1

August 2009

MEMORANDUM

SUBJECT: Documentation of the Development of Indi rect Cost Multipliers for Three

Automotive Technologies

FROM: Gloria Helfand, Assessment and Standards Divi sion Office of Transportation and Air Quality U.S. Environmental Protection Agency

Todd Sherwood, Assessment and Standards Division Office of Transportation and Air Quality U.S. Environmental Protection Agency

___________________________________________________ _____________________

Summary

This memorandum documents and reports the results of an exercise to estimate the indirect costs associated with new several ligh t-duty vehicle greenhouse gas reduction technologies. The report “Automobile Industry Reta il Price Equivalent and Indirect Cost Multipliers” 1 (the “RPE/IC Report”) estimates indirect cost mult ipliers that vary with the complexity of the technology and over the near-term and long-run time frame. The Report starts with a Retail Price Equivalent (RPE) multiplier, disaggregated into contributor categories to indirect costs. It then relied on a panel of automotive engineers to develop adjustment factors for the contributor c ategories for three specific technologies. The adjustment factors were based on the engineers’ judgment of the effect of the technologies on the cost categories.

The purpose of this memorandum is to document a rec ent expansion of the indirect cost multiplier (ICM) estimates through a documented expert elicitation process covering three automotive technologies not consider ed in the original February 2009 Report. Reviewers’ comments on the RPE/IC report s ought clarification and better documentation of the process used to develop adjust ment factors. In response, EPA conducted a new exercise to estimate adjustment fac tors for new technologies. For this new ICM development effort, the U.S. Environmental Protection Agency (EPA) used a process based on the Delphi method to develop adjus tment factors for three technologies not considered in the RPE/IC Report. Technologies were selected which were deemed representative of low technological complexity, med ium technological complexity, and high technological complexity, as described in the RPE/IC Report.

1 “Automotive Industry Retail Price Equivalent and I ndirect Cost Multipliers” RTI International and the Transportation Research Institute of the University of Michigan, Feb 2009, EPA Report EPA-420-R-09-

003.2 This process used a panel of automotive experts who provided individual, anonymous estimates of the adjustment factors. The panel met three times to discuss both the process and the results; after each meetin g, the experts had the opportunity to modify their results and resubmit them anonymously. The table below provides the results of this process.

Indirect Cost Multipliers
Short run Long run

Low Medium High Low Medium High June 2009 (this memo)

Average 1.16 1.29 1.64 1.12 1.20 1.39

Standard Deviation 0.141 0.145 0.207 0.137 0.131 0.152

Median 1.124 1.264 1.659 1.062 1.199 1.396

Max 1.434 1.527 2.153 1.421 1.445 1.691

Min 1.001 1.018 1.367 1.000 1.011 1.121

Results from RPE/IC Feb 2009 Report 1.05 1.20 1.45 1.02 1.05 1.26

The results from this exercise follow the same pat tern as those of the RPE/IC Report: the indirect cost multipliers increase wit h the complexity of the technology and decrease over time. The values derived in this pro cess are higher than those in the RPE/IC Report by values ranging from 0.09 to 0.19. This variation may be due to differences in the technologies studied here.

The remainder of this memorandum includes the follo wing sections:

- A description of the development process and high-l evel results for the Indirect Cost Multipliers for the three automotive technologies documented in this memorandum;

- Appendix A: A description of the panel of experts;

- Appendix B: Questionnaire Provided to Expert Panel ;

- Appendix C: Round 1 Results;

- Appendix D: Round 2 Results.3

Documentation of Development of Indirect Cost Multi pliers for Three Automotive Technologies

Introduction

In February 2009, EPA issued a report, “Automobile Industry Retail Price Equivalent and Indirect Cost Multipliers,” written by Alex Rogozhin and Michael

Gallaher of RTI International and Walter McManus of the University of Michigan Transportation Research Institute (the “RPE/IC Repo rt”). This report provided a new calculation of the retail price equivalent (RPE) mu ltiplier commonly used to estimate the indirect costs associated with a new technology. T he RPE is a ratio of total revenue to direct manufacturing cost; put another way, it is t he ratio of indirect costs plus profit to direct manufacturing costs. It is an average over all the activities of a manufacturer.

The RPE/IC report argues that indirect costs are u nlikely to be a constant proportion of direct costs. Instead, indirect cost s are likely to vary with the complexity of a technology, and with the time frame involved. It proposes a method to adjust the RPE to estimate these different multipliers. First, th e RPE is decomposed into the indirect cost contributors. Secondly, for three technologies rep resenting different degrees of complexity, a panel of automotive engineering exper ts developed adjustment factors for each contributor. The adjustment factors were base d on their judgment of the degree to which each contributor changed due to the new techn ology. Finally, each adjustment factor was multiplied by the value of that contribu tor in the RPE, and those products were summed to give indirect cost multipliers specific t o the technologies and to the time frames. The three technologies were: for low comp lexity, low rolling resistance tires; for medium complexity, dual clutch transmission; and fo r high complexity, a hybrid electric

vehicle. The short run was defined as the first 5 years of the introduction of the technology, and the long run was the period after t hat first five years.

