Boost Your Fuel Economy to 85 Miles per Gallon

By David Sterman
May 25, 2011

Does your wallet scream in agony every time you pull up to the pump? Gas prices have certainly been a huge pain in our gas tank as far back as most of us can remember.

And with the recent recession, consumers are finally responding in record numbers.

Demand for smaller, more fuel-efficient cars is on the rise, and prices for the most efficient used cars have been trending higher in recent months. Technology is finally catching up with demand, and this is good news for just about anyone who is looking to buy soon.

[InvestingAnswers Feature: The Most Affordable Fuel-Efficient Cars of 2011]

We are all still a few years away from a big sigh of relief -- you and your gas tank may be holding your proverbial breath for just a little while longer. But for patient car buyers, really fuel-efficient vehicles will be hitting showrooms in a few years, off-setting the pain at the pump.

Gas Prices & the Economy

Want some more good news? Gasoline prices are expected to ease back in coming weeks as oil falls below $100 a barrel. 

Now the bad news: It may only prove to be a temporary lull -- a scenario is developing that could push oil north of $150 a barrel in the next year or two, and that could push gasoline prices up much higher, perhaps as high as $6 a gallon.

Why? It all has to do with the U.S.'s large budget deficit. As foreign governments slow down their purchases of U.S. bonds, we’ll have to offer higher interest rates to find demand for those bonds.

If that happens, economists expect the dollar to sharply weaken, which tends to move oil prices in the opposite direction. It may sound like an unrealistic doomsday scenario, but according to some economic forecasters, it is becoming a real possibility.

If this gas price doomsday does occur, how will our nation and the world's auto makers respond to the crisis?

Auto Makers & Fuel Economy

The German auto maker  Volkswagen (AMS: VW)  is contemplating a new lightweight vehicle that gets 60 miles to the gallon around town and 85 miles to the gallon the highway. The 2011 Toyota Prius looks downright thirsty in comparison.

The car won’t be cheap to make -- so VW won’t sell too many -- but it shows just how far car companies are going to produce a highly-efficient car that addresses escalating fuel economy issues.

How will Volkswagen -- or any auto maker -- produce a vehicle with that level of fuel economy? Here are three technologies auto makers are developing for a better fuel economy, and how you can invest in their success.

Fuel Economy Technology #1: More Carbon Fiber & Aluminum
 
Here’s a sobering stat: The first generation Honda Accord (NYSE: HMC), released back in 1976, weighed around 2,000 pounds, or one ton.  Today’s Accord weighs around 3,300 pounds. 
 
Auto makers would like to roll back the clock, with companies like Mazda aiming to get many of its cars back below 2,500 pounds. To get there, some auto makers are figuring out ways to use less steel and more aluminum and carbon fiber. Alcoa (NYSE: AA), the world’s largest producer of aluminum, recently noted that its sales to auto makers are expected to rise steadily over the next five years.
 
Carbon fiber, which is still fairly pricey, holds even more promise. The material is super strong and very light, and is slowly coming down in price. That should benefit a pair of carbon fiber manufacturers, Hexcel (NYSE: HXL) and Zoltek (Nasdaq: ZOLT). Hexcel is already working closely with BMW and is in the planning stages with other auto makers. 
 
Fuel Economy Technology #2: Improving the ICE
 
The ICE, or internal combustion engine, has been around for a century. With each passing decade, engineers find ways to boost engine fuel-efficiency. That’s why the Honda Accord can still get 34 miles per gallon on the highway, even though it carries an engine twice as powerful and 60% heavier than the original version. And even more impressive gains are cresting the horizon.
 
For example, little-known Scuderi Group has developed an engine design (known as a split cycle engine) that offers a 30% boost in power while decreasing the size of the engine and increasing fuel economy. A wide range of auto makers are looking at Scuderi’s designs for potential agreements ahead of a planned 2012 IPO for the company.
 
Auto parts maker Eaton (NYSE: ETN) has been working with package delivery firm UPS (NYSE: UPS) to build specialized truck engines that can store an engine’s extra energy through hydraulic pumps. The trucks are said to deliver sharp increases in fuel economy and have proven to be quite durable in field testing. These hydraulic systems could be the future of auto engineering.
 
#-ad_banner_2-# Fuel Economy Technology #3: A Different Kind of Gas
 
A few companies are tackling the issue of high oil prices by offering natural gas as an alternative. This fuel source packs a bit less power than oil-derived gasoline, but is also far cheaper. 
 
Westport Innovations (Nasdaq: WPRT) modifies existing engines to run on natural gas, primarily focusing on the large truck market
 
Clean Energy Fuels (Nasdaq: CLNE) is building a network of natural gas filling stations and is seeing demand steadily rise, especially among fleet operators such as government agencies. 
 
Honda already offers its Civic subcompact with a natural gas engine, and other auto makers are expected to follow suit over the next few years.
 
 
The Investing Answer: These three technologies promise to cut fuel consumption by the same rate that gasoline prices are expected to rise. For the consumer, that should provide an attractive alternative to today's gas guzzlers and ease the pain when it comes time to fill up your gas tank. 
 
For the investor, this new shift in technology could present opportunities to invest in the emerging companies that provide these resources to auto makers. 
 
As with the market, there are no guarantees that technology and company valuation pan out as hypothesized, but if you are looking for intriguing portfolio action, keep these companies on your radar.