August 27, 2019 / 1:32 PM / 5 months ago

Breakingviews - Carmakers have $372 bln incentive to defy Trump

2020 Ford Explorer cars are seen at Ford's Chicago Assembly Plant in Chicago, Illinois, U.S. June 24, 2019. REUTERS/Kamil Krzaczynski

NEW YORK (Reuters Breakingviews) - Carmakers have a $372 billion incentive to defy Donald Trump. That’s the annual sales potentially at risk if they don’t meet tailpipe-emissions rules in California and 14 other states that are tougher than the U.S. president wants. Trump on Wednesday lobbed baseless accusations at Ford Motor, which along with BMW, Honda Motor and Volkswagen recently sided with the Golden State. But the financial case for greener vehicles is clear.

The White House is working to loosen restrictions on carmakers on a few levels. One plan is to reverse an Obama-administration rule that raises the mileage per gallon automakers must target in 2025 by 27%. Another is to strip states like California of the right to set their own emissions standards. The Golden State’s tough stance would, Trump has argued, drive carmakers to “business ruin.”

The president’s main argument is that it would be weak of carmakers to spend more money making cars that cost $3,000 more and are not as safe or as good. None of those assertions holds up for internal-combustion engines. The difference between the two emissions standards would reduce the average gasoline bill by 21%. Electric cars are more expensive to buy at present, though the price should drop as more are sold. 

But the financial case for manufacturing cars to the higher standard is obvious. The states involved make up one-third of the $1 trillion spent on new cars each year, according to data from the National Automobile Dealers Association. Shooting for the White House’s more pollution-friendly level would either exclude them from that market or force them to run a more expensive two-tier manufacturing process.

American rules aren’t the only consideration, either. A number of European countries as well as China, the world’s largest car market, are imposing tougher emissions regulations. That’s why even General Motors, Toyota Motor and other major carmakers that have not yet joined the Golden State four have been imploring Trump to come up with a national standard acceptable to California. Presidents have influence, but sometimes market forces have more.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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