Relaxed Fuel Economy Rules Set to Shift Auto Industry Investment
Looser CAFE standards could redirect automaker spending toward high-margin trucks and V-8 engines, an industry analyst says.
Changes to federal fuel economy requirements are poised to reshape where automakers direct their engineering and capital budgets, with pickups and V-8-powered vehicles standing to benefit most, according to an industry analyst who tracks the sector closely.
The analyst identifies four distinct pathways through which the revised standards are likely to channel investment toward the auto industry's most profitable segments. Trucks and large SUVs already generate the widest margins for Detroit manufacturers, and reduced pressure to offset their fuel consumption with costly electrification programs could allow companies to accelerate development in those lines instead.
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For consumers, the shift could mean a broader selection of performance-oriented and large-displacement engine options in coming model years — a reversal of the trend toward downsized turbocharged engines that tightening standards had encouraged over the past decade. Automakers had been compelled to invest heavily in hybrid systems and battery technology partly to bring fleet-wide averages into compliance.
The policy change arrives as several manufacturers have already begun scaling back electric vehicle commitments amid softer-than-expected consumer demand. Relaxed mileage targets could further reduce the urgency of those investments, freeing resources for internal-combustion platforms that continue to drive the bulk of industry revenue.
Continue reading at Business News for the full breakdown of all four investment shifts the analyst projects.
