FOR YOUR INFORMATION........................September 16, 1988


     The Federal Trade Commission staff submitted comments to the
National Highway Traffic Safety Administration (NHTSA) on the
effects of reducing fuel economy standards for the 1989 and 1990
automobile model years.

     The FTC staff, which submitted comments in response to
NHTSA's notice of proposed rulemaking, recommended that the NHTSA
adopt Corporate Average Fuel Economy (CAFE) standards for model
years 1989 and 1990 no greater than 26.6 mpg.  

     According to the FTC staff, imposing the planned 27.5 mpg
fuel economy standard for automobiles for those years "would
result in a significant number of consumers paying more than they
otherwise would for new large cars with lower fuel economy."

     The CAFE program was designed to lower gasoline consumption. 
However, the FTC staff stated that the results of their
evaluation "indicate that imposition of higher CAFE standards may
actually lead to increased net gasoline consumption."  The staff
estimates that enforcing the 27.5 mpg standard for model year
1989 "would cost consumers almost $650 million," would reduce
domestic auto industry profits by about $1.5 billion, and would
likely decrease total employment in the domestic auto and auto-
related industries by about 11,500 jobs.

     The staff also estimated that the higher standards "would,
by decreasing the retirement rate for existing large cars and
increasing the rates of production and utilization of new small
cars, actually increase gasoline consumption by a total of
approximately 245 gallons over the 15-year period following the
imposition of the standard."  Similar results are obtained if the
27.5 mpg standard is enforced for model year 1990.

     "Overall, our analysis suggests that enforcement of higher
CAFE standards would yield few social benefits, and that it would
impose substantial costs on the U.S. economy," the staff stated.

     According to the FTC staff, the CAFE program defines average
mpg standards that apply to a manufacturer's fleet, rather than
to the fuel efficiency of individual models.  The staff concluded
that if NHTSA does not adopt the lower standard, automakers may

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ave to sell more cars with high mpg ratings and fewer with low
mpg ratings in order to meet the requirements and avoid imposi-
tion of civil penalties.

     The comments are the views of the staff of the Commission's
Bureau of Economics.  They are not necessarily the views of the
Commission or any individual Commissioner.

     Copies of the comments are available from the FTC's Public
Reference Branch, Room 130, 6th St. and Pennsylvania Ave. N.W.
Washington, D.C. 20580; 202-326-2222; TTY 202-326-2502.

                              # # #

MEDIA CONTACT:  Dee Ellison, Office of Public Affairs,
                202-326-2177

STAFF CONTACT:  Andrew N. Kleit, Bureau of Economics,
                202-326-3481


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