Potential Billion-Dollar Penalties Loom For Major Automakers Over Fuel Standards: Report

U.S. President Joe Biden's proposal to increase fuel efficiency norms by 2032 could reportedly lead to a whopping $6.5 billion penalty for General Motors Company GM and a $3 billion setback for Chrysler's parent company, Stellantis N.V. STLA.

The American Automotive Policy Council, which speaks for GM, Stellantis, and Ford Motor Co F, said in a letter to the U.S. Energy Department that the anticipated penalties from non-compliance with the proposed Corporate Average Fuel Economy (CAFE) regulations as "alarming," reported Reuters.

Ford is also not far behind, expecting about $1 billion in penalties, with Volkswagen AG VWAGY facing penalties exceeding $1 billion, the report added.

Seeking a revision, the letter highlights concerns about the Department of Energy's (DOE) plans to alter the Petroleum Equivalency Factor, a move that might lead to higher compliance expenses for U.S. carmakers.

The Detroit-based trio might face compliance costs amounting to $2,151 per vehicle, a stark contrast to an average of $546 per vehicle for other global car manufacturers.

In July, the National Highway Traffic Safety Administration (NHTSA) pitched a strategy, aiming for a fleet-wide average of 58 miles per gallon by 2032, the report noted.

The DOE's proposition is to revamp the methodology for calculating petroleum-equivalent fuel economy rates for electric vehicles under the NHTSA's CAFE program.

They recently reached out to the major Detroit automakers and other players, aiming to gather feedback regarding potential challenges related to implementation timelines.

Although promoting electric vehicle (EV) adoption could cut down petroleum consumption, DOE warned earlier this year that over-crediting EVs might inadvertently promote reduced fuel efficiency in traditional vehicles.

Last week, an industry group representing the majority of significant carmakers hinted that the entire automotive industry might be staring at a cumulative penalty of around $14 billion in CAFE fines.

Historically, if automakers fail to meet the CAFE standards, they have to either purchase credits or bear the penalties.

For instance, Stellantis and GM have reportedly paid $363 million in penalties for not meeting the U.S. fuel economy mandates in earlier years.

Price Action: GM shares closed lower by 1.52% at $32.47 on Monday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.