Regulators Vs. Free Market: Who Will Win The Vehicle Emissions Game?

A story in the Detroit News on January 7 suggests the market for electric cars simply doesn’t exist. It says that within the auto industry, electric cars are still seen only as “compliance cars” and money losers. Even the all new Chevy Bolt falls into that category. If it wasn’t for EPA and CARB regulations, nobody would build them, but they have to in order to avoid hefty fines looming in the future. “The regulators are what are driving electric car production,” said Karl Brauer, an industry analyst with Kelley Blue Book. “It’s not because consumers are demanding them.”

Chevrolet Bolt has no vehicle emissions

10% of all new cars sold in California are supposed to have no tailpipe emissions by 2020. Car makers will be fined $5,000 per car if they fail to comply. This year, Fiat Chrysler bought $600,000 in federal emissions credits. It had to because its products, particularly the Dodge Ram 1500 and the entire Jeep lineup, fall woefully short of meeting the targets regulators have set. For Fiat Chrysler and small automakers like Mazda and Subaru, “The only options they have are to buy credits or invest billions in batteries,” says Brauer. “It’s pay up or else.”

Last year, sales of alternate fuel vehicles fell 20% at the same time the market overall set a record for total sales. Of the almost 17.5 million cars and light trucks sold last year, more than half were light trucks and SUVs. Plug-in hybrids and electric cars accounted for just over 2% of that total, down from 2.4 % the year before.

What we have is a two tier system, says the Detroit News. On one hand, there is a market full of SUVs and trucks people actually buy. On the other hand, there are the “money losing compliance vehicles” composed of EVs and hybrids that people aren’t buying. Next week, Chrysler is expected to preview a hybrid version of its popular Town & Country minivan. You would expect there would be a line out the door of people wanting to order one, right? Not according to KBB’s Brauer. There is “zero market demand for a hybrid minivan,” he says.

While Chevrolet is extolling its virtue for bringing the Bolt to market, it has also announced it is capping production at 30,000 vehicles. Why is that? If the Bolt is the savior everyone says it is, shouldn’t they be selling as many as they can weld, screw, and bond together? Doesn’t that prove the Bolt is a compliance car? Chevrolet has calculated how much money it will save in fines and emissions credits, divided that by the amount it loses on each car, and decided 30,000 cars is all it needs to make in order to come out ahead financially.

How long can manufacturers play the emissions compliance game? At some point, somebody has got to start making money on alternative fuel cars. The auto industry is hugely important to the US economy. For every job in the industry, 4 to 5 other people are indirectly involved in making parts, transporting cars, selling them, or financing automobiles. If automakers suffer, the entire economy suffers.

Americans have shown time and again that they prefer the biggest, thirstiest vehicles available. If gasoline prices stay below $2.00 a gallon, expect to see General Motors resuscitate its Hummer division and Ford re-introduce the behemoth-sized Excursions that used to roam the highways.

The problem, of course, is that the emissions from burning fossil fuels are poisoning the planet. We all understand that, but opt for big, heavy, emissions spewing vehicles anyway. As human beings, we are inclined to minimize the bad news we hear if it means we have to alter our lifestyle one iota. We are like the staff on the Titanic who raced to re-arrange the deck chairs as the great ship prepared to sink beneath the waves.

Maybe fuel economy standards and market solutions aren’t the way to save us from ourselves. Maybe the only way to do what needs to be done is to simply ban the use of gasoline or diesel fuel in passenger vehicles. How’s that for a disruptive idea?

Steve Hanley

Closely following the transition from internal combustion to electricity. Whether it's cars, trucks, ships, or airplanes, sustainability is the key. Please follow me on Google + and Twitter.