Fiat Chrysler Automobiles cut a check for $77 million for failing to meet federal fuel economy requirements in 2016. Consumer appetite for trucks and SUVs has done wonders for the Ram and Jeep brands, but that popularity has a price.
Reuters reported last Thursday the multi-million fine is a civil penalty and it could be one sign that automakers continue to have trouble meeting current emissions regulations. FCA continued to argue, like other automakers, assumptions that surround the current regulations finalized in 2012 do not reflect today's reality. Seven years ago, car buyers began to ditch trucks and SUVs for smaller cars and fuel-efficient vehicles. Today, gasoline prices remain relatively low, and buyers have dramatically shifted their tastes back to SUVs and pickups.
However, the National Highway Traffic Safety Administration said in a report in December that the entire industry faced fines of $77 million in 2016, which would make FCA the only automaker that was subject to fines that year.
FCA's lofty fines come mostly from the sale of Jeeps and Rams, which have proven popular with buyers. FCA also said it blames part of the fines on vehicle reclassification. In 2011, some front-wheel-drive crossovers were moved from truck to car classification for fuel economy standards. The latter involves more stringent requirements and affected models such as the Dodge Journey, Jeep Cherokee, Jeep Patriot, and Jeep Compass.
Coincidentally, 2016 was the year FCA decided to discontinue the Chrysler 200 mid-size sedan and Dodge Dart compact car, both of which improved the company's Corporate Average Fuel Economy figure. Given that decision, the $77 million FCA paid appears to be the price of doing business to sell more profitable trucks and SUVs, as well as cars with big V-8 engines. Notably, former CEO Sergio Marchionne said at an investor conference last June that the company would incur penalties from time to time while selling vehicles that align with consumer demand. FCA also hasn't invested heavily in electric vehicles, though it has a plan for many new EV nameplates to arrive by 2022.
The Trump administration proposed freezing the fuel economy standards at 2020 levels through 2026, which it projects would save automakers $300 billion in regulatory costs. Right now, fuel economy requirements will continue to rise through 2025 under rules put in place during the Obama administration. In 2025, fleet-wide vehicle fuel efficiency is mandated at more than 50 mpg. The Trump administration proposal would put this regulation on hold for six years starting in 2020.
Across the industry, the NHTSA noted automakers likely face shortfalls of around $1.2 billion for the 2017 and 2018 model years, though that number will likely be offset by some automakers that will be able to use credits earned for overcomplying in previous years.
—Senior Editor Kirk Bell contributed to this report