New study says higher CAFE will mean big help for the Big Three

The question of how higher fuel standards will affect domestic auto companies is being debated by governors and many others. While the govs see proposed increases in fuel mileage as kicking Detroit while it's down, a report by the University of Michigan's Transportation Research Institute (UMTRI) says hold that thought.

There were two headlines in the press release announcing UMTRI's study: "New Study Finds Higher Fuel Economy Standards Yield Larger Big Three Gains" and "New CAFE design increases Detroit market share and profits." That sure sounds unequivocal, and it gets better. UMTRI found that "under the highest proposed fuel economy standard of 35 miles per gallon, General Motors, Ford and Chrysler stand to make $14.4 billion by 2017 -- over $6 billion more than the competition."

The study is named "The Impact of Attribute-Based Corporate Average Fuel Economy (CAFE) Standards on the Automotive Industry" and was headed by UMTRI's director of Automotive Analysis Division, Walter McManus. The attribute-based CAFE standards under discussion in Congress, take "into account the differences between vehicles and light trucks, which will have lower targets than cars. The new system doesn't penalize the Big Three for making large cars and trucks, but it does require that they improve the fuel economy of those vehicles. In so doing, they will gain market share and boost profits," McManus said in a statement.

UMTRI released a similar study last fall that found with high gas prices, fuel-efficiency equals profits (there's a big no kidding). The new UMTRI study can be read here and I've included three main findings for you after the jump.

[Source: University of Michigan's Transportation Research Institute]
  • An attribute-based CAFE would mean lower standards for Detroit's automakers. Under a size-based standard of 35 mpg, the Big Three could be required to meet a 33-mpg standard, while the rest of the industry would have to meet a 38-mpg standard.
  • An attributed-based CAFE yields greater gains in market share and profits for the Big Three than for the rest of the industry. Detroit automakers stand to receive more of the profit gains from higher CAFE because they will be making improvements that have higher market value and higher profit margins.
  • Higher CAFE standards yield higher profits. The strongest CAFE proposal currently under consideration in Congress (Markey-Platts) provides the greatest profit for Detroit automakers. GM, Ford and Chrysler have projected profits of $14.4 billion by 2017 -- more than twice as much than the weaker proposal under consideration (Hill-Terry).

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