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Improved Fuel Economy May Affect Your Portfolio

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If you find yourself filling up your gas tank more often than you'd like to, help may be on the way. The White House is looking for a big bump in fuel economy standards in vehicles, having them rise steadily to 54.5 miles per gallon between 2017 and 2025. Such a regulation will affect many companies, and it may affect your portfolio, as well.

Calls for improved economy have been made in the past, and the auto industry has often fought them. This time, though, following a period of bailouts and wrangling with the government, the automakers have capitulated, with 13 of them, including Ford (NYSE: F  ) , General Motors (NYSE: GM  ) , Honda (NYSE: HMC  ) , and Toyota, signing on to the proposals. In their place, though, auto dealers are now objecting to the proposals, arguing in part that Americans don't want more fuel-efficient vehicles.

The dealers have a point -- less than 3% of vehicles sold recently have been hybrids. That's partly due to pricing, though, and as sales grow, prices are likely to come down. Sales have been growing, too, with total Priuses sold in the U.S. surpassing one million earlier this year.

Carmakers have been developing alternative energy technologies to power vehicles, such in as Nissan's all-electric Leaf and the turbochargers from Honeywell (NYSE: HON  ) that General Motors is using in its Chevy Cruze. They're also looking into boosting efficiency by making cars lighter, via plastics instead of metals.

Portfolio ramifications
The price of gas isn't expected to come down significantly, which is likely to sustain interest in fuel-efficient machines. We investors may want to think through what that might mean for our portfolios.

One possible loser is the oil business, if our gas consumption falls markedly. Dig a little deeper before selling, though, because many big oil companies are busy developing alternative energies. Chevron (NYSE: CVX  ) , for instance, has partnered with Weyerhaeuser (NYSE: WY  ) on a biofuels-from-forests project. Aluminum giants such as Alcoa (NYSE: AA  ) also stand to suffer, if auto bodies shift strongly from metal to plastic.

But despite their initial objections, carmakers may not suffer at all. Until commercially viable jet packs appear, we're likely to keep needing vehicles, and fuel-efficient ones are likely to fit the bill, meeting governmental regulations and being kinder to our wallets.

If you're invested in companies related to these industries, you'd do well to keep an eye on developments, as they can affect your future net worth.

Looking for some promising investments? Read this free report from The Motley Fool to find the names of five stocks we own that you should, too.

Longtime Fool contributor Selena Maranjian owns shares of Ford, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors, Ford, and Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 04, 2011, at 5:35 PM, Doris411 wrote:

    In the latest issue of Consumer Reports, they very pointedly do NOT recommend the Chevy Cruze on repair/reliability grounds. Is this related to the new technology, or just GM being GM?

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Selena Maranjian
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Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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