The 2014 Chevy Silverado 1500. Source: General Motors.

The latest revision of the Corporate Average Fuel Economy, or CAFE, standards calls for passenger vehicles and light-duty trucks to achieve an average efficiency of 54.5 miles per gallon by 2025. Larger trucks, such as the F-150 from Ford Motor Company (NYSE:F) and Chevy Silverado from General Motors Company (NYSE:GM), will be required to achieve a CAFE rating of 30 mpg. While significantly lower than the standard mandated for smaller vehicles, the targets are no less ambitious for automakers. How likely is it that Ford and General Motors meet the ambitious goals?

What you see isn't what you get

It may seem as if Ford and General Motors have a long way to go, but the new CAFE standards are actually quite deceiving. Why? Well, the CAFE rating for each vehicle is determined by driving a vehicle in pristine conditions on a giant treadmill called a dynamometer. The unadulterated results of that test are what gets recorded as the CAFE rating. While the tests were intended to mimic real-world driving conditions, the U.S. Environmental Protection Agency had to intervene when consumers complained of large discrepancies between the advertised fuel economy and what they were actually achieving on the road. 

As it turns out, the fuel economy displayed on the EPA window sticker of a new car is determined from five different tests that attempt to account for highway and city driving with high speeds, varying temperatures, and even the use of air-conditioning (thus the term "combined" fuel economy). That means the 54.5 mpg CAFE standard for 2025 is roughly equivalent to an EPA window sticker rating of just 36 mpg. Same car, same real-world fuel economy, two different testing standards to confuse the heck out of consumers. By 2025 some cars will probably reach 54.5 mpg in real-world driving conditions, but consumers can expect closer to 36 mpg for the average vehicle, which is the target automakers need to achieve. Keep in mind that the goal is no less impressive. 


An example of an EPA window sticker. Source: FuelEconomy.gov

Despite the confusing reporting system, regulators are hesitant to scrap the CAFE ratings for the more realistic EPA ratings because they don't want it to appear as though the nation's fuel economy ratings are plummeting or not achieving their original goals. Nonetheless, the Ford F-150 and Chevy Silverado from General Motors won't be required to achieve 30 mpg in real-world conditions. Instead, the EPA window sticker will likely be closer to a combined rating of 23 mpg. Is that attainable?

Where they stand today

The U.S. Department of Energy website maintains combined fuel economy ratings for all vehicles, which makes our job a bit easier. For simplicity, we'll use the base model from both Ford and General Motors. According to DOE records, a 2014 Chevy Silverado 1500 with 2WD and a 5.3 L EcoTec3 engine boasts a combined EPA fuel economy of 19 mpg. Meanwhile, a 2014 Ford F-150 with 2WD and a 3.5 L EcoBoost engine sports a combined EPA fuel economy of 18 mpg.

Foolish bottom line

As you can see, both Ford and General Motors are relatively close to reaching the 2025 target right now with their base models. It's important to note that the 2015 model year F-150 features a new aluminum body, which will significantly improve fuel economy. Similar redesigns and innovations are in the works for future General Motors autos and Ford will surely continue to build upon its success, but neither company is currently listed for 2015 models on the DOE website. While I can't say if Ford or General Motors will reach the ambitious CAFE standards for 2025 across their heavy duty truck fleet, both appear to be on the right track.

Increasing efficiency will pay enormous dividends
Nearly doubling the CAFE standards by 2025 will have profound long-term effects for consumers and pay hefty dividends when it comes to American energy consumption. Similarly, a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolioCAPS pageprevious writing for The Motley Fool, or his work for SynBioBeta to keep up with developments in the synthetic biology industry.

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