By on July 18, 2011


If you asked an auto industry lobbyist, say, a month ago, what the big fights were over in CAFE negotiations, he probably wouldn’t have said “the number.” In the parlance of the Potomac valley, that means everyone at the table knows that at some point they’re all going to join hands and sing kumbaya over one highly symbolic number. Not surprisingly, the numbers that everyone in DC has been looking at fall right in the middle of these four scenarios… not coincidentally the tipping point where hybrids swing from a quarter to nearly half the market. But are these WSJ [sub] charts even accurate? John Krafcik, CEO of Hyundai Motor America and the industry’s CAFE contrarian implies that it’s not for everyone, telling Automotive News [sub] that

Honestly, our focus isn’t on hybrid. Our focus is on optimizing internal combustion and getting as many fuel-efficient vehicles out there, across the lineup. That’s the way you do it. If you look at the math, if you look at how CAFE math works, volume trumps everything.

But then Krafcik oversees a brand that doesn’t just sell lots of high-efficiency cars, it sells very few pickups… resulting in a sales-weighted fleet fuel economy 35.7 MPG in the first half of this year (as calculated by Hyundai). Did we mention that the 2016 passenger car standard is 37.8 MPG, at which time it figures its non-hybrid Elantra will get 50 MPG combined on the CAFE test? And nobody can look at Hyundai’s six-month sales performance (up 26%) and argue that Americans don’t want to buy fuel-efficient cars. In short, Hyundai is proving that automakers who can make money selling appealing, fuel-efficient cars need not binge on hybrids Even, according to the EPA’s final rule on standards through 2016, for manufacturers trying to sell as many pickups as possible.

GM had apparently opposed the round of emissions standards through 2016, and the EPA’s final rule [PDF] makes an example of The General, noting

GM recommended that the agencies relax stringency specifically for large pickups, such as the Silverado… The agencies disagree with the premise of the comment that the standard is too stringent under the applicable statutory provisions because some existing large trucks are not already meeting a later model year standard. Our analysis shows that the standards are not too stringent for manufacturers selling these vehicles. The agencies’ analyses demonstrate a means by which manufacturers could apply cost-effective technologies in order to achieve the standards, and we have provided adequate lead time for the technology to be applied. More important, the agencies’ analysis demonstrate that the fleetwide emission standards for MY 2016 are technically feasible, for example by implementing technologies such as engine downsizing, turbocharging, direct injection, improving accessories and tire rolling resistance, etc.

First, GM’s argument incorrectly suggests that every individual vehicle model must achieve its fuel economy and emissions targets. CAFE standards and new GHG emissions standards apply to fleetwide average performance, not model-specific performance, even though average required levels are based on average model-specific targets, and the agencies’ analysis demonstrates that GM and other manufacturers of large trucks can cost-effectively comply with the new standards.

Second, GM implies that every manufacturer must be challenged equally with respect to fuel economy and emissions. Although NHTSA and EPA maintain that attribute-based CAFE and GHG emissions standards can more evenly balance compliance challenges, attribute-based standards are not intended to and cannot make these challenges equal, and while the agencies are mindful of the potential impacts of the standards on the relative competitiveness of different vehicle manufacturers, there is nothing in EPCA or the CAA81requiring that these challenges be equal.

We have also already addressed and rejected GM’s suggestion of shifting the ‘‘cut off’’ point for light trucks from 66 square feet to 72 square feet, thereby “dropping the floor’’ of the target function for light trucks. As discussed in the preceding section, this is so as not to forego the rules’ energy and burdensome for light trucks as compared to passenger cars. Based on the agencies’ market forecast, NHTSA’s analysis indicates that incremental technology outlays could, on average, be comparable for passenger cars and light trucks under the final CAFE standards, and further indicates that the ratio of total benefits to total costs could be

So CAFE is set up to be achievable with fuel-efficient non-hybrids and to be achievable with pickup trucks… so why does the WSJ and the auto lobby insist (using EPA data) that hybrids and plug-ins will take over the market depending on where “the number” ends up? Not because of market reaction to “the number,” but because CAFE includes special incentives for things like flex-fuel vehicles and (wait for it) hybrids and plug-ins. How does it do it? By counting EVs, FCVs and PHEVs (when running on grid power) as creating zero grams of C02 per mile driven, even though the EPA acknowledges

