CAFE Standards

In David Kelly's article on auto beat, he writes about the Presidents March 26th meeting with Ford, GM and Chrysler's CEOs. In this meeting fuel economy and alternative fuels were discussed. This meeting side skirted the issue of raising CAFE standards which I feel was a good thing. I am an advocate of higher fuel economy but I feel that government mandated economy standards, while good and necessary, are not the best solution to Americas fuel efficiency problems.

The Corporate Average Fuel Economy standards are just that, an average of all models sold by a manufacturer. Some models are lower than the average and a penalty is assessed and others are higher where credits may be earned. If the auto manufactures are forced to increase their average fuel economy, they will be forced to produce cars that get more miles per gallon. But that does not mean that the public will necessarily want to buy those models. If the public wants the less fuel efficient vehicles, the modest penalty of $55 per mpg under the CAFE standard of 27.5 mpg will just be tacked on to the cost of the car. The reason why I agree with David Kelly on this issue is that he advocates a demand side way of fixing the fuel economy problem, if the price of gas is more expensive, the public will buy more efficient vehicles. In this scenario an income tax credit will be given to help offset the increased cost to lower income families.