The purpose of this memorandum is to document a rec ent expansion of the indirect cost multiplier (ICM) estimates through a documented expert elicitation process covering three automotive technologies not consider ed in the original February 2009 Report. The RPE/IC Report developed adjustment fac tors through a consensus process,

in which a number of U.S. Environmental Protection Agency (EPA) automotive engineers met 5 times to discuss and arrive at the adjustment factors. For this new ICM development effort EPA used a process based on the Delphi method to develop adjustment factors for three technologies not consi dered in the RPE/IC Report. Technologies were selected which were deemed repres entative of low technological complexity, medium technological complexity, and hi gh technological complexity, as described in the RPE/IC Report. Our goal in this e ffort is to develop credible indirect cost multipliers through a transparent, replicable process. We expanded the number of engineers participating in the panel, from 11 to 14 , to improve both the estimates and our understanding of the variation in the estimates. W e also increased the formality of the process to improve its clarity and transparency.4

The next section of this memo describes the proces s that was used to develop adjustment factors for three new technologies: for low complexity, passive aerodynamic improvements; for medium complexity, engine downsiz ing combined with turbocharging; and, for high technology, a plug-in hybrid electric vehicle system with a 40-mile plug-in range. The results follow.

Method

The process used here is a modified version of the Delphi method. The Delphi method is “a structured process for collecting and distilling knowledge from a group of experts by means of a series of questionnaires inte rspersed with controlled opinion feedback” (Illinois Institute of Technology, http:/ /www.iit.edu/~it/delphi.html). Experts in a field are asked to give their best responses t o a series of questions. The answers are then collected and shared (without attribution) wit h the experts, who then have a chance to revise their estimates in light of the opinions from the other experts.

The steps of the process were: 1. Identification of technologies for which indire ct cost adjustment factors would be developed; 2. Identification of experts to participate; 3. Development of a questionnaire to elicit adjust ment factors; 4. An initial meeting to explain the process to pa rticipants; 5. Completion of the questionnaire by participants and compilation of results;

6. Distribution of the first-round results and a s econd meeting; 7. An opportunity for participants to revise their estimates and recompilation of results;

8. Distribution of second-round results and a thir d meeting; 9. A final opportunity for individuals to revise t heir estimates.

Following is an elaboration of these steps.

1. Identification of technologies for which indire ct cost adjustment factors would be developed The RPE/ICM report used three technologies represe nting three degrees of complexity: Low: low rolling resistance tires

Medium: dual-clutch transmission High: hybrid electric vehicle

Rather than recompute estimates of the adjustment f actors for these technologies, EPA decided to develop multipliers for different techno logies. We chose to examine different technologies for several reasons: first, the exper ts participating in the panel are less likely to be influenced by the previous estimates f or adjustment factors; secondly, it provides some sensitivity analysis for the results for the different technology complexities; third, if the results of the original analysis and the current analysis are all5

used in the future, there is now a greater number o f technologies to which new technologies can be compared. The technologies ana lyzed in this process are: Low: passive aerodynamic improvements; Medium: engine downsizing with turbocharging; High: plug-in hybrid electric vehicle.

The multipliers from this exercise were not expecte d to be the same as in the previous exercise. Each technology is likely to have its un ique indirect costs; multipliers are approximations in the absence of better information on those individual technologies. To the extent that the multipliers developed from this exercise are similar to those in the RPE/IC report, it lends additional weight to them; to the extent that they differ, they show the importance of using multipliers most closely as sociated with a new technology, since one average multiplier is unlikely to be a good ref lection of the actual indirect costs of any particular technology.

2. Identification of experts to participate We sought to include experts from both EPA and the National Highway Traffic Safety Administration (NHTSA) to participate in thi s process. Due to time constraints, NHTSA engineers were not available. However, repre sentatives from the U.S. Department of Transportation’s Volpe Center and NHT SA staff provided input on the questionnaire and the process and attended the meet ings. The final panel included 14 EPA engineers. Seven of the engineers had particip ated in the development of adjustment factors for the RPE/IC Report; seven wer e new to the process. The panel included 14 bachelor’s degrees in engineering (incl uding civil, mechanical, aerospace, electrical, and material sciences); 10 master’s deg rees in engineering (electrical, mechanical, computer, and automotive); 3 master’s d egrees in business; and 2 Ph.D.s in mechanical engineering. They had over 200 years of combined experience at Ford, Chrysler, and GM, as well as automotive parts suppl iers and related industries. This information is summarized in Appendix A. Because t he engineers had work experience with the domestic automakers, but not foreign manuf acturers, a question arises whether the adjustment factors developed here are applicabl e for foreign manufacturers. While it is possible that, for instance, a foreign manufactu rer’s warranty costs might differ from those of a domestic automaker for a new technology, it is worth noting that the RPE multipliers and their contributors do not differ mu ch across manufacturers, suggesting that the differences in practices across this indus try may not be large.

To ensure anonymity, each participant was given a letter of the alphabet, assigned randomly, for their use in responses.

3. Development of a questionnaire to elicit adjust ment factors The questionnaire was developed by EPA staff and r eviewed by NHTSA staff who were not among the staff who participated in th e process as experts. The questionnaire includes background on the reason for the exercise, descriptions of the indirect cost contributors, descriptions of the rol e of the adjustment factors, a summary of the process, and a description of the technologies. It then requests adjustment factors for each technology for the short and long runs, and an explanation for the values that each6

expert provides. Finally, it asks for information on their education, experience, and expertise. The personal information was deleted fr om all materials provided to participants, to avoid disclosing identifying infor mation. Participants provided their identification letter but no other identifying info rmation on their responses. The questionnaire is included as Appendix B.

4. An initial meeting to explain the process to pa rticipants The group of experts gathered on Monday, June 1, 2 009, to discuss the procedure. The participants were provided with an explanation of the use of indirect cost multipliers, a discussion of the role of adjustment factors, and a description of the process, including the iterations. They had the opportunity to ask qu estions. They were given copies of the questionnaire and were asked to provide results by noon on Tuesday, June 2.

