President Obama has proposed an increase in Corporate Average Fuel Economy (CAFE) to 35.5 MPG by 2016. CAFE is not mandatory, but manufacturers that fail to achieve the average must pay fairly hefty fines, and they don’t like paying fines.

At first glance, 35.5 MPG seems a very ambitious target. After all, most cars these days have real-world gas mileage in the 20s, and SUVs struggle to get into the high teens. Part of the improvement will have to follow from lower sales of trucks. A shift to smaller cars with smaller engines and additional technology will also contribute. The government will no doubt also provide credits for alt fuel vehicles.

But one thing people often don’t realize is that CAFE figures are based on a 55/45 mix of the EPA’s internal city/highway MPG figures, which since 1985 haven’t been the same as the ones on window stickers. That year, in an attempt to bring the public figures in line with real-world experiences, the EPA adjusted the published city figures downward by 10 percent and the highway figures downward by 22 percent. More recently, in 2008, the formulas for the window sticker numbers were changed to incorporate more real-world variables like A/C use. But the internal, gross figures have continued to be used for CAFE.

What these adjustments mean: an average of 35.5 MPG in the EPA’s internal figures translates to an average around 27 MPG in terms of a 55/45 mix of the city/highway figures on window stickers. The 42MPG figure for cars? (The 35.5 is the overall target for cars and trucks together.) It equates to about 32 MPG in real-world mixed driving.

Still a large increase from current real-world averages. But the implication isn’t that we’ll all soon be driving small cars. Auto makers might even still offer a car like the new V8-powered Camaro, with real-world suburban fuel economy in the high-teens, as long as they sell a a couple compacts that manage results in the high 30s to offset each one.

Doable? Absolutely.