Corporate Average Fuel Economy

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					Corporate Average Fuel Economy


      The foreshadowed Market Failures of the mid 1970's gave way to
Corporate Average Fuel Economy, regulation which would call for new
standards in automobile fuel efficiency. The market failures hinged on a
number of outside variables which could have had a drastic effect on
domestic markets.

      --> Resource Scarcity drove the American public to call for a more
efficient        means of managing its resource use due to a) oil
embargos on non-domestic          products and b) skyhigh prices at the
pump.

      --> Conservation of the world's non-renewable resources cams to the
foreground       with a) higher pump prices and b) forecasted resource
expenditure before the            year 2000.

***   With Corporate Average Fuel Economy in place the market failures
should be partially alleviated and pressures due to restricted
international resources should     subside. The regulated fuel efficiency
should allow the market to resume its    national flow and regain
stability without further manipulation.

      --> Reliance on imported fuels would be minimized because of the a)
decreased        demand for fuel consumption and b) lowered fuel demand
allowed for domestic        producers to meet the basic needs of the
public.

      --> Maximum fuel efficiency would a) cut the amount of fuel
consumption thus      nullifying high pump prices and b) raise the level
of conservation by lowering       the amount consumed.

      Although the intentions of Corporate Average Fuel Economy in the
1970's was thought to be a cure-all but, over the long run it has turned
out to be a flop. The variables on which it was based, turned out to be
almost exactly opposite.

      --> Lower Gas Prices have a) caused the public to simply use more
fuel, b) drive        more frequently due to less fuel consumption and c)
look beyond fuel economy          when in the market for a new vehicle.

      --> Quality Depletion of the total domestic car fleet due to
special attention to        only the fuel economy while ignoring: 1)
performance, 2) acceleration and             3) handling.



***   With CAFE becoming a long-term flop, in its first years it did have
its benefits.    Both the public sector and the private interests gained
from the regulation in the   beginning.
      --> Public Interests gained from this legislation due to a) to
ability to get more         mile for their buck, b) increased (initial)
conservation and c) higher standard of       living through the money
which was saved in fuel costs.

      --> Private Interests were kept happy by a) the "credits" earned by
each             manufacturer when standards were exceeded before set
deadlines and b) no         new taxation on the fuel industry to
alleviate to e conservation problem.

      CAFE could have had a very successful outcome if the original
variables of fuel costs, resource availability and resource stability
would have continued on the path they were taking. Because of changes in
each of these variables CAFE did not have the resources to remain a
successful regulation. CAFE did help to improve the energy efficiency of
motor vehicles, but due to short-comings in the regulation other aspects
were allowed to slip away and actually decline improvements.

      --> The Uniformity of Corporate Average Fuel Economy did not allow
for any          outside manipulation of the problem at hand, thus only
allowing for a one          dimensional view of the fuel economy
standards.

      --> CAFE Separated the standards for both cars and trucks therefore
a) resource           conservation was limited to only the car fleet and
b) depletion of automobile        quality.

      -->With Lower Fuel Costs the consumer a) actually consumed more
fuel because          of the cheaper price and b) when in the market for
a new automobile they       began to look for other features besides fuel
economy: 1) size, 2) reliability and         3) performance.

***   In conclusion, I believe that if the initial concept of the CAFE
policy would have      been modified only slightly, to encompass small
changes in the market place, it    could have had a more beneficial
outcome. CAFE originally was a good concept for both the consumer and
the industry, but because of its downfalls it became a    hindrance to the
automobile industry.