US Automakers Tell Trump His Pollution Rules Could Mean ‘Untenable’ Instability and Lower Profits


JUNE 6, 2019

SUV production at a General Motors plant in Arlington, Tex. – Matthew Busch/Bloomberg

WASHINGTON, D.C. — The world’s largest automakers warned President Trump on Thursday that one of his most sweeping deregulatory efforts — his plan to weaken tailpipe pollution standards — threatens to cut their profits and produce “untenable” instability in a crucial manufacturing sector.

In a letter signed by 17 companies including Ford, General Motors, Toyota and Volvo, the automakers asked Mr. Trump to go back to the negotiating table on the planned rollback of one of President Barack Obama’s signature policies to fight climate change.

The carmakers are addressing a crisis that is partly of their own making. They had sought some changes to the pollution standards early in the Trump presidency, but have since grown alarmed at the expanding scope of the administration’s plan.

Mr. Trump’s new rule, which is expected to be made public this summer, would all but eliminate the Obama-era auto pollution regulations, essentially freezing mileage standards at about 37 miles per gallon for cars, down from a target of 54.5 miles per gallon by 2025. The policy makes it a near certainty that California and 13 other states will sue the administration while continuing to enforce their own, stricter rules — in effect, splitting the United States auto market in two.

For automakers, a bifurcated market is their nightmare scenario. In the letter to Mr. Trump, they warned of “an extended period of litigation and instability” should his plans be implemented.

The letter was delivered to the White House on Thursday morning, the same time as a similar letter to Gov. Gavin Newsom of California, according to a senior auto industry lobbyist.

In the letter to Mr. Newsom, the automakers said they would like to see a standard that is “midway” between the current Obama rules and the rollback proposed by Mr. Trump.

The letter to Mr. Trump said, “We strongly believe the best path to preserve good auto jobs and keep new vehicles affordable for more Americans is a final rule supported by all parties — including California.”

The president during a March 2017 meeting in Michigan with auto industry executives. Nicholas Kamm/Agence France-Presse — Getty Images

A White House spokesman, Judd Deere, in an email put the blame on California, saying the state “failed to put forward a productive alternative.”

Mr. Newsom said he is not interested in a “midway” deal requiring California to loosen its rules. “A rollback of auto emissions standards is bad for the climate and bad for the economy,” he wrote in an email. “I applaud the automakers for saying as much in their letter today to the President. We should keep working towards one national standard — one that doesn’t backtrack on the progress states like California have made.”

The letters are the latest twist in Mr. Trump’s effort to roll back regulations on auto manufacturing, an industry he has vowed to support. Some industry chief executives and lobbyists have been privately telling the White House for months that the president’s efforts may do more harm than good, but Thursday’s action represents a particularly strong pushback.

“Our thinking is, the rule is still being finalized, there is still time to develop a final rule that is good for consumers, policymakers and automakers,” said Gloria Bergquist, a vice president at the Alliance of Automobile Manufacturers.

Criticizing the president’s plan comes with risk for the automakers. The White House has courted their support for his moves, and, privately, some officials have said that they fear industry criticism could lead the president to retaliate by imposing tariffs on auto imports. That, too, could be painful, because many cars and components are now made or partly assembled across the border in Mexico or Canada.

But they also fear the costs of the uncertainty and regulatory headaches that potentially await them should Mr. Trump’s rollback go through as planned.

For example, automakers would have to demonstrate that the average mileage of all the cars they sell in California is much higher than in states like Utah, where the new Trump standard of about 37 miles per gallon would be in effect.

But because Americans increasingly prefer SUVs over thriftier vehicles, manufacturers might have to significantly cut prices on electric vehicles in the high-mileage states, a potentially money-losing proposition, while raising the prices of gas guzzlers. At the same time, auto lots in low-mileage states might hold a completely different mix of vehicles at different prices.

If car buyers simply cross state lines to buy gas-guzzlers and bring them into the cleaner-standard states, it could create more regulatory headaches for the companies, which could also be subject to fines from high-mileage states if they fail to comply.

In asking Mr. Trump to revise his proposal, the automakers effectively withdrew their support for the current plan and asked the president to make a deal with California, a state that he appears to relish antagonizing. Mr. Trump has variously described California as “ridiculous,” “out of control” and “the state that has wasted billions of dollars.”

California has been equally vocal in taking on Mr. Trump. Xavier Becerra, the California attorney general, has said repeatedly that the state intends to sue over the weakening of the auto pollution rules. In one such remark this year, he said he was “prepared to defend our national clean car standards even if the Trump administration intends to go AWOL.”

While two of the nation’s Big Three companies signed the letter, the third, Fiat Chrysler, did not. Other automakers who signed the letter include BMW, Honda, Mazda, Nissan, Subaru and Volkswagen.

The automakers conceded in their letter that they were seeking to solve a crisis that they helped set in motion. Soon after Mr. Trump took office, chief executives from Detroit’s top automakers personally asked the president to loosen the some elements of the Obama-era regulations.

However, the Trump administration went further than the industry expected, using the rollback to attack California’s legal authority to set its own rules. Since the 1970 Clean Air Act, California has had special authority to write its own pollution regulations.

The Trump administration last year unveiled a draft plan that would have rolled back the Obama rule and stripped California of the right to set tougher state standards. In subsequent months, both sides said they hoped to negotiate their way to a final plan that would lead to one national standard, avoiding potential courtroom showdowns.

But in February, the White House announced that it had ended talks with California, essentially ensuring that the final outcome would lead to litigation.

Supporters of the tougher pollution standards said they were glad to see the automakers tell Mr. Trump that his plan would be harmful but they questioned how effective the letter would be, coming so late in the regulatory process and directed at a president who has shown little inclination to compromise.

“At this point, they need to state clearly and bravely what they’re going to do, and then they should cut a separate deal with California,” said Margo Oge, a former senior auto policy official in the Obama administration who now serves as an informal adviser to several auto companies.

“I’ve told the companies that siding with California is the only thing that’s going to protect them from uncertainty.”

Courtesy/Source: NY Times