US launches antitrust probe into California automaker agreement

The U.S. Justice Department is investigating whether the decision of four automakers in July to reach a voluntary agreement with California to adopt state emissions standards violated antitrust law, people briefed on the matter said on Friday.

The antitrust division’s chief, Makan Delrahim, sent Aug. 28 letters to the four automakers saying the government was concerned the agreement “may violate federal antitrust laws” but adding it had “reached no conclusions,” according to documents seen by Reuters.

The disclosure comes as the Trump administration has ramped up its opposition to automakers seeking to sidestep it on rolling back Obama era fuel-efficiency rules. It also presages the beginning of a lengthy legal battle that will determine the future of U.S. vehicle emissions and California’s role in setting vehicle rules.

In July, Ford Motor Co (F.N), BMW AG (BMWG.DE), Volkswagen AG (VOWG_p.DE) and Honda Motor Co (7267.T) said they had reached a deal to adopt standards that were lower than Obama era rules but higher than the Trump administration’s 2018 proposal.

The automakers were defying the Trump administration’s effort to strip California of the right to fight climate change by setting its own standards. Automakers fear years of legal battles and want to ensure certainty over the requirements they will face nationwide and think the deal will benefit them financially because it aims to avoid a patchwork of state requirements.

The Justice Department declined to comment on Friday. Delrahim’s letters asked the four automakers to meet with the division “and provide us with more information regarding the formation” of the California deal and automakers’ communications with each other.

U.S. House of Representatives Speaker Nancy Pelosi, a California Democrat, said the Justice Department must “end this sham investigation and return to policing actual anticompetitive conduct.” The antitrust probe “seeks to weaponize law enforcement for partisan political purposes to advance the Trump Administration’s toxic special interest agenda.” Russ Vought, the acting director of the U.S. Office of Management and Budget, said in a statement on Friday that “a handful of irresponsible auto makers are aiding California’s radical agenda that will hurt every one of us.” He added: “California is trying to impose its failed policies on the rest of the country.” Vought’s office is expected to approve final rules in the coming weeks to dramatically roll back the Obama era standards and revoke California’s ability to set vehicle emissions rules.

California Governor Gavin Newsom blasted the Justice Department’s antitrust probe. “The Trump Administration has been attempting and failing to bully car companies for months now,” he said in a statement. “We remain undeterred.” California and the Trump administration have sparred on a number of fronts including over high-speed rail funding, power plant emissions and declaring a national emergency to use military funds to build a border wall.

Honda, Ford and BMW all confirmed they received a letter from the Justice Department. The probe is in its early stages, the people said.

“We look forward to responding to the Department of Justice to explain the planned (California Air Resources Board )framework agreement and its benefits to consumers and the environment,” BMW said.

Separately on Friday, general counsels at the Environmental Protection Agency told California Air Resource Board Chair Mary Nichols in a letter that its actions in connection with the voluntary agreement “appear to be unlawful and invalid.” The letter, copies of which were also sent to the automakers’ chief executives, warned that commitments made by the automakers “may result in legal consequences given the limits placed in federal law on California’s authority.” Nichols did not immediately respond to a request for comment. California Attorney General Xavier Becerra said the state “will continue its advance toward a cleaner future. We’re prepared to defend the standards that make that promise a reality.” Public Citizen, an advocacy group, called the investigation “blatantly retaliatory” and suggested the Trump administration is “hell-bent on repealing the clean car standards.” Trump has repeatedly attacked automakers for working with California and the White House has prodded other automakers not to sign up.

Volkswagen said in a statement it is in regular contact with U.S. authorities on several matters, but does not comment on specific private communications.

On Thursday, Reuters reported the administration was moving forward with plans to strip California of its waiver under the Clean Air Act to set its own vehicle emissions rules and requiring automakers to build an increasing number of zero-emission vehicles. White House adviser Larry Kudlow said Friday a final regulation could be issued in the coming weeks.

The Obama era rules called for a fleetwide fuel efficiency average of 46.7 miles (75.2 km) per gallon (mpg) by 2026, compared with 37 mpg (60 kpg) under the Trump administration’s preferred option. The final regulation will modestly boost fuel efficiency over the preferred option’s freeze of 2020 requirements but be far less than the Obama rules, Reuters reported on Thursday.

The Trump plan’s preferred alternative would hike U.S. oil consumption by about 500,000 barrels per day in the 2030s while reducing automakers’ collective regulatory costs by more than $300 billion.