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VW, PSA face huge EU fines from fuel economy failure

This article was first published on Forbes

Volkswagen of Germany and PSA Group of France face huge fines in 2021 from the European Union if they don’t significantly improve their fuel economy performance, a report from PA Consulting said.

Meanwhile European legislators failed to agree a new, even harsher regime for 2025 and 2030, and European carmakers said tougher rules will price poorer people out of the market for cars.

VW and PSA, which face fines of 1.4 billion euros ($1.6 billion) and 600 million euros ($684 million), are among eight out of 13 vehicle manufacturers which will miss their 2021 targets, PA Consulting said.

PA Consulting describes itself as an innovation and transformation consultancy.

VW includes its own brand, mass market subsidiaries like Skoda and SEAT and premium players Audi and Porsche. PSA owns Peugeot, Citroen, DS, Vauxhall and Opel brands.

“PSA faces the biggest (relative) impact from fines based on EBIT (earnings before interest and tax) of 600 million euros, representing 20% of its 2017 profit,” PA Consulting said in the report.

As well as VW and PSA, Ford, Fiat, BMW, Daimler, Mazda and Hyundai-Kia are going to miss their 2021 targets, PA Consulting said.

“Toyota remains the best performing manufacturer in the ranking, Renault Nissan Mitsubishi lists second and Volvo third, down from second last year. Ford and Volkswagen have gone backwards and in 10th and 11th place respectively. Daimler and BMW are making progress towards their targets and Jaguar Land Rover still has the highest CO2 emissions, but is on track to meet its specific target,” the report said.

According to PA Consulting, EU CO2 emissions regulations are the most stringent in the world. Each carmaker has a specific target for its registered car fleet in 2021. The target is an average of 95 grams of CO2 per kilometer. 95 g/km is the equivalent of an average of 57 miles per U.S. gallon.

Carmakers face fines of 95 euros ($108) for every gram of CO2 they are above their limit, multiplied by the number of cars sold in the EU the previous year. China has a target of 117 g/km, Japan 122 and the U.S. 125 g/km for 2020, PA Consulting said.

EU legislators failed on Tuesday to agree a new menu of CO2 targets for 2025 and 2030. The European Parliament rejected the EU Executive’s proposal of a 15% extra cut by 2025, rising to 37% by 2030. In October the Parliament wanted a 20% cut in 2025, rising to 40% by 2030, and a requirement that 35% of all new cars sold in the EU in 2030 must be low or zero emissions vehicles. Parliament needs to approve the rules before May’s elections.

Before the proposals were rejected by Parliament, the European Car Manufacturers Association had described the attempt to raise 2030’s CO2 cuts to 40% as threatening the ability of poorer people to own cars.

PA Consulting’s auto analyst Michael Schweikl said manufacturers are running out of time to meet the 2021 targets, the path to which will be made more difficult by new so-called WLTP rules.

"Car makers are running out of time to improve performance quickly enough to avoid fines. Marketing, sales and pricing strategies that increase the take-up of low emissions vehicles will be key in getting manufacturers closer to the targets," he said.

“The Worldwide harmonized Light vehicles Test Procedure (WLTP) cycle will make meeting regulations even harder. The WLTP, which is part of the 2021 regulations, introduces more realistic testing conditions, providing an accurate basis for calculating fuel consumption and CO2 emissions. It is predicted that it will increase CO2 emissions by an average of 20%,” Schweikl said.

WLTP rules were designed to force manufacturers to produce more accurate fuel efficiency data, which often exaggerated on-the-road- performance by upwards of 30%. European manufacturers had been relying on diesel engines to contribute a large part of the improved economy targets, but worries over health implications have meant diesel sales have slumped. This means there will need to be more investment in making gasoline engines more fuel efficient, and a hope that electric cars might fill the gap.

Driving into a low emissions future: How can car makers look beyond 2021

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