CAFE Rollback: Why the 34.5 mpg Floor Is Already Behind Indiana's Powertrain Reality

Daniel BurkePublished every day

President Trump signed off on SAFE III, new Corporate Average Fuel Economy standards that drop the 2031 fleet target from Biden's approximately 50.4 miles per gallon down to approximately 34.5. Transportation Secretary Sean Duffy called it a major victory for America's auto workers. GM, Ford, and Stellantis executives were in the room.

Here is the angle that is not getting reported. The 2024 industry fleet average was already 35.4 miles per gallon. The fleet, as a whole, already exceeds the 2031 target. On top of that, the July 2025 reconciliation bill separately zeroed out CAFE civil penalties. The compliance pressure that drove EV-adjacent supplier retooling has effectively been removed.

Individual OEMs with heavier fleets could still face footprint-specific gaps, and for Indiana's crossover-platform suppliers and Subaru's Lafayette facility, that distinction matters. But the sharper consequence is this: inter-company EV credit trading is eliminated by model year 2028. That financial buffer was what allowed EV-adjacent suppliers to justify retooling capital. Without it, and with the $7,500 federal EV tax credit already expired and California's zero-emission mandate blocked, SAFE III is the third piece of a deregulatory stack that has now fully dismantled the domestic EV demand architecture.

If your capital program was sized around projected EV platform volumes, the time to pressure-test that assumption is now, not after MY2028.

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Does the SAFE III CAFE rollback mean Indiana auto suppliers are safe from EV-related demand loss?

No. The rollback removes federal compliance pressure on the domestic fleet average, but export markets are still accelerating zero-emission vehicle mandates. Inter-company EV credit trading is also eliminated by model year 2028, which was the financial mechanism that allowed EV-adjacent suppliers to justify retooling capital in the first place. If your revenue is tied to EV platform volumes, the scenario that made that investment pencil out has narrowed materially.

Briefing note

President Trump announced approval of new Corporate Average Fuel Economy (CAFE) standards, dubbed SAFE III, that would reduce the 2031 fleet-average target from Biden's ~50.4 mpg to approximately 34.5 mpg, according to an earlier NHTSA proposal. Transportation Secretary Sean Duffy called it 'a major victory for America's auto workers,' and Ford, GM, and Stellantis executives were present for the announcement. Trump specifically named Indiana as one of the states where he expects auto manufacturing jobs to return, and the rule eliminates inter-company CAFE credit trading effective MY2028. For Indiana manufacturers, the reclassification of crossovers as passenger cars under SAFE III directly reshuffles which platforms face which mpg targets, with implications for Subaru's Lafayette facility and any Indiana-based crossover-platform suppliers.

Impact: The most underreported angle is that the 34.5 mpg 2031 target is a standard the industry already exceeded in 2024, the fleet average was 35.4 mpg that year, meaning SAFE III effectively sets a floor automakers have already surpassed and opens the door for fleet fuel economy to decline over the next six model years without penalty. For Indiana's auto supplier ecosystem, the elimination of inter-company EV credit trading by MY2028 removes a financial buffer that had allowed EV-adjacent suppliers to justify retooling capex; Stellantis's reintroduction of the Hemi V-8 and Ford's indefinite pause on F-150 Lightning production are leading indicators of where supplier demand is now heading, back toward traditional powertrain components. Separately, the 'One Big Beautiful Bill' (signed July 2025) already eliminated CAFE fines, the $7,500 federal EV tax credit expired September 30, 2025, and Congress rescinded California's ACC II zero-emission mandate via the Congressional Review Act in June 2025, meaning SAFE III is the capstone of a three-part federal deregulatory stack that has now dismantled the entire integrated EV demand architecture built since 2022, leaving Indiana suppliers who retooled for EV platforms caught between a domestic policy reversal and export markets in Europe and Asia that are accelerating ZEV mandates.
Watch: Watch for NHTSA's formal publication of the final SAFE III rule (Secretary Duffy signaled a 'major announcement coming Monday' (September 28)) and monitor whether the rule's retroactive reach to MY2022 standards triggers compliance credit clawback litigation that Gibson Dunn and Sidley Austin have already flagged as an unresolved legal risk capable of delaying implementation.

From the brief, September 27, 2026

CAFE Rollback: Why the 34.5 mpg Floor Is Already Behind Indiana's Powertrain Reality
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