It's not totally blaming CAFE but what CAFE does do is create a perverse incentive and does distort the market. Also consider that Volvo wagons did sell well. By in large Americans do have a preference for SUVs vs wagons. However, that hasn't stopped companies like Volvo and Subaru (and others) from selling wagons in the US. I mean IF the wagon is already developed for say Europe, the added cost of bringing it to the US is relatively low. The profits might not be huge but the demand is there. The penalties associated with CAFE however, tilt the balance so a car that might have been marginally profitable and worth having if nothing else to have a more complete line up is now a loss leader.

Incidentally, I think the lack of wagons and hatches popularity in the US is at least fairly rational. For family haulers people often prefer the additional space offered by crossovers/SUVs. So if you are only shopping for cargo space a crossover does make more sense (the failings of the crossover are mileage and sporty handling). Most "car" buyers are looking for a 4 door sedan. In the US we are also rather price sensitive. This explains why our Passat is bigger yet not as nice as the one Europe gets (it's also cheaper). Well a wagon/hatch adds cost but many people don't perceive the advantages or don't care. Either way it means that only a few people will want that configuration. Thus the market is small and now CAFE adds a new cost burden. Net result wagon/hatch sales in the US die and people like me are left trying to figure out what's the modern replacement for my 15 year old SAAB 900.