Impacts(of(Tighter(CAFE(and(GHG( Regula
Transcript of Impacts(of(Tighter(CAFE(and(GHG( Regula
Impacts of Tighter CAFE and GHG Regula<ons on Automo<ve Profits
Walter McManus Economist
Automo2ve Analysis Group
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Regulatory Context
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Energy Policy and Conserva2on Act
(1975)
Energy Independence and Security Act
(2007)
Clean Air Act (1963, 1970, 1977, 1990)
NHTSA EPA
CARB
U.S. Supreme Court, Mass. Vs.
EPA 2007 Waiver of pre-‐
emp2on under CAA (2009)
Corporate Average Fuel Economy (CAFE)
Pollu<on, including GHG
3 Wenzel & Ross 2008
Before CAFE cars over 4000 lbs. were 40% of light-‐duty market; Light-‐duty trucks over 4000 lbs. a recent phenomenon
S<ff frame rails of pickups & SUVs
4 Wenzel & Ross 2008
Trucks and SUVs make everyone less safe
5 Wenzel & Ross 2008
• Ceres • Citigroup Equity Research • Meszler Engineering Services • Baum and Associates • Automotive Analysis Group, UMTRI • Natural Resources Defense Council
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“Fuel Economy Focus: Perspectives on 2020 Industry Implications”
• Limit on plausibility of detailed forecasts
• Developed baseline forecast of sales units – Vehicle by configuration to 2015 – Manufacturer by segment to 2020 – 2020 sales: 16.3 million units – 2020 mpg: 31 mpg
• Used technology package assumptions (and variable costs) to boost overall fuel economy to 42 mpg
Walter McManus University of Michigan Transportation Research Institute 7
2020 ANALYSIS OF PROFITS
• Basic cost es2mates reflect variable costs to the vehicle manufacturer.
• The es2mates reflect future costs (2016-‐2020 2meframe) and thus assume varying levels of cost reduc2on due to learning and volume produc2on.
• Thus, the costs are, in some cases, substan2ally lower than the costs that would be incurred if such technologies were implemented today.
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COSTS FOR 2020 ANALYSIS
• 2020 target (42 mpg) requires roughly 55% gain over current CAFE • 2020 workhorse conven<onal package
– ~55-‐60% fuel economy boost – Turbocharged/downsized/GDI + valve control + AMT8 + EPS + 10% mass reduc2on
+ 5% drag reduc2on + low fric2on lube + engine fric2on reduc2on + aggressive shia logic + low rolling resistance 2res
– Cooled/boosted EGR allows for even larger gains (at higher cost)
• 2020 HEV (onboard recharge) package – ~90-‐110% fuel economy boost – P2 HEV (2 Mode for towing apps) on the back of conven2onal workhorse package
• 2020 PHEV/EV packages – FE boosts of 250-‐1200% due to credits for EV-‐only opera2on, but much higher
costs – NOT needed to achieve 2020 target
GDI = gasoline direct injection, AMT8 = 8 speed automated manual transmission (non-towing = dry, towing = wet), EPS = electric power steering, EGR = exhaust gas recirculation, HEV = hybrid electric vehicle, PHEV = plug-in HEV, EV = electric-only drivetrain, FE = fuel economy.
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EXAMPLE TECHNOLOGY PACKAGES
ECONOMETRIC MODEL
• Elasticity matrix for automaker by segment derived from historical analysis by General Motors
• Prices projected based on historical J.D. Power and Associates and other information
• Variable profit rises with vehicle price, at a decreasing rate
• Variable profit assumed to be lower for electrified than for conventional vehicles
Walter McManus University of Michigan Transportation Research Institute 10
ASSUMPTIONS: VARIABLE PROFITS
Walter McManus University of Michigan Transportation Research Institute 11
Important but Uncertain Factors
Minimum Baseline MaximumConsumer discount rate 17.2% 12.2% 5.2%
Life of vehicle (years) 3 7 15Annual miles driven 10,000 15,000 20,000Price of fuel ($/gal) $2.00 $4.00 $10.00
Consumer risk preference 30% 75% 140%
Scenario Alternatives
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Overall Results
