Trump Takes On the Auto Industry

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S1: Before I tell you the story about how California is taking on the Trump administration fighting it out over air quality and emissions I got to tell you a different story.

S2: Angela suffers the worst blanket of smog in its history.

S3: It’s a story that explains why California is in this fight in the first place and how one state became powerful enough to take on the federal government.

S2: The giant California city is shrouded by the ugliness.

S1: It’s a story about smog.

S4: Yes California just happened to be the state that was smog year and more polluted than anybody else.

S1: Tim Cook is going to help me here. He reports on energy policy at The Wall Street Journal.

S4: And by this quirk of history they now have more authority than anyone else and have leverage that in a way that gives them nationwide power.

S5: When this pollution first rolled into Los Angeles it was the 1940s. No one really knew why it was there. You can find pictures from this time.

S3: Women in crisp skirts dabbing their eyes when the air started to sting people wearing goggles to protect themselves. Motorcyclists rolling down the street wearing gas masks.

S5: California had no idea how to fix this. One of the first suggestions and it is constantly being repeated is that giant fans be mounted on the rim of the baseball.

S6: Fans that would blow the pollution away.

S7: This newscaster is literally showing a drawing of two giant fans on top of the mountains that surround Los Angeles.

S6: Unfortunately there isn’t enough electrical energy in the world to propel those fans and if there were a concentrated smog that they would push out would kill every living thing in its path.

S7: It took the state decades to figure out that the main cause of smog was people.

S4: People in cars people moved west they had big cars and you had a new type of pollution from the automobile from a different way of life. And then that converged in the 60s with a new environmental movement which also started in California.

S8: Here we are. You should be able to see the mountains. You should be able to see our beautiful city but you can’t you can’t see anything.

S7: This is a Los Angeles city councilman.

S8: Back in the 1970s from 50 to 70 percent of the junk that’s in the air comes from our own cars. Mine and yours. If it’s all of our cars we’re operating efficiently. We would have a significant reduction in all of this pollution and junk that’s in the air. That’s what we need to do.

S9: California was also the first government to set air pollution rules in the United States. So when the Clean Air Act came along a few years later from D.C. California was able to get provisions into that that allowed it to have its own power tick tick to keep its ability to go beyond the EPA if it wanted to.

S10: And over the years did it become California sort of doing something and then the rest of the country coming on board in some cases.

S11: Yeah sure. And in the last two decades you it’s become very political when there is a Democrat in Washington running the show then California has an negotiation partner. And when there is a Republican then there’s a lot of friction under Trump. This friction has reached a whole other level. We’ve learned that the White House plans to challenge California’s.

S12: Authority to regulate greenhouse gas emissions.

S13: The EPA wants to lower emission standards for vehicles. However California says we’ve got our own higher standards and we’re sticking to him.

S3: Today on the show who decides how much pollution is too much.

S14: California says they do. Now the federal government is saying not so fast. I’m Mary Harris. You’re listening to what next.

S1: Stick with us part of the reason California is facing so much pressure from the Trump administration right now is that it seems like the recruited allies in their fight against the feds earlier this summer. The state announced four different automakers had agreed to abide by California’s emissions rules not the EPA is Tim Buco says. This was something of a change of heart for the automakers. So let’s go back. Let’s talk about what happened when President Trump took office. He gets into office and how did the automakers feel about that. Like what are they thinking he might do for them.

S9: The automakers saw this as a great opportunity. They cut a deal with the Obama administration several years before. At a time when they were very vulnerable there had been bankruptcies during the financial crisis. There had been changing consumer demands if you remember in in the late 2000s oil prices and gasoline prices had had gone through the roof. And consumers which had been buying up SUV years and even Hummers at a fast clip suddenly had their own come to Jesus moment and wanted smaller cars wanted more fuel efficient cars. And the American automakers in particular were not ready for that. So after they get a bailout from the Obama administration and then a few years later the Obama administration starts to emphasize climate policy. While the automakers there’s certainly some pressure on them to go along with it. And so they had this deal to do over the course of the next several years a fairly dramatic increase in efficiency standards. Of course they were about to go up exponentially after the 2016 election it was going to be the next president who had to deal with it. And so when it wasn’t Hillary Clinton that won in 2016. But Donald Trump the automakers saw this as an opportunity to get relief from these standards.

S1: But these are efficiency mandates that they had agreed to. Right.

S9: Sure. But they would tell you and the people who support them in the Trump administration would tell you that the world had changed in the meantime. All that I mentioned about oil prices and consumer demand that changed so dramatically in and around 2008. Well six seven years later that had completely turned in a different direction. There is fracking there is a surge a historic surge of U.S. oil production a glut of oil coming from all around the world. And suddenly gasoline prices are cheap again and what can consumers do. They went back to their exact habits from before.

