Advertiser Disclosure
Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. does not include all banks, credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. Advertiser partners include American Express, Chase, U.S. Bank, and Barclaycard, among others.

Understanding the CAFE Fuel Efficiency Standards for New Cars


Earn $300 with a new U.S. Bank Smartly™ Checking account

- Enroll in online banking or the U.S. Bank Mobile App
- Complete two or more direct deposits of at least $5,000

Member FDIC

Environmentalists rejoiced in late August when the Obama administration announced the new fuel economy standards for auto manufacturers. These new standards will increase the average MPG to 54.5 by vehicle model year 2025. According to the White House’s statement on the new standards, “In total, the Administration’s national program to improve fuel economy and reduce greenhouse gas emissions will save consumers more than $1.7 trillion at the gas pump and reduce U.S. oil consumption by 12 billion barrels.”

While the mathematics of the reduction in fuel consumption for the nation may be absolutely accurate, the actual program for improving fuel economy is both difficult to understand and somewhat misleading. This program, which has been in place for more than 30 years, is called “corporate average fuel economy” (CAFE), and it mandates to automotive manufacturers how efficiently their engines must run.

Yes, car companies will be responsible for increasing the fuel efficiency of their vehicles over the next 10-plus years. But because of the complexities of the CAFE program, it is not likely that the average car buyer will be driving a 54.5 MPG car off the lot in the year 2025. There is much to know about the CAFE standards, their limitations, and their loopholes, as well as what the average consumer will have to give up in the quest for better gas mileage.

CAFE History

CAFE was first introduced in 1978 in direct response to the 1973 Arab oil embargo, with the intention of improving the average fuel economy of vehicles manufactured within the United States. While the first regulations introduced in 1978 were only for passenger vehicles, the following year, another regulation was introduced for light trucks. Currently, the standards are used for any vehicle with a gross vehicle weight rating (the weight of the entire vehicle including necessary fluids, passengers, and cargo, but not including trailers) of 8,500 pounds or less.

Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now

The difference in regulations for light trucks is a big part of the reason for the proliferation of SUVs in the late ’90s and early 2000s. Light trucks have less stringent requirements for efficiency, and SUVs and minivans were categorized as trucks during that time. This meant that they could get far lower MPG than passenger vehicles, but they were not being used for hauling like trucks were, which was the nominal reason for the lower efficiency standards.

Manufacturers have a clear economic motivation to meet the standards. If an automaker fails to meet the standards for the model year, it must pay a penalty of $5.50 per 0.1 miles per gallon below the standard, multiplied by the total number of vehicles the manufacturer has produced for the entire U.S. domestic market.

However, even penalties in the millions of dollars do not necessarily change the practices of all manufacturers. Some manufacturers choose to pay the CAFE penalties rather than comply. Companies will often make that choice for one of two reasons: Either the manufacturer focuses on high-powered sports cars, which means neither the company nor the driver cares about fuel economy, or the manufacturer is struggling to improve their economy and they have to pay the penalty in order to sell their cars. Ferrari is an excellent example of a manufacturer who doesn’t care; Chrysler is one company that has struggled.

Fuel Efficiency Standards

Fuel Economy and Vehicle Size

Because the CAFE standards are regulated across a manufacturer’s entire model line, establishing minimum fuel economy standards is not as simple as requiring every vehicle to meet the same mileage target. It would be impossible to require a heavy-duty pickup truck to get the same mileage as a subcompact car.

This is why CAFE standards are determined based upon a vehicle “footprint”: a measurement of the vehicle’s size calculated by multiplying the wheelbase of the vehicle by its average track width. For example, the subcompact Honda Fit has a footprint of 40 square feet, while the Ford F-150 pickup truck has a footprint between 65 and 75 square feet, depending on the particular model.

Averaging Fuel Economy Across a Fleet

Manufacturers are able to average out their fuel economy between their largest and smallest footprint vehicles. When the Obama administration declared that manufacturers must offer 54.5 miles per gallon in 2025, that is the average economy between all of the models of a particular manufacturer. This means that extremely fuel-efficient smaller cars can offset the poor economy of larger vehicles and trucks in the model year lineup.

