Tighter fuel efficiency rules will help US automakers

Tighter fuel efficiency rules could help boost the profits of General Motors, Ford and Chrysler by three billion dollars a year if they are able to revitalize their product line-up, according to a new study.

The University of Michigan study found that the Detroit Three have vastly underestimated the American public's willingness to pay a premium for fuel-efficient vehicles.

Rules imposed by President Barack Obama's administration, set to be fully implemented in 2016, could end up saving the struggling automakers from continuing to underestimate this key consumer demand, said study author Walter McManus.

"They will have the ability to pass on more costs and profits will increase," said McManus, director of the automotive analysis division at the University of Michigan's Transportation Research Institute.

The Detroit Three have long protested mandated fuel economy standards, arguing that consumers want big gasoline-guzzling trucks and sport utility vehicles.

But the collapse in truck sales after fuel prices rose in 2005 shows that Americans are willing to pay more for fuel efficiency when gas prices reach around three dollars a gallon.

Once automakers are forced to alter their product portfolios to meet these new rules, they stand a better chance of stemming a steady loss of market share to Asian automakers which have long focused on fuel economy, McManus said in a conference call with reporters.

The study found that an industry-wide mandated increase in fuel economy of 30 percent to 50 percent - from roughly 35 to 40.4 miles per gallon - would boost demand by enough to occupy two additional large assembly plants.

GM spokesman Tom Wilkinson said the report does not reflect the profound changes that have occurred at GM in recent years.

"A look at the EPA Fuel Economy website shows that, by segment, GM vehicles are now as fuel efficient, and often more fuel efficient, than those from other foreign or domestic competitors," he said.