Tough Decisions

And that often leaves the manufacturer with some very difficult decisions.

Should the manufacturer add expensive equipment that raises fuel economy, but also raises the vehicle price? Will the higher price make the vehicle less desirable in the marketplace, thus affecting sales and ultimately, the entire fuel calculation?

Should the vehicle be made lighter, and thereby more fuel efficient, by deleting equipment that customers demand? Will that affect sales? Will it affect vehicle safety?

Should a second, high-mileage vehicle be sold at a loss to offset the lower-mileage vehicle? If consumers don't want a higher-mileage vehicle because it can't do all of the things the lower-mileage vehicle can, what can the automaker do to entice consumers into buying the higher-mileage vehicle anyway?

Should production of the vehicle or its components — and the jobs — be moved to another country so the vehicle CAFE is not counted in the domestic fleet?

In addition to these complex calculations and trade-offs manufacturers must make, there are incentives and credits that must be weighed, as well as penalties for non-compliance with CAFE standards.

Incentives for Alternative Vehicle Production

In 1988, Congress passed the Alternative Motor Fuels Act to encourage the development and use of methanol, ethanol and natural gas as transportation fuels and to promote the production of alternative fuel vehicles by auto manufacturers. The law provides incentives to manufacturers to provide alternative fuel vehicles. The reason for this is to break the "chicken-and-egg" issue of how to get manufacturers to produce these vehicles even if alternative fueling stations are not available or how to get the fuel stations out there even if the vehicles aren't there. These incentives provide special calculations for determining the fuel economy of dedicated alternative fuel vehicles and dual-fuel vehicles that meet government requirements. Passenger cars and light trucks eligible for special fuel economy calculations are those, for example, designed to operate on gasoline as well as fuels created from:

• Methanol
• Ethanol
• Natural gas

Since this act went into effect, as many as 1 million alternative fuel vehicles have entered the market. With this increased number of alternative vehicles on the road, and more to come, a new fueling infrastructure needs to be developed.

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