The fact that the CAFE standards are based upon averages does offer manufacturers one easy way to improve their numbers, particularly if they are a small company: Add a high MPG car to the lineup simply to improve the average fuel economy for the entire fleet. This method for complying has already been used by car manufacturers elsewhere in the world.

For example, in England, the manufacturer Aston Martin – which is known for its sports and grand touring cars – was concerned about its ability to meet European Union regulations regarding emissions. Since those regulations are also based upon a manufacturer’s average, Aston Martin decided to buy, slightly modify, and rebadge the Toyota iQ – a subcompact car with very low emissions – in order to bring the average of their entire fleet down.

While there may be nothing wrong with an auto manufacturer skewing its numbers in such a way, it does mean that individual drivers will not necessarily see the mileage they may have thought was required by the government.

Why Your MPG Doesn’t Match the Sticker

Even if you purchase a high fuel-economy car, you may not achieve the MPG listed on the sticker. The average car buyer looks at the MPG listed on a window sticker and assumes that he or she will see that kind of fuel economy through normal driving patterns. However, the metrics used to determine a vehicle’s fuel economy are fairly complex, and there is a very good reason why car manufacturers cover themselves by saying “Your mileage may vary.”

Figuring out a vehicle’s fuel efficiency starts with driving patterns provided by the EPA, which reflect average driving both in the city and on the highway. Manufacturers use the information in order to test their vehicles’ efficiency. But the patterns used by the tests do not necessarily mimic real-world driving situations. For example, air conditioner usage, higher speeds, faster acceleration, and colder outside temperatures were not included in CAFE MPG testing until 2008.

However, even with these 2008 additions, the fuel efficiency that a vehicle can earn in testing conditions does not necessarily reflect an average driver’s MPG. A large part of this has to do with the fact that the manufacturers can and do engineer their vehicles to do well on the tests. It is nearly impossible to drive any individual car in the same patterns that the fuel economy tests are looking for, even if the average driver knew exactly what those patterns were.

While it may seem a little shady for auto manufacturers to “engineer to the test,” it’s important to remember that this is the only efficient method for determining fuel economy. Manufacturers would be foolish not to use their knowledge of the tests in order to maximize their MPG numbers – and they have no other way of determining fuel efficiency. Ultimately, the tests are imperfect yet necessary, but they are a big part of the reason why you may be filling up more often than the listed MPG would lead you to believe.

Fuel Economy Balance

Fuel Economy and Balance

As important as the CAFE standards are for improving the overall fuel economy of the nation’s fleet of cars, focusing solely on MPG is not without pitfalls. Americans across the political spectrum tend to agree that we need to reduce our foreign oil dependence and usage. According to a 2007 Pew Charitable Trusts survey, 86% of voters believe that the auto industry should be required to improve fuel efficiency.

The problem is that fuel efficiency is tied to the overall performance of the car, and many drivers tend to forget that MPG cannot be improved in a vacuum. Ultimately, focusing on the fuel efficiency of our cars overlooks something very important: In order to increase MPG, car manufacturers must give up other things that drivers want.


For example, one surefire way to make a car more efficient is to make it lighter. Less weight means the engine has to use less energy in order to accelerate and maintain speed. However, there is a correlation between lighter cars and higher traffic fatalities, according to a 2003 National Highway Traffic Safety Administration (NHTSA) report. The NHTSA compared fatality rates per billion miles between ’90s-era vehicles of similar types but differing overall vehicle weight. This report looked at the effect of 100-pound vehicle weight reductions on fatality rates, and concluded that traffic fatalities tend to go up as car weights go down.

