How a 56 mpg fuel standard could make money for the Detroit Three
Publicly, domestic automakers are complaining that efforts by the Obama administration to greatly boost fuel economy levels could imperil their fragile financial recovery.
But privately, they’re deep in planning for steep increases in federal gas mileage mandates.
And contrary to their public claims that tougher rules could cripple them, building vehicles in the United States that guzzle a lot less gas could boost automakers’ profitability.
I’ll explain in a bit. But first, a little background.
The Obama administration wants automakers to meet a 56.2 mile-per-gallon standard by 2025 to reduce U.S. dependence on Middle East oil and improve air quality.
Automakers say the 56.2 mpg target would be too costly to achieve. They’ve taken to the airwaves in an attempt to convince Americans that the proposed standard would be bad for the economy and consumers because of higher vehicle prices.
The Alliance of Automobile Manufacturers, a group of 12 vehicle manufacturers including General Motors Co., Ford Motor Co. and Chrysler Group LLC, is running radio ads in Michigan and six other auto-producing states warning of the coming menace.
Michigan’s congressional delegation also has jumped into the fray by sending a letter to the White House expressing concerns about proposed 2017-2025 fuel economy standards.
But the automakers’ public outrage belies the work they’re doing in their technical centers to achieve much greater fuel economy in the future.
“The manufacturers have been planning this for years,” said Bruce Belzowski, a researcher at the University of Michigan’s Transportation Research Institute.
Maybe the automakers are just trying to get some leverage in the fuel economy negotiations by blasting the Obama administration’s proposal.
Boosting fuel economy well above the 2016 standard of 35.5 mpg could prove to be a boon for the Detroit Three.
In a global auto industry, it makes sense for automakers to build similar size vehicles for every market.
Currently, the cars and trucks the Detroit Three sell in the United States are generally larger than those they sell in Europe and Asia, adding to development costs.
“Global standards are good for automakers,” said Alan Baum, president of Baum & Associates, an automotive forecasting firm in West Bloomfield. “If you have fewer product platforms worldwide with more volume off each platform, you make more money.”
A platform, in auto parlance, is the basic underbody and suspension of a vehicle. Automakers like to build multiple types of vehicle models using as few platforms as possible.
Many worry that higher fuel economy standards will make the full-size pickup truck — an American icon — as obsolete as the big-box chain bookstore.
Not so, Baum says.
It used to be that full-size pickups and muscular V-8 engines went together like former body builder Arnold Schwarzenegger and Maria Shriver.
But, as Maria found out, there are downsides to big and brawny. Ford now offers a more fuel-efficient V-6 engine in its venerable F-150 pickup that’s proving highly popular with buyers.
Proposed fuel economy standards, like the current ones, likely will offer all sorts of wiggle room for automakers and allow them to continue producing the beloved full-size pickup.
“56.2 mpg is not 56.2 mpg,” Baum said. “These standards are not as difficult as they seem.”
But they won’t be a snap to meet, either. Belzowski said automakers and the federal government are spending billions of dollars on the technologies needed to double the fuel economy of today’s vehicles.
“There will be higher costs (for consumers), but I don’t think it will be a big story,” Belzowski said. “It’s just going to happen.”
Email Rick Haglund at firstname.lastname@example.org.