5. Completion of the questionnaire by participants and compilation of results Participants provided their estimates of the adjus tment factors in the survey. An EPA staff member who was not one of the experts com piled the quantitative results in a spreadsheet: each row held the adjustment factors for each participant, identified by letter. The spreadsheet was used to calculate samp le statistics on the responses (mean, standard deviation, median, maximum, and minimum fo r each adjustment factor for each technology and time frame). In addition, the adjus tment factors were applied to the

indirect cost contributors to calculate the indirec t cost multiplier for each technology and time frame for each individual. Finally, the sprea dsheet was used to calculate sample statistics for these individual multipliers.

The participants’ explanations for their adjustmen t factors were collated into a single document. The summary values and the questi onnaires for each expert are provided in Appendix C.

6. Distribution of the first-round results and a s econd meeting The first-round summary spreadsheet was circulated to all participants electronically (this did not include the detailed q uestionnaires). A second meeting took place on Tuesday, June 2, 2009. The process began with a suggestion to look at a category with a significant respondent variation fr om the Round 1 results: general and

administrative costs. The discussion evolved into further clarification of the meaning of the adjustment factors. Once participants expresse d comfort with understanding of the adjustment factors, the group of experts reviewed t heir understanding of the indirect cost

contributors as well as the definitions of each cos t category and a discussion of where some specific costs fell when they might fit in mul tiple categories (for instance, capital costs for research and development).

7. An opportunity for participants to revise their estimates and recompilation of results Respondents had the opportunity to revise their re sults after the second meeting. Nine respondents changed some part of their respons es; five respondents confirmed that their responses should stay the same; and one respo ndent dropped out of the process due

to time constraints. The results for this second r ound were recompiled, using the same7

format as before. A few methodological issues shou ld be pointed out regarding the

Round 2 results.

First, one participant dropped out of the process due to time constraints. Since that participant stated an intention to revise the first round results, those first-round

results were not included in the final tabulation.

Second, a few participants left some adjustment fac tors blank in their responses because they did not feel knowledgeable enough to r espond. The missing values were not intended to be zeros; they reflected a lack of knowledge. For calculation of the indirect cost multipliers for these individuals, th e average adjustment factor (excluding the missing values) for all participants was substi tuted for the blank, under the assumption that the best judgment of the remainder of the group was the best value to use for the missing values.

Third, the averages for the multipliers were calcu lated not as the average of the multipliers calculated for participants, but rather as the sum of the average value of each adjustment factor multiplied by its associated cost contributor. This method was used to reduce possible bias associated with using multipli ers developed with missing values (see previous paragraph). In practice, the two methods produced results that differed starting in the fourth decimal place.

The standard deviation of the multipliers is calcu lated as the standard deviation of the participants’ multipliers. Although the mean w as not calculated as the average of participants’ multipliers, this method provides a m easure of the dispersion of those multipliers.

In Round 1, due to a clerical error, the wrong tabl e of indirect cost contributors was used to develop individuals’ multipliers. The contributors were not very different; they differed mostly in dealer profits, an omitted category. The results would change in the third decimal place with use of the correct tab le. For the second-round results, the

correct table of indirect cost contributor values w as used.

The multipliers from Round 2 differ from the Round 1 multipliers (uncorrected) in the second decimal place; the maximum difference is about 0.06.

The Round 2 results and explanations are in Append ix D.

8. Distribution of second-round results and a thir d meeting The Round 2 results were distributed, along with t he questionnaires and explanations that the experts provided with the Rou nd 2 results. A third meeting was then held to review the results on June 4, 2009. F or each contributor, the group of experts discussed the results at a general level. When estimates were highly varied, the group of experts discussed whether wide variation s eemed reasonable. In all cases where the variation was wide, the group of experts felt t hat the numbers reflected real variation in possible outcomes. The group of experts also re viewed the multipliers that came out8

of the process. They felt that the means were reas onable, and that the differences between the values developed here and the values de veloped in the RPE/IC report reflected real differences in the technologies.

9. A final opportunity for individuals to revise t heir estimates After the discussion in the third meeting, partici pants were offered the opportunity to revise their estimates again. No participant ch ose to revise results.

Results

Table 1 below presents the Round 2 results of the e xercise. For comparison, the results from the RPE/IC report are presented in the last line. Since the adjustment factors in the RPE/IC report were calculated by a group con sensus process, there is no variation

in those results.

Table 1: Multipliers for Low-, Medium-, and High-C omplexity Technologies from

Round 2

Indirect Cost Multipliers
Short run Long run

Low Medium High Low Medium High June 2009 (this memo)

Average 1.16 1.29 1.64 1.12 1.20 1.39

Standard Deviation 0.141 0.145 0.207 0.137 0.131 0.152

Median 1.124 1.264 1.659 1.062 1.199 1.396

Max 1.434 1.527 2.153 1.421 1.445 1.691

Min 1.001 1.018 1.367 1.000 1.011 1.121

Results from RPE/IC Feb 2009 Report 1.05 1.20 1.45 1.02 1.05 1.26

The results follow the same pattern as those from t he RPE/IC report: the multipliers increase with the complexity of the tec hnology and decrease over time. The RPE/IC results are consistently lower than the resu lts from this exercise; the differences range from 0.09 to 0.19, with an average difference of 0.13.

The differences between the multipliers estimated f rom the two processes may be due either to differences in the technologies, or t o differences in the methods used to derive the adjustment factors. There is variation in the indirect costs of technologies: indeed, the exercise is based on the assumption of variation. If the technologies used in the RPE/IC report are considered of lower complexit y than the technologies used here, then the differences in complexity may explain the changes in the multipliers.