The zero grams/mile compliance value for EVs (and for PHEVs when operated on grid electricity, as well as for FCVs which involve similar upstream GHG issues with respect to hydrogen production) is an incentive that operates like a credit because, while it accurately accounts for tailpipe GHG emissions, it does not reflect the increase in upstream GHG emissions associated with the electricity used by EVs compared to the upstream GHG emissions associated with the gasoline or diesel fuel used by conventional vehicles.EPA explained in the proposal that the potential for large future emissions benefits from these technologies provides a strong reason for providing incentives at this time to promote their commercialization in the 2012–2016 model years. At the same time, EPA acknowledged that the zero grams/mile compliance value did not account for increased upstream GHG emissions.

Combine that incentive with another new feature:

the new program enables manufacturers to transfer credits between the two averaging sets, passenger cars and trucks, within a manufacturer. For example, credits accrued by over-compliance with a manufacturer’s car fleet average standard may be used to offset debits accrued due to that manufacturer’s not meeting the truck fleet average standard in a given year. EPA believes that such cross-category use of credits by a manufacturer provides important additional flexibility in the transition to emissions control technology without affecting overall emission reductions.standards.

And you’ve got a formula for CAFE compliance success: over-comply on cars by going big on expensive hybrid technology and you can swap the credits over to your truck fleet. Then you get to keep trucks cheap ‘n thirsty while complaining that the government’s awful regulations forced you to jack up prices on cars by “mandating” hybrid technology (or the even better-incentivized “zero emission” EV/FCV technology). And as gas prices get more expensive, the car buyers will have little choice but to suck it up and fork over for the hordes of “necessary” hybrids… or at least they would if Hyundai weren’t stepping off of the regulatory primrose path to ruin, and showing that another way is possible. In a lot of ways it’s not unlike the first-ever round of CAFE, in which Detroit overcompensated for its land yacht indulgences with disastrous results, and had its lunch eaten by the Japanese in the decades following. Let’s hope that Hyundai isn’t the only firm that’s learned from that history.

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26 Comments on “Does CAFE Doom Us To A Hybrid Future? Not Necessarily…...”

  • avatar

    Splendid analysis, Ed. Will be entertaining to watch this unfold. Your scenario doesn’t really help feed the GM/BHO conspiracy theories, unfortunately. But maybe sinister globalist overtones will creep into the discussion. Let the ranting begin!

  • avatar

    Great article, showing how the sausage is made.

    I remember the wailing and gnashing of teeth at Car and Driver when airbags appeared: “Why do we need these exploding whoopee cushions in our cars just because some people won’t wear seat belts?” Now manufactures brag about the number of airbags in their cars. The automobile and truck markets have always been subsidized (free roads, low gas tax, oil depletion allowance) and regulated (a man with a flag walking in front of each horseless carriage, state registration, vehicle taxes, CAFE, mandatory seat belts) and always will be. We’re just negotiating the details. They’ll probably be an SCCA Prius class of racing in a few years.

    • 0 avatar

      “free roads” subsidized? Paid for by my taxes, thanks.

      “Low gas tax” a subsidy? Since when does not taxing something more equal a subsidy? Are we subsidizing you because we don’t take more of your income through a tax? At what tax level, exactly, are we no longer subsidizing you? 50%? 75% 100%

      “oil depletion” a subsidy? Oh yes, again with the same story about reducing taxes on a resource that I already own being a ‘subsidy’.

      You’re correct about regulations. There will always be a bunch of people with no skills, completely unable to add any value to humanity who will hold productive people hostage, extorting a living from the rest of us as government employees under the guise of providing “health and safety”.

