Report says mileage standards will help Big 3

/ Source: The Associated Press

U.S. automakers underestimated the importance consumers placed on fuel efficiency, but new federal standards are expected to help the companies turn a profit, according to the results of a University of Michigan study released Monday.

Researchers at the U of M Transportation Research Institute said plans for vehicles to be 30 percent more efficient by 2016, along with federal intervention at General Motors Corp. and Chrysler Group, are forcing the companies to pay closer attention to fuel efficiency when designing new cars, something the companies failed to do in the past.

At times there was a concerted effort by company officials to discount the results of consumer research when making planning decisions, said the authors of the report, also former GM employees.

"It is standard practice to discount consumer research. It was only applied to safety and quality issues," said Walter McManus, director of the automotive analysis division for the institute and co-author of the study.

He said that people abandoned American-made vehicles in favor of fuel-efficient Japanese ones, leading to the downturn of all three automakers.

"The reaction to fuel prices was way beyond what anyone would have ever predicted," McManus said.

But U.S. automakers now have a chance to repent, as vehicles must average 35 mpg by 2016. The study estimates a combined $3 billion in annual profit for the Detroit companies as consumers have greater options for more fuel efficient vehicles.

"They confused people staying away from fuel efficient, small cars as not liking fuel economy instead of fact that they made mediocre cars that no one wanted," said Rob Kleinbaum, co-author of the study and managing director of RAK & Co. "If GM had followed its own research it would likely not be in Chapter 11 (bankruptcy protection) today."

Japanese automakers, already well on their way to meeting the federal fuel economy standards, could lose customers as U.S. automakers begin to hit those requirements opening up the market for gas-conscious shoppers.

But in order for automakers to see improvements they must make deep cultural changes within the organization. Sergio Marchionne made sweeping management changes when he took over Chrysler earlier this month. Toyota Motor Corp. changed 40 percent of its management staff earlier this year.

"It's always the same people at the table. GM needs to change the top 50 to 100 people in North America," Klienbaum said. "They need to change the fundamental belief and values of the company that led them into this mess in the first place."