Fuel Economy Standards 2007

Reacting to the 1973-4 Arab oil embargo, Congress enacted a Corporate Average Fuel Economy (CAFE) system in 1975 that required an increase in automobile fuel economy from 14.2 miles per gallon in 1974 to 27.5 mpg in 1984. Since that time, Congress had made no changes to CAFÉ, with efforts in 1990 and 2002 both failing. By 2007, however, circumstances had changed significantly enough that Congress was poised to enact a 40 percent increase in required fuel efficiency. Although the automobile industry had initially opposed any major increase, the seemingly inevitable increase convinced to industry to instead focus on details of the pending legislation and how to influence those details. This case explores the response of the auto industry to the pending fuel efficiency increases, setting up an evaluation of the industry’s strategy to help craft the legislation.