Editorial: Here's A Four Letter Word For CAFE: "WFIO"

In Silicon Valley tech parlance, the acronym “ WFIO” stands for “We’re F***ed, It’s Over“. When it comes to the Corporate Average Fuel Economy requirements imposed by the Obama administration in 2012, it’s increasingly looking like that scenario is playing out, as the “nudge” meant to get consumers into more fuel efficient cars has given way to increased purchasing of trucks and SUVs.

On the one hand, CAFE standards have led to some truly astounding innovation. Without it, we’d have never seen a 700 horsepower muscle car capable of hitting low 20 mpg figures on the highway.

But that doesn’t outweigh the rest of CAFE’s negative points. In theory, CAFE is ostensibly a series of regulations design to raise the fuel economy of new vehicles sold in the United States. In practice, it is a farce. Vehicles like pickup trucks, which are most in need of increased fuel efficiency, are either exempted outright, or subject to lax standards. On the other hand, small passenger cars, which already tend to be efficient, must meet extremely stringent targets that is expected to make them significantly expensive in coming years, further diminishing their affordability for consumers and their profitability for auto makers.

Some observers suggest that this is intentional: Detroit auto makers make literally all of their money on large trucks and SUVs, while import manufacturers do so with smaller passenger cars. The current setup favors the home team while hamstringing the import brands. There are other incentives that are equally perverse, like allowing small cars to be re-classified as “light trucks” to help shore up the auto maker’s fleet average (their main target), as well as endless loopholes, credits and other instruments that allow car companies to game the system – and in Tesla’s case, keep themselves afloat while they struggle to remain profitable. The rise in turbocharged engines is also directly attributable to CAFE. These engines essentially “teach to the test”, performing well on fuel economy tests but providing abysmal real world mileage.

Even much of the auto world’s current styling trends are driven by CAFE. It’s no coincidence that every sedan on the market has adopted the “reverse teardrop” shape. It’s the most shape most amenable to enhanced fuel economy, and helps compensate for the high, blunt front ends that are required to meet crash safety standards.

It’s not hard to make the case for CAFE being, at best a poorly crafted bit of big government legislation and at worst an outright scam. There have been rumblings about a review in later years, especially if a GOP administration occupies the White House in 2016. But it’s looking like the marketplace may do the heavy lifting.

Low gas prices and a nascent economic recovery (as well as rather lax auto lending practices among many auto makers) has led to a boom in new vehicle sales. Pickup trucks and SUVs have been leading the way, in a marked reversal from the 2008-2012 period where sales of gas guzzlers trailed off and consumers demanded smaller, more fuel efficient vehicles. To their credit, auto makers responded with unconventional speed, providing a host of compact cars capable of previously unheard of levels of fuel efficiency at competitive prices.

Unfortunately, they haven’t always been met with such a warm reception. The highly acclaimed Ford Fiesta was brought out in response to the economic crisis of 2008, when oil shot up to $147 a barrel. But sales have consistently disappointed and the car has been a money-loser for Ford, even though it’s built in Mexico. The next generation will be imported from Thailand in a bid to make the car less of a hit to Ford’s bottom line.

On the other hand, Ford’s F-Series, GM’s four pickup trucks and the new lineup of Ram trucks have all been enjoying strong sales. Pickups, CUVs and SUVs are replacing mid-size sedans as the American family hauler of choice. At the same time, hybrid vehicles, electric vehicles and diesel engines are marginal players in the automotive market, thanks to their relative expensive, lack of economic payback and a significant move downward in gas prices. It all adds up to a massive, consumer driven middle finger to the entire CAFE regime.

Publicly, the people behind CAFE are on board. One Department of Transportation official promised to incorporate the current state of the market in the scheduled CAFE review that is currently underway. The same official said that the target is “not solid ground”. But despite the consumer friendly words, CAFE has consistently shown a bias towards top down, technocratic solutions that are designed with the legislator and the auto maker in mind.

If the bureaucrats behind CAFE are having a “WFIO” moment, then we ought to help, erm, nudge them towards a good decision for all of us. We don’t need to scrap CAFE – after all, we wouldn’t have the SRT Hellcat without it – but we do need a radical rethink of the way we measure fuel economy standards, both in terms of individual vehicle tests and a fleet average. Like the often-proposed simplified tax code, there should be a minimum amount of loopholes and credits, and an enhanced emphasis on transparency.