GM Disagrees With Treasury & IRS On What Is An SUV

January 8, 20232 years ago Steve Hanley 0 Comments

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Quick — what is an SUV? The question is of vital importance because the new federal tax credit for electric cars sets the maximum sales price for cars and wagons at $55,000 and $80,000 for SUVs.

The Environmental Protection Agency (EPA) and the Department of Energy (DOE) have created definitions for various categories of vehicles for decades because they are the ones who determine whether a vehicle is in compliance with federal exhaust emissions standards. Those standards vary depending on the size and weight of the vehicle, thanks to the so-called “footprint rule,” a fiction fobbed off on the government by the automakers years ago that says larger, heavier vehicles are allowed to pollute more than smaller, lighter cars.

If you have ever wondered why cars and trucks seem to be getting bigger and heavier every year, it is because of the “footprint rule.” If a manufacturer can’t comply with the tougher emissions regulations that apply to efficient passenger vehicles like the Chevy Cruze or Dodge Dart, just stop making them and focus on manufacturing Chevy Suburbans or RAM 1500 Big Horn trucks instead. Oh, and one more thing — those bigger vehicles have much bigger profit margins, too. Hmmm … could there be a connection?

Everybody wins — except the environment, of course. The basis of the rules in the first place — reducing emissions from the transportation sector — is subverted by the rule-making process so that now we have more emissions than we would have if the “footprint” rule was never adopted in the first place. While total emissions are lower today than they were a decade ago, they would be considerably lower if the “footprint rule” had never been adopted. That is the magic of letting special interests dominate the rule-making process.

What Is An SUV?

The Inflation Reduction Act directs the Treasury Department to make the rules that will implement its provisions. The Internal Revenue Service is part of Treasury. Now, you might think the folks at Treasury and the IRS, when faced with the task of determining which vehicles are SUVs and which are not, would call over to their colleagues at DOE and EPA and say, “Hey, you guys have been doing this stuff for decades. Can we just adopt the classifications you have worked on for years and make them part of our new regulations? That would save us a lot of time and we’re really busy over here, so thank you very much.”

Treasury says that is precisely what they have done and yet its proposed rules have taken some automakers by surprise. A case in point is the Cadillac Lyriq. Here’s a vehicle that if you showed it to 100 people without them knowing anything about it, 95% of them would say it’s an SUV. It looks like an SUV. Cadillac markets it as an SUV. It was designed from the ground up to be an SUV because, guess what? SUVs are the hottest segment of the new car market and Cadillac wants to play in the deep end of the pool. That’s where the sales are and that’s where the profits are.

So imagine the consternation at Cadillac when they discovered Treasury and the IRS want to classify the Lyriq as a passenger car, not an SUV! The car starts at $62,990. If it’s an SUV, it is eligible for the full federal tax credit (at least for the next few months). If it’s a passenger car, Lyriq buyers will get nothing from Uncle Sugar. Now, Lyriq customers are not destitute. It can be argued that they don’t need any help buying a car, electric or otherwise. But they are not likely to pass up a potential savings of $7,500 if they can help it.

Suffice it to say, the people at Cadillac are not happy campers right now. In fact, according to Reuters, General Motors is bringing all its considerable lobbying might to bear on the issue. “We are addressing these concerns with Treasury and hope that forthcoming guidance on vehicle classifications will provide the needed clarity to consumers and dealers, as well as regulators and manufacturers,” the company says. It adds that Treasury should use criteria and processes similar to the Environmental Protection Agency and Energy Department. “This drives consistency across existing federal policy and clarity for consumers.”

For its part, Treasury says it is going strictly by the book by using fuel economy standards “which are pre-existing — and longstanding — EPA regulations that manufacturers are very familiar with. These standards offer clear criteria for delineating between cars and SUVs.”

The Great SUV Debate

Cadillac is not the only one caught up in this schlamozzle. The Volkswagen ID.4 is classified as a passenger car if it is equipped with one electric motor but as an SUV in dual motor trim. The Tesla Model Y, which has two electric motors (in US trim), is a passenger car according to the government if it seats five but an SUV if it seats seven. Elon Musk, the grand poohbah at Tesla, tweeted this week that the rules are “messed up.”

Time is of the essence here. Treasury on December 29, 2022, said it couldn’t finish writing the rules and regulations needed to implement the IRA by the end of the year but will get them done sometime in March — it hopes. Once that task is completed, the tax credit will be split into two $3,750 halves. One half requires the materials used to make the battery for an electric car be sourced from within the US or other approved countries. The other half applies the same test to battery materials. Underlying everything going forward is the requirement that no tax credit is available unless the final assembly of the car in question takes place in the United States or a close trading partner like Canada or Mexico.

But until all the rules are finalized, there will be a brief window of opportunity during which all electric cars deemed to be assembled in the US will be eligible for the full $7,500 federal tax credit, provided, of course, they are priced less than $55,000 for a passenger car or $80,000 for an SUV. That brings us full circle back to where we began. What, exactly, is an SUV?

The Takeaway

To be fair, the EPA has helped create much of this confusion. In its 2022 Automotive Report, it refers to some vehicles as “SUV cars.” This will all get straightened out as armies of Gucci-shod lobbyists work their magic behind the scenes, far away from public oversight.

What we think here at CleanTechnica is largely irrelevant, but over espressos in the writers lounge this morning, everyone thought the Cadillac Lyriq is clearly an SUV. That it is not was a surprise to all of us. There is an old expression that says, “Only lawyers and painters can turn black to white.” Maybe that adage should be amended to include government regulators as well.