Detroit automakers could stand to benefit billions from the new fuel economy standards mandated by President Barack Obama, according to a new report by the University of Michigan released Monday.

The new standards require an average fuel economy standard of 35.5 mpg in 2016, as noted in a statement issued by the White House. The new fuel efficiency policy is projected to save 1.8 billion barrels of oil over the life of the program, with a fuel economy gain of more than 5 percent annually.

"A clear and uniform national policy is not only good news for consumers who will save money at the pump, but this policy is also good news for the auto industry which will no longer be subject to a costly patchwork of differing rules and regulations," Carol M. Browner, Assistant to the President for Energy and Climate Change, said in a statement.

Although consumers will have to pay up to $1,300 more per vehicle by 2016, they could save about $2,800 over the life of the vehicle through better gas mileage, according to the Associated Press (via redOrbit).

The financial benefits for the former Big Three automakers are projected to be even higher.

The new University of Michigan report, titled Fixing Detroit: How Far, How Fast, How Fuel Efficient, posits that General Motors Corp., Chrysler LLC and Ford Motor Co. could gain a combined annual profit of $3 billion per year and increase sales equivalent to two large assembly plants by adding cars that achieve 35.5 mpg to 40.5 to their portfolios.

The new mandate forces them to pay closer attention to fuel efficiency when designing cars — something they failed to do in the past, it has been argued — giving consumers more options for fuel efficient vehicles, according to the study by the university's Transportation Research Institute.

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

Walter McMahus, director of the automotive analysis division for the institute and co-author of the study, added that "people abandoned American-made vehicles in favor of fuel-efficient Japanese models, leading to the downturn of all three automakers."

With the new fuel efficiency policy, the Detroit automakers have a chance to catch up, the study says. By increasing their cars' fuel economies by 30 percent to 50 percent (35 mpg to 40.4 mpg), their combined annual profits would increase by approximately $3 billion. In comparison, Japanese automakers are projected to gain less due to different starting points, according to the report's models on the impact of fuel economy standard increases.

Additionally, whereas GM, Chrysler and Ford stand to gain the most profits by pursuing more aggressive fuel economy, Japanese automakers are forecast to have the smallest gains by pursuing a 50 percent increase in fuel efficiency. "At 50 percent increase, the Japanese industry loses sales while the domestics continue to gain," the report continues.

The report also includes a sensitivity analysis on the models' results. Assessing the 11 factors used to predict the models' outcomes, McMahus and Kleinbaun, both former GM employees, found that only three factors could generate a drop in Detroit Three profits: low consumer response to fuel costs relative to vehicle prices; gasoline prices at $1.50 per gallon; and direct manufacturing costs that are 2.2 times the cost estimates used.

However, the chances for losses rather than gains in profits are low, the report authors say. There is a 7 percent chance the profits would be less than zero if the fuel standards were increased 30 percent and a 15 percent chance if it were upped 50 percent.

While it's apparent that higher fuel efficiencies also increase the risk for losses, the opportunity for gains also becomes greater. The chance that increased profits could exceed $6 billion is 18 percent for a 50 percent increase in fuel economy, but only 6 percent for a 30 percent increase, the report adds.

For automakers to see improvements, they must make deep cultural changes within the organization. "They need to change the fundamental belief and values of the company that led them into this mess in the first place," Klienbaum told the AP.

The Univ. of Michigan Transportation Research Institute report offers the following suggestions for Ford, GM and Chrysler:

• Implement broad, deep, fast change;
• Replace the management team;
• Change company culture; and
• Build a range of excellent products.

This new report builds on the findings the University of Michigan Transportation Research Institute published in 2005, predicting that the Detroit Three stood to lose billions in the event of an oil spike, an announcement of the new report adds. The earlier findings predicted that gas prices at more than $3 per gallon could lead to combined profit losses of $7 billion to $11 billion.

By the time gas prices soared to more than $4 per gallon last summer, Ford and GM had combined losses of more than $57.2 billion. Through the first quarter of 2009, their cumulative operations losses since 2004 totaled $83.6 billion and lost 14.2 points of market share.

What do you think? Does this report hold weight?

Resources

Fixing Detroit: How Far, How Fast, How Fuel Efficient
by Walter McManus and Dr. Rob Kleinbaum
University of Michigan Transportation Research Institute, June 2009

Report: US Automakers to Gain on New Gas Mandates
The Associated Press, June 22, 2009

Update: Fixing Detroit: How Far, How Fast, How Fuel Efficient?
PR Newswire, June 22, 2009

President Obama Announces National Fuel Efficiency Policy
The White House, May 19, 2009

Obama Mandate Requires Higher Auto Fuel Efficiency
redOrbit, May 20, 2009