If cars are too expensive, just pump more gas. What?

The Trump administration has hit upon an unorthodox solution to the cost-of-living crisis: Pumping more gasoline. Executives from Ford Motor Co., General Motors Co. and Stellantis NV attended a White House ceremony on Wednesday afternoon to unveil proposed looser fuel economy standards for vehicles - as well they might.

Pitched as help for the beleaguered consumer, the new fuel economy rules are likely to do more for Detroit’s bottom line; in the near term anyway. President Donald Trump claims American families will save $109 billion over the next five years, relative to the more stringent rules set under his predecessor. Meanwhile, vehicles for model year 2031 will apparently be $925 cheaper than otherwise.

Both numbers are problematic. The first is a gross figure before taking account of associated costs, not least higher fuel bills for thirstier vehicles. The net benefit is put at just $24 billion or, using households as a proxy for families, a princely $181 per household spread over five years. The $925 figure, meanwhile, equates to less than 2% of today’s average vehicle price. Even assuming it were actually realized, at $3 per gallon it would be eaten up by extra gasoline costs within three years.

Most importantly, however, all these numbers ignore the realities of why vehicle prices are high in the first place and why domestic automakers are more likely to pocket any such benefits.

The surge in average prices from less than $40,000 in 2020 to more than $50,000 this September had more to do with disruption to supply chains during the pandemic, plus the subsequent burst of generalized inflation, than any tweaking of engines. Rising interest rates have compounded this by bumping up monthly loan payments. Looking at the Detroit 3, their average prices are even higher, having risen from around $45,000 in 2020 to more like $55,000 today - and data from the Environmental Protection Agency rather suggest that owes very little to efforts on fuel economy.

The Detroit 3 have become increasingly reliant on their domestic truck and SUV franchises as competition has squeezed them out of sedans and international markets where more fuel-efficient models dominate. Americans’ relatively unusual taste for bigger, tricked-out vehicles provides an opportunity for Ford, GM and Stellantis to charge premium prices, offsetting the sector’s chronic overcapacity. The pandemic reinforced this trend, a live experiment in what selling fewer vehicles at much higher prices could do for earnings.

Ford offers a good example of this. More than half its US models average above $50,000 apiece and these account for four-fifths of its US revenue pool (which includes dealer margins). This group includes the all important F-Series truck, which alone accounts for roughly half the pool and a far higher share of profits. Conversely, only four models sport an average price of less than $40,000 - ‘cheap’ these days - and they account for just 12% of the revenue pool, using data from Edmunds.com. One of them, the Escape compact SUV, will be discontinued at the end of this year.

For American drivers, big is beautiful - even when only aspirational - and for American automakers, big is profitable. The result is a K-shaped market. As independent consultant Glenn Mercer notes pithily: “only rich people are buying new cars now; everyone else is buying used.” This is why distress is showing up at the lower end of the new (and used) car market. It is also why the new tax deduction for US-made vehicles passed by Republicans will have a minimal impact on affordability.

In the real world, relaxing mileage standards, along with the earlier removal of penalties for missing them, will spur Detroit to sell more of the higher margin, lower fuel-economy, trucks and SUVs at the core of its business model, as opposed to shifting production toward smaller, cheaper models.

The boost to margins will be compounded by not having to sell loss-making electric models in order to raise fleet-wide fuel economy, albeit at the cost of write-downs to existing investments in electrification, as well as not having to buy zero-emission credits from the likes of Tesla Inc. Ford, losing $5 billion or so at the operating line on electric vehicles, may do particularly well out of this.

We may yet see some politically well-timed sales events to send a signal that relaxed fuel-economy is a win for the consumer. But the real benefit will flow to automakers, going some way to offsetting the damage done to Detroit’s profits by Trump’s other obsession, tariffs.

The question hanging over this, however, concerns the longer-term cost. The retreat to US trucks at higher prices has shored up earnings for the Detroit 3, but it limits growth and erodes international relevance as Chinese automakers redefine competitiveness, and electrification continues to make inroads elsewhere.

It is possible that the US automakers take the current opportunity to recycle profits from selling more trucks into developing EVs, including the cheaper one being touted by Ford, or maybe even some cheaper gasoline models. Equally, operating inside a bubble formed from protectionist trade policy and anti-green ideology risks leaving Detroit increasingly vulnerable to disruption as the industry changes around it and when political fortunes shift.

This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s Heard on the Street column and wrote the Financial Times’s Lex column.