CAFE stands for "Corporate Average Fuel Efficiency". In short, it means that the models of vehicles an automaker offers have to AVERAGE a certain number of miles per gallon. There are separate classes for cars-based and truck-based vehicles -- truck standards are lower. So if you have a pretty-big "crossover" you'd like to sell, make sure it meets the definition of a "truck" and life is a lot easier. This is a fact which many have pointed to for abetting the death of the big car and the outrageous popularity of SUVs until the last few years. Some lawmakers are talking about eliminating this distinction, which seems like a good idea to me. I think anything you can drive without a commercial license should be lumped into one pool.
I don't comprehend all the ins and outs of the law, but one key is that it doesn't matter exactly HOW MANY of each model you sell -- you could sell a few ultra-efficient Model 1s and a million gas-guzzling Model 2s, and as long the average of those two numbers is over the CAFE standard, you're golden.
Warning: Math ahead (but it's easy)
The fundamental flaw with "miles per gallon" as a measuring stick is that it looks like a linear measurement, but it's really an exponential measurement of gasoline usage. Instead of asking how many miles per gallon a car gets, ask how many gallons it requires to go 100 miles, and you'll have a much better idea of what it will take to keep that sucker running. As a simplified example, let's start by considering a hypothetical 16-cylinder muscle car that gets 5 MPG. It would take you 20 gallons to drive from Ann Arbor to Flint, MI.
5 MPG x 20 gallons = 100 miles
Ouch -- that cruise will set you back 60 bucks. Next, let's take a big SUV that gets 10 MPG:
10 MPG x 10gallons = 100 miles.
(100% improvement in MPG)
Okay, so this vehicle took 10 gallons to get you to grandma's house, and that would run you about 30 bucks. But you saved 10 gallons of gas -- that's 30 bucks cheaper than the hot rod, and you've only done half as much damage to the planet. Let's compare that to a small pickup that gets twice as many MPGs, and therefore uses half as much fuel:
20 MPG x 5 gallons = 100 miles.
(100% improvement in MPG)
As you'd expect, it's half as expensive -- about 15 bucks at today's 3$/gallon gas prices -- to drive this vehicle. But take a look -- Even though this looks like a much bigger jump in MPG than going from a 600 hp hot rod to a behemoth SUV, you've only saved HALF the gasoline. This 10 MPG upgrade saved you 5 gallons, and $15. Over the life of the vehicle, upgrading from a big SUV to a small truck is like taking another 20 MPG truck off the road forever! What if we went for something mid-sized?
30 MPG x 3.3 gallons = 100 miles
(50% improvement in MPG)
OK, This 10 MPG upgrade saved you 1.7 gallons of gasoline, or just 5 bucks at the pump on a trip to Grandma's. That's still a combo meal at Wendy's, but you're not feeling as brilliant as when you sold that titanic SUV to get your little pickup truck. With savings like that, why consider the extra expense of a little hybrid?
40 MPG x 2.5 gallons = 100 miles
(33% improvement in MPG)
So what? You would save a measly .8 gallons of gasoline on this trip, and while driving a high-tech car would make you feel good, that only saved you about $2.50, and doesn't make all that much difference to the planet, compared to a midsize sedan. At this point, you're really not using all that much gas. In our example, if six people upgraded from mid-size cars to hybrids, that still wouldn't save as much gasoline (4.8 gallons) as ONE person upgrading from a 10 MPG to a 20 MPG vehicle (5 gallons).
If you're buying relatively fuel-efficient cars, there's just not that much gasoline to be saved, and thus, not that much money to save. Consider this another way. How much is a 10% improvement in mileage worth to the driver of a 10 MPG SUV? That's 1 MPG, and on a 100-mile trip, that would save almost 1 gallon of gas, or just under $3. For the driver of a 40-MPG hybrid, that 10% jacks his mileage to 44 MPG, which sounds impressive. But he's only saved himself 1/4 of a gallon, or about $.75.
Yeah, it adds up -- but it adds up pretty slowly.
Now, look at this same situation through the eyes of an automaker. He's not worried about how much GAS you're using, he's worried about the MILEAGE number. In his CAFE equations, that 1/4 gallon of gas saved by the hybrid driver is worth MILLIONS because that's an extra 4 MPG in his pool of numbers to average out. But a 10% improvement in a dinosaur-sized SUV may only be worth 1 MPG, even though that represents almost a whole gallon of gas over 100 miles!
Still, slapping a hybrid motor in a tiny car to squeeze out 5 or 10 extra MPG enables that automaker to jack up the horsepower in several other (more profitable) vehicles, and still come out even on the CAFE standards. What a great shell game!
People have talked about the holy grail of a 100 MPG car. Frankly, who cares? The low-hanging fruit here are the huge bus-sized battering rams that people are driving around with the hand that isn't holding their cell-phone. We should be finding ways to put hybrids in the big SUVs, not in the already-frugal econo-boxes. That's where the gas savings are.