CAFÉ rules regulate Corporate Average Fuel Economy. The idea is that auto makers each have to sell a mix of vehicles that on average have a certain average fuel economy level in a given model year. For cars, the standard is 27.5 miles per gallon (mpg) in combined city and highway driving. For light trucks the standard is 20.7 mpg. If the standard is breached, the federal government levies fines: $5.50 per 0.1 mpg under the standard per vehicle sold. The fines can be avoided by bettering the standard in the previous three years or forecasting offsetting future improvements. Auto makers also can define the model year to improve their performance: for example, GM did this when it shortened the 98 model year so that it ended in January 1998.

Some foreign auto makers, such as Mercedes-Benz and BMW, pay huge fines each year because they generally only sell larger vehicles. They see the fines as a cost of doing business. In contrast, US auto makers are reluctant to be prosecuted under the law under which the fines are imposed. They fear that shareholders might file lawsuits over company decisions to break the law and pay fines.

(Updated August 1, 1999)