CAFE Standards Are Stupid
CAFE (Corporate Average Fuel Economy), is the set of standards established by Congress in 1975 and subsequently managed by the NHTSA (National Highway Traffic Safety Administration) to limit the number and types of vehicles that Americans can buy – really. Of course, the Congressional regulations weren’t sold to the public that way. Officially, the standards were established under the guise of “improving automotive efficiency.” Like Mom and apple pie, who can’t get behind “efficiency.”
As a knee-jerk reaction to the Arab oil embargo and the associated quickly rising gas prices in the 70s (relatively speaking, of course), Congress decided that it would force manufacturers – all of those that sold cars in the US – to produce cars with better fuel efficiency by setting MPG bars that they all had to leap over at specified periods of time. By doing this, Americans were supposed to get exactly the cars we wanted. So, instead of letting the buying public shape the marketplace with our choice of which cars to buy, Congress did it for us.
Not being the type of people who like being told what to do though, most Americans ignored the standards and spent their hard-earned dollars buying vehicles with gas mileage well below the average specified by CAFE (the average specified by the standards is of the cars a manufacturer makes – there is no weighting for which cars are actually being purchased). As it turns out, the cars that the US government chose for us, were not the cars we wanted to buy. Shocking, I tell you.
Over the past three decades, Americans chose to buy big cars – huge sedans, then station wagons, then SUVs. The more sheet metal, the better. And trucks . . . Americans made trucks, large ones at that, the most popular vehicles roaming our paved countryside. CAFE standards be damned.
The fundamental problem with CAFE standards should be clear to everyone by now. It’s not the mandate to car manufacturers and the follow-on limit to what products are available that makes people drive any particular vehicle – fuel efficient or not, it’s the choice of the car buyer. That choice, of course, is driven by many factors – none of those being what the government says is better for them.
Does anyone believe that the current huge number of Priuses on the road are a result of more restrictive CAFE standards? The current hybrid craze is entirely driven by the price of gas and the buyers of all those cars choosing, themselves, to find more fuel efficient cars.
Here’s an example. Honda sold a car called the Insight for a few years in this country. It was the highest mileage car ever sold here and, as you’d expect from Honda, it was fairly reasonably priced. Sales of the car were so low, though, that Honda had to discontinue the model. This was before $4.00+/gallon fuel. Now, as with the Prius, there would be a waiting list for the car. Even though the Insight’s fuel economy was above the CAFE standard of the time, no one cared. The car made too many other tradeoffs to higher mileage ratings and people weren’t ready to make those sacrifices. At $4.00+/gallon, such trade-offs seem pretty minor to many. That’s what drives what we buy.
If the government needed to tinker with what we drive and consume (reasonable in some circumstances), then it should have done it by artificially increasing the cost of owning or driving a car. If each gallon of gas had $5.00 of tax associated with it, driving and buying behavior would change VERY quickly. Wagging the dog from the tail – enforcing policy through the manufacturer, however is like spitting in the wind. It’s just stupid.
The bottom line is that if I want to drive a land-bruising monster that drinks gas like Homer Simson drinks Duff beer, then that should be my choice. And, if the economics of driving such a vehicle motivates me to acquire a fuel-sipping petrol miser, that’s also my choice. For most, the financial requirements of filling a $100/tank every day and half will drive us to think about more fuel efficient cars. This, of course, is happening now. CAFE standards create a synthetic economy that fundamentally fails to achieve it’s goals. The standards haven’t changed the market. Buyer choice, driven by loads of factors, but mostly economic ones, has. High gas prices are making that abundantly clear right now.