Failing To Meet CAFE Standards Could Cost Automakers Over $14 Billion In Fines
Good morning! It’s Tuesday, October 3, 2023, and this is The Morning Shift, your daily roundup of the top automotive headlines from around the world, in one place. Here are the important stories you need to know.
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1st Gear: $10.5 Billion In Fines Coming For Big Three
The proposal from President Joe Biden’s administration to hike fuel economy standards through 2032 would end up costing automakers billions of dollars. It would reportedly cost General Motors about $6.5 billion and Stellantis $3 billion. Additionally, Ford would be on the hook for about $1 billion.
The American Automotive Policy Council, which represents the Big Three, said in a letter to the U.S. Department of Energy that the size of the expected penalties for not meeting the proposed Corporate Average Fuel Economy standards are “alarming.” From Reuters:
The previously unreported letter asked the Department of Energy (DOE) to reconsider its plan to revise the “Petroleum Equivalency Factor” that will result in “disproportionately higher compliance costs” for U.S. automakers.
Detroit’s three automakers face $2,151 per vehicles in compliance costs compared with $546 per vehicle on average sold by other automakers, the letter said, and the policy “would reward those auto manufacturers resisting the transition to a fully electric future the most.”
The National Highway Traffic Safety Administration (NHTSA) in July proposed hiking CAFE standards by 2032 to a fleet-wide average of 58 miles per gallon by boosting requirements 2% per year for passenger cars and 4% annually for pickup trucks and SUVs.
DOE wants to significantly revise how it calculates the petroleum-equivalent fuel economy rating for EVs in NHTSA’s CAFE program.
DOE on Monday noted that on Sept. 14 it sent letters to the Detroit Three and other automakers seeking comments about concerns about the effective date and risks vehicles would have lead time challenges.
Back in April of this year, the DOE reportedly said, “Encouraging adoption of EVs can reduce petroleum consumption but giving too much credit for that adoption can lead to increased net petroleum use because it enables lower fuel economy among conventional vehicles.”
NHTSA did not immediately comment on Monday but previously said the estimate cited by automakers is “consistent with our statutory obligations” adding automakers “are free to use electric vehicles to comply and avoid penalties altogether”.
Automakers buy credits or pay fines if they cannot meet CAFE requirements. In June, Reuters first reported Stellantis and GM paid a total of $363 million in CAFE fines for failing to meet U.S. fuel economy requirements for prior model years.
Reuters reports that a group representing nearly all major automakers previously said that the industry as a whole could face $14 billion in CAFE fines. Of course, about $10.5 billion of that would come from just the three U.S. automakers.
2nd Gear: Auto Workers Send Counteroffer To GM
The United Auto Workers union has reportedly made a counteroffer to General Motors’ September 21 contract proposal. It’s a good step, but from reports, the two sides are not close to an agreement. From Automotive News:
GM met with UAW leaders Monday and “the union did present a counter to our proposal from Sept. 21,” company spokesperson David Barnas said in a statement. “We are assessing, but significant gaps remain.”
[…]
GM said Sept. 21 that it had “put a 5th record offer on the table.” Many details of the proposal have not been disclosed publicly, but the automaker has offered to raise wages a total of 20 percent over four years, get new hires to top wages twice as quickly, and move workers at parts distribution centers and component plants onto the same wage scale as assembly plant employees, who generally earn more today.
The union has called for wage increases of as much as 40 percent and for new hires to earn top wages within 90 days instead of the eight years it takes now.
On September 22, UAW President Shawn Fain expanded the strike for the first time, impacting 18 GM parts distribution centers. He expanded the strike again last Friday, and about 2,300 UAW members who build the Chevy Traverse and Buick Enclave walked out.
3rd Gear: Ford, GM Lay Off Hundreds Of Workers
Ford reportedly laid off around 330 workers at its stamping plant in Chicago and its engine plant in Lima, Ohio. Both supplied parts to the Chicago Assembly Plant, where workers walked off the job last Friday as part of the United Auto Workers latest strike expansion. According to Automotive News, Ford says it has now laid off a total of 930 workers because of the strike. A lame move.
