Justice Dept. Launches Antitrust Probe of Automakers over Their Fuel Efficiency Deal with California

September 06, 2019

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by Juliet Eilperin and Steven Mufson (Washington Post) The Justice Department has launched an antitrust investigation of four leading automakers over an agreement they forged with the state of California to maintain higher fuel efficiency standards than those sought by the Trump administration, escalating the stakes in the long-running battle between the White House and California.

The Justice Department declined to comment Friday, but two other federal agencies said the state’s deal with Ford, Honda, Volkswagen and BMW of North America on gas-mileage targets may be in violation of the law and warned of legal consequences.

California officials, who have repeatedly asserted the state’s rights under the 1970 Clean Air Act, criticized the inquiry as politicization to impose the Republican president’s policies.

“The U.S. Department of Justice brings its weight to bear against auto companies in an attempt to frighten them out of voluntarily making cleaner, more efficient cars and trucks than EPA wants,” Mary Nichols, chairman of the California Air Resources Board, said in a statement. “Consumers might ask, who is [EPA administrator] Andy Wheeler protecting?”

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The two federal entities — the Environmental Protection Agency and Transportation Department — notified the California Air Resources Board and Nichols that the state’s deal with the four automakers “appears to be inconsistent with federal law.”

The agencies’ general counsels urged the board to break the commitments with the automakers as the agreement “may result in legal consequences given the limits placed in federal law on California’s authority.”

A spokeswoman for Ford Motor Co., Rachel McCleery, confirmed that the company had been contacted in connection with the antitrust probe.

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Since the Clean Air Act’s inception in 1970, California has had the right to seek a federal waiver to impose more stringent air pollution standards than those of the federal government. Federal authorities have almost always granted the waiver, and California based its vehicle requirements on the grounds that it was regulating carbon emissions rather than overall fuel efficiency.

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Thirteen other states and the District of Columbia have pledged to accept whatever tailpipe standards California adopts.

Under the framework California established with the four companies, which represent about 30 percent of the U.S. auto market, the firms have agreed to produce fleets averaging nearly 50 miles per gallon by model year 2026. That is one year later than the target set under the Obama administration.

Conspicuously absent from the talks with California was General Motors.

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When the deal between California and the four car companies was announced in July, the National Highway Traffic Safety Administration said that its push to roll back mileage standards did not mean that automakers couldn’t manufacture more efficient vehicles.

“The proposal contained no language that would prevent any auto manufacturer from designing and building next-generation highly fuel-efficient vehicles, including hydrogen fuel cell vehicles, battery electric vehicles, hybrids, and plug-in hybrids in response to market demands,” the agency said.

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Margo Oge, who directed EPA’s Office of Transportation and Air Quality from 1994 to 2012, questioned the administration’s basis for the probe. California still has a federal waiver to set tailpipe emissions, she noted, and a similar voluntary framework on low-emissions vehicles was forged in the late 1990s.

“The idea that they did something illegal, and that the companies colluded, it doesn’t pass the laugh test,” Oge said.

Some antitrust experts said that any Justice Department case against the carmakers would have to argue that the effect of their joint conversations would be to raise prices above what they would be if the firms simply complied with federal law.

Gene Kimmelman, a senior adviser at Public Knowledge who once served as chief counsel at the Justice Department’s antitrust division, said, “It’s never been considered a violation of antitrust law for companies to get together and promote a policy position.” READ MORE

The Trump Administration Investigates California Clean Car Agreement (Our Daily Planet)

Trump Weaponizes the Justice Department -- Corporate America has something new to worry about. (Bloomberg)

The Trump Administration Is Playing Dirty With Automakers: A questionable crackdown on companies that already meet stringent emissions standards. (Bloomberg)

The Interaction of the Clean Air Act, California’s CAA Waiver, Corporate Average Fuel Economy Standards, Renewable Fuel Standards and California’s Low Carbon Fuel Standard (Advanced Biofuels USA)

Companies colluding to fight climate change don’t need to worry about antitrust laws (Washington Post)

Automakers to Trump: Stop trying to force us to pollute more (Washington Post)

Antitrust investigations shouldn’t be a political move (Washington Post)

Rather than compromise on fuel-efficiency standards, the Trump administration may force years of litigation (Washington Post)

HOUSE DEMS STEP INTO ANTITRUST FRAY: (Politico's Morning Energy)

Nadler & Cicilline Demand Answers from WH & DOJ About Antitrust Investigation into Automakers Who Struck Vehicle Emissions Deal with CA (Office of Congressman Jerry Nadler (D-NY 10th)

Excerpt from Washington Post: If the United States is going to address climate change with the urgency the danger merits, U.S. companies could play a vital role by acting in concert to help prevent the looming catastrophe.

A hint of how their cooperation might work could be seen last month when 181 chief executives who are members of the Business Roundtable signed on to a new “Statement on the Purpose of a Corporation.” The statement’s community-minded goals included a vow to “protect the environment by embracing sustainable practices across our businesses.”

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The Justice Department has launched an antitrust investigation of four automakers — Ford, Honda, Volkswagen and BMW of North America — over an alliance they struck with the state of California to maintain higher fuel-efficiency standards than those the Trump administration is seeking.

As an antitrust lawyer for several decades and a former government official in charge of promoting competition in the communications industry, I can see how antitrust law could be tortured into a weapon wielded against joint corporate good deeds. That’s why companies need to act now to prevent such abuse.

In the case of the agreement regarding the California emissions standard, a prosecutor or plaintiffs’ lawyer could contend that the automakers’ efforts to keep fuel efficiency higher than necessary by a new government standard would raise prices to consumers. The lawyers might further argue that such an agreement would deter a low-cost, high-emissions entrant from entering the market.

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Major U.S. companies need protection from antitrust law so that they can feel free to work together in the fight against climate change, without fear of prosecution by the Trump administration or any future administration that shares its benighted environmental views.

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Firms such as those in the Fortune 500 should jointly take at least three steps to achieve this end.

First, petition Congress to pass a law immunizing all joint action taken to adopt energy-reducing practices and curtail greenhouse-gas emissions.

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Second, the companies should pool resources to fund research into energy efficiency and greenhouse-gas-reduction technologies that they agree to give away free to anyone who wants them. Doing so would be a cost indirectly imposed on consumers and shareholders. That could be a potential antitrust concern in other areas, but joint research to produce commonly available technologies does not violate the antitrust laws. It is also common practice and, in this context, a necessity.

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Third, firms should argue to courts that collective action to save the planet is a good defense against any antitrust complaint.

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Far from being scared off by the Trump administration’s apparent intention to use antitrust laws against them, U.S. companies should know that the legal system would be on their side if, say, they agreed to impose carbon taxes on themselves or to move their entire global supply chains to renewable energy. Let the collaboration begin. READ MORE

Excerpt from Politico's Morning Energy: HOUSE DEMS STEP INTO ANTITRUST FRAY: House Judiciary Chairman Jerry Nadler (D-N.Y.) and Rep. David Cicilline (D-R.I.) demanded answers over the Justice Department's antitrust probe into the voluntary emissions deal struck by California and four automakers, Pro's Alex Guillén reports . "We are concerned the Department's investigation is no more than a pretextual attack by the Trump Administration on the four automakers' legitimate use of the governmental process," they wrote in a letter. DOJ antitrust chief Makan Delrahim previously rejected Senate Democrats' allegations of political motives for his investigation. READ MORE

Excerpt from Office of Congressman Jerry Nadler (D-NY 10th): House Judiciary Committee Chairman Jerrold Nadler (D-NY) and Subcommittee on Antitrust, Commercial and Administrative Law Chairman David N. Cicilline (D-RI) sent a letter to the White House and Department of Justice about the Trump Administration’s antitrust investigation into automakers who reached an agreement with California regarding state emissions standards.

The letter is available here and below.

September 19, 2019

Mr. Pat Cipollone
Counsel to the President
The White House
1600 Pennsylvania Avenue, N.W.
Washington, D.C. 20500

Makan Delrahim
Assistant Attorney General
Antitrust Division
U.S. Department of Justice
950 Pennsylvania Avenue NW
Washington, DC 20530

Dear Mr. Cipollone and Assistant Attorney General Delrahim:

The House Judiciary Committee is examining allegations of obstruction of justice, public corruption, and other abuses of power by the President. We write to obtain information regarding President Trump’s latest apparent attempt to deploy the Justice Department’s legal antitrust authority for partisan political purposes—in this case against the State of California and automakers with which it has reached an emissions agreement. The Department’s dedication of resources to obstruct California’s and these automakers’ efforts to protect the environment appears to be yet another example of the Administration’s weaponization of the antitrust laws for political purposes. The potential abuse of the Department of Justice’s enforcement authorities to target perceived political adversaries of the President are of significant interest to the Committee.

According to recent reports, the Justice Department initiated an antitrust investigation into the four automakers that reached an agreement with California on the state’s heightened limits for greenhouse-gas vehicle emissions—Ford Motor Co., Volkswagen AG, BMW AG, and Honda Motor Co. The state’s limits are at the center of a growing political conflict between the Trump Administration and California’s efforts to combat climate change through stricter emissions standards than those supported by the Administration. This decision by the Department comes only a few weeks after it was reported that President Trump was “enraged by California’s deal” and after President Trump attacked publicly the State of California and the automakers on social media. In a further possible abuse of executive power, the President announced this week that he is revoking California’s decades-old authority to set more aggressive emissions standards than those issued by the federal government.

We are concerned the Department’s investigation is no more than a pretextual attack by the Trump Administration on the four automakers’ legitimate use of the governmental process. As Assistant Attorney General Delrahim acknowledged before the Senate Judiciary Committee this week, the Department cannot point to any evidence of an anticompetitive agreement in support of its investigation. On this point he testified, “I have nothing, that’s the purpose of an investigation.”

Importantly, in the 1960s, the Supreme Court struck a balance between the interests of antitrust law and the First Amendment right to free speech. The Supreme Court’s Noerr-Pennington doctrine provides a limited antitrust exemption for companies, even competitors, to jointly petition or urge government action. According to reports, it appears that the four automakers were engaged in just this type of protected activity. Conversely, according to reports, the President’s personal grievances remain the primary driving force for the Administration’s decisions related to the State of California:

Mr. Trump went so far as to propose scrapping his own rollback plan and keeping the Obama regulations, while still revoking California’s legal authority to set its own standards, according to the three people familiar with the meeting. The president framed it as a way to retaliate against both California and the four automakers in California’s camp, those people said.

As we have previously made clear, any political abuse of the Department’s antitrust enforcement power is unacceptable. Antitrust enforcement must be conducted in accordance with the rule of law, never wielded as a political weapon to retaliate against perceived political enemies of the President. This is particularly shocking where it appears that a state representing approximately 40 million people and a set of important individual companies are being targeted for simply participating in the political process.

To date, the Justice Department’s responses to concerns about political interference with the Department’s antitrust law enforcement activities have been insufficient, untimely, and incomplete. For example, requests for documents and information about allegations that President Trump improperly interfered with the Department’s review of AT&T’s acquisition of Time Warner were included in a series of letters, beginning in February 2018, but the Department did not respond until a year and a half later on July 5, 2019. Furthermore, it appears that key documents were inappropriately withheld or heavily redacted on the basis of executive privilege.

In its July 2019 response, the Justice Department stated that “each antitrust decision must be made on the merits based on the law and the available facts and evidence, and the Department shares [our] view that politics has no place in such a determination.” Last year, in a May 2018 response, the Department stated that it is “committed to ensuring” that “political considerations do not influence the handling of particular investigations or cases,” and that “all investigations conducted by the Antitrust Division are initiated and conducted in a fair, professional, and impartial manner, without regard to political considerations.” And only this week, Assistant Attorney General Delrahim again claimed within the context of the automakers investigation that “I am not doing this for political reasons.” We are extremely disturbed that the Justice Department’s rhetoric does not appear to match up with reality. Even the appearance of White House interference in antitrust law enforcement matters undermines public trust in the Department of Justice’s integrity and calls into question meritorious enforcement by the Antitrust Division. The fact of actual interference would of course constitute a serious abuse of power.

In light of these recent reports, we request you provide more responsive answers to our earlier letters referenced in footnote 11 and provide responses to the following questions and document requests no later than October 2, 2019.

1. Documents and communications between President Trump or officials or employees of the Executive Office of the President and the Department of Justice relating to the Department of Justice’s investigation into alleged antitrust violations by Ford Motor Co., Honda Motor Co., BMW AG, Volkswagen AG, and any other entity, in connection with an agreement to follow California auto emissions standards (the “Investigation”).

2. Documents and communications relating to President Trump, the Office of Attorney General, or the Executive Office of the President’s involvement in the Investigation, including but not limited to the decision to initiate the Investigation in the first place.

3. Documents and communications relating to any communications by the President concerning Ford Motor Co., Honda Motor Co., BMW AG, and Volkswagen AG’s agreement to follow California auto emissions standards.

4. Documents and communications relating to the President’s dispute or disagreement with the State of California’s position on the auto emissions standards.

5. Please identify the number of attorneys and number of attorney hours that the Antitrust Division has devoted to the Investigation from the date the Investigation was initiated to the present.

Thank you for your prompt attention to this request. READ MORE