Feds launch 'unprecedented' antitrust probe into Calif. mpg deal with Ford

Keith Laing Breana Noble
The Detroit News

Washington — The Trump administration is escalating its battle with California over gas-mileage rules by launching an "unprecedented" antitrust investigation into Ford Motor Co. and three other automakers that agreed in principle to stricter fuel-economy rules than those backed by the president.

The preliminary probe is "a very quick reaction" by the Justice Department's antitrust division "and is unprecedented in any other circumstance,” said Richard Revesz, a professor of environmental law at New York University. “It’s extraordinary this is being done before the agreement is even signed or finalized. Every major company in the U.S. should be aghast that the government is using prosecutorial power to punish companies that haven’t pleased the administration.”

The Justice Department is investigating Ford, Volkswagen AG, Honda Motor Co. and BMW AG for reaching a deal with California in late July to voluntarily increase the average fuel economy of their fleets to about 50 miles per gallon by the end of the 2026 model year, Ford, Honda and BMW confirmed Friday. The automakers said they are cooperating with the Justice Department, which declined comment.

In a letter obtained by The Detroit News, the Justice Department said it is concerned the agreement between the auto companies and California "may violate federal antitrust laws." The agency said it is inviting the automakers to meet with federal regulators "in order to help us determine whether that is a possibility and what are the appropriate next steps we should take," and it is planning to review communication between the automakers concerning the formation of the pact. 

Additionally, the Environmental Protection Agency said in a letter sent Friday to the California Air Resources Board — which negotiated the deal with the automakers — that the proposed agreement "appears to be inconsistent with federal law."

"Congress has squarely vested the authority to set fuel economy standards for new motor vehicles, and nationwide standards for [greenhouse gas] vehicle emissions, with the federal government, not with California or any other state," Steven Bradbury and Matthew Leopold, general counsels for the EPA, wrote in a letter to CARB Administrator Mary Nichols.  

EPA's lawyers urged CARB, which did not respond to a request for comment, to immediately disassociate itself from the commitments made by the four automakers. "Those commitments may result in legal consequences given the limits placed in federal law on California's authority," the letter warned.

In a tweet, California Gov. Gavin Newsom wrote that if Trump wanted to "cost the U.S. $400B, force us to consume 320 billion more gallons of oil, make consumers pay more at the pump, degrade our air, risk our health — all to force a deal carmakers don’t even want? Fine. Then we’ll see him in court."

The investigation — first reported by The Wall Street Journal, which cited anonymous sources — is the newest front in a widening battle over mpg rules between the Trump administration and California. The fight has ensnared automakers in a potentially protracted legal battle likely to end up in the Supreme Court.

In a tweet, Barbara McQuade, former U.S. attorney in the Eastern District of Michigan and now a professor at Michigan Law School, said she would "withhold judgment until more facts are known, but this investigation raises a red flag. Sherman Act prohibits agreements for purpose or effect of limiting competition, but DOJ can’t use antitrust law to derail deal solely to undermine Calif’s higher emissions standards."

Ever since Watergate, measures have been put in place to separate the Justice Department’s antitrust cases from political influence. Just because the Justice Department is pursuing the case following Trump’s remarks, however, does not prove that it is in response to the White House, said Stephen Calkins, an antitrust law professor at Wayne State University.

Trump, however, publicly had urged federal prosecutors to challenge the merger between AT&T Inc. and Time Warner. The Justice Department objected to the deal, but lost the case in February.

“In a way, it raised significant questions if the DOJ was acting independently or not,” Calkins said. The probe into the automakers “appears to be certainly very supportive of the administration’s deregulatory agenda and his vendetta against some of the auto companies. It’s distressing if the administration is abusing antitrust laws.”

Such a precedent could be dangerous, he explained, because antitrust laws can be criminal. Use of such tools typically is reserved for conspiracies with the purpose of maintaining prices at a high level and restricting competition.

“This is not a hardcore cartel kind of issue,” Calkins said of the framework agreement between the four automakers and California regulators. “It would not be an antitrust priority for most administrations.”

The move by the automakers to agree separately with California to higher mpg standards bucked the Trump administration's two-year push to freeze fuel-mileage rules at about 39 mpg for model years 2021 to 2026. The administration responded by moving forward with a plan to revoke part of California's right to set its own gas mileage rules for cars, setting up an all-but-certain legal fight. 

The White House Office of Management and Budget’s Office of Information and Regulatory Affairs is planning to submit a proposed "One National Program" rule that prohibits states from setting their own mpg rules in a bid to ensure a single national level for fuel economy standards that would directed by Congress, said a source familiar with the interagency process who was not authorized to speak on the record.

The "One National Program" rule would not be final until it is submitted to the Federal Register and approved under the federal government's traditional rulemaking process after the White House review process is complete.

At the same time, the EPA is planning to revoke aspects of a Clean Air Act waiver that has been used for years by California to set its own emission standards, according to the source familiar with the internal administration discussions. That would undo California's Advanced Clean Car Rule, which calls for automakers to reduce pollution from new cars from 2012 model year levels by 40% by 2025. 

The Trump administration's plan would leave in place California’s low-emission vehicle standards that have been in place since the 1990s. 

The White House and California have locked horns over fuel economy rules since the earliest days of Trump's presidency. His administration announced last year its intention to ease stringent gas-mileage rules that would have required fleets averaging nearly 55 miles per gallon by 2025. The administration proposed a freeze in the mandate after 2020, touching off a fierce battle with California, which helped craft the Obama-era rules.

The two sides attempted to negotiate a potential agreement, but the White House announced in February it was pulling out of the talks and moving forward with its proposed freeze. 

Thirteen states and Washington, D.C., have adopted California’s mileage rules, meaning automakers could be left with one set of rules for a quarter of the country and another set for the remaining states unless the Trump administration and California can come to an agreement. Congress gave California the right to set its own standards years ago under the Clean Air Act. 

Automakers foreign and domestic have consistently pushed for one national fuel-economy standard. Fearing the costly specter of two markets within the United States, they have pressed the Trump administration to go back to the negotiating table with California. 

Environmentalists have decried the Trump administration's efforts to roll back the Obama-era fuel economy standards, calling them an attack on the environment from a hostile administration. 

“The Trump administration is trying to bully automakers into accepting a rule rollback the companies don’t want,” said Luke Tonachel, director of clean vehicles and fuels at the Natural Resources Defense Council. “It’s bizarre — but not surprising — that this Environmental Protection Agency is attacking companies that want to cut pollution.”