How CAFE Ratings Work

When the proposed new rules on Corporate Average Fuel Economy (CAFE) are finally put into effect, automakers will have a little less than seven years to meet the new standards of 39 mpg for cars and 30 mpg for light trucks.

That is about how long it takes to design and build an entirely new vehicle, so they should be able to engineer the efficiency of the cars they manufacture to meet the new targets at the price of about $1,300 per car, according to the federal government.

But that’s just half the battle.

CAFE ratings aren’t based on the cars a company makes, but the cars that they sell. So even if an automaker puts a 200 mpg car in its showroom, if no one buys it, it doesn’t do them any good in the eyes of the National Highway Transportation Safety Administration (NHTSA). And the fuel economy numbers used to calculate it aren't the same as the ones on the widow sticker of your new car.

A mid-size 2007 Ford Fusion sedan with a 4-cylinder engine and manual transmission has an EPA combined rating of just 23 mpg, but CAFE gives it a figure of 31 mpg that doesn't factor in day to day driving habits.

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Consider a fictional company called Two Motors that builds just two models that it sells through a single dealership. One is a full-size sedan that seats five and gets 29 mpg, the other a two-seat hatchback rated at 49 mpg. On the showroom floor the cars average out at 39 mpg, and the automaker is set to be in compliance with the new rules.

Then the Catch-22 begins. Two customers come in and decide that they prefer the sedan over the hatchback and both purchase one, dropping the CAFE rating to 35.6 mpg.

The next day the dealer sells three more sedans, and its CAFE falls further to 32.3 mpg, putting it in the tough position of having to sell five of the unpopular hatchbacks to get the average back up.

If it doesn’t there is a $5.50 fine for every tenth of a mpg they come up short, multiplied by the total number of vehicles sold that year.

So, if Two Motors has a good year and sells one million cars, but ends up with a CAFE of 38.9 mpg, it’s looking at a $5.5 million fine.

At some point the automaker has to decide whether it’s worth paying the penalty and sell more cars, or if it should simply stop making the sedan available until it moves enough hatchbacks to get the CAFE number back up. A number of automakers have chosen the former, and $775 million in fines have been collected since 1983.

Thanks to a recent turn to more fuel efficient vehicles, most of the major automakers are already above the current CAFE for cars of 27.5 mpg, and well on their way to 39 mpg, but some are much closer to the mark than others. The following is a list of the 2008 figures for the top 10 best-selling automakers:

Toyota 36.4

Honda 35.1

Hyundai 33.8

Kia 33.4

Nissan 32.2

Ford 30.0

General Motors 29.8

Chrysler 29.5

VW 28.8

BMW 27.4

Mercedes-Benz 26.4

(Source: NHTSA Summary of Fuel Economy Performance)