S4: And so automakers come to the Trump administration had they’d been saying it’s the Obama administration in its latter years before they’re saying well look consumer demand is completely different. We can’t meet these efficiency standards because we’re not seeing people go into electric vehicles at the rates we thought. People are not buying compact cars even at the rates that they had been just a couple of years before.

S1: So Trump comes into office. What are the automakers do.

S4: What. Any company that wants something from the attrition does they they set up meetings they send letters they send their own emissaries throughout government and they succeed like Trump is like OK.

S15: We can roll back some standards here. Right.

S9: It checked a lot of boxes for the Trump administration. We know that Trump personally obsesses over the auto industry.

S4: You know it’s it’s an industry that’s a big employer and it makes big things and big cars are quintessentially American. So help for the automakers was big by helping automakers to reduce efficiency standards. You’re helping oil demand. You’re helping U.S. oil producers. That’s big for the energy industry. And of course we have these efficiency standards to begin with because they were part of Obama’s signature climate policy and that is something that Trump was very happy to get rid of too. He had promised that he would roll back environmental regulations. And so you’re getting rid of these fuel efficiency standards or at least severely cutting back on them. Yeah. Just it just hit all the marks.

S1: You know I went back and I looked at a press conference that Scott Pruitt had when he was announcing that we’re going to start rolling back some of these emission standards or we’re going to be looking into it. The people who introduced Scott Pruitt and you know talked about how great this idea was. It was the auto sellers it was the people representing the dealerships.

S16: Well good morning everyone. I’m Peter Welch. I’m the president of the National Automobile Dealers Association. We’re in Nashville.

S10: And I thought that was really interesting to look at like Who are the people here who are advocating for rolling back emissions standards. And the guy who spoke made an interesting argument. He said. So if you jacked up the emissions standards too high people will stop buying cars new cars and you know that I’ll do a number on our business which you know true true enough.

S16: Maybe we lose affordability we lose sales.

S10: And then he said it’ll be less safe. It’ll be less safe because people will be driving older cars and that will actually have this impact of less fuel efficient vehicles being on the market.

S1: What is the argument on the other side.

S9: I think that there there are two big arguments here for this for keeping the Obama standards or ease the Obama era standards but not nearly as far as what the Trump administration wants to do. And the argument for that is that well one you know the climate is is burning up and greenhouse gas emissions from vehicles is basically your your largest contributor to that from the United States it’s on par with greenhouse gas emissions that come from power plants. And so in order to to slow climate change to fight climate change you have to attack that issue. So that’s one and then two is actually an economic argument. So sure you have a lot of dealers in particular who say that people won’t buy new cars and that’s bad for the car industry. But when you look at job growth in the auto industry over the last five or 10 years the primary driver for job growth is what is coming from the parts suppliers. So not the actual manufacturers themselves the GM arms and the Hondas from the world where new people are getting employed. It’s by the other companies that that supply parts and new technologies to those big manufacturers and their biggest growth area is in efficiency and emissions control related technologies. This is where a lot of the job growth has been in recent years and many expect that if you kept standards that improved efficiency that is how you would increase U.S. jobs in the auto sector. You would have innovation among these suppliers among effectively tech companies that are supplying new ways to make cars more efficient.

S1: So those Obama rules were good for jobs and predictability which is why automakers didn’t want to scrap them completely. They just wanted the standards to be relaxed a bit but that’s not what the Trump Administration announced they’d be doing in the spring of 2018.

S4: They went a step further and said they’re not just going to ease them. Their plan was to flatline the standards that there would be no increase in vehicle efficiency mandates. When that news got out there that came as a great surprise to many many people will follow this. The companies included and very slowly from from that point in the spring of last year over the months that ensued you started to hear auto companies backtrack say we don’t we don’t need this. Remember the CEO of Ford we had him quoted in the story saying this is not what what we’re looking for. It was such it was so so confounding to many people in the administration and from my understanding President Trump personally that he got angry about it. They expected the automakers to come out and cheer for what the EPA and the Department of Transportation were doing for these rollbacks that the president was pushing the administration just didn’t believe it. They felt like these automakers were just trying to placate investors or talk out of both sides of their mouth make consumers believe that they care about the environment while at the same time behind the scenes pushing the Trump administration to flatline these standards. That tension just grew and grew in the background for about a year and a half and then bubbled up very recently when four automakers finally decided to make a fairly clean break from their peers and from the administration and do a deal that said you know we’re not going to like rely on what the Trump administration is doing. We’re going to voluntarily follow a set of standards and get basically the California regulators to certify those standards.

