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I agree that downsizing the engine does not automatically increase the fuel economy. The new engine and transmission would have to be set up to return better economy as well. It does however take less materials to build a smaller engine, which lowers the weight further. Reducing the weight also means that it takes less HP to get that vehicle moving, and less HP (assuming aerodynamics are the same) to keep that vehicle cruising on the highway.
If set up correctly, a lighter vehicle with an adequate engine will return better fuel economy than a heavier vehicle requiring a bigger/more powerful/heavier engine that performs as well on the road.
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