Back in 1975, U.S. Congress enacted something called Corporate Average Fuel Economy or CAFE, as a way to improve the average fuel economy of cars and trucks that are produced for the United States. It was originally enacted as a response to the Arab Oil Embargo, but has remained intact ever since and has become increasingly troublesome for auto manufacturers. There’s a lot of technical lingo to explain what CAFE is in detail, but it is basically a system requires a manufacturer’s entire U.S. lineup (all cars below a GVRW or 8,500 pounds, that is) to meet a certain average fuel economy. When automakers can’t meet the set standard, they are fined for each 0.1 mpg it falls short.
The set standard increases every year, with the goal calling for each manufacturer to have a fleet-wide average of 54.5 mpg by the 2025 model year. So far, manufacturers have been struggling to hit their required targets, amassing fines in the millions for non-compliance. According to the NHTSA, the totals from 2010 to 2014 are insane, with Jaguar Land Rover paying more than $46 million, Daimler paying more than $28 million, and Volvo paying more than $17 million. But, it’s about to get worse.
The current fine for non-compliance is $5.50 per each tenth of mpg an automaker falls short. That is about to change drastically, however, as the NHTSA has just increased the amount of the fine from $5.50 up to a staggering $14 per 0.1 mpg automakers fall short – that’s an increase of $8.50 per tenth. Think about that for a minute. From 2010 to 2014 Jaguar Land Rover paid out $46.2 million. At $14 per tenth Jaguar fell short, it would have paid out $117,600,000. That’s big money. So what does this mean for the auto industry? Well, it means more than you might think, and could already be hitting automakers in a huge way.
Keep reading to find out about that.
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