Car manufacturers could axe model ranges to meet tough emission targets and avoid multi-billion pound fines

Motor manufacturers may have to radically and rapidly change vehicle line-ups, which could see some models axed, to avoid fines running into billions of pounds for failing to meet tough European emission rules.

New carbon dioxide (CO₂) emission rules demand that each manufacturers’ average emission across their new car ranges is an average of 95g/km. Carmakers breaching their individual CO₂ targets will pay fines of €95 (£81) for every gram over their limit, multiplied by the number of cars sold in both 2020 and 2021.

Now research by PA Consulting, the international management consultancy, suggests that Europe’s 13 leading vehicle manufacturers collectively face fines of €14.5 billion (£12.4 billion) unless low-emission vehicle sales are given top priority.

PA Consulting said: “This is the fifth year we’ve assessed progress towards the targets and, after positive results in recent years, many manufacturers have taken a step backwards and all now look likely to miss them.

“While a few top performers could turn the tide and avoid fines by prioritising low-emission vehicles, most must now take aggressive action to prepare for the 2025 and 2030 European Union CO₂ emissions targets.”

Those targets require by 2025 a cut of 15% on the 2020/21 95g/km emissions target and a 31% reduction from 2030.

In the UK new car fleet average CO₂ rose for a third successive year in 2019 by 2.7% to 127.9g/km, according to the Society of Motor Manufacturers and Traders (SMMT).

The motor manufacturers trade body said that massive investment by manufacturers into advanced powertrains, lightweight materials and aerodynamics meant new cars were ever more efficient, emitting, on average, some 9.3% less CO₂ than models produced in 2000.

However, that could not offset the overall CO₂ rise which, said the SMMT, was due primarily to the effect of the more stringent new model emissions testing under the recently introduced Worldwide harmonised Light vehicles Test Procedure (WLTP) protocol.

It generally ascribes a higher CO₂ value than the previous New European Driving Cycle test to the same model, but the SMMT also said that some segment shifts in sales and the decline in diesel in the wake of the 2015 emissions scandal that engulfed the Volkswagen Group and consumer confusion over Government policies towards the fuel were also to blame for the CO₂ increase.

One of those segment shifts has been a significant rise, in registrations of sports utility vehicles in the UK and across Europe. On average, such vehicles have CO₂ emissions 16g/km or 14% higher than an equivalent hatchback model.

PA Consulting said: “All the car makers that were previously on track to meet their targets – Toyota, Renault-Nissan-Mitsubishi, Volvo, Honda and Jaguar Land Rover – are now set to fall short according to our forecasts.”

Other major manufacturer likely to face fines for breaching emission targets include: Hyundai-Kia, Volkswagen Group, BMW, Ford, Daimler, Honda, Fiat Chrysler and Mazda.

As a result, PA Consulting calculates that Volkswagen could face a potential penalty of €4.5 billion (£3.8 billion) – 32% of its 2018 earnings – reflecting the high number of cars it sells in Europe, and Jaguar Land Rover could see a fine equivalent to 400% of its 2018 profit.

To combat the potential fines, PA Consulting said: “Manufacturers should look closely at how they can encourage sales of low-emission vehicles throughout 2020 as electric vehicles and plug-in hybrids qualify for super-credits that could significantly lower fines. That means reviewing pricing and promotions, and making low-emission vehicles more prominent in showrooms.

“Only by increasing sales of low-emission vehicles can car makers move towards their targets and reduce fines. That means understanding sales volumes by CO₂ emissions, heavily marketing hybrids and fully electrified vehicles, and thinking carefully about price. While the disruption and uncertainty caused by technological change have been difficult for the automotive industry, technology will be the long-term solution to reducing emissions and costs.”

SMMT chief executive Mike Hawes went further telling The Guardian newspaper: “Carmakers will have to look at their model mix to see whether that is economic. The fines are going to be severe, and all of them will do everything they can to avoid that.

“It could be that you see a reduction in consumer choice through the removal of higher-emitting vehicles from not just the top end, but particular segments.”

Even though the UK is exiting the European Union, it will still be impacted by the European Union’s emission targets as it adopts them as its own.

There is speculation that as motor manufacturers look to minimise the impact of fines that they will target sales of electric vehicles and smaller CO2-emitting models at European Union countries, rather than the UK. With a larger spread to average across, the 95g/km target would be easier to reach, especially with the CO2-heavy UK out of the equation.

The impact of that decision as model ranges transition would be to leave the UK potentially without some of its more popular vehicle options, and nothing to replace them and a fall in over total new car registrations.

PA Consulting added: “Our analysis shows it’s too late for changes in technology to make a difference to the 2021 targets, so manufacturers will have to take a different strategy to make an immediate impact. But the new low-emission technologies they are developing have real potential to reduce CO₂ emissions as focus shifts to 2025 and 2030 CO₂ emissions targets.

“Car makers should accelerate innovative technologies to market as a standard option, foregoing the long process of introducing premium technology that trickles down through the range.”

Tim Lawrence, an automotive expert at PA Consulting, was reported as saying: “There’s a big transition to go through from the existing combustion engines to the new technology. They [manufacturers] are very concerned about consumer adoption of electric vehicles.”

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