The Detroit three automakers need to make major changes in their current corporate cultures if they want to reverse their fortunes, and that will likely require new leadership.
According to a new study released by the University of Michigan Transportation Research Institute, According to the report, "Fixing Detroit: How Far, How Fast, How Fuel Efficient?" successful turnarounds hinge on rapid cultural transformation, which requires replacement of management teams.

Further, the report finds that the existing culture within the domestic auto companies systematically underestimates the value of fuel economy, which has crippled profitability. Modeling the impact of increased fuel economy standards, the study finds that an industry-wide mandated increase in fuel economy of 30 percent to 50 percent (35 miles per gallon to 40.4 mpg) would increase Detroit automakers' gross profits by roughly $3 billion per year and increase sales by the equivalent of two large assembly plans. The chance that increased profits could exceed $6 billion is 18 percent if fuel economy standards were increased to 40.4 mpg, but only 6 percent if standards remain at the mandated 35 mpg.

The new report builds on studies published by UMTRI beginning in 2005 predicting that the three biggest domestic automakers stood to lose billions in profits and thousands of jobs in the event of an oil spike -- a prediction borne out as Hurricane Katrina and tensions around the world sent prices skyward. The studies documented the financial risks to Detroit automakers and the risks to American jobs of higher fuel prices, and predicted that gas prices more than $3 per gallon could lead to combined losses of $7 billion to $11 billion of profits for Detroit automakers.

By the time gasoline prices spiked to more than $4 a gallon in July of last year, Ford and GM had already reported combined losses on their automotive operations of more than $57.2 billion. And through the first quarter of this year their cumulative automotive operations losses since 2004 total $83.6 billion. In addition, they have lost 14.2 points of market share since 2004 (GM down 8.8 points and Ford down 5.4 points).

"Our findings support rapid, wide-reaching change in business models," said Walter McManus, director of UMTRI's Automotive Analysis Division and co-author of the report. "The key to a long-term recovery is executing an excellent portfolio of products, and we find that increasing fuel economy standards will lead to a portfolio of products that is more likely to raise the profits of the Detroit 3 automakers than to lower them." Rob Kleinbaum, former GM employee and consultant and report co-author, said the industry attitude about fuel economy is symptomatic of its current culture.