Can Proactive Fuel Economy Strategies Help Automakers Mitigate Fuel-Price Risks

摘要

Detroit automakers opposed mandatory improvements in fuel economy when legislation was first proposed in the early 1970s, and continue to resist increases in the standards today. Their opposition appears to stem from an assumption that new-vehicle buyers value higher fuel economy only when fuel prices are extremely high. Automakers thus believe that higher fuel economy standards would diminish their profits, especially if fuel prices were much lower. Events of 2005 have made it clear that consumers are reacting to higher fuel prices by migrating to more fuel-efficient options; primarily to the detriment of Detroit automakers market share and profits. The authors discuss the economic viability of improving fuel economy as a strategy to mitigate the risk of high fuel prices and to gain competitive advantage in an automotive market in which customers demand, and are willing to pay for fuel efficiency. They adopt a 'scenario analysis' approach where individual automaker fuel economy strategies are tested against various scenarios of fuel prices and other automaker fuel economy strategies. Their goal is to determine which strategies maximize variable profits and U.S. auto industry employment.