How do we know? Because car makers would be delivering the prescribed mileage improvements already if there were profits in it. Cars that get 50 mpg-plus are a snap, going back to the 1954 Nash Metropolitan and 1990 Geo Metro XFi. But consumers have shown over and over that they value energy-efficiency gains (which auto makers have duly delivered) not to maximize miles per gallon in absolute terms, but to afford heavier, roomier, more comfortable cars, with more horsepower, at any given gasoline price."
Ford's new CEO Alan Mulally, recently arrived from Boeing, described for Barron's his astonishment upon discovering this reality: "For all you read about it, it was difficult to understand the degree to which the CAFE regulations distort the market . . . Ford had to put out two small cars and discount their prices to get people to take them, so that we could also make and sell cars customers really wanted."
Maybe because investors recognize the elephant in the room, one whose presence has been a central preoccupation of the UAW and the auto makers, even if ignored in media reports. That pachyderm is known as CAFE, aka the government's Corporate Average Fuel Economy rulebook. How could pending congressional changes in the mileage rules blow sky-high the labor concessions being negotiated by the Big Three? Let us count the ways."