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 haglund.rick@gmail.com.
Comments
Diagenes
Fri, Jul 22, 2011 : 5:05 p.m.
Typical democrat administration policy. Telling the American public what it can drive, and what kind of vehicles an auto maker must build, regardless if there is a buyer for it. (Just like the Chevy Volt) Ever wonder why more manufacturers are oving off shore? Just look to Washington for the answer. This is another example of how Mr. Obama wants to end free market capitalism in America. Just like Obamacare, auto makers will ask for waivers and get them if they "contribute" to the right politicians.
John B.
Thu, Jul 21, 2011 : 9:43 p.m.
Our legislators are self-serving cowards, and therefore have never even considered doing the right thing, which would have been to slowly increase the price of gasoline beginning in 1973, after the Arab Oil crisis. Gasoline should cost $8 per gallon in the USA right now, but it doesn't. The global market may push it there all by itself in the foreseeable future, but it won't happen due to any intelligence suddenly occurring in the US House or Senate, that's for sure. Given that, we have to raise the CAFE ASAP so that when that gasoline price level does occur (and it will, it's just a question of when), we aren't caught with our pants down (again). Stop whining, Detroit Three Plus Others! Git'r done!
Mick52
Thu, Jul 21, 2011 : 5:57 p.m.
And as I saw on the news the other day, all 50 states now have an unacceptable level of obesity. There are studies that connect travel modes with obesity. And of course obesity increases poor health and poor health raises the cost of health care, another issue where our govt in their supposed wisdom, puts the burden on the industry, health care insurance, making them accept everyone without putting any burden on us to get and stay healthy. Nor does our govt put the burden on us to drive less or to save gas. We used to. I often wonder why the current admin if it is concerned over carbon emissions and fuel efficiency has not imposed the 55 mph limit on highways as did Pres. Nixon. For the past eleven years in Australia, more bicycles were purchased than cars. In Great Britain, children are now riding their bikes in much greater numbers. It has been shown that when gas prices are high, people drive less. I think it is time to rethink our solutions to problems.
Mick52
Thu, Jul 21, 2011 : 5:48 p.m.
I don't know who Rick Haglund is but I know who Jerry Flint was. Since I do not know Mr. Haglund and how he came to his opinion, I defer to Jerry Flint's opinion that govt regulations are not easily achievable and in the long run cause more problems. The late Jerry Flint was a long time auto expert for Forbes magazine. He argued that govt regulations are unnecessary. The market has shown that with high gas prices auto companies will have to produce fuel efficient vehicles solely to survive and that the standards are too tough: <a href="http://www.forbes.com/2008/08/12/vehicles-fuel-driver-oped-cx_jf_0812flint.html" rel='nofollow'>http://www.forbes.com/2008/08/12/vehicles-fuel-driver-oped-cx_jf_0812flint.html</a> Also, pushing up fuel efficiency pushes up the cost of the auto due to research and development, which is one reason why GMs last electric car was a failure and why the Volt, a small compact car costs over $40,000. Also, it may take far longer to be able to produce these vehicles. <a href="http://www.forbes.com/forbes/2010/0524/outfront-toyota-bmw-ford-small-autos-backseat-driver_2.html" rel='nofollow'>http://www.forbes.com/forbes/2010/0524/outfront-toyota-bmw-ford-small-autos-backseat-driver_2.html</a> And the question of whether small cars will sell: <a href="http://www.forbes.com/2010/07/21/toyota-honda-ford-autos-business-gasoline.html" rel='nofollow'>http://www.forbes.com/2010/07/21/toyota-honda-ford-autos-business-gasoline.html</a> With electric cars, the fuel of choice is Lithium Ion, which is a natural resource. It is very expensive and very popular. Sound familiar? If you look at rechargeable items, like tools, you will commonly see LI tools at very high prices with some that run on NiCad batteries, the old favorite much less expensive. NiCad is on its way out. LI is one reason why the Volt is so expensive. So ask yourself, is it possible that LI producing countries could organize? The Organization of Lithium Ion Exporting Countries: OLEC. Then what? What bothers me personally is that our govt is as usual, putting the burden on industry instead of us. In Europe and Australia people do not drive as much as we do because of the opposite approach, they put the onus on people with high taxes on gasoline. Thus they walk, they bike and they use the subway.
