Automakers Forced Into Fuel Efficiency

by : P. Lindgreen

The minimum fuel efficiency standard for a car manufactures fleet of cars is set by CAFE (Corporate Average Fuel Economy). First created in the 1970's, this standard was 27.5 mpg.

Falling below this standard results in fines which some high end manufacturers like Lanborghini and BMW don't mind as their high prices can absorb it. For most major car producers these fines are something to avoid and with no change in the 27 mpg standard it was easy for them to achieve.

American automakers successfully lobbied to keep this 27 mpg standard from increasing for nearly 30 years. Publicly they argued raising it would be bad for their business as the gas guzzlers have higher profit margins than smaller, thrifty fuel efficient cars and hybrids. Despite decreasing market share and massive layoffs for the last 10 years they (Ford, GM, Chrysler) still lobby against increases to CAFE.

In light of Toyota's and Honda's tremendous sales success with fuel efficient cars the public and federal politicians have largely begun to disagree with Detroit's point of view and to the automakers surprise the Senate passed a bill in June 2007 to increase the CAFE standard to 35 mpg by 2020.

To become law the bill now needs to pass in the Senate, which has a large democratic majority and perhaps it's strongest support. House Speaker Nancy Pelosi (D-Calif.) has already voiced her support and suggested it will pass any week now.

While years of decreasing sales and market share to Toyota and Honda did not convince Detroit to seriously start producing fuel efficient vehicles this bill will force them. I wonder if the employees of the Big 3 are relieved by this legislation? Maybe it will actually stop the bleeding (layoffs).

While not a big 2008 presidential issue at least one candidate proposed a CAFE update, Democratic Senator Christopher Dodd proposed increasing the standard to 50 mpg by 2017. He also proposed making the entire federal fleet of cars fuel efficient. With a customer of that size demanding these cars imagine how fast they would develop.

The bill will also provide for grants and loans for companies to develop technologies to meet the new standards. With 13 years to meet the new standards even the Big 3 should be able to adjust in time.

I expect 40+ mpg now in any new car for a reasonable price. Anything under 30mpg is considered poor by today's standards, by 2020 it will hopefully by a joke. I can see teenagers of 2020 listening to parents talk of their old cars getting 27mpg, they'll just shake their head and laugh in amazement, and maybe ask how you can produce a car that gets less than 100mpg.