4 Automakers Agree to Cleaner California Air. Now They May Be Sued.

Is this crazy, or what: Four automakers face a Department of Justice investigation and possible lawsuit because they possibly conspired to, uh, build more fuel-efficient cars and help make California’s air cleaner. BMW, Ford, Honda, and Volkswagen are the reported targets of a Justice Department investigation into whether they skirted federal competition laws by agreeing with each other to agree to stricter emissions standards in California.

President Trump is mad at California and automakers standing in the way of his administration’s plan to roll back climate change regulations. It’s possible the DOJ is onto something if it can show the automakers agreed among themselves to act in a way that limits competition or product choices without involving the government beforehand. For instance, reducing the number of big SUVs sold there may be good for the air, but it might be seen as collusion.

States’ Rights vs. Executive Power

At a high level, the disagreement is over the rights of states to set a higher standard for higher fuel efficiency and lower air pollution–in this case, a right granted by federal laws (rather the 10th Amendment holding the “powers not delegated to the United States [are] reserved to the States respectively, or to the people”), and on the other hand, the powers of the executive branch.

The law at play here is the federal Clean Air Act, which dates to the 1960s. It has been modified over the years. It says the feds, not individual states, get to set clean air regulations. But there’s a huge loophole: Because California is the state most affected by car-driven air pollution since the end of World War II, the act lets California set more stringent standards. And it allows the other states to follow the same rules California sets (but not its own rules). Colorado, Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Jersey, New Mexico (model year 2011 and newer), New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington currently use California’s rules. These states represent the entire Pacific West Coast as well as the eastern seaboard from Maine to Washington, DC, and about a third of the US population. For what it’s worth, every California-rules state except Pennsylvania went for Clinton, not Trump, in the 2016 election.

In 2018, President Trump sought to roll back or freeze some fuel economy and air pollution standards. California wants to keep stricter rules. California Air Resources Board Chairwoman Mary Nichols, who was involved in the July agreement with the four automakers, says California’s emissions goals are achievable and they help US automakers because other countries, particularly China, hew closely to California’s rules. In other words, even if the US were to roll back standards, any automaker that wants a global footprint still has to engineer cars to meet the most stringent standards.

This is blatant political interference. The Trump admin is attempting to rig our legal system and scare carmakers.

He can’t beat China so he’s acting like them — using his bureaucracy to attack our private industries.

CA will not be threatened. https://t.co/DIiHP4Uugq

— Gavin Newsom (@GavinNewsom) September 6, 2019

Trump “Enraged.” California Gov: “Political Interference.”

The President used his bully pulpit — Twitter — to excoriate BMW-Ford-Honda-VW. He called them “politically correct Automobile Companies [capitalizations his]” run by “Foolish executives” while the Golden State “will squeeze … [automakers] to a point of business ruin.”

Trump also tweeted that “Henry Ford would be very disappointed if he saw his modern-day descendants wanting to build a much more expensive car, that is far less safe and doesn’t work as well.” Pollution controls will increase vehicle cost — $3,000 a car according to Trump, or $2,100 a car by the Trump administration’s earlier statements. Factcheck.org said there’s little or no evidence that cars with higher mpg are less safe in accidents.

Lighter cars in accidents with heavier vehicles fare less well, but economy improvements could come from greater efficiencies rather than lightening a vehicle. At the same time, a lighter car does less damage to another lighter-weight car.

Consumer Reports weighed in and said Americans as a group will lose $460 billion in fuel savings “in the coming years if the federal government goes forward with plans to roll back the nation’s fuel economy and emissions standards for new cars and light-duty trucks.”

When The New York Times reported Trump was “enraged” by the audacity of California, his handlers opted to alert others in the media that The Times has correctly captured the President’s mood, according to Politico. California Gov. Gavin Newsom fired back at Trump’s “blatant political interference.”

How It Came to This

The backstory dates to the early 1950s and the understanding almost 70 years ago of how smog affects California, to California clean air legislation signed by then Gov. Ronald Reagan, federal fuel economy and clean air legislation of the 1960s, and the California-US agreement thanks to the unique status of California and, in particular, the Los Angeles basin that traps smog.

California’s authority to act comes from the Clean Air Act, which was signed by President Richard Nixon.

When the Trump administration sought to ease some of the clean air standards, 17 automakers urged the White House to continue talks with California and avoid a legal battle. They warned that failure to reach agreement would lead to “an extended period of litigation and instability.” Of the 17, BMW, Ford, Honda, VW continued to discuss with California their support for strong clean-air/higher-mpg standards. They announced an agreement in late July. That’s what enraged the President.

The agreement has the four automakers agreeing to increase fuel efficiency standards by model year 2026, just six years away, to almost 50 mpg (fleet average). Note that what the government calls miles per gallon is considerably higher than the real-world mpg compliant cars would actually get. Between credits and dispensations that are the work of accountants and legislators, not engineers, a vehicle that gets roughly 35-40 mpg would be, roughly, a 50-mpg car for sake of the rules.

According to a Sept. 6 Wall Street Journal story by Timothy Puko and Ben Foldy with the tagline Politics (not Cars):

The four companies [BMW, Ford, Honda, VW] and the California Air Resources Board announced the deal in July to signal support for keeping one, nationwide emissions standard. Justice Department officials believe the agreement could effectively restrict competition by potentially limiting the types of cars and trucks the auto companies offer to consumers, according to people familiar with the department’s thinking. Such an impact of the deal—potentially cutting production of sport-utility vehicles and crossovers that burn more gasoline—could cross legal lines, the people said. Courts have prohibited such deals even if the motivation was for a public good, the people said.

The automakers would also be hurting themselves because big SUVs and pickups often have profit margins on the order of $10,000 per vehicle. To keep selling them, they’ll need to sell even more compact cars and hybrids, plug-in hybrids, and EVs.

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