CAFE didn't work like this, it was a lot dumber. Basically it weighed the fuel economy for vehicles under 6000 pounds between two categories: passenger cars (sedans, coupes, wagons) and light trucks (vans, SUVs, crossovers). Passenger cars had an MPG target of ~8 MPG higher than light trucks. Car manufacturers that couldn't get their MPG (weighted between sales of the two categories from that manufacturer) below the targets were fined. Essentially this incentivized car companies to sell fewer passenger cars and more light trucks so their target MPG was lower. This is why crossovers have basically taken over the market in the US. Car manufacturers modified their designs to count as light trucks (lowering the MPG by 1-2), but since the target for light trucks is 8 MPG lower than passenger cars, they look more compliant on paper. We've gone from passenger cars making up ~50% of US car sales in 2000 to ~20% of car sales today.

I use the past tense because the Trump admin has gotten rid of the fines for this regulation so it basically doesn't matter anymore (one of the few good moves it's done). It'll be interesting to see if small cars are able to make a recovery in the US, or if it's too late.

California not US regulations in this case.