Focus to 25 days. That compares with a more typical target of around 60 days of sales.

In an attempt to keep dealers stocked, Ford sales chief Ken Czubay said the automaker had told its shipping companies to load Focus, Escape and Fusion models first.

Pipas said the automaker expects U.S. auto sales to slow once funding for the clunkers program is spent and does not expect to end the year with surplus inventory.

We're proceeding very carefully, Pipas said. When we get to the end of the year I believe our inventory levels will still be viewed as lean.

The U.S. government incentive program, modeled on programs pioneered by about a dozen European governments, offers consumers taxpayer-funded rebates of up to $4,500 per trade-in to swap out of older, less fuel-efficient vehicles that are then scrapped.

The popularity of the program exhausted the first $1 billion budgeted for it by late July, prompting Congress to authorize another $2 billion in funding.

As of Wednesday, the clunkers program had funded 316,189 trade-ins and spent $1.33 billion, according to figures from the U.S. Department of Transportation.

Ford estimated that the program will have funded over 700,000 clunker trade-ins when all of the current budget is spent.

Pipas said it is too early to estimate U.S. auto sales for August but said early results from dealers show sales trending well above the 13.6 million annualized rate of a year earlier.

The stronger sales will also likely push 2009 industry-wide sales to the top end of Ford's existing full-year forecast of between 10.3 million and 10.8 million vehicles, Pipas said.

It probably pushes it to the high side, he said.

(Reporting by Kevin Krolicki, editing by Gerald E. McCormick)