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Impacts on sales and profits
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WHY THE BIG 3 GAIN RELATIVE TO THE JAPAN 3
• Big 3 (Detroit 3): General Motors, Ford, Chrysler • The gap in fuel economy between Big 3 & Japan 3
is narrowed by the regulation • Trucks and larger cars, in which Big 3 are more
invested, have greater potential for added consumer value through improving fuel economy
• Costs of improving fuel economy are relatively lower for trucks and larger cars
• Prices and variable profits are higher for trucks and larger cars
Walter McManus University of Michigan Transportation Research Institute 14
Sensi<vity of outcomes
• MPG 42 to 44 • Sales -‐1.0m to +2.5m • Profit -‐$2b to +$18b • Big 3 -‐$0.3b to +$9b
• MPG 41 to 45 • Sales -‐1.5m to +4.5m • Profit -‐$5b to +$30b • Big 3 -‐$2b to +$14b
One Factor Two Factors
Industry Profits; 1 factor Industry profit; 1 factor
$2.00
30%
3
10,000
17.2%
$10.00
140%
15
20,000
0.0%
($6.0) ($4.0) ($2.0) $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 $20.0 $22.0
p_fuel
factorm
life
vmt
rate
industry profit
Industry Profits; 2 factors Industry profit; 2 factors
$2.00 & 30%
3 & $2.00
17.2% & $2.00
10,000 & $2.00
3 & 30%
17.2% & 3
17.2% & 30%
10,000 & 30%
3 & 10,000
17.2% & 10,000
$10.00 & 140%
15 & $10.00
0.0% & $10.00
20,000 & $10.00
15 & 140%
0.0% & 15
0.0% & 140%
20,000 & 140%
15 & 20,000
0.0% & 20,000
($15.0) ($10.0) ($5.0) $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0
p_fuel & factorm
life & p_fuel
rate & p_fuel
vmt & p_fuel
life & factorm
rate & life
rate & factorm
vmt & factorm
life & vmt
rate & vmt
industry profit
Big 3 Profits; 1 factor Big 3 profits; 1 factor
$2.00
30%
3
10,000
17.2%
$10.00
140%
15
20,000
0.0%
($2.0) ($1.0) $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0
p_fuel
factorm
life
vmt
rate
big 3 profit
Big 3 Profits; 2 factors Big 3 profits; 2 factors
$2.00 & 30%
3 & $2.00
17.2% & $2.00
10,000 & $2.00
3 & 30%
17.2% & 3
17.2% & 30%
10,000 & 30%
3 & 10,000
17.2% & 10,000
$10.00 & 140%
15 & $10.00
0.0% & $10.00
20,000 & $10.00
15 & 140%
0.0% & 15
0.0% & 140%
20,000 & 140%
15 & 20,000
0.0% & 20,000
($6.0) ($4.0) ($2.0) $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0
p_fuel & factorm
life & p_fuel
rate & p_fuel
vmt & p_fuel
life & factorm
rate & life
rate & factorm
vmt & factorm
life & vmt
rate & vmt
big 3 profit
Thank you Walter McManus University of Michigan Transportation Research Institute [email protected] (248) 821-0493 (cell) @waltermcmanus
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Meszler Engineering Services
• 2008 (for model years 2011-‐2015), 2009 and 2010 (for model years 2012-‐2016), and 2010 (for model years 2017-‐2025) U.S. Environmental Protec2on Agency (EPA) and Na2onal Highway Traffic Safety Administra2on CAFE and greenhouse gas standard rulemaking documents.
• U.S. EPA, EPA 420-‐R-‐09-‐020, “Light Duty Technology Cost Analysis, Pilot Study,” Prepared by FEV, Inc. under EPA Contract Number EP-‐C-‐07-‐069, December 2009.
• Northeast States Center for a Clean Air Future, “Reducing Greenhouse Gas Emissions from Light-‐Duty Motor Vehicles,” September 2004.
• U.S. Department of Energy, Energy Informa2on Administra2on, DOE/EIA 0554(2010), “Assump2ons to the Annual Energy Outlook 2010, With Projec2ons to 2035,” Transporta2on Demand Module Chapter, April 2010. (2008 and 2009 versions also consulted)
• Na2onal Academy of Sciences, Na2onal Research Council, “Effec2veness and Impact of Corporate Average Fuel Economy (CAFE) Standards,” Na2onal Academy Press, Washington, D.C., 2002.
• Na2onal Academy of Sciences, Na2onal Research Council, “Assessment of Fuel Economy Technologies for Light Duty Vehicles,” Na2onal Academy Press, Washington, D.C., 2010.
• Ongoing (currently unpublished) simula2on modeling results.
• Various automo2ve trade publica2ons.