Table 2 presents the results from Round 1, for comp arison purposes.9 Table 2: Multiplier Results from Round 1

Multipliers Short run Long run
Low Medium High Low Medium High Average 1.178 1.291 1.699 1.133 1.210 1.405

Standard Deviation 0.185 0.195 0.496 0.156 0.173 0.342

Median 1.076 1.276 1.607 1.051 1.206 1.355

Max 1.626 1.628 3.106 1.426 1.516 2.436

Min 1.001 1.005 1.096 1.000 1.004 1.044

A comparison of these results indicates that the me ans changed very little: the

maximum difference is 0.06. The standard deviation s dropped in Round 2 by values ranging from 0.02 to 0.29. This reduction in varia tion suggests that participants’ responses came closer together in the second round. Since there appears to have been increased understanding of the meanings of the adju stment factors between Rounds 1 and 2, this result is not surprising.

As the results in the appendix tables show, there i s substantial variation in the individual estimates of adjustment factors, particu larly for Round 1. Nevertheless, as the standard deviations in the tables above indicate, t here is less variation in the multipliers that result from these factors. This result sugges ts that no person is consistently and substantially higher on all adjustment factors than others.10 Appendix A: The Panel of Experts11

EDUCATIONAL BACKGROUND

Name BS MS PhD Industry
Years Prior
to EPA
Service Industry Where

Cherry, Jeff BSEE Computer
Science n/a 28 Chrysler, Arvin (a Tier 1 auto supplier), Baker Welding, Vickers, SDRC

Cullen, Angela Material Science &

Engr MechEngr;

MBA n/a 13 Chrysler
Ellies, Ben BSME MechEngr n/a 8 GM, Chrysler

Ganss, David BSME n/a n/a 13 Chrysler

Harris, Hugh BSME ElecEngr, MBA n/a 11 Chrysler

Haugen,
David BS Aerospace

Engineering &
Mechanics MechEngr MechEngr 14 John Deere, Ford, automotive
service business

Hula, Aaron BSME, Engineering &

Public Policy MechEngr n/a 5.5 Ford
Nam, Ed Physics Physics Physics 5 Ford

Neam Anthony BSEE ElecEngr n/a 19 Ford, Chrysler, GM

Nelson, Brian BSME n/a n/a 15 Chrysler

Nevers,
Chris BSCE Automotive Engineering n/a 12 Chrysler

Olechiw,
Michael BSEE Computer Engineering n/a 17 Chrysler

Smith, Jay BSME MechEngr MechEngr 3 GM, Pilot Industries (a Tier 1 auto supplier)

Snyder, Jim BSME n/a n/a 28 Chrysler, Holley Fuel Systems (a Tier 1 auto supplier)

Zaremski,
Sara BSE,

Civil/Environmental MBA n/a 9.5 Chrysler12 Appendix B: Questionnaire Provided to Expert Panel13



### Documentation of the Development of Indirect Cost M ultiplier Factors

for Three Technologies, June 2009

Purpose: The purpose of this exercise is for the group of D OT and EPA experts to estimate adjustments to the retail price equivalent factor e stimates developed and documented in the report “Automobile Industry Retail Price Equiva lent and Indirect Cost Multipliers”, a report sponsored by US EPA which was prepared by RT I International and the University of Michigan’s Transportation Research Institute (re ferred to as the “Report” in this document).

In the Report, the authors derive estimates for th e Retail Price Equivalent (RPE)

factors which estimate all of the indirect costs ex perienced by a major automotive manufacturer in the process of research, developing , manufacturing, and marketing of light-duty vehicles. In addition, this report incl udes estimates of the contribution to the retail price equivalent factor for indirect costs a t the automotive dealership level.

In the Report, the authors also suggest that not a ll RPE indirect cost factors may scale at the exact same magnitude for changes requi red by the automotive OEM due to a new regulatory requirement, such as requirements wh ich come from a new CO2 or fuel economy standard required by the Federal Government . In this instance, the authors of the report suggest that a more accurate estimate of the incremental change in the indirect costs at the OEM and dealership level can be derive d by a careful review of each RPE contribution category (e.g., research and developme nt, marketing, general and administrative costs) in light of the specific tech nology change required by the new federal regulation, and estimating how that new tec hnology change impacts each RPE contribution category. The authors of the report s uggest that by summing up these technologies’ specific estimates of indirect costs, a more accurate estimate of the true costs of a Federal regulation (direct manufacturing costs plus indirect costs) can be derived. The authors of the Report refer to this t echnology-specific indirect cost estimate as an Indirect Cost Multiplier (ICM). The authors of the Report also suggest that consideration should be given to the time horizon f or the estimation of indirect costs, with the potential for indirect costs to be differe nt in the near term (e.g., the first 4-5 years of production of the new technology) as compared to the long term (e.g., the period of time after the first 4-5 years of production of the new technology).

Table 1 shows the estimates for each indirect cost contribution category estimated in the report. The “cost of sales” represents the direct manufacturing costs at the automotive OEM. This includes the costs for all pu rchased parts, all OEM manufactured parts, and all of the labor and operating costs for the OEMs’ vehicle stamping and assembly plants--that is, the direct cost to manufa cturer a vehicle on a daily basis. The indirect cost categories are:

Production overhead : indirect costs that arise from manufacturing and producing vehicles, such as warranty, research and developmen t, capital depreciation and amortization, and the maintenance, repair, and oper ation of the OEM production

facilities.14 Corporate overhead : the costs of running a corporation, including sal aries of nonproduction workers, pensions, and health care ex penses. Selling costs : These are OEM-level costs (not dealerships) and i nclude the salaries of the marketing staff, advertising costs, and tran sportation costs.

Dealers : Costs at the dealership level (not the OEM), inc luding profits, and new vehicle selling costs such as dealership marketing and training. Profit : the difference between the total of the OEMs’ rev enue and expenditures.

