Corporate Average Fuel Economy

How to Profit From the CAFE Standards

Written by Brian Hicks
Posted October 5, 2007

There’s been a lot of noise coming from the bomb shelters in Detroit as Ford, Lutz and the others wring their hands, sobbing over sales and their looming war with Japan. The moans are long and anguished.

But as you well know, every crisis contains the blueprint for its own cure, if they would just look, but it seems the CAFE standards have big auto on empty .

You see, all this talk of increasing fuel economy is making American auto manufacturers sweat. And while the racket of those confined jibbering sobs is almost unbearable, they’d better have enough food stored away for the long haul, because the fallout from the Corporate Average Fuel Economy (CAFE) bomb will be far worse than the initial blast.

A little background on Corporate Average Fuel Economy to get you up to speed...

While most of us remember 1972 for C.C.R.’s utterly horrid Mardi Gras album, something much worse was in the works.

Egypt and Syria, still just a wee bit upset with Israel for the Six-Day War, thumbed their noses at ceasefire boundaries and crossed into Sinai and the Golan Heights, starting the Yom Kippur War in 1973.

That was October 6. By the 16th OPEC was livid. Not only were their fellow Arabs’ rears being handed to them by U.S.-backed Israel, they were supplying the U.S. with oil, to boot.

In a passive aggressive step that would’ve even impressed NATO, OPEC cut off oil supply to nations that supported Israel.

Lo and behold, the U.S. was hit hard, we lost our muscle cars and in turn got Corporate Average Fuel Economy (CAFE) standards.

The mission? Double new-car fuel economy by 1985 to 27.5 mpg for passenger cars and 21 for light trucks, where it has remained till today.

Now, 22 years later, the Senate has passed a new standard for CAFE. By 2020 all cars, light trucks and SUV’s need to get 35 mpg. And even though the House of Representatives has not yet passed these standards, the outcry from the auto manufacturers is deafening.

While one could expect such outrage from the American side, Toyota’s protest against the new CAFE standards is quite curious.

The Japanese are a forward looking people . . . fantastic education, technology that whips our fat bottoms thrice over and many of them multilingual as well.

If my stereotypes are accurate, something else is going on here.

Hell, their Prius already gets 55 mpg if driven properly, so what are they complaining about?

Well, here’s the way this “New Great Game” is unfolding.

Let’s imagine for a second these new standards have passed. In 2005 alone:

  • Toyota and VW had ten vehicles that would pass,
  • Honda nine,
  • Ford and Chevy three
  • and Dodge a lousy one.

As you can see, Toyota, VW and Honda are all, to some extent, ready to handle such a policy shift that wouldn’t even take effect until 2020.

Chevy, Ford and Dodge, on the other hand, aren’t doing so well. However, there is plenty of time for them to rip off some Japanese or German design and repackage it. So why aren’t they doing that?

Well, take a look at ’08’s most talked about car, the new Camaro. Like the awkward love child of a ’69 Z28 and a Marvel comic character, this car is pushed by 400 horses that, believe me on this one, have no problem drinking from whatever trough they are brought to.

And let us not forget this generation of Mustangs, one of Ford’s hottest sellers in its lineup. But with the GT thumping out 300 hp and averaging around 17 mpg (at best), it’s becoming painfully obvious that American manufacturers are letting the competition take the lead in mpg-conscious cars.

Most of these trends in American autos can be attributed to the laissez faire attitude of many Americans. They believe there is not only more oil, but plenty of it. Well, they are in for a rude awakening, and are getting a taste of it now as oil rockets to $100 a barrel.

But the race isn’t over yet, even though the gap between new CAFE standards and American technology is growing every year.

That's Why Toyota Loves To Hate the CAFE Standard

So when the Big Three went into a conniption fit over 35 mpg in 13 years, Toyota was right behind them giving some muscle to the coup, knowing damn well that if not forced to change, the U.S. competition never will, and then they will have the market cornered.

Even if CAFE doesn’t pass--though it certainly looks like it will--when that oil hits $200 a barrel, the only manufacturers that won’t have the goods will be the Big Three.

Of course, they’ll have some pretty cool turbo max diesels and re-spun chargers, but bottom line, people won’t be buying them.

And while Chevy is cramming that massive 6.0 liter V8 into the new Camaro, with a side glance to their Volt, Toyota is working on a new set of Plug-in hybrid Prius.

As scary as it may seem, the Big Three are almost dead, and unfortunately battery companies that are locked to their sides and working on lithium-ion battery packs to advance electric drive technology might go down, too. But some major companies across the sea are starting reap the rewards of Japan’s and Europe’s heavy-handed approach to the technology that will carry our motoring public around the world in as little as five years.

Don’t think, however, that this little game I think Toyota is up to has gone unnoticed.

Deron Lovaas, of the National Resources Dense Council (NRDC) has said, “As the world’s largest automaker and inventor of the best-selling hybrid car on the market, Toyota has a responsibility to lead, follow or get out of the way as Congress debates the first substantial fuel-economy boost in decades.”

Get out of the way is right. But either way, I don’t care much, because whatever way this turns out there are going to be a lot of overlooked opportunities in the automotive market so long as you know where to find them.

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Keep your hopes in the future but your sense in the present,

Field Palmer