SOURCES FOR TECH IMPACTS AND COSTS
SALES FORECAST 2020
Segment Chrysler Ford GM Honda Nissan Toyota Others All Auto makers
CARLUX 67,419 48,481 151,376 55,006 113,198 195,095 742,791 1,373,365
CARMID 294,440 509,158 656,156 443,423 369,598 648,883 887,338 3,808,995
CARSML 113,463 422,008 434,870 495,191 486,245 698,750 891,275 3,541,802
CUVLUX 66,548 48,312 66,871 24,295 162,623 38,270 406,919
CUVMID 88,489 279,937 276,418 174,487 74,068 161,206 376,683 1,431,288
CUVSML 126,808 483,270 262,867 224,789 174,248 246,743 309,800 1,828,524
MINIVAN 307,928 149,183 132,102 61,598 650,811
PULRG 244,224 670,216 649,061 41,293 128,494 1,733,287
PUSML 60,064 147,590 207,653
SUVLRG 45,083 227,878 27,591 300,551
SUVLUX 10,255 23,825 27,198 266,599 327,876
SUVMID 144,104 61,519 76,110 20,425 302,158
SUVSML 122,185 33,433 155,617
VANLRG 29,511 120,084 74,723 17,285 323 241,926
All Segments
1,538,569 2,655,039 2,805,484 1,608,949 1,449,403 2,624,794 3,628,533 16,310,771
Walter McManus University of Michigan Transportation Research Institute 22
BASELINE SCENARIO 2020
Segment Chrysler Ford GM Honda Nissan Toyota Others All Auto makers
CARLUX 84,661 48,276 151,384 66,897 141,756 234,345 683,721 1,411,040
CARMID 327,256 564,980 748,175 449,554 409,052 638,020 959,732 4,096,769
CARSML 133,935 428,852 130,688 444,114 241,067 492,136 1,211,349 3,082,142
CUVLUX 62,373 59,067 79,624 30,430 171,453 39,969 442,916
CUVMID 103,407 275,295 387,964 170,685 74,268 166,143 499,570 1,677,332
CUVSML 133,756 610,845 308,929 217,979 184,060 283,888 402,861 2,142,317
MINIVAN 348,853 154,269 148,516 96,193 747,832
PULRG 254,651 702,487 760,904 40,237 131,306 1,889,584
PUSML 75,006 144,502 219,508
SUVLRG 59,930 214,618 32,182 306,731
SUVLUX 12,585 26,868 32,725 288,516 360,694
SUVMID 184,192 61,813 77,207 26,123 349,335
SUVSML 133,198 49,525 182,723
VANLRG 28,780 205,246 124,872 27,860 478 387,235
All Segments
1,732,688 2,970,867 2,913,470 1,583,122 1,317,732 2,520,241 4,258,037 17,296,158
Consumer discount rate 12.2% Annual miles driven 15,000Life of vehicle (years) 7 Price of fuel ($/gal) $4.00
Consumer preference for fuel cost risk 75%
Walter McManus
University of Michigan Transportation Research Institute 23
MPG; 1 factor MPG 2020; 1 factor
$2.00
30%
3
10,000
17.2%
$10.00
140%
15
20,000
0.0%
41.2 41.4 41.6 41.8 42.0 42.2 42.4 42.6 42.8 43.0 43.2 43.4 43.6 43.8 44.0 44.2
p_fuel
factorm
life
vmt
rate
MPG 2020
MPG; 2 factors MPG 2020; 2 factors
$2.00 & 30%
3 & $2.00
17.2% & $2.00
10,000 & $2.00
3 & 30%
17.2% & 3
17.2% & 30%
10,000 & 30%
3 & 10,000
17.2% & 10,000
$10.00 & 140%
15 & $10.00
0.0% & $10.00
20,000 & $10.00
15 & 140%
0.0% & 15
0.0% & 140%
20,000 & 140%
15 & 20,000
0.0% & 20,000
40.0 40.5 41.0 41.5 42.0 42.5 43.0 43.5 44.0 44.5 45.0 45.5 46.0
p_fuel & factorm
life & p_fuel
rate & p_fuel
vmt & p_fuel
life & factorm
rate & life
rate & factorm
vmt & factorm
life & vmt
rate & vmt
MPG 2020
Industry Sales; 1 factor Incremental sales 2020; 1 factor
$2.00
30%
3
10,000
17.2%
$10.00
140%
15
20,000
0.0%
(2.0) (1.5) (1.0) (0.5) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
p_fuel
factorm
life
vmt
rate
Incremental Sales 2020 (millions)
Industry Sales; 2 factors Incremental sales 2020; 2 factors
$2.00 & 30%
3 & $2.00
17.2% & $2.00
10,000 & $2.00
3 & 30%
17.2% & 3
17.2% & 30%
10,000 & 30%
3 & 10,000
17.2% & 10,000
$10.00 & 140%
15 & $10.00
0.0% & $10.00
20,000 & $10.00
15 & 140%
0.0% & 15
0.0% & 140%
20,000 & 140%
15 & 20,000
0.0% & 20,000
(3.0) (2.5) (2.0) (1.5) (1.0) (0.5) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5
p_fuel & factorm
life & p_fuel
rate & p_fuel
vmt & p_fuel
life & factorm
rate & life
rate & factorm
vmt & factorm
life & vmt
rate & vmt
Incremental Sales 2020 (millions)