equal to the percentage increase in fuel economy for values less than 10 percent (for example, a 9.1 percentage decrease in fuel consumption equals a 10 percent increase in fuel economy), but the differences increase progressively: for example, a 33.3 percent decrease in fuel consumption equals a 50 percent increase in fuel economy.

Recommendation: Because differences in the fuel consumption of vehicles relate directly to fuel savings, the labeling on new cars and light-duty trucks should include information on the gallons of fuel consumed per 100 miles traveled in addition to the already-supplied data on fuel economy so that consumers can become familiar with fuel consumption as a fundamental metric for calculating fuel savings.

Fuel consumption and fuel economy are evaluated by the U.S. Environmental Protection Agency (EPA) for the two driving cycles: the urban dynamometer driving schedule (city cycle) and the highway dynamometer driving schedule (high-way cycle). In the opinion of the committee, the schedules used to compute CAFE should be modified so that vehicle test data better reflect actual fuel consumption. Excluding some driving conditions and accessory loads in determining CAFE discourages the introduction of certain technologies into the vehicle fleet. The three additional schedules recently adopted by the EPA for vehicle labeling purposes—ones that capture the effects of higher speed and acceleration, air conditioner use, and cold weather—represent a positive step forward, but further study is needed to assess to what degree the new test procedures can fully characterize changes in inuse vehicle fuel consumption.

Recommendation: The NHTSA and the EPA should review and revise fuel economy test procedures so that they better reflect in-use vehicle operating conditions and also provide the proper incentives to manufacturers to produce vehicles that reduce fuel consumption.

Cost Estimation

Large differences in technology cost estimates can result from differing assumptions. These assumptions include whether costs are long- or short-term costs; whether learning by doing is included in the cost estimate; whether the cost estimate represents direct in-house manufacturing costs or the cost of purchasing a component from a supplier; and which of the other changes in vehicle design that are required to maintain vehicle quality have been included in the cost estimate. Cost estimates also depend greatly on assumed production volumes.

In the committee’s judgment, the concept of incremental retail price equivalent (RPE) is the most appropriate indicator of cost for the NHTSA’s purposes because it best represents the full, long-run economic costs of decreasing fuel consumption. The RPE represents the average additional price consumers would pay for a fuel economy technology. It is intended to reflect long-run, substantially learned, industry-average production costs that incorporate rates of profit and overhead expenses. A critical issue is choice of the RPE markup factor, which represents the ratio of total cost of a component, taking into account the full range of costs of doing business, to only the direct cost of the fully manufactured component. For fully manufactured components purchased from a Tier 1 supplier,1 a reasonable average RPE markup factor is 1.5. For in-house manufactured components, a reasonable average RPE markup factor over variable manufacturing costs is 2.0. In addition to the costs of materials and labor and the fixed costs of manufacturing, the RPE factor for components from Tier 1 suppliers includes profit, warranty, corporate overhead, and amortization of certain fixed costs, such as research and development. The RPE factor for in-house manufactured components from automobile manufacturers includes the analogous components of the Tier 1 markup for the manufacturing operations, plus additional fixed costs for vehicle integration design and vehicle installation, corporate overhead for assembly operations, additional product warranty costs, transportation, marketing, dealer costs, and profits. RPE markup factors clearly vary depending on the complexity of the task of integrating a component into a vehicle system, the extent of the changes required to other components, the novelty of the technology, and other factors. However, until empirical data derived via rigorous estimation methods are available, the committee prefers the use of average markup factors.

Available cost estimates are based on a variety of sources: component cost estimates obtained from suppliers, discussions with experts at automobile manufacturers and suppliers, publicly available transaction prices, and comparisons of the prices of similar vehicles with and without a particular technology. However, there is a need for cost estimates based on a teardown of all the elements of a technology and a detailed accounting of materials and capital costs and labor time for all fabrication and assembly processes. Such teardown studies are costly and are not feasible for advanced technologies whose designs are not yet finalized and/or whose system integration impacts are not yet fully understood. Estimates based on the more rigorous method of teardown analysis would increase confidence in the accuracy of the costs of reducing fuel consumption.

Technology cost estimates are provided by the committee for each fuel economy technology discussed in this report. Except as indicated, the cost estimates represent the price an automobile manufacturer would pay a supplier for a finished component. Thus, on average, the RPE multiplier of 1.5 would apply to the direct, fully manufactured cost to obtain the average additional price consumers would pay for a technology. Again, except where indicated otherwise, the


A Tier 1 supplier is one that contracts directly with automobile manufacturers to supply technologies.

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