Study says light vehicle MPG rules will boost profits, fuel savings FleetOwner

Study says light vehicle MPG rules will boost profits, fuel savings

A new study conducted by the sustainability advocacy organization Ceres and Citi Investment Research, a division of banking giant Citigroup, concludes that federal light vehicle fuel economy/greenhouse gas (GHG) emission regulations rolled out last year and due to finalized late this summer will not only cut U.S. oil imports and consumption, but will provide automakers – especially the “Detroit Three” – with increased sales and profits.

“Out of the 288 scenarios we examined for this study, in terms of the technological cost to comply with the rules, fuel prices, etc., automakers stand to profit in 263 of them,” noted Walter McManus, an economics professor with Oakland University’s school of business administration who previously spent nine years with General Motors during his private sector career.

The new report, Fuel Economy Focus: Perspectives on 2020 Industry Implications, evaluates the impact that meeting the proposed fuel economy/GHG standards would have on the car industry in the year 2020.

McManus noted in a conference call with reporters that, under the most likely of those 288 scenarios considered, automakers are looking at 570,000 units in extra sales and $4.76 billion in extra profit due by 2022 due to the new rules, adding that the “Detroit Three” – Ford Motor Co., General Motors, and Chrysler – stand to benefit the most from a monetary perspective, capturing $2.44 billion of those extra profits.

As a group Ford, Chrysler, and GM would also likely see an improvement over baseline vehicle sales by about 4% or 300,000 vehicles, while foreign automakers would likely record a 3% sales uptick, according to the report. Sales would increase because with increased fuel economy the overall cost of operating a car will go down and, consequently, consumers will have more spending power to buy more vehicles or more expensive vehicles, the authors said.

“The reason we see these increased benefits for American automakers is because compared to foreign automakers they are currently more heavily invested in lower mileage trucks and cars,” McManus said. “Under these standards the ‘Detroit Three’ would have a greater potential to add customer value to those vehicles with improved fuel economy.” 

Dan Meszler, president of Meszler Engineering Services – who, along with McManus and Alan Baum, president of Baum and Associates, authored this report – told Fleet Owner that the research he conducted indicates the fuel saving technologies automakers plan to deploy to meet the new fuel economy rules will still profit them with profits and motorists with a monetary benefit from the fuel savings they provide even if gasoline prices fell to $1.50 per gallon.

“We estimate that the average additional cost vehicle owners will see by 2020 [when the rules are fully implemented] will be $1,050 extra per vehicle,” he explained.

Baum stressed that this study examined “the entire light spectrum” in his words, encompassing pickup trucks, sport utility vehicles (SUVs), and vans, along with a variety of car models.

“Different fuel-saving technologies will be deployed for the different [model] segments, but all models of vehicles are going to experience fuel savings,” he noted.

Turbocharged direct injection, advanced transmissions, electric power steering, low-rolling-resistance tires, turbo charging, variable valve lift and timing are but some of the technologies now in play to help improve the internal combustion engine and overall vehicle in order to reach the 54.5 miles per gallon standard, Baum added -- to which are being added diesel engines, electric hybrid systems, and others.

“These technologies are not only cost-effective, but also make for better performing vehicles than those currently on the market,” he said.

In particular, Baum pointed to Ford’s latest iteration of the F-150 pickup equipped with the EcoBoost V6 engine. “There are selling far more of these models with the EcoBoost engine, which provides much higher fuel economy than even laymen believed possible in this vehicle segment,” he explained.

Indeed, Ford noted in its several of its sales updates last year that the EcoBoost is outselling its traditional V8 engine for the F-150 by a wide margin, with the 3.5L EcoBoost and 3.7L V6 engines representing 57% of F-150 retail sales in September 2011 alone.

Carol Lee Rawn, transportation director for Ceres, noted that Ford’s fuel economy innovations with the F-150 is but one example of how automakers are making what she called “wise investments” in more efficient vehicles.

“Given the volatility of gas prices – and the likelihood that they’ll head through the roof again – it’s clear that customers want better fuel economy and delivering it means a better bottom line for the industry,” Rawn added.

Meszler stressed that one of the most important findings from this report is that the added technologies required to meet the proposed fuel economy improvements are cost-effective for vehicle owners.

“Even if gasoline prices dropped to as low as $1.50 per gallon in 2020, money saved during vehicle use would fully offset the cost of added fuel economy technology,” he pointed out. “Since gasoline prices are over twice that right now, it’s likely that consumer savings on fuel purchases will far outweigh the additional money consumers will spend on a new car.” 

TAGS: Fuel
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