John B.
Thu, Jul 21, 2011 : 9:41 p.m.
But our legislators are self-serving cowards, and therefore have never even considered doing the right thing, which would have been to slowly increase the price of gasoline beginning in 1973, after the Arab Oil crisis. Gasoline should cost $8 per gallon in the USA right now, but it doesn't. The global market may push it there by itself in the foreseeable future, but it won't happen due to any intelligence suddenly occurring in the US Government, that's for sure. Given that, we have to raise the CAFE ASAP so that when that gasoline price level does occur (and it will, it's just a question of when), we aren't caught with our pants down (again). Stop whining, Detroit Three Plus Others! Git'r done!
ChunkyPastaSauce
Thu, Jul 21, 2011 : 5:17 p.m.
When most people examine MPG ratings for cars, they are usually looking at the EPA rating and not the CAFE rating.. theyre different. The EPA rating is what you see in advertisements and when one buys a car. The current standard for 2016 is 35.5 MPG (CAFE) or about 27 MPG (EPA) combined hwy/city ... not very good. The proposed 56.2 MPG (CAFE) for 2025 is about 41 MPG (EPA) combined hwy/city. Raising highway fuel economy is not technically difficult as large gains are immediately available through aerodynamic improvements. City fuel economy is more difficult in the short term but by 2025 plug in hybrid technology will probably be more common place/more refined and vehicles will most likely be lighter (cost of materials and design improvements) among other things.
bigbluebus
Thu, Jul 21, 2011 : 3:20 p.m.
So the economic analysis in the article that goes with the headline (making more money) is that fewer platforms means more money from each platform. Automakers have been been moving in that direction for years. Fuel economy standards have little to do with it. The fundamental economic equation is this: There is still a significant market in the U.S. for trucks, SUVs, and larger cars. Without those vehicles in their product offerings, the Detroit Three (and the U.S. Operations of most foreign automakers) would have no chance for profitability. Driving average fuel economy toward a ridiculous number like 56.5 necessarily means driving average vehicle sizes drastically down. Of course, the 'earth is in peril' crowd is fine with that (see previous posts). Afterall, what makes people think they have a 'right' to drive whatever vehicle they want, especially when life as we know it will be over in 20 years? But here is what happens: vehicle sizes go down, vehicle prices go down, profits go down. There is no way that automakers can be profitable selling mostly smaller vehicles with the current cost structure. So either some type of tax will be required, or more government assistance (another tax for the rest of us), or wages reduced significantly, or more and more auto-related jobs will be moved off shore. Again, many folks are fine with this. But we should all understand the consequences of trying to artificially change the market faster or more drastically than consumers are prepared to accept. Personally, I think it's a mistake to sacrifice our state and national economy further on the alter of bad science - unless we can grow the motion picture industry in Michigan enough to offet the losses. As for the economic premise of the article, it's completely bogus.
John B.
Thu, Jul 21, 2011 : 9:32 p.m.
Nonsense. I've worked as a powertrain and chassis design Engineer in the US automotive industry for two decades, and can honestly say that you are absolutely incorrect. CAFE is just that: Corporate AVERAGE Fuel Economy. You can still sell 16 mpg Escalades all day long if you want (if there are customers to buy them, which by the way, there ain't so many of them these days, and there probably will be even less of them, moving forward). In Europe, where fuel is realistically priced, there are quite profitable small- and medium-sized vehicles being sold. Our manufacturers just need to quit whining (which, as another poster pointed out, they've done every time any significant change was demanded of them - it just doesn't work to cry 'wolf' anymore, guys, sorry), and get on with it.
Mike
Thu, Jul 21, 2011 : 3:13 p.m.
If 56.2 mpg was such a good idea, consumers would be demanding it. They are not. Therefore it should be obvious to anyone outside of a command and control socialist that these mandates are bad ideas. This is just like low flow toilets that don't work and mercury filled toxic light bulbs.
