Reacting to the 1973-74 Arab oil embargo, the U.S. Congress enacted a Corporate Average Fuel Economy (CAFE) system in 1975 that required an increase in automobile fuel economy from 14.2 miles per gallon in 1974 to 27.5 mpg in 1984. For the next two decades, Congress made no changes to CAFE, despite trying to amend it in in 1990 and 2002 without sucess. In 2007, however, circumstances had changed significantly enough that Congress was poised to enact a 40 percent increase in required fuel efficiency.
Although the automobile industry had initially opposed any major increase, its seemingly inevitable passage convinced it to instead focus on details of the pending legislation and how to influence them. This case explores the response of the auto industry to the pending fuel efficiency increases, and discusses the industry’s strategy to help craft the legislation.
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Case No: P58