To be clear, I love great coffee. But Corporate Average Fuel Economy (CAFE) standards, not so much.
Why? I do think we should reduce our reliance on non-renewable fuels and reduce emissions. The objectives that are behind CAFE are noble. So what is the problem?
To explain, let's step back in time for a moment. CAFE was introduced after the first oil embargo. The idea was to require car companies to improve the average fuel economy of their "fleet." (Vehicles sold.)
The car companies squawked about not being able to meet the standards. History shows that this was not the case, but the car companies did have a point. In the late Seventies and Eighties the available technologies meant some pretty awful vehicles were foisted on American car buyers. In fact, one could make the point that the lingering reputational difficulties of the Detroit automakers began with vehicles introduced during this nadir of American automotive design.
The good news is that technology advanced at a faster clip than the CAFE standards. By the late Nineties we had a technology “surplus” that the car companies could “invest” in further increasing engine efficiency. As it turned out, CAFE standards remained fixed and the market responded with these efficiencies being directed to increased horsepower. So the “surplus” was invested in ever more powerful vehicles.
Which leads us to the issue with CAFE. The car companies aren’t just being stubborn when they introduce larger more powerful vehicles. They do it because there is a market for them. In fact, for years, the domestic car companies struggled to sell enough small cars (often at a loss) to balance out their average fuel economy to meet CAFE standards.
If you like ironies, you will love this one: Remember back in 2008 when the Detroit automaker CEOs flew to Washington to testify? They were pummeled for flying in corporate jets—and more seriously for not building cars that people wanted to buy. Especially small cars. Of course, they were building vehicles people wanted to buy—just not the ones Washington wanted them to sell.
When fuel prices shot up and the economy tumbled into recession, GM and Chrysler were forced to seek Government help. So here’s the irony: I know that the auto industry bailouts are not popular. One reason that I am as down on this issue as others is that the problems that befell GM and Chrysler were—at least in part—of the Government’s making. Seems only fair that the government should step up to help clean up the mess.
The fundamental issue with CAFE is that it seems to be based on the premise that if a car company can build a 5-passenger sedan that weighs 3000 lbs, gets 30 mpg and sells for $25,000, they can also build the same vehicle but with 35 mpg. All that has to be done is to issue a mandate and it will happen. (Isn’t this what the Soviets tried with their 5-year plans?)
Of course, this is not the case. Improving fuel economy—particularly in the short term—involves trade-offs. Many of these trade-offs can reduce a vehicle’s market appeal.
And that is the nub of it. When CAFÉ requirements and market forces don’t align it is bad policy. Politicians like CAFE because it suggests that fuel efficiency can be increased at no cost to voters. It is the car company’s problem.
The truth is that a sensible energy policy is everyone's problem. We will explore this more in a later post.
FYI, Karl posted a good piece on this issue over on AutoObserver. Check it out here.