Abstract:
In March 1985, Ford and General Motors asked the National Highway Traffic Safety Administration to reduce federal Corporate Average Fuel Economy (CAFE) standards from 27.5 miles per gallon to 26 mpg for the 1986 model year. For the first time since the standards took effect, Ford and GM faced hundreds of millions of dollars in penalties for falling short of CAFE's steadily increasing fuel efficiency requirements. This case, which ends with NHTSA poised to make its decision on the rollback, describes the origins of the CAFE program in the energy crisis of the mid-seventies, and summarizes the arguments of Ford, General Motors, and the Auto Importers of America that CAFE standards were no longer useful in an environment of oil price decontrol and reduced dependence on foreign oil. The case also presents the vigorous arguments against the rollback made by Chrysler and two public interest groups.
Learning Objective:
This policy-oriented case raises questions of regulatory objectives; a key challenge is to determine what role historical precedent plays in determining current regulatory requirements. The case also can be used to discuss corporate strategy in a regulated environment. This case is a companion to General Motors and the CAFE Standards (C15-86-671.0) and NHTSA and the CAFE Standards (C15-86-672.0).
