Chrysler and CAFE 2014: Corporate Average Fuel Economy

graphProduct discussions on Allpar typically have one topic that always comes up… CAFE, the four letter acronym for Corporate Average Fuel Economy. Those four letters are often a mystery even for those who use them frequently.

  • What is CAFE? Where did it come from?
  • How is it measured?
  • What is Chrysler’s status in this ever-evolving world of CAFE?

What is CAFE? Where did it come from?

The Corporate Average Fuel Economy (CAFE) requirements were first enacted by Congress in 1975, in the Energy Policy and Conservation Act, enforcement began in 1978. The idea was to reduce energy use, seen as a national security issue after two artificial, sudden fuel shortages, by increasing the fuel economy of cars and light trucks. The NHTSA web site proclaims that the standards “will improve our nation’s energy security and save consumers money at the pump.”

Editorial note: fuel crises, such as those of 1973 or even 2008, have often left Detroit automakers flat-footed, due to their reliance on large cars, vans, and trucks. Buyers have tended to panic and refuse to even consider domestic cars in those cases, even when they had comparable or better economy than similar imports, because of the perception that imports always had better economy. Some believe that one reason for increasingly strict fuel-economy standards is to prevent this from happening again: when fuel prices rise, Chrysler, GM, and Ford will all have at least some “mileage cred,” thanks to Ram 1500 diesels, Fiat 500s, Chevy stop-starts, and Ford hybrids.

In 2009, an agreement was made between the federal government, state regulators, and major auto companies to create a national program with a 30 year plan to increase fuel economy and to enact new pollution standards for all light duty vehicles. This program, to be enacted in two phases, is aimed at lowering tailpipe emissions in the US through increases in gas mileage, while preventing over-dependence on foreign oil supplies.

This brings us to where we are today: deep into phase one of the implementation process. Phase one demands a 23% improvement in pollution standards and a CAFE target of 34.1 miles per gallon by model-year 2016. Phase two calls for a further increase of roughly 35% in pollution standards, equivalent to 54.5 miles per gallon. While the miles per gallon rules tend to be based on pollution (grams per mile of certain tailpipe emissions), the CAFE standard is expected to be 49.6 miles per gallon (mpg) by 2025, with the remaining 5 mpg-equivalent reached through changes to air conditioning.

How is CAFE evaluated?

Editor’s note: CAFE fuel mileage calculations for individual cars and trucks are still done as they were in 1978 — that is, optimistically, with speed limited to 55 mph, no air conditioning, and slow acceleration. CAFE mileage is not the more-accurate (and lower) number shown on the window sticker.

This is the interesting (and generally misunderstood) part. First and foremost, the data used to implement CAFE is the raw data collected by the EPA. This is the same data that allowed Fiat to gain an additional ownership in Chrysler by producing a 40 mpg car. Some say the data is inflated, others say it isn’t, but it is a moot point in our discussion because we simply want to discuss how the CAFE value is determined.

To calculate CAFE, every automaker is put on a level playing field.* To do this, the EPA and the NHTSA (following relatively recent laws) have targets based on the size of a vehicle, defined as the average of the front and rear track multiplied by the wheelbase — that is, the area between the four wheels, called the footprint. Larger vehicles have lower targets, while smaller vehicles have much tougher targets. The footprint data is more important for emissions regulations, so we will leave it out of this discussion.

Vehicles are broken up into five groups based on type of vehicle and footprint: Domestic Passenger Car, Import Passenger Car, Light Truck, Captive Import Light Truck, Non-Captive Import Light Truck. Chrysler has pretty much only had domestic passenger cars, imported passenger cars (example: Crossfire), and light trucks; here is the fleet fuel economy by category:

Model Year

Domestic Passenger Car

Light Truck

2008

27.5

22.5

2009

27.5

23.1

2010

27.5

23.5

2011

30.2

24.3

2012

32.7

25.2

201333.525.7

Fleet fuel economy is calculated as a harmonic mean and is a common calculation for determining the average of rates:

formula

So let’s assume that Chrysler is currently producing 8 domestic passenger cars and 5 light trucks:

cars and trucks

E85 credit values are going to change completely for 2016; the explanation will be in a future article. This calculation assumes the ideal volume of E85-capable vehicles.

One rule gives a 6.66 reciprocal multiplier to vehicles that can handle E85 (85% ethanol fuel), but the total cannot exceed an additional 1.2 mpg on the average. So let’s go ahead and give that credit:

DPC average = 28.001 + 1.2 E85 credit = 29.201
LT average = 21.192 + 1.2 E85 credit = 22.392

By 2013 standards, our example above would not be meeting the standards and could be subject to fines — which could be avoided by using credits from previous years. The CAFE penalty is $55 USD per vehicle for every 1 mpg under the standard. If the 2013 model year standard is 33.5 for Passenger Cars and 25.7 for Light Trucks then…

33.5 - 29.201 = 4.299 * $55 per car produced = $236.445 per car produced.
25.7 - 21.192 = 4.508 * $55 per light truck produced = $247.94 per light truck produced.

Those penalties, more than likely, get passed on to the consumer in one way or another. So where is Chrysler today? According to NHTSA:

  Passenger Cars   Light Trucks    
Model Year Required Actual Gap Required Actual Gap   Volume
2013 32.3 32.1 -0.2 25.8 24.5 -1.3   -
2012 31.7 30.6 -1.1 25.4 24.3 -1.1   553,450
2011 28.4 29.8 1.4 24.7 24.4 -0.3   239,716
2010 27.5 28.3 0.8 23.5 24.3 0.8   359,533
2009 27.5 28.1 0.6 23.1 23.9 0.8   219,880
2008* 27.5 29.3 1.8 22.5 23.6 1.1   522,670
There were also 1,648 imported cars averaging 26.5 mpg (1 mpg below the standard). 

To be frank, Chrysler is hurting pretty badly in the light truck department. They need to sell more light trucks with higher miles per gallon. We know things are getting better: with the new diesel Ram 1500 hitting showrooms and Cherokee sales rising, the goal is within reach.

Will the Renegade be considered a light truck? Will the next Wrangler see a large increase in mileage with the 8 speed transmission and rumors of diesel power? Chrysler must stay on top of the light truck game to keep up with CAFE or face heavy fines (or buy credits from competitors). I predict we will see more technologies coming to increase fuel mileage on light trucks.

As for passenger cars, Chrysler is nearly on track. With the new 200 coming, with start/stop technology soon to be coming with it, and increases in mileage coming for all the L-series cars following the upcoming refreshes, Chrysler is on target to meet CAFE standards and hopefully exceed them.

They must stay on top of technologies. As stated in the five year plan, I am sure we will see PHEV usage in the future. Currently the 500e may not have a lot of volume, but due to the rate calculation, it is helpful for calculation purposes. The addition of a passive hybrid can bring Chrysler’s average up quite a bit because the credits for hybrid and electric vehicles are not capped like E85 vehicles are.

The future is bright for Chrysler, let’s see if the five year plan holds true…

Also see: Chrysler Five Year Plan 2014-18 upcoming Chrysler cars • 2015 • 2016

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