Buying Credit: FCA Says It Won't Need to Pay EU's CO2 Fines
Fiat Chrysler Automobiles CEO Mike Manley said the automaker will not have to pay fines for failing to meet the demands of tightening European air quality regulations. But that’s not because the automaker is actually going to adhere to them. FCA has been pretty open in explaining its willingness to simply endure fines or, conversely, buy enough carbon credits to circumvent the issue entirely. And, over the next two years, the latter strategy will be how it copes with the EU’s pollution mandates.
It’s not ignoring efficiency, however. FCA still plans on releasing an improved Fiat 500 BEV while expanding its hybrid offerings via the Jeep brand this year. It’s just easier (and cheaper) to buy credits in advance, knowing the manufacturer will need them.
In a conference call we were not privy to, CEO Mike Manley said the company’s upcoming EVs (as well as hybrids) will account for about 5 percent of the manufacturer’s European sales. According to Automotive News, Manley also said FCA plans to improve fuel economy incrementally by updating existing powertrains and expanding availability of the small (1.0 and 1.3-liter) GSE engines — which will soon be manufactured in both Poland and Italy.
While the smaller three-cylinder is likely to stay isolated in Europe, the 1.3-liter is already available in the United States in the Jeep Renegade and Fiat 500X.
The rest of the corporation’s environmental initiative will come by way of purchasing regulatory credits from Tesla Motors. However, FCA said it only plans to so through 2021 and aims to become fully compliant with EU rules over the next few years.
From Automotive News:
While FCA expects it will avoid fines, it will still have a substantial bill to achieve compliance. CFO Richard Palmer said during FCA’s first-quarter conference call that the cost to achieve compliance in Europe this year is 120 million euros ($134 million). The global total cost for compliance in 2019 is set to be “moderately higher” than the 600 million euros ($672 million) FCA spent in 2018.
The CFO said compliance costs are a 50 basis point (0.5 percent) drag on FCA’s profit margin in the European region, which includes Africa and the Middle East. Electrification will also increase industrial costs, he added. Manley said FCA aims to recover 60 percent of the additional vehicle electrification costs via pricing.
Manley did not say whether FCA will also be able to avoid fines in 2021, when the new EU rules take full effect (next year automakers will have to comply with 95 percent of their sales).
Manley did say that he wants FCA to go without credit help from Tesla by 2022, which seems just far enough away for the promise to not hold much weight. At any rate, the present deal is mutually beneficial. Tesla has made over $2 billion from the sale of environmental credits — most of them ZEV credits from CARB-friendly states, primarily California. The EV firm should clear hundreds of millions more over the coming years, as both FCA and General Motors have indicated they will purchase said environmental merits for the foreseeable future.
[Image: Jonathan Weiss/Shutterstock]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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This is more than the marketplace setting prices, it is the cost to the consumer in less reliable vehicles and vehicles that will not last as long. A CVT is not going to last as long as a traditional automatic transmission thus increasing the number of vehicles scrapped sooner than later. This might be good for the manufacturers and the dealers but the cost to consumers is increased and environmentally more vehicles being scrapped. Maybe long term technology will make the CVT more reliable along with turbo motors and some of the other technologies. As for cleaner air I agree. One of the biggest scams hoisted on taxpayers and consumers is methanol made from corn added to our fuel. Less about clean air and more about graft.
Yes I know about planned obsolescence like water heaters and appliances that last 6 to 8 years. I expect as much as vehicles cost that they should last at least 10 years. Doesn't have to last forever but when you pay a lot of money you expect something to last. Also in the past I bought a less popular truck (Mitsubishi) and had problems getting parts for it a lesson learned. As for regulators and many politicians they want you to buy an electric car or ride a bicycle while they are provided either a chauffeured limo or a luxury vehicle. Again my point is because of many of the current regulations the consumer pays more and gains little or nothing.