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How to boost gas mileage and get better cars

American car companies need a radical incentive to raise the efficiency bar.

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Earlier this month "we the people" bought GM. As a part of the company's new majority ownership, a few of us would like to suggest a way to speed the return of our automaker to global competitiveness: a carrot policy that incentivizes and enables struggling American automakers to produce radically efficient cars.

Hoping to spark transformation in American automaking, President Obama recently tightened the "Corporate Average Fuel Economy" (CAFE) standards to 35.5 mpg by 2016.

That's great.

But to truly unleash American automakers' technical prowess and innovative potential, the federal government should complement that stiff stick with a carrot so fat and juicy that those automakers strive not just to meet, but to leapfrog the newly raised efficiency bar.

Under the existing CAFE legislation, if automakers surpass the annual minimum efficiency requirement, then they receive "credits," which can be used to offset deficiencies in subsequent or prior years. But that's not a carrot – it's more like a stick painted orange! Consider that from 1995 to 2007, the Big Three's combined CAFE never once exceeded the minimum standards by even 1 mpg.

Here's a more enticing policy: Offer American automakers financial compensation for each "extra-efficient" vehicle they produce and sell domestically. Base it on the unpriced societal value of the oil that that vehicle will save over its lifetime (compared to a minimally CAFE-compliant model).

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