On January 20, 2021—his very first day in office—President Joe Biden issued an executive order directing agencies to review numerous actions taken by the previous administration. One item under review is the Trump Administration’s revocation of a waiver allowing California to set its own vehicle-emission standards. Although twenty states sued the Trump Administration for that action, President Biden has asked the courts to pause litigation while his administration reviews the waiver revocation.
What does that mean for auto dealers? Are grounds ripe for new legal disputes? Well, that depends on what state you operate in.
California sets the standard
California has long been a leader in clean-air regulation. To date, fourteen other states (plus the District of Columbia) have adopted California’s low-emission standards. Although the Clean Air Act prohibits any state from adopting new motor-vehicle-emission standards that differ from those established by the federal government, California is entitled to apply for a waiver from that prohibition. If the EPA grants that waiver, California (and any other state that adopts standards identical to California’s) may adopt standards that are more protective than the EPA’s.
In September 2020, California Governor Gavin Newsom signed an executive order requiring that all new cars and trucks sold in the state be zero-emission vehicles by 2035. That ambitious goal will be much more attainable, of course, if President Biden reverses his predecessor’s revocation of the California waiver, as many expect he will.
The California New Car Dealers Association (“CNCDA”) responded to Governor Newsom’s order with some concern:
While we greatly respect the Governor’s ambition and emphasis on California leading the fight to combat climate change, we have many unanswered questions about fundamental components of his Executive Order to ban the sale of gasoline-powered vehicles by 2035, including the implications on consumers and the state’s preparedness to take on such a directive.
President Brian Maas, who made the above statement, also expressed concern that Governor Newsom’s order bypasses the legislative process and therefore “is deeply troubling and deprives Californians of a direct voice in this important issue.” A few months later, the Virginia Automobile Dealers Association (“VADA”) expressed its own concern over Virginia’s proposed adoption of California’s stringent emission standards, acknowledging that “[o]ur dealers fully support EV adoption,” but noting that Virginia must match California’s investment and infrastructure for the plan to succeed. However, just weeks ago, Virginia became the latest state to adopt California’s standards, and the VADA embraced the development. According to VADA’s president, dealer support for the bill was unprecedented.
Minnesota dealers reject the California model
While states across the country continue to follow California’s lead, some have not been quite so enthusiastic about the push for a zero-emission vehicle future. In Minnesota, for example, the Minnesota Automobile Dealers Association (“MADA”) filed a federal lawsuit on January 6, 2021 against the Minnesota Pollution Control Agency over its proposed clean-car rule. The Minnesota Pollution Control Agency is a Minnesota state agency that monitors environmental quality and enforces environmental regulations for the state. Through the proposed rule, Minnesota would adopt the Midwest’s first zero-emission vehicle mandate. Although proponents of the rule cite the importance of slashing greenhouse-gas emissions, MADA argues that the rule is illegal because the Trump Administration revoked the waiver that allowed California to set its own strict vehicle emissions.
MADA also contends that the proposed rule will harm Minnesota auto dealers in several ways: (1) dealers will lose sales if they can stock and sell only vehicles that comply with California emission standards; (2) dealers will incur costs from stocking increased numbers of zero-emission vehicles; and (3) dealers will suffer a competitive disadvantage because dealerships in neighboring states will not be subject to the same restrictions. Dealers will be forced, the Association contends, to carry zero-emission vehicles even though Minnesotans overwhelmingly desire vehicles that are not zero emission.
The federal court dismissed the lawsuit without prejudice (meaning the lawsuit may be filed again) on February 17, 2021 on multiple procedural grounds, but in part because the lawsuit “challenges administrative rules that have not been adopted, have not taken effect, and have not been enforced,” and that “will not be enforced, if at all, until several years from now.” That has not stopped many Minnesota dealers and lawmakers from continuing to push back, however, arguing (just as CNCDA has) that the legislature should have authority over setting vehicle emissions standards in the state.
California dealers uncertain what the future holds
While some California dealers have expressed support for Governor Newsom’s executive order (citing environmental concerns), others feel uneasy. In Governor Newsom’s proposed future, they contend, what would stop a consumer from taking a day trip to Nevada to purchase and return home to California in a gas-powered vehicle? (This echoes a contention raised in the MADA lawsuit.) Critics of the argument might say that this would be an extremely rare occurrence. While that may be true in the context of statewide vehicle sales, it ignores the very real impact this could have at the dealership level; while dealerships in Los Angeles and San Francisco might see their sales reach new heights in a zero-emission-vehicle world, dealerships in more rural parts of the state, where consumer demand might be drastically different (and more like that in parts of Minnesota), could see a significant drop in sales and perhaps even defectors to neighboring states.
It is also possible, however, that as the market for electric vehicles continues to expand—reaching more and more manufacturers and spanning across all types of vehicles (including trucks and SUVs)—consumers across the board will be more and more amenable to going the electric route. It bears noting that Jaguar, Volvo, and GM all recently announced plans to sell only zero-emission vehicles by 2025, 2030, and 2035 (respectively).
At the end of the day, we can only speculate as to what the future holds. One thing is clear, however: California will not take its foot off the pedal any time soon in its fight to reduce emissions. California senators Diane Feinstein and Alex Padilla made that abundantly clear when they sent a letter to President Biden in March urging him to set a firm date to phase out the sale of gas-powered cars or trucks not just in Ca