  • avatar

    Nice work Ed – I agree with most of it except that I think work trucks should be handled differently to cars. Maybe a new vehicle category should be created for commercial light trucks defined in such a way as to keep all recreational vehicles out (no leather, no alloy rims, no luxuries) which should have its own average fuel economy targets. The rest of the recreational trucks and luxury SUVs should be bundled in with the cars to meet the average fuel economy standard. That way businesses are not punished while at the same time discouraging the domestics addiction to high margin recreational trucks and SUVs.

    • 0 avatar

      Again with the complaints about people exercising their freedom of choice. Trucks and SUVs are legal so just embrace diversity.

    • 0 avatar

      carguy: much of what you say makes a lot of sense. For real working trucks, the ability to do the job and last a long time are more important than mileage alone. So having a standard for real beasts of burden that is separate and looser than that for passenger vehicles makes sense and is reasonable. I do agree that a mechanism needs to be in place to prevent those trucks that are just commuters to be blocked out of the lower standard and should be rolled in with other passenger cars. This should be a compromise that the automakers can live with, considering there are those who feel all pickups should be mixed in with all cars. That makes little sense to me.

      BTW, a hybrid is hardly doom and gloom. Sub 8 second zero to 60 is pretty damn good when returning 33 mpg. The only real negative is all the computer controlled dullness that the electronics impart to the driving experience. Can’t blame hybrids for that; most new cars are saddled with that problem.

    • 0 avatar

      Require a speed limiter in a work truck. How many leather “work trucks” would be sold if the maximum speed you could drive it was 65 miles per hour?

    • 0 avatar
      bumpy ii

      Why should “work” trucks get a free pass on being wasteful? There’s no objective difference between driving the kids to school or towing a boat to the lake in an F150 and throwing some weedeaters in the bed and pulling a flat trailer with two riding mowers with that same F150.

      Targeting behavior with CAFE is a fool’s errand; simplest way is to set the CAFE exemption at the weight class that requires a CDL.

      • 0 avatar

        I see your point, and it is definitely worth taking into consideration, but one could perhaps counter by claiming that you can equally well drive the kids or tow a boat in a car, wagon, or SUV (assuming it has the capacity, of course), whereas a pickup is likely the better choice for weedeaters, tools, gravel, an ATV, and so on. Still, one would have to make the case as you say, and it may well end up being too grey to do so well enough to justify the distinction.

  • avatar

    Simple question – why SHOULDN’T we have a choice to overindulge in land yachts?

    • 0 avatar

      What about me? What about me? (Kind of reminds me of the gulls in “Finding Nemo.” “Mine! Mine! Mine! Mine! Mine…”)

      While ‘me’ and ‘mine’ are no doubt of vital importance, there are times when we have to remind ourselves that not everything is about ‘me’. The political, social and environmental issues associated with things like automobile emissions sometimes require placing a limit on our choices. Either we limit ourselves (self-regulation) or we have our choices limited by some external authority (government regulation). Just as there are limits restricting the use of leaded gasoline or having noisy, untreated exhaust shooting out directly from the engine manifold, so too there may be reasonable justifications for placing other kinds of limits on vehicle choices.

      Of course, I would add that political decisions about such things should be made democratically and on reasonably good information, but if there are good reasons for setting limits upon our choices then as democratic citizens we should acknowledge those reasons and be willing to accept and act upon them (even if it means that I sometimes can’t do all the things I might otherwise want to do–like directing all my overindulgent exhaust into my neighbor’s yard).

      • 0 avatar

        In short, blah, blah, blah. Your words are the same tired old cliches used by every wannabe tyrant since time immemorial to justify their actions. Actually that’s not true, the actual tyrants just do it. Their Wormtongues use those words as excuses for the tyrants in hopes that they will be the last to have every freedom taken away. It must infuriate you that people aren’t ants and work every minute for the collective doesn’t it? People are individuals, each one different from the other. You aren’t qualified to think that you can make choices for me or anyone else, so give up.

      • 0 avatar

        I never said that I wanted to set your choices for you, so please stop with the petulant nonsense. I explicitly said (as I keep saying here and you keep ‘choosing’ to ignore) that if such limits are in fact justified (by a careful and rigorous consideration of the evidence) then they should be decided and set democratically. But you, for some reason, seem to resent a truly democratic politics (which likely speaks volumes about your real political position).

