The Congress seems poised to pass the first increase in fuel efficiency mandates in a generation. The Democratic leadership has been meeting behind closed doors to hash out the remaining issues surrounding their energy plan. Among the most contentious of these is what to do about automobile mileage. The Senate passed language that would raise standards for all vehicles to 35 miles per gallon by 2020. The House-passed bill did not establish a new standard, but two competing pieces of legislation – one raising standards to 35mpg by 2018, the other raising them to 32mpg by 2022 – each had more than 150 co-sponsors. Any of the three plans would mean drastic changes for American automakers.

No single automaker seems as poorly positioned for a changed environment, however, as Chrysler. This is due primarily to how these standards actually operate. Most people, Members of Congress included, do not realize that efficiency standards do not apply to vehicles made, but rather to vehicles sold. Each manufacturer must adjust their vehicle mix to ensure that the average fuel economy of the vehicles they sell meets the standard set by the government. If, for example, General Motors sells more Chevy TrailBlazer SUVs than Chevy Aveo subcompacts, they have to ensure that their pick-ups are relatively efficient. If, by contrast, Toyota sells more Priuses than Tundras, they can afford to have less efficient Tundras.

Chrysler has a vehicle mix heavily weighted toward relatively lower gas mileage “muscle cars” (the Dodge Viper, the Chrysler 300) and trucks (the entire Jeep line, Dodge Ram). The Senate language makes no room for vehicle type – 35mpg for a vehicle fleet will hit trucks and SUVs hard. Chrysler likely will have more difficulty adjusting to higher standards than its competitors. Chrysler has already announced, seemingly in anticipation of these new rules, that it intends to cancel the Crossfire, Magnum, and Pacifica models; announced the sale of Smart cars; and announced the eventual importation of China’s Chery subcompact cars to be sold under the Dodge label.

The future business decisions of Chrysler might be pushed in one direction or another based largely on whether cars and light trucks are separated in any new fuel efficiency arrangement.

For further information about this topic, please contact Akin Gump.