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The real consequences of the California ban

by David Zatz on

A few weeks ago, GM, FCA, and Toyota publicly opposed California’s tightening restrictions on car emissions, including its electric-vehicle mandate. In return, the governor banned buying new FCA, GM, and Toyota vehicles.

Many people misinterpreted the headlines, believing that nobody could buy, say, a Jeep Wrangler while in the state of California. The ban, however, only applies to the state government—not to, say, the City of Los Angeles, or to anyone who happens to be living in California.

The ban does not cover the Ferrari California, since Ferrari split from FCA.

The ban is still fairly significant, because California is a large state; they spend around $72 million per year on cars and trucks (most of which is divided, roughly equally, between Ford, GM, and FCA, in that order).

The ban, though, does not seem to affect “certain” public safety vehicles, so police cars, ambulances, and fire trucks are likely immune. The California Highway Patrol accounts for one thousand vehicles each year, which could be around half the total.

Overlooked by many people is a secondary ban: California will not buy gasoline-powered sedans, except, again, for “certain” public safety vehicles. That would normally provide an “in” for the Chevy Bolt, except for the GM ban.

1978 CHP police cars

The ban will hurt GM and FCA (Toyota is unlikely to notice), but at most, they will lose around $19 million in fleet sales per year; and, more likely, the lost sales will be far, far lower, likely under $10 million per year.  That’s not $10 million in profit, but in gross revenue. It won’t kill either company.

Things could have been worse: California could have written the rule as a straight ban, giving Ford the entire California police and emergency vehicle market. As it happens, the reality is probably that this is a symbolic move, and that neither GM nor FCA will suffer much at all. And, because they publicly sided with the White House, GM can keep making cars in Mexico without duties, and FCA can get together with PSA without objections.

Why did individual automakers support or oppose the California rules?
GM was one of the mass-produced battery-electric pioneers, but they still rely on trucks for their profits—especially in California, where American cars aren’t in vogue (except 1960s Mustang convertibles).
FCA relies even more heavily on trucks and SUVs, and has just one one electric car, the Fiat 500, which has not set the world on fire (cue Tesla self-immolation joke).  What’s more, but need to stay on the White House’s good side: FCA wants to merge with PSA, and GM wants to keep using Mexico as its cheap-labor reservoir. Of the Big Three, GM relies most on Mexico.
Some may ask why Toyota jumped in; one possible reason is not having a battery-powered car yet, despite inventing the modern hybrid. The companies that supported California generally already have, or plan to flood the market with, battery-electric vehicles (BEVs).

To a degree, too, it seems the automakers with higher sales in California sided with the state, while those who are almost afterthoughts there went with the White House. BMW has a series of slow-selling electric cars, and Volkswagen will soon have a bevy of them to keep dominating European sales.

 

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