A paper from the Transportation Research Institute at U. Mich. projects that US car profits will rise if companies get in gear and ramp up fuel economy. And here’s the kicker - profits will rise faster for Detroit than for the Japanese.
The paper, Fixing Detroit: how far, how fast, how fuel efficient, comes to these conclusions:
- An industry-wide mandated increase in fuel economy of 30% to 50% (35 MPG to 40.5 MPG) would increase the Detroit 3’s gross profits by roughly $3 billion per year, and increase sales by the equivalent of two large assembly plants.
- The Detroit 3 gain profits over base in all scenarios, with the largest profits gained from pursuing more aggressive fuel economy.
- Japanese automakers profit gains are smaller than the Detroit 3, with the smallest profits gained from pursuing 50% increase (40.4 MPG) in fuel economy.
- At 50% increase, the Japanese industry loses sales while the domestics continue to gain in sales and profitability, a result driven by the different starting points.
To get there, the authors advise a deep, dramatic and fast restructuring of the auto industry, including replacing management. Phrases like “clean house” and “sweep out the leaders” are in bold face type. The basic argument? Detroit consistently has underestimated the value consumers place on fuel efficiency.