An auto industry trade group wants the Energy Department to back off a regulatory change it says runs counter to the Biden administration's goal of transitioning to electric vehicles and having them built in the U.S., noting it could cost the Detroit Three automakers billions more in fines compared with other manufacturers.
The American Automotive Policy Council, which is based in Washington and represents Ford, General Motors and Stellantis, sent a letter to Energy Department officials last week, saying the proposed change — to drastically scale back the effect of what is known as the petroleum equivalency factor, or PEF — will have significant consequences to the U.S. automakers' bottom lines at a time when they are investing in new electric vehicles.
"The D3 (Detroit Three) have announced tens of billions of dollars of combined investments to transition their assembly operation and develop new battery operations in the United States. These investment announcements were made as early as 2019 with a specific understanding (of the current rules remaining in place)," wrote the policy council's head, former Missouri Gov. Matt Blunt.
In his letter, Blunt noted that the Detroit Three automakers could face more than $10 billion in fines under the change between 2027 and 2032, compared with about $3 billion for all other automakers combined, when looked at in tandem with stronger mile-per-gallon standards — otherwise known as Corporate Average Fuel Economy, or CAFE standards — under consideration by the Environmental Protection Agency and the National Highway Traffic Safety Administration (NHTSA).
"(The department's) deliberative action on the PEF will require the (automakers) to pay needless CAFE civil penalties, hurting American competitiveness," Blunt wrote in the Sept. 29 letter.
Environmental groups, which pushed to have the standards toughened, are clamoring against the Biden administration backing off, saying automakers have plenty of tools to keep penalties down — especially with the bulk of those potential fines not likely to come until later this decade and into the next.
The question regarding the Energy Department's proposed change and the impact it and the standards proposed by the Biden administration — which it says could result in two-thirds of all new cars being sold being electric vehicles, compared with just 6% in 2022 — could have on U.S. automakers comes at a fraught time.
The UAW is on strike against the Detroit Three automakers, in part because of worries about jobs that could be lost during the transition to electric vehicles (EVs) and many Republican politicians, including former President Donald Trump, are criticizing the plans to transition the industry, saying consumers don't want the EVs and they are too expensive. There have also been complaints about American automakers joining forces with China-connected companies to use their battery technology or tap supply chains.
Reuters first reported on the AAPC's letter this week, noting the change in the PEF could cost GM $6.5 billion, Stellantis $3 billion and Ford about $1 billion. But those charges were first specifically referenced by NHTSA in July in materials supporting its proposal to hike fuel efficiency in cars and trucks significantly, beginning with model year 2027. Along with the EPA's proposed rules for auto emissions, the regulatory changes are widely seen as promoting, if not virtually requiring, automakers to transition to selling many more electric vehicles than at present.
In its proposal this summer, NHTSA noted that there could be significant compliance costs for some automakers, saying, "While some of this change may be due to increasing standards, the updated PEF value also has notable effects on manufacturers’ computed compliance levels."
U.S. automakers, while investing billions in new battery and EV plants, have argued that the Biden administration's goals may be too ambitious and, they say, that is also true in the proposed PEF change. In the letter, Blunt argued that change actually works in favor of other automakers that have been slow to embrace plug-in EVs instead of protecting American companies.
Blunt's letter also comes at a time when the Energy Department is considering whether it should delay implementation of the new PEF — which is set to go into effect in 2027 — because of automaker concerns that doesn't give them enough time to react with new product lines to avoid larger fines.
Last spring, the Energy Department said it would significantly reduce the PEF in response to a petition filed by two environmental groups, the National Resources Defense Council (NRDC) and the Sierra Club.
The PEF is a value, required to be determined by law, that attempts to measure the energy use by EVs, converted to what that same energy amount would be in terms of petroleum. Then, that factor is used, when looking across an automaker's fleet of vehicles, to determine whether they are meeting required fleet-wide mile-per-gallon standards. Automakers are fined for not hitting the target, though the total penalties paid by all automakers combined over the last half-century has been about $1.5 billion.
The NRDC and Sierra Club successfully argued, however, that the current PEF gives automakers' EVs too much credit, meaning "that a relatively small number of EVs (could) mathematically guarantee compliance without meaningful improvements in the real-world average fuel economy of automakers' overall fleets."
Last spring, just as the EPA was rolling out new stricter car and truck emission standards, the Energy Department agreed with the environmental groups, saying, "This runs counter to the need of the nation to conserve energy, particularly petroleum."
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But this, Blunt said, also runs counter to the American automakers' strategy, endorsed by the Biden administration and funded in part by billions in subsidies and investments to make and sell more EVs. He said that strategy counts on a more generous PEF to balance out the number of internal combustion engine trucks those automakers still sell — which are far more than those of foreign automakers but which also consume far more petroleum.
NHTSA is already planning to hike truck mile-per-gallon standards by about 4% a year, about twice as fast as car standards beginning in 2027. The PEF change, automakers say, will create "a hole," where the Detroit Three's fleet-wide mile-per-gallon average for trucks will only be about 45 mpg by 2032 — well under the federal mpg target — compared with 61 mpg, well over the target, with the current PEF.
Cars, on the other hand, wouldn't be as impacted by the PEF changes, with the Detroit Three's fleet-wide average being about 65 mpg in 2032 compared with a target of 66 mpg. But those are a much smaller segment of U.S. automakers' sales.
"The truck fleet contains more than just pickup trucks," Blunt wrote. "It also includes family vehicles such as SUVs, crossovers, and minivans. These family vehicles are 68% of the U.S. market. Moreover ... 83% of the vehicles produced by the (Detroit automakers) are included in the 'truck fleet.' " NHTSA has already estimated that the Detroit automakers' per-vehicle cost of complying with the new standards, in terms of technological costs and fines, is expected to be $2,151, compared with $546 for other automakers.
Automakers want the Energy Department to delay any change to the PEF for now, arguing that it will only serve to drain investment in EV technology and reward other automakers like Toyota who have embraced hybrids, which have high mile-per-gallon capabilities but still use petroleum.
Pete Huffman, a lawyer with the NRDC, said the automakers are being disingenuous with their argument. He said NHTSA's figures for compliance costs are based largely on what regulators calculate will be the EV products of each brand in model year 2027 and extrapolated out to 2032. But American automakers, he added, have already said they plan to introduce many more EV models than those calculated by NHTSA, meaning they shouldn't face those fines.
"They're going to have a lot more EVs," he said. "In those more realistic scenarios, nobody pays any significant fines."
He also said environmental groups oppose any effort to delay the new PEF from going into effect, given that the current one has been in place since 2000, when current EV technology was in its infancy.
"It's basically a windfall they've been getting for a very long time," he said.
Contact Todd Spangler: tspangler@freepress.com. Follow him on Twitter@tsspangler.
This article originally appeared on Detroit Free Press: Detroit automakers: Biden rule change could cost them billions