      • 0 avatar

        Nope, little slurs about me show exactly where you come from. You, for all your smarts (at least in your mind) you just don’t understand human nature. Collectivization is against human nature and that isn’t going to change. Attacking me as anti-democratic is funny since I want to leave people choices that you want to take away. Understand one thing, you’re not special no matter how much you want to think you are.There is nothing about you that gives you any right to decide what choices others may make. Remember you’re just a Wormtongue and things didn’t work out so well for him.

      • 0 avatar

        MikeAR: “Remember you’re just a Wormtongue and things didn’t work out so well for him.”

        So now you’re threatening me as well? Threats tend to be the last resort of those who have run out of good reasons.

        MikeAR: “Collectivization is against human nature and that isn’t going to change.”

        What’s with this ‘collectivization” nonsense. I support the idea of community, not collectivism.

        You seem to assume (like many, I suppose) that individuality and community are contrary notions. I would argue that this assumption is false and is based upon a purely a priori, deductivist understanding of how the world works (which is why your thinking is enslaved by the highly abstract, polarized dichotomy of singulars vs. collective).

        You have no doubt probably concluded by now that my arguments must be grounded in the works of Marx (or some other neo-Marxist whom you likely equally vilify), but you would be wrong in that as well. My own views on this are actually grounded in the work of the great American philosopher, mathematician and scientist C.S. Peirce, the founder of modern pragmatism and the great proponent of evolutionary metaphysics (a side of Peirce’s work that has been largely ignored or neglected by many popularized, conventional accounts of his work). (I might add that I personally regard Peirce as one of the greatest thinkers who has ever lived, period, but that’s beside the point.

        As for the notion that community goes against human nature, the long history of individuals coming together to form communities is very strong evidence against that claim (but you’ll probably try to explain that away as well).

      • 0 avatar

        Philosophil, don’t start crying about threats. You post your stuff, stand up and defend it. Don’t run crying to your mommy when someone says something that you don’t like. Be a man and take some criticism of your philosophy of collectivism. I have no idea who or where you are and I don’t care, understand that you are nothing to me.

        Your faux-intellectualism is wonderful. Oooh, I know who some great thinker is, I must be as smart as him. Look, the guy was the master of the obvious. People form communites, always hve out of self-interest. When that community no longer is in their best interest, they leave it if they can. An example, the Pilgrims, the community that was England was not one that they wished to be a part of. The problem today is that your kind want to control every community and every group and every action. You’re a bunch of new Puritans deathly afraid that somewhere someone may be living an independent, happy life without your hectoring about the collective good and alll that crap. I can picture you dressed in all black with a permanent scowl looking for evil independent thought wherever it may be found and rushing in to stamp it out.

        It’s not so much that you believe what you do, it’s that you want to impose your beliefs on everyone, everywhere and you’re not happy that the rest of us haven’t found salvation in your philosophy. You remind me of an group that’s been in the news lately, the Taliban. Relax and talk cars for a while, I promise I will if you will.

      • 0 avatar

        I’m more than willing to talk cars, and have been doing so recently for the most part. I was just trying to give a plausible answer to Flybrian’s question about ‘land yachts,’ and saw that my answer also applied to your comment about choice as well. You’re the one who actually first brought politics into the discussion with your reference to “complaints about people exercising their freedom of choice,” as if referencing ‘choice’ was some kind of sacred mantra or something that’s supposed to silence all who would dare to place limits upon it. I simply showed that referencing ‘freedom of choice’ is not some kind of irrefutable argument, and that there are plenty of cases where we are more than justified in restricting certain ‘choices’ (e.g., when such choices may infringe upon the freedom and rights of others).

        And I will add that Peirce was in fact a master of the obvious, but that sometimes it is the most obvious things, the things that we most take for granted, that are hardest to see.

