With the debt ceiling still hanging above us like the proverbial guillotine, President Obama, the car industry, and a whole host of other interest groups have finally agreed on a new set of Corporate Average Fuel Economy (CAFE) standards. These CAFE standards will be set at 54.5 mpg by 2025 which is lower than the originally proposed 58 mpg. With the way that these numbers are to be averaged and calculated that more accurate figure will be 42 mpg.

Not surprisingly, European manufacturers were more reluctant entering into this agreement as they have already been producing fuel efficient cars based on market demand vs. having a set of fixed laws regulate their development. With any luck these developments won’t hinder manufacturers from making vehicles consumers actually want and that the car market stays profitable.

Another solution that had been proposed, instead of the CAFE standards would have been the implementation of a higher gas tax to raise the cost of gas to European like levels. This would force manufacturers to make fuel efficient cars to keep up with the market demand and would create a more natural mpg floor. The fuel tax ironically gives the Europeans a better spread of cars as American manufacturers were forced to make certain cars to comply with CAFE standards but those cars didn’t fit consumer demand. Without mandatory legislation the companies can make the cars that people want, not the ones that government requires. In the end though, America is going to be more fuel efficient and it should most likely be a good thing.