Table 2 shows an illustrative example in actual dol lars for how the RPE methodology would estimate the total costs (direct and indirect) for a typical vehicle with a transaction price of $25,000. For this example, the Report estimates that the direct manufacturing costs contribute to $17,123 of the fi nal transaction price, and the remaining $7,877 are the indirect costs plus profit . In this example, each vehicle sold carries with it an average warranty cost to the OEM of $514, a research and development cost of $856, and an average OEM marketing costs of $685.

TABLE 1: Estimate of RPE from the Report

The contributors to indirect costs include:

RPE Multiplier Contributor Industry Average

Vehicle Manufacturing

Cost of sales 1.00

Production Overhead

Warranty 0.03

R&D (product development) 0.05

Depreciation and amortization 0.07

Maintenance, repair, operations cost 0.03

Total production overhead 0.18

Corporate Overhead

General and administrative 0.07

Retirement < 0.01

Health 0.01

Total corporate overhead 0.08

Selling

Transportation 0.04

Marketing 0.04

Dealers

Dealer new vehicle net profit < 0.01

Dealer new vehicle selling cost 0.06

Total selling and dealer contributors 0.14

Sum of Indirect Costs 0.40

Net income 0.06

Other costs (not included as contributors) 0.04

RPE Multiplier 1.4615 Table 2: Example RPE Contributors for a Typical Ve hicle in $’s

Example Vehicle with a $25,000 transaction price


### Transaction Price = $25,000

Direct Manufacturing Costs = $17,123 Total indirect costs + profit = $7,877

Total indirect costs = $6,849

Production Overhead

Warranty 3% $514 Research & Development 5% $856 Depreciation & Amortization 7% $1,199 Maintenance, Repair and Operations 3% $514 

### Total production overhead 18% $3,082

Corporate Overhead

General and Administrative 7% $1,199

Retirement <1% $0

Health 1% $171 

### Total corporate overhead 8% $1,370

Selling

Transportation 4% $685 Marketing 4% $685



### Dealers
Dealer new vehicle net profit <1% $0 Dealer new vehicle selling costs 6% $1,027 

### Total selling and dealer contributions 14% $2,397

Net income (profit) 6% $1,027

Total indirect costs = $6,849
Total indirect costs + profit = $7,87716

Description of the ICM Estimation Process

Round 1: Round 1 consists of each individual expert fillin g out this questionnaire. For this Round, you should not consult with any other p articipant; you should base your answers and responses on your own expert experience

.

You will not be identified with your responses in Round 1.

Round 2: Round 2 will be a group process by which all of t he experts who participate in Round 1 will review the collective responses from R ound 1, that is, the range, median, and mean responses for each of the respective indir ect cost multiplier adjustments for the selected technology. We will discuss the range of responses and determine if there is any reason to make adjustments to the estimates from Ro und 1. The discussion from Round

two will be documented.

Technology Description:

For this exercise, we have selected three automotiv e technologies, representing a range of technological complexity, which can reduce CO2 and improve fuel economy:

- Aerodynamic improvement – passive aerodynamic impro vements defined as tire spats, air dams, rear visors, and first surfac e blendings. Does not include active systems such as active grill shutters or dyn amic drive height controls. [Aero]

- Engine downsizing combined with turbocharging [Down -turbo]

- Plug-in hybrid electric vehicle system with a 40-mi le plug-in range [PHEV]

For each of these technologies, the following assum ptions apply. First, the base vehicle to which this technology is being applied i s a 6-cylinder, modern gasoline powered vehicle with port-fuel injection, four-valv es per cylinder, and a 5-speed automatic transmission. The vehicle is a typical m id-size passenger car (e.g., a Honda Accord, Chevy Malibu, or Toyota Camry sized vehicle

.

The new technology is being introduced in the typic al vehicle redesign schedule for the automotive industry and for the typical man ufacturer, that is, the vehicle is already scheduled for a redesign, and the new technology (a ero improvement, or GDI-turbo, or PHEV), is being integrated in that normal redesign process.

Round 1 Task

For each of the three technologies, and for the two time frames discussed in the Report (near-term = first 4-5 years of production, long-term = after the near-term), you are asked to use your expert opinion to evaluate ea ch of the indirect cost categories and

determine what incremental impact the new technology will have on the typical OEM and dealership costs.17 Your answer must include filling in each table with numbers equal to or greater than zero. Each number is a multiplier which will modify each of the individual indirect cost contributors in Table 1, and each number refer s to the incremental change in indirect

cost associated with the incremental direct manufac turing cost. A value of 1 for any of

the fields in the tables which follows indicates th at you believe the change in that specific

indirect cost contributor will be the same as that associated with the base vehicle, and will increase with the same percentage of the incrementa l direct manufacturing costs.

For example, Table 1 indicates that the OEMs’ warra nty cost on a typical vehicle is equal to 3 percent of the direct manufacturing c osts. Suppose that technology X increases costs by $500. A value of 1 for the near -term or the long-run warranty costs in Table 1 below for technology X indicates the warran ty cost increase for the new technology will be 3 percent of the incremental dir ect manufacturing costs associated with technology X, or 0.03*$500 = $15. This is on top of the base vehicle warranty costs, which in the example shown in Table 2 is $51 4; thus, total warranty costs will be $529 after the new technology. A value of 2 indica tes the warranty cost increase associated with the new technology X is 6 percent o f the incremental direct manufacturing costs associated with the new technol ogy, or $30. A value of 0.5 indicates the warranty cost increase for the new technology X is 1.5% of the incremental direct manufacturing cost associated with technology X, or $7.50. A value of 0 indicates there is no increase in the vehicle’s warranty cost assoc iated with addition of technology X.

With respect to the time frame, the near-term estim ate is for the first 4-5 years of the production of the new technology. We suggest y ou begin your evaluation with the near term. After completing the near-term estimate for the change for a specific indirect cost category, consider whether or not the long-run (after the first 4-5 years of production of the new technology) would be any different than the near-term, whether lower, higher, or the same. In you written explanation, please ex plain your rational for the long-run estimates, as well as your explanation for the near -term estimates.