At the same time, General Motors has also laid off 164 employees across two facilities, blaming the strike. That has reportedly brought the total of people laid off by automakers during the strike to over 3,800. Just as a gentle reminder, the CEOs of the Big Three all make about 300 times what the average worker does. From The Detroit Free Press:
On Friday. United Auto Workers President Shawn Fain ordered workers at Ford Motor Co.’s Chicago Assembly and at General Motors’ Lansing Delta Township Assembly to walk off the job. Fain spared Stellantis from additional targets, saying the union has made significant progress in contract talks with that automaker.
The strike action comes after Fain announced the first wave of plants the union would strike as: Ford Michigan Assembly Plant (Final Assembly and Paint only) in Wayne, Stellantis Toledo Assembly Complex in Ohio and GM’s Wentzville Assembly in Missouri. In the second wave, some 5,500 workers at 38 parts distribution centers at GM and Stellantis also went on strike nationwide.
In a statement sent by GM spokesman David Barnas on Monday, the automaker wrote: “The UAW leadership’s decision to call a strike at GM Wentzville Assembly, and now GM Lansing Delta Township Assembly, continues to have negative ripple effects.”
The outlet reports that the letter said that starting on October 2, 130 union-represented workers at GM’s Parma Metal Center in Ohio, and 34 more union workers at the Marion Metal Center in Indiana “will have no work available.”
“The affected team members are not expected to return until the strike has been resolved,” GM said in its statement. “Since we are working under an expired labor agreement, there are no provisions for company-provided SUB-pay in this circumstance. We have said repeatedly that nobody wins in a strike, and this is yet another demonstration of that fact. We will continue to bargain in good faith with the union to reach an agreement as quickly as possible.”
The UAW and GM were in bargaining sessions Monday. In a statement to the Detroit Free Press, Fain said, “The decision to lay off workers is not a ‘ripple effect,’ it’s a decision made by the company to put the squeeze on our members to accept a weak contract. GM owns it, and GM owns the fact that they took over a month to respond to our proposals, and have taken over another month to make serious progress.”
This is the second time GM has laid off employees and blamed the strike. In September, GM idled its Fairfax Assembly Plant in Kansas. That move put nearly 2,000 workers across three shifts out of work indefinitely.
4th Gear: Vehicle Incentives Are Dying During The Strike
Analysts believe the UAW strike is going to be blamed for the Big Three stripping back incentive deals for car buyers. An analyst for Edmunds says September inventive promotions will run their course, and then cuts will start appearing soon since we’re in October. Analysts over at J.D. Power broadly agree with this idea. From Automotive News:
“The degree of the changes in incentives will be a clear sign of what the automakers are anticipating for the duration of the strike,” [a J.D. Power analyst] wrote in an email shared with Automotive News. “Bigger and broader cuts indicate a much longer strike is anticipated. While we expect there to be an overall reduction of incentives offers on many models, pickup trucks are plentiful in inventory and are not likely to be affected much, if at all.”
The union has not interfered with the production of full-size pickups, [they] said.
[An Edmunds analyst] said incentives might not shrink on the high-inventory Jeep Gladiator even though Toledo Jeep Assembly factory workers are on strike, but other models would be “reined in,” Caldwell said. (Enough Gladiator inventory exists to manage at least a five-month strike, Cox Automotive Chief Economist Jonathan Smoke wrote in a UAW strike update posted Monday.)
Automakers also would cut back spending on ads they have used to promote incentives, [they] noted.
While that does stink, it’s not like incentives were that good right now in the first place, according to James Cain, a GM spokesperson. That isn’t the brag he thinks it is, to be honest.
“I think you’ll find that GM’s incentives have been quite low for some time,” Cain said Monday when asked if the company planned October incentive cuts. He said lower incentives were “being driven by strong demand more than anything else.”
Stellantis spokesperson Diane Morgan said the company doesn’t provide information on future incentives, and the company had nothing to share. A Ford spokesperson has not responded to an inquiry.
J.D. Power estimates that October is likely to close with an average incentive rate of 3.7 percent. That’s pretty terrible, but it is up from 2.1 percent from a year earlier.
Reverse: Say What You Will About O.J. Simpson, But He Did Rush For Over 2,000 Yards In A 14-Game NFL Season, And That’s What He’s Most Known For
Neutral: I HAVE A NEW TWITTER ACCOUNT
It seems Elon couldn’t take the heat anymore, and my old Twitter (or X, idk) account got suspended. So, I’ve risen from the ashes and created a new account. PLS follow @AndyKalmowitz for car content and Jets misery.
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