Ford, GM, and FCA put their faith in Trump and now they are trapped in a political fight they can't win (F, GM, FCAU)
- Detroit automakers thought they had crafted a sweet deal with Donald Trump.
- But GM, Ford, and FCA didn't count on Trump making fuel-economy regulations into a battle against California.
- California is the biggest car market in the country, with $2 million in annual sales.
Shortly after Donald Trump was elected President, the Detroit big three automakers — General Motors, Ford, and Fiat Chrysler Automobiles — saw an opportunity.
Under the Obama administration, fuel economy standards for automakers' fleets were set to rise to 50 mpg, which would have crimped Detroit's desire to sell highly profitable pickup trucks and SUVs, compelling them to invest instead in slow-selling hybrids and electric vehicles.
Trump wanted headlines about his reversals of what his supporters considered anti-business Obama policies, as well as hiring in the Midwestern states that he unexpectedly won in the general election. The automaker could do that. Presto! A Trump deal was quickly sealed, with the automakers getting exactly what they wanted.
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They forgot about one important wildcard, however: California.
Since the election, the Golden State and final-term Governor Jerry Brown have established themselves as a mega-resister to all things Trump. It's often noted that if California were a country, it would have the world's fifth largest economy. As it happens, that economy is supportive of immigration, has been a hotbed of innovation, and for decades has led both the nation and the globe in environmental regulations.
The bottom line is that although California is far from environmentally pristine, citizens of the state love their much cleaner air and aren't in any mood to have Washington mess with it.
The automakers are trapped in a political confrontation
The automakers, having sold many millions of vehicles in the country's biggest car market, are abundantly aware of this and assumed that their deal with Trump would not have led to a war with California. But they underestimated the President's enthusiasm for confronting his political enemies, a large number of whom have a view of the Pacific Ocean.
EPA head Scott Pruitt, no fan of California's tougher fuel-economy and emissions rules, is bristling for the fight. He argues that California should set the tone for the nation. But California disagrees, and it has the historic firepower to be confident in a battle: 12 additional states follow California's lead.
According to Bloomberg, California Air Resources Board chief Mary Nichols' aim "is to continue to link California’s clean-air rules with Washington’s, as the state has done since 2009."
But the publication quotes Nichols insisting that if Washington pushes for a change that deviates from what California wants, the state won't go along with it.
For the automakers, this is a nightmare: a $17-million annual sales market with two fuel-economy standards. GM, Ford, and FCA would have to build California versions of popular vehicles — and possibly versions for any state that adopts California's standards.
Now they want a compromise that eases the implicit California requirements without pitting the state and its followers against the rest of the country.
Trump and Pruitt don't have any chance of winning this war. The big three can exert considerable influence over the economies of Michigan and Ohio, and Californians will punish Detroit if the carmakers overplay their hand. The state's residents buy two million vehicles a year — and Detroit has for decades been forced to fight hard for its share against Japanese, German, and South Korean competitors.
The freak-out in Motown is getting palpable. The automakers were initially gleeful about Trump, but they neglected to inform the administration that California has been calling its own shots for years. Executives perhaps assumed Trump knew this. They were wrong, and now they're having to broker a new deal from a position of considerable weakness.
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