While innovations in safety mechanisms have made compact and subcompact cars of the 2000s much safer than the ’90s counterparts that the NHTSA report examines, it does not change the fact that reducing weight on a car both increases its fuel efficiency and potentially decreases its safety – at least in comparison to a heavier vehicle. In the quest for better fuel efficiency, consumers may need to be prepared to reach a point wherein they are willing to accept slightly worse MPG in exchange for safety.


Drivers do not want to give up the features they have grown accustomed to. Even though no one would have considered placing a television screen in the backseat of a minivan as recently as 15 years ago, it is now considered an important selling feature for many vehicles. Similarly, automatic locks, powered seats, and automatic doors – as well as GPS navigation systems, rear-view cameras, and automatic braking systems – are all features that consumers do not want to drive without.

The problem with these features is that every one of them adds both weight and complexity to the car’s design, making it more difficult for engineers to find ways to squeeze out more miles per gallon. Drivers can keep all of their favorite features and improve their gas mileage, but it will take a toll somewhere – usually in purchase price.


With everything that consumers want from their cars, it is costing manufacturers more in order to put each car on the road. Not only do they have to pay engineers to figure out where more efficiency can be found, but they are also investing in lighter-weight materials and developing advanced propulsion technologies. All of this costs money and takes time.

For that reason, consumers need to be prepared to see the cost of cars rise above that of inflation over the next decade. American drivers are already experiencing automobile sticker shock, as the recession hit American auto manufacturers hard and reduced both supply and demand for new cars. Add in the required innovations for fuel efficiency (as well as safety and emissions, since engineers are working around all of these regulations), and it is likely the car prices will continue to rise.

Cars Environmental Concerns

Other Environmental Concerns

In the quest for lower fuel consumption, we can sometimes ignore the additional environmental impact that alternative technology offers. For example, hybrid cars have often been touted as a great short-term solution for our fuel woes. However, hybrids run on batteries in order to improve their gas mileage – usually either nickel metal hydride batteries or lithium ion batteries. While it is certainly true that driving a hybrid car reduces your specific consumption of fossil fuel, it does not necessarily reduce your carbon footprint.

Mining the metals necessary to create these batteries is expensive and fairly arduous. Then, the raw materials must be transported to the plant where the batteries are manufactured, and then transported again to the car manufacturing plant. Not only does all of this additional work add to the price of your hybrid car, it also has an environmental cost.

According to the technology research consultant Ricardo in a 2011 study created for and in collaboration with the Low Carbon Vehicle Partnership, hybrid vehicles do have a slight edge over standard vehicles in carbon emission, with 21 tons of CO2 emitted over the lifetime of the car versus 24. But 31% of their emissions occur in production, before the car has been driven a single mile, as opposed to 23% for a standard vehicle. If a hybrid car is driven for many years, the total environmental cost is lower, but not all cars make it through a “lifetime” of driving. With their larger front-end carbon footprint, hybrid cars have to drive for some time before they reach (and then surpass) the footprint of a standard car.

While driving a hybrid car may somewhat reduce your personal dependence on oil and help you save money on gas, it is not necessarily a better environmental choice, nor will it solve America’s energy crisis. It is simply exchanging one specific consumption problem with a different one. Ultimately, driving a hybrid car and driving a standard car both contribute to America’s overall carbon footprint. The environment will pay the cost, regardless, whether that cost is primarily paid in manufacturing or driving the vehicle.

Final Word

The CAFE standards offer both an excellent incentive for manufacturers to improve efficiency and a good method for America as a whole to reduce its fuel consumption. However, owing to the necessary complexity of any standards levied across a market as large as the automotive industry, CAFE is neither the solution to all of our problems, nor as sweeping as the sound bites may make it sound. There are limits to what engineering can do to improve the internal combustion engine – and those limits mean that consumers will have to make difficult trade-offs in search for higher and higher MPG.

What are your thoughts on the CAFE standards for auto manufacturers?

Emily Guy Birken is a writer, recovering English teacher, and stay-at-home-mom. She lives in Lafayette, Indiana, with her mechanical engineer husband and toddler son. Her musings on life and parenting can be found at The SAHMnambulist.