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One of the major benefits of driving vehicles in controlled, close formations such as platoons is that of reduced air drag. However, this will set hard performance requirements on the system actuators, sensors and controllers of each vehicle. This paper analyses the effects of fundamental limitations on the longitudinal and lateral control performance of a platoon and the effects on following distance, perceived safety and fuel economy. The trade-off between minimizing fuel consumption and maintaining a safe following distance is analyzed and described. The analysis is based on fundamental properties of linear systems such as Bode's phase area relation. Design guidelines are proposed and results from vehicle testing are presented.