The minimum fuel efficiency standard for a car manufactures fleet of cars is set by CAFE (Corporate Average Fuel Economy). First created in the late 1970's, this standard was 27.5 mpg.

Falling below this standard results in fines. Some high end manufacturers like Lanborghini and BMW don't mind these fines as their high prices can absorb it. For most major car producers these fines are very significant and avoid them like the plague. With no change in the 27 mpg standard it was easy for them to achieve this for many years.

American automakers successfully lobbied to keep this 27 mpg standard from increasing for nearly 30 years. Publicly they argued raising it would be bad for their business as the gas guzzlers have higher profit margins than smaller, thrifty fuel efficient cars and hybrids. Despite decreasing market share and massive layoffs for the last 10 years they (Ford, GM, Chrysler) still lobby against increases to CAFE, although this year they did push for a 30 mpg standard by 2020 after hearing about even higher proposed standards.

In light of Toyota's and Honda's tremendous sales success with fuel efficient cars the public and federal politicians have largely begun to disagree with Detroit's point of view and to the automakers surprise the Senate actually passed a bill in June 2007 to increase the CAFE standard to 35 mpg by 2020. far higher than automakers wanted it.

To become law the bill now needs to pass in the Senate, which has a large democratic majority and perhaps it's strongest support. House Speaker Nancy Pelosi (D-Calif.) has already voiced her support and suggested it will pass any week now.

While years of decreasing sales and market share to Toyota and Honda did not convince Detroit to seriously start producing fuel efficient vehicles this bill will now force them. I wonder if the employees of the Big 3 are relieved by this legislation passing or object like their executive leaders? Maybe it will actually stop the bleeding (layoffs) and their stock prices can increase for another reason besides downsizing.

While not a big 2008 presidential issue at least one candidate proposed an even greater CAFE update. Democratic Senator Christopher Dodd proposed increasing the standard to 50 mpg by 2017. He also proposed making the entire federal fleet of cars fuel efficient. With a customer of that size demanding these cars imagine how fast they would develop.

The bill will also provide for grants and loans for companies to develop technologies to meet the new standards. With 13 years to meet the new standards even the Big 3 should be able to adjust in time.

I expect 40+ mpg now in any new car for a reasonable price. Anything under 30mpg is considered poor by today's standards, by 2020 it will hopefully by a joke. I can see teenagers of 2020 listening to parents talk of their old cars getting 27mpg, they'll just shake their head and laugh in amazement, and maybe ask how was it possible to produce a car that gets less than 100mpg.

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I wonder how top executives will adjust to pleasing shareholders by making popular cars rather than laying people off.