Why GM and Stellantis face $9.5bn in US fuel economy fines

The proposal by US President Joe Biden's administration to hike fuel economy standards through 2032 would cost General Motors $6.5bn (R125.4bn) in fines and Chrysler parent Stellantis $3bn (R57.9bn), according to a letter seen by Reuters.

The American Automotive Policy Council, representing GM, Stellantis and Ford Motor, said in a letter to the US energy department on Friday that the size of the expected penalties for not meeting proposed Corporate Average Fuel Economy (CAFE) requirements are “alarming.”

Ford separately faces about $1bn (R19.3bn) in penalties, the letter said, while Volkswagen faces upwards of $1bn, the most among foreign carmakers.

GM and Stellantis declined to comment beyond the letter. Ford and VW did not immediately comment.

The previously unreported letter asked the department of energy to reconsider its plan to revise the “Petroleum Equivalency Factor” that will result in “disproportionately higher compliance costs” for US carmakers.

Detroit's three carmakers face $2,151 (about R41,498) per vehicles in compliance costs compared with $546 ( R10,534) per vehicle on average sold by other carmakers, the letter said, and the policy “would reward those car manufacturers resisting the transition to a fully electric future the most.”

The National Highway Traffic Safety Administration (NHTSA) in July proposed hiking CAFE standards by 2032 to a fleet-wide average of 4,05l/100km by boosting requirements 2% per year for passenger cars and 4% annually for pickup trucks and SUVs.

DOE wants to significantly revise how it calculates the petroleum-equivalent fuel economy rating for EVs in NHTSA's CAFE program.

DOE on Monday noted that on September 14 it sent letters to the Detroit Three and other carmakers seeking comments about concerns about the effective date and risks vehicles would have lead time challenges.

“Encouraging adoption of EVs can reduce petroleum consumption but giving too much credit for that adoption can lead to increased net petroleum use because it enables lower fuel economy among conventional vehicles,” DOE said in April.

A group representing nearly all major carmakers said last week the industry as a whole could face $14bn (R270.1bn) in CAFE fines.

NHTSA did not immediately comment on Monday but previously said the estimate cited by carmakers is “consistent with our statutory obligations” adding carmakers “are free to use electric vehicles to comply and avoid penalties altogether”.

Carmakers buy credits or pay fines if they cannot meet CAFE requirements. In June, Reuters first reported Stellantis and GM paid a total of $363m (R7bn) in CAFE fines for failing to meet US fuel economy requirements for prior model years.