Europe: new CO2 rules to dig into carmakers profits image

The European Union’s parliament voted this week the rule that would see the average CO2 limit set at 95 g/km for every European carmaker. This means a more than $16 billion total cost for the automakers – which could soon reflect in car prices.

With market leader Volkswagen already seeing forecasted profit for 2014 at a not so good level, the amount needed to implement the new rules would also be roughly three times bigger than what these carmakers have as profit share.

Still, the rules also included a compromise, that would allow the German carmakers – especially the premium manufacturers which have many gas-guzzlers (that also bring a hefty profit) – use so-called “super-credits”, based on electric and plug-in hybrid sales.

“VW’s large exposure to Europe means that the absolute cost headwind for VW will be the biggest,” said International Strategy & Investment. “The VW brand, which despite being compliant, still has a much higher CO2 footprint than (Peugeot-Citroen) or GM, despite selling vehicles of roughly similar weight,” ISI added.

ISI published in 2013 research that saw the projected 12 billion euros ($16.4 billion) industry wide cost, and while a typical carmaker generates around 200 to 300 euros ($273 to $410) from each sold vehicle, the 2021 CO2 rules would add around 1,000 euros ($1,365) to the manufacturing cost of each vehicle.

Via Forbes