John B.
Thu, Jul 21, 2011 : 9:21 p.m.
... and each compact flourescent bulb has less mercury in it than a can of tuna (that you eat). More Faux Noise nonsense from Mike....
Mr Blue
Thu, Jul 21, 2011 : 5:09 p.m.
Watch much Faux News? Both my 1.6g Kohler toilets purchased at Lowes have flushed every time on one pull for the past 9 years (even though I don't flush the yellow stuff every time) and I've replaced one bulb in the last 5. The bulb was recycled at the hardware store. Using less water and electricity saves me money, but I guess you're rich and can afford to waste your $$ even tho it costs everyone else in the long run. Not conserving energy by purchasing wasteful products and more foreign oil is un-patriotic.
Huskies
Thu, Jul 21, 2011 : 2:52 p.m.
Just to clarify, the Alliance of Automotive Manufacturers is more than Ford, GM, and Chrysler. It represents 12 Automobile Manufacturers including Toyota, Volkswagon, BMW, Mercedes, Volvo, Mazda, Mitsubishi, Jaguar/Land Rover, Porsche, Ford, GM, and Chrysler. So to state that only the Detroit 3 are fighting the regulations is not correct.
Anthony
Thu, Jul 21, 2011 : 2:33 p.m.
Small diesel engines with electric motor assistance = best fuel efficiency combo right now, but no one is doing, right?
Mr Blue
Thu, Jul 21, 2011 : 5:10 p.m.
I keep hoping for a biodiesel plug in hybrid.
Stephen Landes
Thu, Jul 21, 2011 : 3:40 p.m.
Are you willing to pay the real cost for that kind of powertrain? I'll bet not. You will want a government subsidy to make it affordable for you; just like the subsidies for hybrids and electrics that people won't buy otherwise.
Ron Granger
Thu, Jul 21, 2011 : 2:18 p.m.
The sky is not falling. Those who claim it is are ignoring the great high efficiency vehicles already available. Some people feel entitled to drive around on a giant, "roving couch", regardless of the cost to the environment or our country. If necessary, drag the big three kicking and screaming to higher efficiency vehicles. No more wars for oil.
Mr Blue
Thu, Jul 21, 2011 : 1:41 p.m.
If the auto companies used the money that they spend on lobbyists and lawyers fighting the proposals on r&d, we'd probably already have cars that get 56 mpg. If that were the case, we might be leading in technology and jobs instead of being whining followers.
Mr Blue
Thu, Jul 21, 2011 : 4:36 p.m.
I have no idea how you came to your clueless opinions on what I know or do not know, but thanks for your clueless insights into my character. Like I said, If auto companies stopped spending on lawyers and lobbyists fighting necessary regulation that buyers want, the money that they saved could be used to improve mpgs and ensure the USA leads in transportation technology instead of following others.
Stephen Landes
Thu, Jul 21, 2011 : 3:38 p.m.
You have no clue about what the auto business costs to run, what auto R&D expenses versus lobbying are, what our relative technological position is, or physics.
Sparky79
Thu, Jul 21, 2011 : 1:26 p.m.
The Big Three claims "tougher rules could cripple them." Really? Hey GM and Chrysler, here's a word for you: bailout! I think they did a good enough job crippling themselves a few years ago with less rules, high oil prices, and getting caught with their pants down because all they sold were crappy gas guzzlers. If the government didn't bail them out, they wouldn't be around to complain right now about the high standards the gov't is setting. I'm not necessarily in favor of government having to set the standards for things, but the U.S. automakers showed over the past decade that unless somebody raises the bar for them, they're just going to produce junk. Quit whining and start producing quality cars.
LarryJ
Thu, Jul 21, 2011 : 1:11 p.m.
Nobody has said the most important thing yet, Which is, that these standards will be a small but very needed step to reducing the greenhouse gases that are such a threat to our world. With more steps like these, maybe we can put off the human-caused burning of our world to a crisp by a few centuries rather than just a few decades. I have no concerns about the technology or the cost. This is not a difficult reach for our engineers and our auto companies.
amlive
Thu, Jul 21, 2011 : 2:25 p.m.
