On July 25, 2019, four major domestic and foreign automakers announced an agreement had been reached with the State of California on a voluntary framework reducing emissions from autos through, inter alia, increased mileage efficiency. Under the arrangement, the average fuel economy for vehicles from those automakers would reach nearly 50 mpg by the end of the agreement in 2026.

The terms represent a compromise from the Obama Administration’s CAFE standards, but far beyond those proposed by the Trump White House.

Trump Administration officials denounced the agreement as a “publicity stunt” intended to force the White House into an agreement with California somewhere between the Obama standards and the current Executive Branch proposals. The Administration vowed to continue forward with their proposed standards, and their effort to remove California’s ability to set its own standards.

Automakers Side with California

When the Trump Administration first proposed its rollback of the Obama Corporate Average Fuel Economy (CAFE) standards, it only riled up environmentalists by freezing standards at 2020 levels, well below the goal established in the Obama regulations. But it also gave the auto industry something it had not asked for – a total rollback rather than a softening – and thus uncertainty in the U.S. auto market. California announced it would still use the Obama standards.

The Trump Administration refused to negotiate a compromise with California, despite strong public urging by seventeen automakers. However, faced with the likelihood that there would be two different markets in the U.S., most if not all major automakers selling in the U.S. will adapt their standards to those agreed to by California, which is by itself the fifth or sixth largest economy in the world.

Making the emissions decision even easier is that for international car manufacturers, the market in other countries will almost certainly be dominated by more fuel efficient and electric cars.

Markets Drive Corporate Decision Making

The outcome was almost certainly foreseeable. Automakers design vehicles years in advance, not on the basis of whim. Should the next administration change to one more environmentally friendly, manufacturers not already implementing plans to increase mileage would be caught short in the U.S. market.

Automakers would also be at risk of losing market share in emerging markets in China and elsewhere in Asia and Europe where expensive fuel makes fuel efficiency and/or electric power a key selling point.

The Final Word

The Administration can bluster about this as a tactic, a publicity stunt, irrelevant to its own effort to establish a much lower “uniform national standard” but the rhetoric will not matter. The forces of the market are much more powerful than even Trump’s bully pulpit.

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