Remember that these questions are in the context of a major redesign of an existing platform, that is, the OEM (and potentiall y the dealership) may already be experiencing some costs for the engineering develop ment, manufacturing, marketing and selling of a newly redesigned vehicle, which typica lly occurs every 5 years in the automotive industry today.18

Questionnaire: Expert Identification Letter ______

___

For each technology, and for the two time frames, p lease provide your expert estimate of the adjustment, if any, to the incremental change i n each indirect cost contributor due to the application by a typical OEM of the identified technologies. The range of values is any number equal to or greater than zero (see instr uctions on previous page). Please include a written description of your reasons for t he values you have estimated.

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation:

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation:

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation:

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation:19

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation:

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation:

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation:

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation:

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation:

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term

Long Run

Explanation:20 Appendix C: Round 1 Results21WarrantyR&DShort run Long run Short run Long runParticipant IDLow Medium High Low Medium High Low Medium High Low Medium HighA0.25 1 1.5 0 0 0.50.25 0.75 1.5 0 0 0.75B0.25 1.5 3 0.2 1.35 1.750 1.3 3 0 1.15 1.75C0.3 1 2 0.1 0.3 10.3 1 2 0 0.3 1D1 2 1.25 1 1.5 1.251.25 2 1.25 1 1.25 1.25E1 1.4 1.6 0 1 1.21.2 1.5 2 0 0.8 1G0.1 1.2 2 0.1 0.8 1.51 2 3 0.5 1 1.5L0 0.2 0.2 0 1.3 2.50.02 0.1 14 0 0.02 0.1N 0.3 4 2 0.1 1.8 3 0.4 2 8 0.2 2 4O0.01 0.1 0.3 0 0.05 0.150.01 0.2 0.5 0 0.1 0.3P0 0.1 3 0 0.1 0.50.01 0.03 3 0.01 0.01 1R1.5 2 6 1.1 1.2 35 3 10 1.1 2 3S0.1 1.2 1.4 0.1 1.1 1.21 1.2 2 1 1 1.2T0 1.5 1.5 0 1 11 1.5 2 1 1 1V1 1.5 2.5 0.5 1 1.20.5 1.5 2.5 0 0 0.5W0 0.4 1 0 0.3 0.80.1 0.6 1 0.1 0.3 0.9Average0.391.271.950.210.851.370.801.253.720.330.731.28Std. Dev0.490.981.390.360.570.861.250.833.850.460.691.01Median0.251.21.60.111.20.41.320.010.81Max1.5461.11.8353141.124Min00.10.2000.1500.030.5000.1Coeff of Variation1.260.770.711.710.670.631.560.661.031.390.950.79Mean - Median0.1370.0730.3500.113-0.1470.1700.403-0.0551.7170.317-0.0710.283(Mean -Median)/Mean0.350.060.180.530.170.120.500.040.460.970.100.2222Depreciation and AmortizationMaintenance, Repair, & OperationsShort run Long run Short run Long runLow Medium High Low Medium High Low Medium High Low Medium High0.1 0.5 1 0 0 00.25 0.5 0.75 0.25 0.5 0.751.1 0.8 3 1.1 0.8 11.2 1.2 2 1.2 1.2 1.50.5 1 2 0.3 0.5 10.5 1 2 0.1 0.5 11.25 1 1.5 1.25 1 1.251.25 1 1.25 1.25 1 1.251 1 1 0 0 01 1.4 1.8 0 0 01 1 1 1 1 11 1 1 1 1 10 0 0 0 0 00.2 0 0.6 0.2 0 0.60 0.2 6 0 0.2 3 0.1 0.3 2 0.1 0.3 20 0.01 0.02 0 0.005 0.010.005 0.1 0.2 0 0.005 0.10 0.01 1 0 0.01 10 0.01 1 0 0.01 11 1.5 2 1 1.5 21.1 1.5 3 1.1 1.5 30 1 1.3 0 1 1.10 1 1.4 0 1 1.11 1 1 1 1 11 1.25 1.25 1 1 10 0 1 0 0 10 0 1 0 0 10 0.8 1 0 0.8 10 0.7 1 0 0.5 0.80.460.651.520.380.520.960.510.731.350.410.571.070.520.491.440.520.520.800.520.540.700.520.510.720.10.8100.510.2511.250.10.511.251.561.251.531.251.531.251.53000000000.20001.130.750.951.370.990.841.020.740.521.260.910.670.363-0.1450.5210.3770.021-0.0430.257-0.2690.1000.3130.0680.0730.780.220.341.000.040.040.510.370.070.760.120.0723General & AdministrativeRetirement Costs, non-production workersShort run Long run Short run Long runLow Medium High Low Medium High Low Medium High Low Medium High0 0.25 0.5 0 0 00 0.25 0.5 0 0 00.1 0.25 0.5 0.1 0.25 0.50 0.1 0.5 0 0.1 0.50.5 1 2 0.3 0.5 11 1 1 1 1 11 1 2 1 1 1.251 1 1.25 1 1 1.250 0.5 1.2 0 0.2 0.40 0 0 0 0 01 2 3 0.5 1 1.51 1 0.25 1 1 0.250 0 0.01 0 0 0.010 0 0 0 0 00.1 1 10 0.1 1 10 0 0.5 1 0 0.5 10.005 0.01 0.1 0 0 0.050 0.01 0.05 0 0.005 0.010 0 1 0 0 10 0 1 0 0 11 1.1 2 1 1.1 21 1.1 2 1 1.1 20 0 1 0 0 0.50 0 0 0 0 01 1 1 1 1 11 1 1 1 1 