Noble, but I fear an argument made in vain. When debating with parties who not only have no care for the idea of stewardship of the earth, but actually disdain such notions as a purely partisan agenda (how it got this way still baffles me), this argument carries no weight. Worse than that, the opposition feels so passionately against environmental care as some sort of "socialist agenda", that they actually deny its legitimacy and write it off as a conspiracy, usually with some mind-twisting theories as to underlying motives. No, sound as it may be, arguing "good for the earth" will get you nowhere here. You could argue economic benefits of staving off environmental change, but again, heels are dug in so deep that they believe no such risk or correlation with emissions even exists, so another blind alley. Instead, I would advise staying closer to the core of what the conservative opposition holds dear, and why raised standards serve their interests and ideals just as well. Go back to The Bailout. For 20 years we wanted to raise standards. You said no, it would hurt the economy. Gas prices went up, U.S. Makers had no Prius, no Insight, and could hardly compete with the Civic, Camry, Accord, etc. Some deaf and blind fools at the big 3 couldn't see the winds changing, kept their testosterone-injected 2-ton manly V-8 beasts as their flagships, and what happened? It cost us (not just consumers, not just laborers, but America as a whole) quite dearly. We were right before, you said no, then we got stuck in a position of having to choose between a bailout, or paying it from the other end in unemployment lines, food and housing assistance, and lost revenue from the industry in the future to help pay for this mess. So, noble of you to argue, but when the opposition is deaf to any reasoning or claims other than their own, it can be best to argue on their terms - especially when effective arguments can be so easily made to suit virtually all long term interest
Rork Kuick
Thu, Jul 21, 2011 : 12:47 p.m.
CAFE standards have been the wrong way to do things from the time they were first invented. Is there a single European country that has standards like this? My (perhaps ignorant) impressions was that they achieve their goals by gas taxes instead. I don't see any point for American exceptionalism here, except that it creates political footballs.
John B.
Thu, Jul 21, 2011 : 9:17 p.m.
I agree, but our completely dysfunctional and gutless Senators and Congressmen have never had anywhere near the cojones to significantly increase the gasoline taxes, which should have begun after the 1973 crisis, and then should have slowly increased the price of gasoline over a decade or longer, just like the Europeans and others did. So, due to said worthless politicians, the only way we can move forward is with a higher CAFE requirement.
KJMClark
Thu, Jul 21, 2011 : 12:38 p.m.
It's the V8 that's the dinosaur. One of these days one of the manufacturers is going to build the Volt-style drive train for a truck. When people get a feel for the low-end torque that electric drive will provide in a truck, they'll be kissing V8s (even diesel V8s) goodbye.
KJMClark
Sat, Jul 23, 2011 : 3:16 a.m.
Um, gyre, look up "diesel electric locomotive."
amlive
Thu, Jul 21, 2011 : 3:27 p.m.
Not entirely true Grye. Hybrid drive systems are already finding their way in to the heaviest hauling vehicles out there, from semi trucks to train engines. No reason they should seem infeasible for a pickup truck to haul your 5th wheel camping trailer. Big power is needed, but the engines required to provide this power are continually getting much smaller and much more efficient.
grye
Thu, Jul 21, 2011 : 1:06 p.m.
Big engines are still going to be needed to haul heavy loads. This will not go away unless you put in a very large electric motor with lots of batteries. Still not efficient.
KJMClark
Thu, Jul 21, 2011 : 12:30 p.m.
The really odd thing is that Ford is discontinuing the Ranger, and ceding that market to Toyota. There are a lot more people who need a pickup truck than need a full-sized pickup truck. They could be putting the 4-cylinder ecoboost engine in the Ranger and most people who have a use for a pickup would have their truck *and* get over 30mpg highway with it.
KJMClark
Thu, Jul 21, 2011 : 12:22 p.m.
