September 6, 2019 / 7:45 PM / 16 days ago

Breakingviews - Carmakers’ antitrust probe is more smoke than fire

Rush-hour traffic passes through Washington, U.S., December 20, 2016. REUTERS/Joshua Roberts

NEW YORK (Reuters Breakingviews) - Carmakers have the upper hand in a brewing fight with the U.S. Department of Justice over emissions standards. The watchdog is investigating whether a deal BMW, Ford Motor, Honda Motor and Volkswagen inked with California to cut pollution breaches antitrust rules. When rivals agree on something, there’s always room for scrutiny. In this case, it’s hard to see how their plans would leave consumers worse off.

A look at automakers’ earnings shows competition is thriving. It’s cause for celebration whenever Ford and General Motors manage to make a pre-tax profit margin of 10% in the Unites States. That creates plenty of incentive to cut costs and increase revenue. Achieving the former is best done with joint ventures and mergers, while the latter stems from offering buyers better performance and gadgets than they might get elsewhere.

The fear is that big car producers could decide to offer only greener versions because they cost customers more. But even if that happens, consumers have plenty of other carmakers to choose from, including two of the top-three sellers in the United States, GM and Toyota Motor, which are not part of the California agreement. Besides which, the California four cater to different consumers. Ford’s biggest seller is the F-150 truck and it’s pulling out of the smaller-car segment that Honda still plays in. BMW is all about luxury cars. And Volkswagen is a small U.S. player.

But the agreement the four manufacturers struck with California in July also ties them to providing better fuel efficiency, which means that, all else being equal, drivers buy less gas. The fleetwide 2026 target of 47 miles per gallon they signed up for is 10 miles per gallon more efficient than an alternative standard proposed by the White House. That will reduce the average driver’s annual fuel bill by $200, based on the mean 13,500 miles driven per vehicle per year.

The DOJ could perhaps take issue with some of the preferential treatment California is offering, such as faster approvals for more fuel-efficient designs. But the agreement’s main offense is that it interferes with the White House’s desire to enforce lower emissions standards. The DOJ has a duty to make sure companies don’t collude to the detriment of their customers. In this case, the probe looks to be more smoke than fire.

Breakingviews

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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