Proposed Fuel Economy Standards Could Result in Billions in Fines for Automakers

The proposal by U.S. President Joe Biden's administration to increase fuel economy standards until 2032 has raised concerns among major automakers. General Motors could face fines of $6.5 billion, while Chrysler parent Stellantis could be fined $3 billion.

The American Automotive Policy Council, representing GM, Stellantis, and Ford Motor, expressed alarm in a letter to the U.S. Energy Department regarding the potential penalties for not meeting the proposed Corporate Average Fuel Economy (CAFE) requirements.

According to a letter seen by Reuters, Ford is expected to be hit with approximately $1 billion in penalties, while Volkswagen faces penalties upwards of $1 billion, the highest among foreign automakers.

The concerned automakers are urging the Department of Energy (DOE) to reconsider its plan to revise the "Petroleum Equivalency Factor," as they believe it will result in disproportionately higher compliance costs for U.S. automakers.

Disparities in Compliance Costs

Detroit's three automakers would face compliance costs of $2,151 per vehicle, significantly higher than the average of $546 per vehicle for other automakers.

As stated in the letter, the policy appears to reward auto manufacturers that resist the transition to a fully electric future the most, Nasdaq reported. These concerns reflect a broader issue among automakers, as a group representing the industry warned that they could collectively face $14 billion in CAFE fines.

The National Highway Traffic Safety Administration (NHTSA) proposal includes increasing CAFE standards to a fleet-wide average of 58 miles per gallon by 2032.

This would be achieved by gradually raising requirements by 2% annually for passenger cars and 4% for pickup trucks and SUVs. However, the DOE intends to revise how it calculates the petroleum-equivalent fuel economy rating for electric vehicles (EVs) in the CAFE program, raising concerns about the effective date and potential lead time challenges.

The Cost of Transitioning to EV

The DOE acknowledges the importance of encouraging EV adoption but cautions that excessive credit for such adoption could result in increased petroleum use. The agency believes that giving too much credit may lead to lower fuel economy among conventional vehicles. The DOE's actions and the potential fines have sparked a debate within the industry about the transition to electric vehicles and the associated costs.

Currently, the DOE has sought comments from automakers regarding their concerns. While NHTSA did not immediately comment on the issue, the agency has stated that automakers are free to use electric vehicles to comply with the standards and avoid penalties altogether.

Automakers buy credits or pay fines if they cannot meet CAFE requirements. In June, Reuters first reported that Stellantis and GM paid $363 million in CAFE fines for failing to meet U.S. fuel economy requirements for prior model years.

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