      • 0 avatar

        Once again you are wrong, Carguy made dove into politics by bringing up limiting consumers’ choice in large vehicles. Are politics ok in a post if they happen to be what you agree with? Is that what you think? Agrrement with you, after all, is the only thing possible, everyone else who doesn’t think just like you is wrong, stupid and evil. You make such a big deal about infringing on the rights of others, well look at yourself and tell me what you seem to want to do. Look closely and honestly and what do you see. You use your pure ideology to justify it but you would take away others’ rights gladly to make the utopia that you seem to want.

        I don’t tell anyone how to live their lives, you can’t seem to stop doing that. You want a society of drones because you think you would be in the nomenklatura. You won’t.

        One more point, there is a subset of people around here whose default solution for every problem is to limit choice, limit freedom and force everyone to be just like them. Why is that? Why not embrace choice, diversity and celebrate difference?

      • 0 avatar

        MikeAR: “Why not embrace choice, diversity and celebrate difference?”

        I do! In fact I readily agree that diversity and difference are important elements of a healthy society and generally try to maintain a critical perspective on the homogenizing, anesthetizing effects of modern forms of commercialization and mass production (whether that relates to cars, music, television, art, and so on). I prefer to think for myself rather simply follow what anyone else tells me I should like or should aspire to and so on, and I always encourage others to do the same. Still, I also recognize that there are some areas where conformity may actually be a good thing generally speaking. I think it’s generally a good thing, for example, when most people drive on the correct side of the road, or keep their cars operating safely and with due respect for the safety and health of others. I generally like it when people respect other people’s property as well as their freedom to live their own lives in a relatively safe and healthy social and natural environment.

        You can’t have pure difference or absolute diversity. Difference and diversity have to be accompanied by some sort of shared agreement in what is permissible and what is not. We need to revisit these norms every once in a while of course, to make sure they are doing what they are supposed to do, but without these kinds of shared norms and general agreements life would quickly degrade to a Hobbesian state of nature and the war of each against all.

        As an aside, I assume this means that you’re a big fan of opening up the U.S.’s immigration policy. Good for you!

      • 0 avatar

        While you are debating with Philosophil about freedom of transportation choices, what say you MikeAR about opening the American automotive market to Euro imports so us consumers can have MORE free open-market choices that include more 40+ mpg compacts? How about allowing in any vehicle that is approved for sale in Europe, Japan, Australia, Canada, major markets of South America, etc?

        While you defend the right of Americans to drive large, thirsty vehicles – why not also defend the right of Americans to drive thrifty gas sippers too not currently sold here?

        Where do we draw the line on what we allow on the roads here in the USA? Do we outlaw Chinese cars b/c they don’t pass crash tests? Do we keep out a Lada or some other primitive brand that has dirty exhaust?

        Why does our gov’t keep out the cars from Europe, Japan, and Australia when they pass tests just as rigorous (though slightly different) as the cars currently sold in the USA? Should your free rights to drive a 12 mpg crewcab truck also extend to modern Citroens?

    • 0 avatar

      “Oil imports drove May trade deficit to $50.2B”

      40% paid for with Chinese loans. Your unborn children/grandchildren are already indentured servants, I hope they have strong backs.

  • avatar
    Glenn Mercer

    By “free roads” I think he meant “free to the car companies.” But you are of course right, the taxpayer paid to build them. But (now I sound like an infomercial: “Wait, there’s more!”) I think another hidden cost to the taxpayer, of roads, is not only their construction cost, but the fact that roads do not pay real estate tax. (Two researchers, Delucchi and Murphy, wrote about this.) Look at the street your house is on (okay, I am assuming you live in a house)… now figure out how many houses could have been built on the street itself, and estimate the tax foregone by having a street there. Yeah, I know we have to have roads, so the exercise is theoretical, but you can see how much subsidy we as taxpayers give to roads by exempting them from real estate taxes. Houses, apartments, parking lots, offices, factories, etc. all pay.. but not roads. Every time a road is built the amount of taxable land goes down and the burden on real estate owners, everything else being equal, goes up.

  • avatar


    Time for revolution. Time to put an end to the central powers nonesense. No, they’re not smarter than any of the rest of us, and they don’t know what’s good for us.

    Markets are wonderful tools for fixing problems. The government is a wonderful tool for causing them.

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