S17: Some of the biggest car companies have struck a deal with the state of California to make cars and trucks more fuel efficient Ford Honda BMW and Volkswagen have agreed to build their cars too ever tightening fuel economy standards through the 2026 model year. Mary Nichols is California’s top air regulator. She negotiated the deal. We will continue on the path that we’re on.

S15: How did California get involved here.

S4: Well I’m California’s always been a partner as I alluded to earlier. You know they negotiated things with the Obama administration when the original set of vehicle efficiency rules that we’re talking about that were passed the Obama years happened. That was hand-in-hand with county leaders from California. And so when the Trump administration started to send signals very early on that it was going to look for a way to pull back from that California regulators were visiting D.C. trying to negotiate with officials in the Trump administration the same way they had negotiated with officials in the Obama administration. There was some of that. But at the same time it wasn’t like they had a friend really in the administration leaders at transportation at EPA I think of Scott Pruitt in particular were not keen to give California power. And the negotiations never really went anywhere.

S15: I’m trying to understand how California came together with the automakers because they don’t necessarily seem like natural allies. And I can see why the Trump administration would think you’re just trying to get the good press and why are you you know sort of coming out against us when you lobbied US for a rollback of these emission standards. So why why is the Trump administration wrong about that.

S9: It’s it’s not clear that they are. One thing you have to remember is that all these automakers want different things. They have different priorities. They sell different types of cars. I think of Honda in particular which is one of the companies that has struck out to do a deal with California. You know they just make much smaller cars. Their average vehicle is a smaller vehicle than what a lot of their competitors make. And so if you’re going to have higher efficiency standards than Honda is already making the types of cars that will get you there it is prepared to meet these standards. And so you know every company that that is willing to talk with California probably has its own reasons whether it’s that they come equipped with a more efficient fleet that will be a better able to compete if there are higher standards or whether it’s because they have investors pushing them to lower their environmental footprint or whether it’s they have leadership that just personally cares about the environment which is oftentimes what what motivates some companies these days or fourth and certainly not least you have some of these companies I think of Volkswagen in particular fresh off an emissions scandal. We’re talking about billions of dollars in fraud and regulators that are still skeptical. Volkswagen is this the best example of this. They’re trying to to reform their image trying to rehabilitate their brand. And so a company that that that fraudulently pushed itself as environmentally friendly if it gets a chance to to come back and have a second try and have that backed up by a regulator that’s going to hold its feet to the fire. You know maybe there’s hope that’ll convince consumers that they’re legit this time that there are that they are a more environmentally friendly car company.

S15: So I guess I’m trying to understand I’m trying to understand how these players all get together. You know California realizes the EPA isn’t talking to them and then is it that they see these car companies and think huh maybe we can get these people together like what what was California’s motivation and how did it how did it come together. Well

S4: the exact specifics of this are not publicly known but I will say that it was fairly obvious for anyone in the industry that there might be a path forward if all the car companies went out on their own and worked with California rather than the administration. There’s an ideological tug of war here but there’s also a credibility issue. There are corporate executives who are skeptical about the Trump administration’s ability to run a reliable regulatory program. The administration promises all these rollbacks and oftentimes are slow to deliver. And the specifics are maybe a little bit dodgy or spark their own court fights. The administration often says that it’s out to promote certainty but I think people in industry will tell you that having a tremendous pendulum swinging back and forth from administration to the next having all these court fights that delay these rules for years and keep regulations in limbo for years provides the exact opposite. And so there was a thought as this unfolded even even last year that well maybe the car companies would get the certainty they they really wanted if they just said OK Trump administration this is nice thank you for lowering the standards but we’re not going to just meet the bare minimum. We’re all going to agree to meet something more. And because California wanted that to begin with and they have the regulators and the expertise at running a program and setting standards like that. Well then it’s kind of an obvious possibility that there’s some sort of alliance there.

S1: And it sounds like the automakers don’t trust that whatever these emission standards are they’re going to last for very long.

S4: Yeah. What if Trump loses. Usually every Democrat that’s out there running in the Democratic primary has an environmental agenda and a vision about climate policy that is basically the exact opposite of what President Trump’s vision is.

S9: So they see a world in which the swings between regulation the rules that govern their business just change dramatically in an unprecedented way from one extreme to the next. Every time there’s there’s a change in that distraction.

S15: So this summer California and these four automakers come out and they say we’ve come to an agreement. We’re going to do it differently and we’re going to have our own emission standards. And we invite others to join us in this agreement. When you saw that did you think aha this is where this ends.

