CAFE wasn't 'dumb', it was designed to prevent the 'big three' from manufacturing (new generations of) small cars outside the USA (i.e. in Mexico), with non-UAW labor. CAFE was not designed to protect the environment or reduce emissions; that was just a PR veneer to make it more palatable. You're completely correct that it led to strange designs, perhaps most notably the PT Cruiser (which was classified as a truck https://en.wikipedia.org/wiki/Chrysler_PT_Cruiser).

And it killed a bunch of useful smaller truckish vehicles because they scored poorly. The Ford Ranger, the Chevy Astro, the Crown Vic and every other sedan with a big ass.