10 0 0.5 0 0 0.50 0 0.5 0 0 0.50.2 0.5 1 0.2 0.5 10.2 0.4 1 0.1 0.2 0.50.330.571.720.280.441.380.350.420.670.340.390.600.440.592.430.400.462.450.480.460.580.480.480.600.10.510.10.25100.250.500.10.5121011.11011.1211.12000.010000000001.341.031.411.421.051.781.391.090.861.421.210.990.2270.0740.7210.1800.1870.3810.3470.1740.1700.3400.2940.1010.690.130.420.640.430.281.000.410.251.000.750.1724Health care, non-production workersTransportationShort run Long run Short run Long runLow Medium High Low Medium High Low Medium High Low Medium High0 0.2 0.5 0 0 00.0001 0 0.1 0.0001 0 0.10 0.1 0.5 0 0.1 0.52 0 2 1.8 0 10.5 1 2 0.3 0.5 11 1 1 1 1 11 1 1.25 1 1 1.251 0 1.25 1 0 1.10 0 0 0 0 00.4 0 0.6 0 0 0.21 1 0.25 1 1 0.250 1 2 0 1 10 0 0 0 0 00.5 0 2.5 0.5 0 1.30 0.5 2 0 0.5 2 0 0 0 0 0 00 0.01 0.05 0 0.005 0.010 0.005 0.15 0 0 0.050 0 1 0 0 10 0 0.02 0 0 0.021 1.1 2 1 1.1 21 1 1 1 1 10 0 0 0 0 00.5 -0.1 1.3 0.5 -0.1 1.11 1 1 1 1 11 1 1 1 1 10 0 0.5 0 0 0.50 0 0.5 0 0 0.50.2 0.4 1 0.1 0.2 0.50.1 0.3 1 0.1 0.3 10.310.420.800.290.360.670.500.280.960.460.280.690.450.460.740.450.450.690.590.460.770.570.460.4800.20.500.10.50.4010.10111.1211.12212.51.811.30000000-0.100-0.101.431.100.921.531.241.041.191.630.801.241.630.700.3130.2210.3030.2930.2600.1670.1000.280-0.0390.3600.280-0.3091.000.520.381.000.720.250.201.000.040.781.000.4525MarketingDealer New Vehicle SellingShort run Long run Short run Long runLow Medium High Low Medium High Low Medium High Low Medium High0 0.25 0.25 0 0 00 0 0 0 0 00 0.25 1.1 0 0 00 0.25 1.25 0 0 00.8 1 1.4 0.5 0.8 11 1 1 1 1 11 2 2 1 2 21 2 2 1 1.5 20 0.4 0.8 0 0 00 0 0 0 0 00 1 1.5 0 0.25 0.750.2 1 2 0.1 0.25 10.2 0.4 1.2 0.4 0.4 0.20 0.3 1 0 0 0.30.2 2 6 0 2 4 0.1 0.1 4 0.1 0.1 10.005 0.2 0.4 0 0.01 0.150 0.2 0.4 0 0.1 0.150 0 0 0 0 00 0 0.01 0 0 0.011 2 4 1 1 11 1 2 1 1 10 1.5 3 0 1 10 1.2 1.5 0 1 11 1 1 1 1 11 1 1 1 1 10 0 1.5 0 0 0.50 0.2 1.5 0 0 10.6 0.6 1 0.4 0.4 0.70.2 0.6 1 0.2 0.5 0.80.320.841.680.290.590.820.300.591.240.290.430.680.430.731.580.410.701.040.440.591.040.440.520.580.0050.61.200.40.700.3100.1112612412411.520000000000001.330.870.941.431.181.271.470.990.831.521.210.850.3150.2400.4770.2870.1910.1200.3000.2900.2440.2930.330-0.3160.980.290.281.000.320.151.000.490.201.000.770.4626MultipliersRPE Multiplier Contributor*IndustryAverageShort run Long runVehicle ManufacturingLow Medium High Low Medium HighCost of sales1.0001.0341.1451.2651.0071.0141.078Production Overhead1.2141.2441.7611.2041.2061.335Warranty0.0281.2521.4011.6661.1801.2521.401R&D (product development)0.0521.4391.5401.6441.4261.4541.571Depreciation and amortization0.0731.2091.2761.4041.0001.0821.120Maintenance, repair, operations cost0.0281.2431.5221.7801.1791.3191.455Total production overhead0.1811.0361.0451.9701.0421.0521.175Corporate Overhead1.0521.3883.1061.0291.3272.436General and administrative0.0641.0011.0381.0961.0001.0141.044Retirement0.0051.0011.0051.4161.0011.0041.243Health0.0061.6261.6282.3891.4121.5161.764Total corporate overhead0.0761.0761.3271.6071.0761.2821.389Selling1.3731.4481.4741.3731.4011.401Transportation0.0431.0541.1331.5131.0141.0281.303Marketing0.037DealersDealer new vehicle net profit0.0621.1781.2911.6991.1331.2101.405Dealer new vehicle selling cost0.0650.1850.1950.4960.1560.1730.342Total selling and dealer contributors0.2071.0761.2761.6071.0511.2061.355Sum of Indirect Costs0.4641.6261.6283.1061.4261.5162.436Net income0.0481.0011.0051.0961.0001.0041.044Other costs (not included as contributors)0.0390.1570.1510.2920.1380.1430.244RPE Multiplier1.5120.1020.0150.0930.0820.0030.050*As noted in the text, this is an incorrect table.It ispresented here for consistency with the resultsreviewed by the experts.0.0860.0120.0550.0720.0030.035EPA STAFF DRAFT – DO NOT CITE OR QUOTE

27 Questionnaire: Expert Identification Letter _____A

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.25 1.0 1.5 Long Run 0 0 0.5 Explanation:

• Aerodynamic improvements would be developed by exis ting engineers. There would be minor short-term warranty costs due to the addit ional parts and pieces added to the vehicle for improvement. In the longer term any ad ditional warranty costs would no longer exist as the parts would not change.