S9: No because it’s a relatively small part of the auto market. It wasn’t clear how deep of an agreement this was. Even now all that’s public is basically a one page statement doesn’t go into a lot of detail. And you’ve seen that in the six weeks or two months since there haven’t been any other automakers signing onto this.

S1: And then last week the Trump Department of Justice announced an investigation into the four automakers that made this pact with California. The DOJ said there was reason to think the companies had violated federal antitrust law. It certainly looked like a political move. Trump was angry that the automakers weren’t grateful for his emissions rollback but antitrust law is complicated. Tim Pico says hey there might be a valid case here.

S9: I think what I want to clear up is is maybe some misconception that’s out there that there’s obviously no case from what we understand there’s a legitimate issue for them to look at for companies can’t really get in the room together and just decide on their own not to compete. I think a general audience here is oh well these are just environmental standards. That’s a different thing. It’s kind of not these regulations are so fundamental to how these cars are made and ultimately what cars are offered that there is a world that’s very easy to see in which all of these companies agreeing to a common set of environmental standards ultimately leads them all. All the companies that have agreed to produce a lower volume or fewer types of less efficient vehicles your gas guzzlers you know you if you’re just selling all SUV is it’s going to be hard for you to meet these standards that are supposed to lower your emissions footprint that lowers the contribution of greenhouse gases from these cars. The quickest way that you can come into compliance with that is just to make fewer SUV is to sell more electric vehicles. And so if the end product of this agreement is that all the companies that are in it stop making a certain type of car then that’s effectively an agreement to artificially limit consumer choice. And that is fundamentally what our laws what our antitrust laws try to stop federal governments can limit consumer choice and call it regulation. But if companies do it it’s illegal or it could be where the line is according to antitrust experts is if you just get together in a room with your peers and say we’re all going to do X together and limit ourselves in in ways a B and C then that is anti-competitive behaviour.

S15: Businesses that have standards all the time that’s something that happens in every industry. Just to make everyone’s lives easier.

S4: I’m not going to tell you that antitrust law is clear or easy to follow. And there have been plenty of people who have accused the Trump administration of selective enforcement. This is why there are so many court cases depending on the finer points of the law. You can argue many many different things. And you know all of that will be central to how this case unfolds.

S1: You report on something else. You say that courts have prohibited deals like this one even when they’re in the public good. In the past it just shows how once you open one of these investigations it goes to the courts and you don’t know where it’s going to land.

S9: And then that’s the huge problem for a lot of companies right now for a lot of different industries is that yeah they didn’t like what the Obama administration did. But the extreme pushback the severe onus of some of the deregulatory actions that the Trump administration has taken scares them because it goes too far in the opposite direction. And now they wonder OK well well what will the next Democrat who comes into office or the next Democratic Congress try to do in a couple years when you write the book about this saga.

S1: What is the lesson of this story for you like what is it that you take away about the Trump administration or the audio or the auto industry or the way our legal framework is working here.

S9: I think businesses often use this claim that they need certainty as a way to hammer against any policies that they don’t like. And this is a problem in the business community as a whole. They’ve pushed so hard for what they want. Often under the guise of consistency that their credibility is low sometimes among parties and in politicians but also in the broader world out there among citizens and voters. But it is very real. If you think about the success stories of the U.S. energy industry why over the last 150 years we have so often been the driver of energy production. It is because in many cases we have had consistent laws. You know Mexico and Brazil and Venezuela have huge oil reserves and they’re incredibly far behind us in production. Venezuela’s production is going to zero right now because they don’t have effective governments because they change policies all the time. Every every five 10 20 years suddenly nationalized something it does legitimately make it hard for businesses to operate and in the U.S. you’ve had the rule of law that has laid a foundation for companies to make investments whether it be in land or in new technology. Will American businesses still be able to rely on that 10 20 30 years from now and then do you think do they have the credibility with the American public to get public support to help rebuild that. I mean I know those aren’t the major questions coming out of D.C. right now but as a business reporter this is a lot of what I think about and it’s often the the story that’s just humming along in the background.

S18: No one knows what’s going to happen next. And how can you make investments when you don’t know even basic things.

S7: Tampico thank you so much for joining us. Sure. Thank you for having me. Tim Hugo covers energy policy for the Wall Street Journal. All right. That is the show. What next is produced by Mary Wilson Jason De Leon Daniel Hewett And Mara silvers. If you want to see a picture of a donkey wearing goggles to protect himself from the Los Angeles smog which yeah it apparently happened head over my Twitter feed I’m at Mary’s desk. In the meantime have a great weekend. I will talk to you Monday.