CAFE
The “Energy Policy Conservation Act,” [EPCA] was enacted into law by Congress in 1975, and established Corporate Average Fuel Economy [CAFE] standards for passenger cars and light trucks. The Act was passed in response to the 1973-74 Arab oil embargo. The stated near-term goal was to double new car fuel economy by model year 1985.
The Energy Policy and Conservation Act of 1975 required passenger car and light truck with a gross vehicle weight rating (GVWR) of 8,500 lbs. or less manufactured for sale in the United States, to meet CAFE standards. The CAFE standards are applied on a fleet-wide basis for each manufacturer; i.e., the fuel economy ratings for a manufacturer's entire line of passenger cars must average at least 27.5 mpg for the manufacturer to comply with the standard. [If a manufacturer does not meet the standard, it is liable for a civil penalty of $5.00 for each 0.1 mpg its fleet falls below the standard, multiplied by the number of vehicles it produces. For example, if a manufacturer produces 2 million cars in a particular model year, and its CAFE falls 0.5 mpg below the standard, it would be liable for a civil penalty of $50 million.] For light trucks (including vans and sport utility vehicles), which make up the majority of new vehicles sales, the 2004 CAFE standard is 20.7 mpg.
Manufacturers earn "credits" for exceeding CAFE standards, and these credits can be used to offset fuel economy shortfalls in the three previous and/or three subsequent model years.
Two vehicle fleets are defined for CAFE purposes: vehicles with 75 percent or more U.S./Canadian content are considered to be "domestics"; vehicles with less than 75 percent U.S./Canadian content are considered to be "imports". If a manufacturer has both "domestic" and "import" fleets, each fleet must comply separately with the CAFE standard. Therefore, there could be an incentive for a manufacturer to raise or lower U.S./Canadian content in order to "move" a vehicle from one fleet to the other in order to meet the standard for both fleets.
The original reason that two fleets were established was to sooth the concerns of the United Automobile Workers [UAW]. The union was concerned that the Big-3 would start importing small fuel-efficient vehicles from overseas to raise their overall CAFE numbers.
For the purpose of CAFE content is based on a value-added definition that includes operations within the U.S. and Canada such as advertising, overhead, depreciation of plant and equipment. With the enactment of the North American Free Trade Agreement [NAFTA] Mexican content is now included as “domestic.”
The total fleet fuel economy peaked in 1987 at 26.2 mpg when light trucks made up a mere 28.1 percent of the market. By 2001 with light trucks making up 46.7 percent of the market total fleet fuel economy fell to 24.4 mpg. Currently, light trucks make up more than 50 percent of new vehicle sales. With the real [inflation adjusted] price of gasoline extremely low by historical standards we can expect consumers demand for more powerful, larger vehicles to continue to grow
In April of 2003, the National Highway Traffic Safety Administration promulgated a final rule establishing the average fuel economy standards for light trucks that will be manufactured in the 2005-2007 model years (MYs). The standards for all light trucks manufactured is set at 21.0 mpg for MY 2005, 21.6 mpg for MY 2006, and 22.2 mpg for MY 2007. This rule is effective May 5, 2003.
In December of 2003 NHTSA issued a Notice of Proposed Rulemaking seeking comments on possible enhancements to the CAFE program that will further the move toward more fuel efficient vehicles while maintaining vehicle safety and the well being of the motor vehicle industry. NHTSA is looking to improve the structure of the CAFE program within existing legislative authority.
.For more detailed information on CAFE check out these web sites:
http://www.nhtsa.dot.gov/cars/rules/cafe/