Car Lovers Rejoice! After 50 Miserable Years, CAFE Standards Are Dead

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One of the most important provisions in the One Big Beautiful Bill has gone completely unnoticed, but promises to make the auto industry great again.

For 50 years, the federal government has been forcing fuel economy standards on auto companies. If the average fuel economy of the cars sold in a year exceeded a federal standard, the companies had to cough up enormous penalties.

Passed in 1975 as a way to deal with an energy crisis (that was caused by government price controls), “corporate average fuel economy” (CAFE) standards – required the fleet of cars sold by an automaker to achieve an arbitrary miles-per-gallon goal. If they missed the goal, they paid hefty annual fines.

From the beginning, these standards were a disaster, forcing automakers to radically downsize their fleet, which research showed cost thousands of lives because, all things being equal, smaller, lighter cars are less safe than larger ones.

In fact, a 2002 National Academy of Sciences found that these fuel economy standards not only boosted the cost of cars, but may have caused as many as 2,600 more traffic fatalities just in 1993.

The standards, which were ratcheted up year after year, also wildly distorted the car market. To meet them, automakers had to sell more small cars than consumers wanted to buy, which meant heavily discounting them, and then making the cost up by jacking up prices on the bigger cars most buyers wanted or needed. Carmakers routinely paid extravagant fines for failing to meet the standards. Last year, Chryster had to write a check to Uncle Sam for more than $190 million.

And because the government set tighter standards for passenger cars than light trucks, the industry responded by killing station wagons and replacing them with gas-hogging minivans and SUVs – negating much of the fuel savings the CAFE standards were supposed to produce.

Worse, while Republican administrations would sometimes try to dial the mandate back, Democrats would crank them up. Obama imposed a fuel economy mandate that was supposed to hit 54.5 mpg for cars and light-duty trucks by 2025, which, as we pointed out in the pages of Investor’s Business Daily at the time, was designed to force EVs onto the market, because even compact hybrid cars can’t get that kind of mileage.

In this first term, Trump rolled the standard back a bit, only to have Joe Biden come in and impose standards specifically designed to force most cars sold to be electric. The standards would have cost automakers billions in fines for failing to meet the fuel-economy targets.

This time around, Trump is again planning to roll the CAFE standards back. But Congress did him one better. Rather than wait for regulators to rewrite the rule, which can take years and be subject be endless lobbying and litigation from various interest groups – lawmakers simply zeroed out the penalty as part of the One Big Beautiful Bill.

Now, if a car company sells cars that, on average, exceed whatever the fuel-economy limit is technically in force in a given year, they pay… nothing. The mandate is still in place, but the penalty is now $0.00. (Republicans pulled off the same trick with the dreaded Obamacare insurance mandate — zeroing out the penalty rather than trying to get the mandate repealed.)

Yet, despite this breakthrough, the death of CAFE got no coverage – as in zero – from the mainstream press, which was too busy trying to find birthday cards that Donald Trump allegedly sent to Jeffrey Epstein.

But automakers noticed. As one car enthusiast noted on Instagram: “The immediate industry response proves how quickly things can change when regulations lose their bite. Stellantis just brought its legendary Hemi V8 engines ‘back from exile’ and announced the return of its SRT speed shop, famous for cranking V8s to extreme power levels. This marks a dramatic reversal of the downsizing trend that saw turbocharged 4-cylinder engines replace V6 powerplants across midsize cars, SUVs, and even large pickups over the past decade.⁠”

Environmentalist scolds and Democratic socialists won’t be happy with this turn of events, and Trump still needs to officially end the federal CAFE mandate. But, car buyers should rejoice because consumers, not faceless bureaucrats, will once again be in the driver’s seat.

The death of CAFE could very well signal the rebirth of the U.S. auto industry.

— Written by the I&I Editorial Board