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UNINTENDED ACCELERATION OF FINES

THE FEDERAL CIVIL Penalties Inflation Adjustment Act Improvements Act of 2015 doesn’t just sound redundant, it’s causing havoc among automakers. As with many laws, there’s rationality and a spirit of fairness about this act: a “catch-up” adjustment of federal fines to reflect inflation.

Specifically, monetary penalties in 16 laws are affected. Included among them are those for violations involving market manipulation, premerger reporting, cease and desist, and filing requirements of export trade and Medicare prescription drugs. Fair enough.

However, not unknown with regulations of all sorts, there’s an unintended consequence. Or at least one likes to think it was unintended.

EPANHTSAFedRegMontage

In particular, automakers have long contended with fines for failing to meet Corporate Average Fuel Economy requirements. These targets grow increasingly tough and culminate with Model Year 2025’s 54.5 mpg. See “54.5 Mpg and the Misinformed” for background on this mandate.

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Penalties paid by automakers over 2010 – 2014 for missing CAFE targets. Chart from Automotive News, July 18, 2016; source: National Highway Traffic Safety Administration.

Fines are the result of complex calculations involving sales-weighted model-by-model mpgs as well as offset credits traded among automakers meeting or failing to meet annual targets. Indeed, as one example, the bottom line of electric carmaker Tesla has benefited particularly from selling such credits, not from selling cars. See “Toyota, Honda Sitting EPA-Pretty” for a 2013 status report.

The annual fine for CAFE shortfall has been severe, $5.50 per car sold for each 0.1 mpg of the automaker average below that year’s requirement. Computing an automaker’s average is non-trivial, depending on car or small truck “footprints” and their CAFE numbers (which are different from the Environmental Protection Agency’s posted mpgs on new-car stickers).

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An example of Model Year 2016 targets. Data from Wikipedia citing National Highway Traffic Safety Administration “2017 – 2025 Model Year Light-Duty Vehicle GHG Emissions and CAFE Standards Supplement.”

These targets, credits and other complexities figure mightily into an automaker’s planning of future products. Five-and-a-half dollars/0.1 mpg/car sold is a hefty fine, particularly when it’s based on something as chancy as whims of the buying public. As an example, today’s cheap gas has fuel-thirsty cars and SUVs flying off the shelves.

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Then along comes the July 5, 2016, Federal Register, the daily journal of the U.S. government. It reminds everyone that the FCPIAAIA of 2015 (see above) applies to CAFE fines as well. What has been $5.50 now rises to $14, the fines retroactive to Model Year 2015 as well.

Can you say “blind-sided.”

Automotive News, July 18, 2016, quotes the National Resources Defense Council’s Roland Hwang saying, “This is a badly needed reform,” who went on to say that the $5.50 rate made it cheaper for automakers to miss the target than to try to achieve it.

Yeah. And the car buyers as well. Now you tell one. ds

© Dennis Simanaitis, SimanaitisSays.com, 2016

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