The Detroit Three automakers likely would rake in several billion dollars in extra profits in 2020 if the Obama administration's proposed fuel-economy and emissions standards take effect.

That's the conclusion of a new report by Citi Investment Research and Analysis and the nonprofit environmental coalition Ceres.

The report asserts that General Motors Co. (IW 500: 5), Ford Motor Co. (IW 500: 6) and Chrysler Group LLC would see a 6.3% jump in profits -- about $2.44 billion -- in 2020 under the standards.

Overall, the U.S. auto industry would see a 5.3% increase in profits ($4.76 billion) in 2020, according to the report, titled "Fuel Economy Focus: Perspectives on 2020 Industry Implications."

The report concludes that meeting the proposed standards likely would boost overall U.S. auto-industry sales by about 4%, or around 600,000 vehicles.

Together, GM, Ford and Chrysler likely would see their unit sales jump by 4%, or 300,000 vehicles, while the foreign automakers would see a 3% uptick in unit sales, according to the report.

The report's conclusions are based on the assumption that the improved fuel economy and lower operating costs of the industry's new vehicles will give consumers more spending power -- enabling them to buy more vehicles or more expensive vehicles.

"Even if gasoline prices dropped to as low as $1.50 per gallon in 2020, money saved during vehicle use would fully offset the cost of added fuel-economy technology," said Dan Meszler, principal researcher at Abingdon, Md.-based Meszler Engineering Services, who conducted the cost analysis.

"Since gasoline prices are over twice that right now, it's likely that consumer savings on fuel purchases will far outweigh the additional money consumers will spend on a new car."

The Detroit Three would enjoy a bigger boost in profits from the CAFE and GHG standards because "they are currently more heavily invested in lower-mileage trucks and cars," asserted Walter McManus, research professor for the School of Business Administration at Oakland University, who conducted the sales and profits analysis for the report.

"Under these standards, the Detroit Three would have a greater potential to add customer value to those vehicles with improved fuel economy," McManus said.

It's not just the OEMs that would benefit from the proposed standards. The report asserts that suppliers such as BorgWarner Inc. (IW 500: 160), Delphi Automotive LLP and Johnson Controls Inc. (IW 500: 34) are well-positioned to provide fuel-saving technologies to meet the tougher regulatory standards.

The report also notes that the automakers likely would be able to meet the proposed standards by using existing technologies that improve the performance of cars powered by traditional internal-combustion engines.

"Automakers today are already working on the improvements to the internal combustion engine and overall vehicle design to get us to 54.5 miles per gallon," said Alan Baum, founder of Baum and Associates, who conducted the sector analysis for the report.

"Turbocharged direct injection, advanced transmissions, electric power steering, low-rolling-resistance tires, turbocharging, variable valve lift and timing are available now and they continue to improve. These technologies are not only cost-effective, but also make for better-performing vehicles than those currently on the market."

See Also: