Ford miscalculated on California deal, confusing auto makers'
plans
By Mike Colias, Ben Foldy and Andrew Restuccia
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 4, 2020).
When Ford Motor Co. Executive Chairman Bill Ford Jr. called the
president last spring, he was hoping to defuse what was looking
like a lengthy legal battle over the nation's fuel-economy
regulations for vehicles.
The Trump administration wanted to significantly ease U.S.
environmental rules. California had sued to stop that. The car
industry was caught in the middle. Mr. Ford, calling from his
Dearborn, Mich., office, urged the president to broker a compromise
with California, according to people with knowledge of the
conversation.
President Trump was puzzled and told Mr. Ford his view was out
of step with his industry peers. "He basically said: 'You're on
your own' " to Mr. Ford, one of the people briefed on the call
said.
The call was part of a nearly yearlong push to fend off the
expense and delays of competing fuel standards, but Ford
miscalculated the White House's appetite for a deal. Its efforts
ultimately backfired, putting it at odds with the administration
and other big car makers.
When Ford eventually made its own deal with California last
summer, it drew an antitrust inquiry and spurred the administration
to speed up efforts to strip California's authority to set its own
tailpipe standards.
It also irritated Ford's biggest rivals, including General
Motors Co. and Toyota Motor Corp., which have since sided with the
Trump administration on the issue.
The industry -- more polarized than ever -- is now facing a
confrontation that could last for years, leaving it in a costly
limbo.
The Trump administration in the coming weeks is expected to
finalize new fuel-economy rules that significantly dial back the
targets adopted under President Obama. Mr. Trump's legal fight with
California, the state that is the U.S. auto industry's biggest
market, is expected to be bitter and drawn-out.
It is part of corporate America's struggle, three years in, to
find a way to operate with the Trump White House -- where a
disagreement could launch a barrage of negative tweets and when
dramatic policy shifts come without warning. In the auto industry,
none of the major players have managed to forge a way forward.
In its own deal with California, Ford agreed with the state to
meet targets tougher than Mr. Trump's proposal but still tamer than
the Obama-era requirements. Executives hoped the agreement would
show the White House and other auto makers that California was
willing to compromise.
Mr. Ford said the pact will allow the company to plan its
vehicle lineup without being at the mercy of a legal fight. "We
have this heavy commitment to electrification," he said in an
interview. "This is where the rest of the world is taking us
anyway. If you start to add it all up, a giant rollback wouldn't
have helped us at all."
Three other car companies -- Volkswagen AG, BMW AG and Honda
Motor Co. -- followed with similar agreements with the state.
In October, GM, Fiat Chrysler Automobiles NV and Toyota sided
with the Trump administration in challenging California's
authority. The companies said at the time they believed the federal
government is best positioned to set a single national standard.
Their decision drew praise from Mr. Trump.
"This has put the auto industry in a quagmire," said Brett
Smith, a director at the Ann Arbor, Mich.-based Center for
Automotive Research.
Unsure which side will win, car companies still need to move
ahead with planning new vehicles that are designed and engineered
years in advance of hitting showrooms, Mr. Smith added.
The nation's fuel-economy regulations, in place since 1975, have
broad influence, including on a vehicle's engine and the mix of
models offered. The existing rules were agreed to in 2012 in
collaboration with California, when gasoline prices were higher,
and sought to cut U.S. tailpipe emissions in half for new cars by
2025.
In recent years, average fuel prices have stayed well below $3,
and U.S. car buyers have chosen heavier, less fuel-efficient SUVs
and trucks, which made the regulations tougher to hit. Executives
lobbied for more flexibility.
The industry initially saw an ally in Mr. Trump. Days after his
inauguration in January 2017, the chief executives of Ford, GM and
Fiat Chrysler met with the president at a White House breakfast.
They asked him to consider a review of the Obama-era rules,
believing them outdated.
Ford's then-CEO Mark Fields was outspoken on this point, arguing
publicly that the regulations would hurt U.S. manufacturing jobs.
Two months later, at a rally in Michigan, Mr. Trump agreed to
re-evaluate the rules.
By spring 2018, auto executives were getting nervous. The White
House signaled it wasn't only looking to ease the regulations, but
to break with California, which under the Clean Air Act can request
waivers to impose stricter pollution controls than those of the
federal government.
More than a dozen other states follow California's rules --
covering more than 40% of U.S. vehicle sales -- leaving
manufacturers concerned about differing regulations.
At the industry's urging, Mr. Trump asked administration
officials to negotiate with California. They were to meet with Mary
Nichols, an environmental lawyer who was first appointed to the
state's powerful air-resources board in 1975. California's waivers
have long afforded its regulators vast influence over setting
auto-market standards.
Talks with California didn't get far before the EPA issued its
proposed rule in August 2018, confirming what many auto executives
feared: Rather than merely relax the targets, the White House
wanted to freeze the requirements altogether at 2020 levels, nixing
the 5% annual improvements set under Mr. Obama. That would forgo
about one-third of the greenhouse-gas reductions expected when the
current rules were agreed to.
Administration officials said the proposal would boost sales and
lower sticker prices, enticing more buyers. Mr. Trump has said the
move was intended to help the U.S. auto industry.
In recent months, the Trump administration has shown a
willingness to bend -- the final rule is expected to include a 1.5%
annual increase in the fuel-economy targets, rather than a
wholesale freeze.
California and environmental lobbies are still gearing up for a
fight. Environmental groups ran an ad in several U.S. newspapers in
January focused on GM, Toyota and other auto makers who sided with
the Trump administration, saying the companies were "attacking
crucial clean-car standards that are helping to address climate
change."
Environmental leaders have praised Ford's California deal, after
having criticized the company previously for not opposing the
proposed rollback. In May 2018, Public Citizen, a consumer-advocacy
group, drove a Ford sedan with a faux black cloud protruding from
its tailpipe to the company's headquarters with a sign reading:
"Don't let Ford roll back clean air standards!"
For the 62-year-old Mr. Ford, such criticism was bothersome,
colleagues said. He considers himself an ardent environmentalist,
spending much of his Ford career championing green causes,
including the industry's first hybrid-electric SUV and insisting on
a sustainable roof, planted with greenery, on Ford's largest
factory.
By early 2019, he had dispatched a top lieutenant, Joe Hinrichs,
to Washington to press the White House to negotiate with
California. Mr. Hinrichs, president of Ford's automotive
operations, met more than a half-dozen times over several months
with senior White House officials, including Vice President Mike
Pence, said people with knowledge of the meetings.
In one, Mr. Hinrichs urged senior adviser Jared Kushner to reach
out to California Gov. Gavin Newsom, whom Mr. Kushner had joined
months earlier to survey wildfire damage, and ask about a
compromise, the people said.
White House officials felt they were getting nowhere with
California, believing the state was slow-walking talks in hopes Mr.
Trump would lose the election in 2020, according to current and
former administration officials.
California, meanwhile, felt the administration was insistent on
revoking the state's waiver and not interested in compromise, Ms.
Nichols said. "The administration's desire to get California
completely out of the picture was always sort of hanging over our
head," she said.
Around this time, Ford staffers had been quietly talking with
California regulators about a fallback plan that eventually evolved
into a deal.
After the failed call to Mr. Trump, Mr. Ford convened a meeting
with Ford Chief Executive Jim Hackett, Mr. Hinrichs and other
executives about dealing directly with California as a way to align
the company's U.S. emissions goals with stiffer rules overseas.
Ford executives discussed possible backlash from Mr. Trump, but
Mr. Ford said customers might reward them for opting to meet more
stringent environmental targets, said a person who attended the
meeting.
Company executives thought the California agreement could be an
olive branch, showing state officials were willing to meet Mr.
Trump halfway, said Mr. Hinrichs in an interview. "We wanted to
continue the dialogue, and encourage others to continue the
dialogue," he said.
The White House was no longer interested in talking.
Ford wasn't an obvious candidate for pushing stiffer
fuel-economy rules. The company's truck-and-SUV-heavy lineup ranked
third-to-last in fuel economy of 13 major auto makers, according to
the most-recent EPA data. But the company has new hybrid and
electric vehicles in development that will help improve
fuel-efficiency, executives reasoned.
Honda, already a leader in fuel economy, came to terms with
California, encouraged by Ford's move, people familiar with the
matter said. Volkswagen, investing billions into electric cars,
also signed on, seeing the proposed freeze as out of step with
emissions regulations in its two biggest markets, China and Europe,
said one company executive. By mid-July, California also had a
commitment from BMW.
Other car companies were approached, but GM was purposely left
out. The group worried the company was meeting with the
administration and would try to derail their effort, Ms. Nichols
said.
When the pact was publicly revealed July 25, the president was
frustrated, telling advisers he felt betrayed by the companies,
according to White House officials. Mr. Trump believed he had given
them what they had asked for and couldn't understand why they were
siding with California. He later tweeted that company founder Henry
Ford -- Mr. Ford's great-grandfather -- would be "rolling
over."
GM executives were irritated, too, having been excluded from
discussions, according to people familiar with their thinking.
A month after the California deal was revealed, Ms. Nichols said
her team flew to Detroit and met on the 39th floor of GM's
headquarters with Chief Executive Mary Barra to discuss joining.
After hearing the proposal, Ms. Barra believed the terms didn't
offer enough incentive for electric vehicles, a major focus for the
company, people briefed on the meeting said.
California officials tried to recruit other auto makers. The
governor personally called a Toyota executive. The company felt the
deal de-emphasized hybrid cars, its specialty, and wasn't eager to
provoke the administration, which has threatened import tariffs on
foreign-built cars, according to a person briefed on the
exchange.
Inside the White House, anger was festering. The administration
wanted to prevent other auto makers from joining, and accelerated
efforts to revoke California's waiver.
In September, the Justice Department dropped another bombshell:
It had opened an antitrust investigation into whether Ford, Honda,
Volkswagen and BMW had violated federal law in forging their pacts
with California.
The probe blindsided Ford executives and some felt it was
politically motivated, according to two people with knowledge of
the reaction. A company spokeswoman said Ford is cooperating with
the Justice Department.
A White House spokesman referred questions to the Justice
Department, which declined to comment on the accusations. At the
time the probe became public, a person familiar with the
investigation said the Justice Department's antitrust division is
acting on its own accord and without direction from or coordination
with the White House.
The shock of a federal investigation had a chilling effect on
the ongoing talks between the four auto makers and California, as
well as the state's efforts to recruit others.
BMW, Volkswagen and Honda all said they planned to adhere to the
California deal regardless of other companies joining, but declined
to comment further.
White House officials began calling car companies not aligned
with California to muster support for the administration's efforts
to remove the state's waiver, according to people at those
companies and administration officials.
GM was initially reluctant to take a stance, and other auto
makers, including Toyota, didn't want to intervene without GM, the
U.S.'s largest auto maker by sales, making the first move. A
weekend call in October from a senior White House adviser persuaded
GM executives to publicly back the administration, the people
said.
The following Monday, GM, Toyota, Fiat Chrysler and two other
car companies said they sided with the Trump administration. More
auto makers joined the group shortly after.
Ford executives said they would stick to their agreement with
California, even if most competitors haven't followed. "We believe
we're on the right side of this debate for the long term," Mr.
Hinrichs said.
Write to Mike Colias at Mike.Colias@wsj.com, Ben Foldy at
Ben.Foldy@wsj.com and Andrew Restuccia at
Andrew.Restuccia@wsj.com
(END) Dow Jones Newswires
February 04, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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