The foreshadowed Market Failures of the mid 1970's gave way to Corporate Average Fuel Economy, regulation which would call for new standards in automobile fuel efficiency. The market failures hinged on a number of outside variables which could have had a drastic effect on domestic markets.

--> Resource Scarcity drove the American public to call for a more efficient means of managing its resource use due to a) oil embargos on non-domestic products and b) skyhigh prices at the pump.

--> Conservation of the world's non-renewable resources cams to the foreground with a) higher pump prices and b) forecasted resource expenditure before the year 2000.

*** With Corporate Average Fuel Economy in place the market failures should be partially alleviated and pressures due to restricted international resources should subside. The regulated fuel efficiency should allow the market to resume its national flow and regain stability without further manipulation.

--> Reliance on imported fuels would be minimized because of the a) decreased demand for fuel consumption and b) lowered fuel demand allowed for domestic producers to meet the basic needs of the public.

--> Maximum fuel efficiency would a) cut the amount of fuel consumption thus nullifying high pump prices and b) raise the level of conservation by lowering the amount consumed.

Although the intentions of Corporate Average Fuel Economy in the 1970's was thought to be a cure-all but, over the long run it has turned out to be a flop. The variables on which it was based, turned out to be almost exactly opposite.

--> Lower Gas Prices have a) caused the public to simply use more fuel, b) drive more frequently due to less fuel consumption and c) look beyond fuel economy when in the market for a new vehicle.

--> Quality Depletion of the total domestic car fleet due to special attention to only the fuel economy while ignoring: 1) performance, 2) acceleration and 3) handling.

*** With CAFE becoming a long-term flop, in its first years it did have its benefits.

Both the public sector and the private interests gained from the regulation in the


--> Public Interests gained from this legislation due to a) to ability to get more mile for their buck, b) increased (initial) conservation and c) higher standard of living through the money which was saved in fuel costs.

--> Private Interests were kept happy by a) the "credits" earned by each manufacturer when standards were exceeded before set deadlines and b) no new taxation on the fuel industry to alleviate to e conservation problem.

CAFE could have had a very successful outcome if the original variables of fuel costs, resource availability and resource stability would have continued on the path they were taking. Because of changes in each of these variables CAFE did not have the resources to remain a successful regulation. CAFE did help to improve the energy efficiency of motor vehicles, but due to short-comings in the regulation other aspects were allowed to slip away and actually decline improvements.

--> The Uniformity of Corporate Average Fuel Economy did not allow for any outside manipulation of the problem at hand, thus only allowing for a one dimensional view of the fuel economy standards.

--> CAFE Separated the standards for both cars and trucks therefore a) resource conservation was limited to only the car fleet and b) depletion of automobile quality.

-->With Lower Fuel Costs the consumer a) actually consumed more fuel because of the cheaper price and b) when in the market for a new automobile they began to look for other features besides fuel economy: 1) size, 2) reliability and 3) performance.

*** In conclusion, I believe that if the initial concept of the CAFE policy would have

been modified only slightly, to encompass small changes in the market place, it could have had a more beneficial outcome. CAFE originally was a good concept for both the consumer and the industry, but because of its downfalls it became a hindrance to the automobile industry.
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