Penalty System Remains Same With New CAFE Law

Auto makers will find cold comfort in an enforcement structure that will remain largely unchanged with a new energy law that raises federal fuel economy standards by 40% and could cost OEMs billions of dollars.

“It will be similar to the existing structure,” a spokesman for House Speaker Nancy Pelosi (D-CA) tells Ward's. Pelosi led the charge for a stricter corporate average fuel economy standard.

Under the current structure, auto makers pay $5.50 per 0.1 mpg under the target values multiplied by the total volume of those vehicles in the affected fleet. Since 1983, according to the National Highway Traffic Safety Admin., manufacturers have paid more than $735 million in CAFE penalties.

Most domestic and Asian OEMs rarely pay fines, NHTSA says. But European makers often pay CAFE penalties, ranging from $1 million to $20 million annually. In 2006, the former DaimlerChrysler Corp. paid more than $30 million in fines.

Volkswagen of America Inc. paid just over $1 million in 2006, BMW of North America Inc. was clipped for $5.1 million, and Porsche Cars North America Inc. regularly ponies up between $3 million and $4 million annually.

While European OEMs will be held to the stricter CAFE standard, experts say it's unlikely their annual fines will go much higher. Because unlike previous CAFE standards that held each OEM accountable for an average goal of 27.5 mpg (8.6 L/100 km) for passenger cars and 22.5 mpg (10.5 L/100 km) for light trucks, the new rules mandate the entire industry must meet 35 mpg (6.7 L/100 km) by 2020.

And each auto maker will be assigned a target that factors a vehicle's footprint — linear area multiplied by track width — into its product mix.

“Each auto maker will have a piece of the 35-mpg pie; some will get a larger piece and others will get a smaller piece,” says Brendan Bell, Washington representative for the Union of Concerned Scientists (UCS). “It's a fairly dramatic overhaul of the attribute system.”

“Porsche would be held to a lower standard,” Bell adds. “Their fines may increase slightly, but they've always considered it the price of doing business in the U.S.”

Porsche declined comment on the new CAFE law. However, a spokesman says the auto maker will meet future fuel standards by “continuing its history of developing more efficient vehicles through its innovative development and engineering.”

Under the new CAFE structure, NHTSA will evenly split money collected from fines between administering the law and funding government-backed loans to help domestic auto makers retool for production of more fuel-efficient vehicles.

Because of their truck-heavy mix, Detroit's Big Three stand to benefit from the new law's attribute-based system of vehicle classification. For example, the UCS expects General Motors Corp., Ford Motor Co. and Chrysler LLC will have to meet a standard of about 32 mpg (7.4 L/100 km) by 2020.

Toyota Motor Corp. and Honda Motor Co. Ltd., meanwhile, will likely need to attain up to 36 mpg (6.5 L/100 km).