I just don't think it's a big enough trade-off for the potential problems it will solve versus the amount of time, resources, and money that it would take to pull something like this off and then enforce it.
1. First and foremost, the public has to be convinced this is a good idea. People love their cars. Muscle cars and various faster cars sell good for a reason. People like to go fast, or at least know that they can. Do they NEED to...no, in most cases they don't. Case in point, not too long ago they decreased the speed limit on the interstates here to 65 from 75mph. There was such a public outcry that they changed it back to 75mph not two months later. You may not consider this a valid reason...but like it or not, if the public isn't for it...something like this won't happen.
2. The automakers would have to buy in. And not just American, but any automobile that we import. And what if they don't want to comply? Do we stop importing those vehicles? Does that cause certain trade tension or effect any domestic economies? Probably will to some extent.
Not only do they stand to lose money because they will lose their highlight vehicles (sure some will still sell on looks alone, but the number will drop considerably) but they have added cost to make all their vehicles conform to this new law. A cost that will likely be passed on to the consumer. And who is going to pay extra for a Mustang that is as speedy as a Contour? Not many.
3. What do you do about older vehicles that don't currently have this modification? Will the government pay for all the necessary parts and labor? Or will the consumer be forced to pay that? Like someone said above, who would want to pay money to have a chip/monitoring system installed in an old junker that barely makes it to 60 or 70 anyways? What about all the car dealerships with vehicles on their lot...think of the impact in cost and labor that they would have to incur to become compliant.
4. Police chases wouldn't become obsolete or 100% safer, not by a longshot. Many police chases take place in residential or higher traffic areas where speeds of 100+ simply aren't possible. That's also where most of the accidents occur. Even when they are on the interstate how many chases have you seen where the vehicle has no front tires from stop sticks, going 25 mph with 10 cop cars behind them? They don't immediately overtake and stop that vehicle, not all the time. It depends on the risk to other drivers, passengers, etc. on when they decide to stop the vehicle or P.I.T. them.
Not to mention the fact that most criminals will likely have bypassed the device that inhibits speed and possible even notifies authorities that he modified it. Or they buy a vehicle that never had the modifications. And believe me, they'll be out there. Just like with guns. You're not allowed to have any guns that are fully automatic. But damned if people can't find a way to buy them...or buy the parts to modify them to be fully automatic. People will find a way.
5. Drunk drivers, statistically, don't kill people because they are going 120mph. They kill them because they are drunk and can't control their vehicle...even at low speeds. They cross the center line, pass out, jump curbs, etc. A head on collision between two vehicles going 35-40 mph CAN kill.
Granted, it will save some lives and prevent some accidents. But I think there is too much blame being placed on speed and this "solution" is being hailed as the answer to all problems...and it simply isn't. It's not going to solve any of these problems by a longshot.