Successes & Messes: Negotiating in reverse

What we can learn from a nonsensical battle over fuel-economy standards.

By on / Dealing with Difficult People

To get what we want, we sometimes ask more powerful parties to intervene on our behalf. But what happens if they go off course? That’s the predicament automakers in the U.S. market find themselves in after asking the Trump administration to loosen fuel-economy standards for their vehicles.

Pedal to the metal

When Donald Trump became president in 2017, the CEOs of the nation’s Big Three auto manufacturers—Ford, General Motors, and Chrysler—visited the Oval Office with a request. Back in 2012, they had supported President Barack Obama’s new regulations aimed at significantly reducing greenhouse-gas emissions, which required them to nearly double the average fuel economy of new cars and trucks to 54.5 miles per gallon (mpg) by 2025. But the standards were proving difficult to meet, they told Trump, given growing consumer demand for sport utility vehicles and pickup trucks. They asked the new president to loosen the Obama-era rules, as Coral Davenport and Hiroko Tabuchi report in the New York Times.

The automakers got their wish, and then some: In 2018, the administration unveiled a plan to roll back fuel-economy standards for new vehicles to about 37 mpg on average and also to revoke the legal authority of U.S. states to impose their own emissions standards.

The companies were dismayed: A complete rollback of federal emissions rules would put them at risk of falling behind in the global race to build more fuel-efficient vehicles, according to the Times. Even worse, the State of California—which, under the 1970 Clean Air Act, has the authority to set its own pollution standards—might choose to stick with the Obama-era rules, followed by other states. If two different sets of emissions rules took root in the nation, car companies could end up having to build two separate vehicle lines for the U.S. market.

Trump’s plan appeared to be an opening gambit for negotiations with California regulators. But in February 2019, the White House announced it had reached an impasse with the state. California said it would keep enforcing the Obama-era standards and sue the federal government to retain its authority to limit emissions. Thirteen other states vowed to follow California’s lead.

At a crossroads

In June 2019, 17 of the world’s largest automakers, including Ford, General Motors, Toyota, and Volvo, wrote to Trump urging him to renegotiate with California to help avoid “an extended period of litigation and instability.” They also asked California governor Gavin Newsom to negotiate a standard “midway” between the Obama rules and Trump’s proposed rollback, according to the Times.

With no sign of a détente between California and the federal government, four car companies—Ford, Volkswagen of America, Honda, and BMW, which together comprise about 30% of the U.S. auto market—soon entered into secret talks with California regulators. They reached an agreement to lower the current Obama rule from 54.4 to 51 mpg—well above the White House’s 37 mpg plan—while giving automakers other ways to meet fuel-economy standards, such as implementing fuel-saving technologies. In a joint statement, the automakers said the deal with California would provide “much-needed regulatory certainty” and allow them to produce “a single national fleet, avoiding a patchwork of regulations.”

Governor Newsom, a longtime Trump opponent, said the number of automakers involved in the negotiations had been limited to ensure secrecy and improve the odds of agreement but that he was confident other companies would sign on, the Times reports. In siding with California over the president, the automakers knew they risked antagonizing Trump, who could punish them by slapping tariffs on cars and components they produced abroad.

Road rage

Indeed, the president was “enraged” by the agreement, which his administration characterized as a “PR stunt,” according to the Times. While the automakers’ talks with California regulators had unfolded quickly, the president’s rollback initiative reportedly had stalled. Several senior officials who had spearheaded the project had exited the administration, leaving an inexperienced young aide in charge of the plan, the Times reports.

The less stringent emissions rules were also proving difficult to justify on technical and scientific grounds, according to Environmental Protection Agency (EPA) and Transportation Department staff members. And Consumer Reports concluded U.S. drivers would pay an average of $3,300 more per vehicle (in car prices and gasoline) up until 2035 if the rollback went through.

The Trump administration was in the unusual position of fighting on behalf of automakers for changes they didn’t want. But rather than backing off, the administration doubled down.

Staying the course

Aware that the rollback would be dead on arrival if more automakers sided with California, the White House summoned leaders of Toyota, Fiat Chrysler, and General Motors to Washington, D.C., and urged them to stick by the president. Executives from one of the companies told the Times it would join the California agreement nonetheless. Mercedes-Benz also said it would disregard the Trump plan. Yet several Japanese and European automakers avoided allying with California for fear Trump would follow through on a past threat to impose 25% tariffs on imported cars on national-security grounds, the Wall Street Journal reports.

Then, in early September, the U.S. Justice Department opened an antitrust inquiry into the four automakers that had negotiated a deal with California on the grounds that their agreement would limit the types of cars available to consumers. In addition, EPA and Transportation Department lawyers warned the State of California that its deal “appears to be inconsistent with federal law,” an argument federal courts have rejected in the past. The government’s aggressive pushback reportedly motivated the German government to advise Mercedes-Benz not to sign on to the California pact for fear of retaliation from Trump.

Running on empty

With fuel-economy standards gummed up in lawsuits, the auto industry faces uncertainty regarding the types of vehicles it should produce—the opposite of what leaders had hoped for when they brought their initial request to Trump.

The mess suggests the following broader negotiation lessons:

  • Be careful what you wish for. When asking counterparts to side with you, remember that their personal agendas and perceptions could lead them to conclusions that clash with yours and to actions you dislike. Try to get on the same page from the start by discussing in detail what each party values and why.
  • Ward off rebellion. In negotiations involving multiple parties, anticipate that negotiators who are unhappy with the terms of an agreement could splinter off and reach a side deal. Painstaking consensus building that accounts for everyone’s interests is typically needed to hold together fractious factions.
  • Start small. To further minimize the odds of a multiparty negotiation falling apart, you might consider limiting initial talks to a small number of participants, when possible. If you reach a great deal, other parties may be interested in signing on.
  • Know when to back down. Negotiators are often afraid to revert from their previously stated positions for fear of losing face. But you’re more likely to garner respect than scorn when you have the courage to change your mind.

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