I'm actually 100% OK with the increase in fuel economy. Just look at what has been actually productized in the last few years: direct injection, turbo charging, and >4+ gear automatics.
The Hyundai 2L Turbo makes 274HP and gets 34MPG... on regular pump gas.
Hell, even the Mustang V6 now makes 300HP and 31MPG hwy.
In the 70s, many of the techniques for fuel economy (like cylinder deactivation) weren't possible because electronics technology for engine mgmt wasn't there yet. This resulted in dreadful, underpowered cars.
We have made leaps and bounds in both electronics development and manufacturing tolerances. There's no reason why we can't have cleaner, more efficient cars. Considering how much CNG we have in the US, I'm surprised we don't have more CNG cars for example. Or diesel hybrids.
For those of you who complain that these technologies are only pushing up car prices,
a) there's noone forcing you to buy a new car and as newer cars get substantially better gas mileage (vs used cars), depreciation on used cars will increase to make them more affordable for you
b) There will ALWAYS be a market for cheap new cars. a Nissan Versa can be had for $11.75K MSRP new -- and that will get 38MPG hwy.
Bottom Line: as private enterprises, car companies want to maximize their profit even if it means the environment suffers. IMO, it's worth it to force them to adopt more modern technology vs just having them return their revenues to their shareholders.
PS. As far as small cars being rebadged to up the CAFE of mfgs, it's still happening. Just google Aston Martin Cygnet. With the recent takeover of Porsche by VW (they used to be "cousins" with related ownership but and now one fully owns the other), I suspect we will see another VW-based Porsche 914 like car in the future.