Businessweek: Detroit to be hammered meeting CAFE

Businessweek has an article about what it would cost the American Big 3 automakers to comply with the new Corporate Average Fuel Economy standards - a lot, far more than Japanese automakers, but not as much as they would pay with the initial stricter standards. Here, I have little sympathy for the automakers or the unions, who have both stonewalled stricter standards to the detriment of the entire world. However, it also bears mentioning that the economic impact will be significant, and not just to the automakers and their employees.

Posted by: David Kiley on May 23

International consulting firm Global Insight predicts that new fuel efficiency rules will cost Detroit’s automakers nearly twice what Japanese companies will pay. That’s because the fleets of Toyota, Honda and Nissan are closer to being able to meet the new requirements and are less dependent on trucks and big SUVs today.

The Detroit 3 can expect to pay $30.60 billion in additional costs to meet a fleet-wide standard of 31.6 mpg by 2015, said Rebecca Lindland, a Global Insight auto analyst. Asia’s top three car companies, she says, will pay about $14.85 billion.

General Motors alone, she says, will have to spend $15 billion, she said.

It’s worth noting here that while that sounds like a lot of money, and it is, Detroit has an astonishing talent for frittering away money. The company reported today that the utterly unnecessary and ridiculous strike by the United Auto Workers against GM supplier American Axle will cost GM $1.8 billion in lost earnings. You can’t make up how stupid a chapter in auto industry labor relations this was.

The U.S. Government proposed the rules in April to cut fuel consumption and reduce carbon dioxide emissions. The rule mandates a 40 percent increase in fuel efficiency by 2020, and a 25 percent improvement by 2015.

Among GI’s forecasted chnages to cars and trucks to meet the requirement:

• Spark-ignition gasoline engines will be just 36 percent of the market, from 90 percent in 2006.

• Boosted direct-injection spark-ignition engines will be 33 percent, from less than 5 percent.

• Diesel engines will command 19 percent of the market, from less than 5 percent.

• Stop-start hybrids [in which engines shut off at stop lights and idle]will account for 35 percent of all drivetrains, from less than 5 percent.

Global Insight forecasts that total U.S. industry sales volume will languish below 16 million units through 2010. But according to the forecast, changing demographics and pent-up replacement demand will push sales beyond 18 million in 2015.