EU Emission Fines Could Spell Trouble for Automakers in 2021, Especially VW and FCA

A recent study from consulting firm AlixPartners has suggested that automakers could be in for a financial ass kicking of epic proportions. As it turns out, reaching emission quotas is a difficult business and the European Union wants 95 grams of carbon dioxide per kilometer by 2021. The study suggests few automakers are on track to reach that goal and, as a result, will be forced to pay out sizable fines. We’re talking billions.

Can you guess which manufacturers are supposed to get hit the hardest?

Here’s a hint: we’ve discussed one of them having similar issues in the United States earlier this year and both of their names are in the title of this article.

In February, we reported that FCA paid $77 million in U.S. civil penalties due to its failure to adhere to 2016 model year fuel economy requirements and would likely be on the hook for steeper penalties in the years to come. Volkswagen’s storied history with air pollution has been covered to death. After being caught cheating on emissions tests in 2015, and being on the receiving end of huge fines, the German company has shifted aggressively toward electrification.

According to Reuters, AlixPartners is forecasting that Europe’s stiffer penalties could result in VW facing fines of up to 1.83 billion euros ($2.08 billion) by 2021, with FCA being slapped with a projected 746 million euros (about $848 million) — massive, considering its size in relation to Volkswagen Group.

While Fiat Chrysler hasn’t entirely ignored present-day trends in environmentalism, it’s often seen as lagging its competitors in terms of supplying the public with greener, cleaner vehicles. However, if you ask me, the automaker is simply declining to pay lip service. Unless you’re illiterate, deaf, and have been living beneath a rock for the majority of your adult life, you’ve probably noticed that a lot of companies talk about progress and the environment while remaining totally fixated on their bottom line.

Practically every business does this but car companies are repeat offenders — frequently playing the PR game while trying to circumvent regulation and maximize profit. As they’re in the business of making money, that’s largely understandable. But it doesn’t change the fact that it often feels like a well-orchestrated con job, done to avoid scrutiny. The gas war in the U.S. is a pristine example of this. Most automakers lobbied for the fueling rollback but when California cried foul, they publicly reneged and urged for compromise while publicizing their most-green initiatives.

Meanwhile, FCA has been telling it like it is. Remember when the late, great Sergio Marchionne urged everyone not to buy the Fiat 500e? He did that because it wasn’t making FCA any money and we know that because he said so, in no uncertain terms. The car only existed to appease emission mandates and there are countless EVs that have been built for identical purposes — their manufacturers just failed to tell everyone.

“I hope you don’t buy it because every time I sell one it costs me $14,000,” Marchionne, the legend, told a crowd at the Brookings Institution in 2014. “I’m honest enough to tell you that.”

Even though Fiat Chrysler has been doing a bang-up job in terms of corporate frankness, comparatively speaking, that doesn’t change the fact that it’s doing a rather lousy job of improving emissions. However, FCA seems to feel that repositioning itself as a forward-thinking mobility company is fiscally nonsensical, risks compromising some of its most-important brands, and would do little to help it achieve its longstanding merger goals. Just paying the fines is an acceptable solution if it doesn’t cost more than the alternative and FCA’s stated plan is to endure environmental bills in whatever manner is cheapest.

By contrast, Volkswagen has said it intends to to comply with the European rules by building as many electric vehicles as possible. A better strategy in the eyes of EU regulators, but we remain concerned that the EV market hasn’t yet caught up to regulations. VW could be getting ready to build a whole lotta cars most folks aren’t prepared to buy. But it has already spent billions developing EVs and can’t afford to back out now.

That’s not a criticism of either brand, just an observation of how odd it is that each solution seems equally viable to their respective automakers and would technically satisfy the regulatory framework that’s currently in place. VW is keeping its head down; FCA is shrugging its shoulders. Both still have to pay out, in one form or another.

AlixPartners reported that Volvo and Toyota are the only major manufacturers which would be able to sell their emission credits to other outfits and won’t have to face penalties in 2021. That will also be true of Tesla but the firm didn’t see it as a large enough to qualify as a “major manufacturer.” Alix also said that it expects European car sales to stagnate or decline over next three years ( something we’re already seeing), negatively impacting the margins of suppliers and automakers — especially those attempting to balance sale of electric and combustion-engined cars, which will be most of them in a few years.

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