The ignorance of your statement is amazing snoopdog. Do you have any idea how high gas prices will be by that point? The automakers will either have average mileage that high or only the top 5% of Americans will be able to afford the gas for those vehicles. The thing that bugs me is that they claim it's about air quality. That's a very small side benefit. The main reason is that they know, barring economic collapses in Europe and China, oil and gas prices are going to be much higher than average Americans can afford. They either increase fuel economy drastically or kiss most of American's transportation goodbye, along with the economic activity it used to generate. Notice that prices around here are back up around $3.70-$3.90 a gallon?
Top Cat
Thu, Jul 21, 2011 : 12:20 p.m.
The "standards" proposed are ridiculous. The Obama Administration will mercifully end in January 2013. We have discovered natural gas in North America to last for generations. Much ado about nothing.
Skyjockey43
Thu, Jul 21, 2011 : 11:25 p.m.
Actually I own a 2005 unmodified Ford Crown Victoria that is powered by natural gas. And to answer your second question, the city has a natural gas pump on North Main st. used for filling city vehicles and is also open to the public. Any other questions?
KJMClark
Thu, Jul 21, 2011 : 12:24 p.m.
And your car runs on natural gas? And how many models can you find at local showrooms that run on natural gas? And you can just pour natural gas into your gas tank, right?
Mr Blue
Thu, Jul 21, 2011 : 12:09 p.m.
Going twice as far on a gallon is good for consumers. Someone has to develop the technology and build the new vehicles. It might as well be workers in Michigan and the rest of the USA.
Mr Blue
Thu, Jul 21, 2011 : 4:49 p.m.
The issue isn't about saving money, it's about better and more efficient technology allowing consumers to choose to go further for the same amount of money if they wish. It's probable that some, like myself, would not change their driving habits but end up paying less at the pump.
AfterDark
Thu, Jul 21, 2011 : 1:55 p.m.
No it's not because consumers just waste the projected savings. The speed limit should be dropped back down to 55 mph and drive thrus should be banned.
snoopdog
Thu, Jul 21, 2011 : 11:38 a.m.
Your ignorance is amazing Rick. Do you have any idea what it will cost to get a CAFE this high ? The technology to build these vehicles will be so expensive that no one will be able to buy one. You are obviously not an automotive engineer. Good Day
PittsfieldTwp
Thu, Jul 21, 2011 : 3:10 p.m.
And you obviously are. When the Big 3 were asked to improve mileage in the 70's, engineers said the same. When they were asked to improve safety, same line. When they were asked to improve emissions, same arguement. Then at that same moment, the Honda CVCC was introduced into America meeting the new emissions request WITHOUT a cat converter. My point is, its not just the gov't asking for these things. There is also a consumer demand, and if the Big 3 don't start off doing it, someone else will and Big 3 will spend the next 7-10 years catching up as they have done historically.
Mr Blue
Thu, Jul 21, 2011 : 12:35 p.m.
VW Jetta TDI already gets 42 mpg in the EPA cycle. Owners and enthusiast magazines report over 50 mpg highway driving. Proven diesel technology, 50 mpg, 140 hp and 236 ft/lb torque in an everyday 4 person vehicle is already here. 60 mpg is not far behind except for the naysayers and the big three lobby. <a href="http://www.greencar.com/articles/2009-vw-jetta-tdi-road-test.php" rel='nofollow'>http://www.greencar.com/articles/2009-vw-jetta-tdi-road-test.php</a>
5c0++ H4d13y
Thu, Jul 21, 2011 : 10:55 a.m.
"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." How does that work when we get most of our oil from Canada and Mexico and Obama is blocking an oil pipeline from the north?
AfterDark
Thu, Jul 21, 2011 : 1:54 p.m.
Oil is fungible. It doesn't matter where we get it from as long as we're dependent on imports. Although there is a lot of howling about domestic production the amount of domestic oil we have is a pittance compared to what we use. We need to get off oil altogether.
Mr Blue
Thu, Jul 21, 2011 : 12:27 p.m.
Can you provide verified facts that President Obama is "blocking" and oil pipeline? Or are you just making this up?