• I assumed that turbo downsizing would be done in-ho use completely from development to production. There would be additiona l short-term warranty costs because of the new and as yet unproven technology d evelopment. I assumed that there would not have normally been a new engine dev elopment done as part of the vehicle launch as this is common in the industry to not launch a new engine as part of a new vehicle launch. Typically powertrain and vehi cle launched are staggered.. In the longer term any additional warranty costs would no longer exist as the parts would not change.

• I assumed that Plug-in Hybrids would be developed i n-house completely through the process. There would be additional short-term warr anty costs because of the new and as yet unproven technology development. I assumed that there would not have normally been a new complete powertrain system done as part of the vehicle launch as this is common in the industry to not launch a n ew engine as part of a new vehicle launch. Typically powertrain and vehicle launched a re staggered. In the longer term any additional warranty costs would be reduced beca use of learning, but because of the radical technology changes there may be some ad ditional incremental warranty

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.25 0.75 1.5 Long Run 0 0 0.75 Explanation:

• There would be incremental R&D costs due to aero im provements because of some additional testing to measure and prove the improve ments as well as additional durability on the components that are part of the p ackage. In the long term, there would not be R&D necessary for these existing compo nents

• There would be incremental R&D for turbo downsizing for all of the same reasons stated above. In the longer term no additional R&D activity would be done outside of what is already necessary each year.

• Plug in Hybrids would require substantial additiona l R&D because there is a great deal of learning for a technology such as plug-in h ybrids as there is not a great deal of knowledge inside the company. As the technology ma tures there will be constantEPA STAFF DRAFT – DO NOT CITE OR QUOTE

28

improvement and learning going on requiring some ad ditional R&D over and above a

normal vehicle launch

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 0.5 1.0 Long Run 0 0 0 Explanation:

• The additional aero depreciation and amortization r esults from the additional tooling necessary to install the aero treatments in the pla nt.

• The additional turbo -downsizing depreciation and a mortization results from plant upgrades made necessary by the new technology and h ow it will fit into the assembly

process.

• The additional plug-in hybrid depreciation and amor tization results from larger scale improvements necessary in the plant to accommodate all of upgrades necessary in the plant (these would include health and safety upgrad es and training to protect the workers, tooling, line upgrades and plant reconfigu ration)

• There are no long-term amortization and depreciatio n for any of the technologies because these technologies are not changing on the next generation launch,

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.25 0.5 0.75 Long Run 0.25 0.5 0.75 Explanation:

• For all technologies there will be incremental cost s due to the additional activity on the line or changes made to the manufacturing proce sses. These costs will remain as a part of doing business throughout the full life o f the vehicle (both short and long term).

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.25 0.5 Long Run 0 0 0 Explanation:

• Aero dynamic improvements would not add any additio nal non-production workers either in the short term or the longer term as ther e is already manpower in all areas to sell a new vehicle. In the longer term, without an y changes, there would also be no required additional resources

• Turbo-downsizing would require some additional reso urces in the short term as there would be minor incremental staff and resources requ ired for this new technology. In the longer term there would be no additional costsEPA STAFF DRAFT – DO NOT CITE OR QUOTE

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• Plug-in hybrids would require additional resources in the short term to manage the development and launch of the new technology. In t he longer term the needs for additional resources would go away

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.25 0.5 Long Run 0 0 0 Explanation:

• Aero dynamic improvements would not add any additio nal non-production workers either in the short term or the longer term as ther e is already manpower in all areas to sell a new vehicle. In the longer term, without an y changes, there would also be no required additional resources

• Turbo-downsizing would require some additional staf f in the short term as there would be minor incremental staff and resources requ ired for this new technology. In the longer term there would be no additional costs

• Plug-in hybrids would require additional resources in the short term to manage the development and launch of the new technology. In t he longer term the needs for additional resources would go away

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.2 0.5 Long Run 0 0 0 Explanation:

• Aero dynamic improvements would not add any additio nal non-production workers either in the short term or the longer term as ther e is already manpower in all areas to sell a new vehicle. In the longer term, without an y changes, there would also be no required additional resources

• I assumed that turbo downsizing would be done in-ho use completely from development to production. Therefore, this would re quire some additional staff in the

short term as there would be minor incremental staf f an resources required for this new technology.

• Plug-in hybrids would require additional resources in the short term to manage the development and launch of the new technology. In t he longer term the needs for additional resources would go away

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.0001 0 0.1 Long Run 0.0001 0 0.1 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

30

• There would be VERY small incremental transportatio n costs (potential for costs) due to different configurations on the vehicles with th e aero improvements. If any less

vehicles fit on the rail cars or trucks then the tr ansportation costs will rise

• Plug in hybrids would have incremental transportati on costs due to the weight increase of hybrids versus conventional vehicles.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.25 0.25 Long Run 0 0 0 Explanation:

• No special marketing would be done because of aero improvements

• Some marketing would need to be done to educate the customer on the benefits of the new technology (an example is Chrysler and MDS). Th is would be the same for turbo downsizing and plug in hybrids

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.5 1.0

Long Run 0 0 0.75
Explanation:

• These additional costs include educating the dealer network and repair shopsEPA STAFF DRAFT – DO NOT CITE OR QUOTE

31 Questionnaire: Expert Identification Letter ___B

______

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.25 1.5 3 Long Run 0.20 1.35 1.75 Explanation: Warranty implications of Aero details would be mini mal, undertrays and spoilers would have lower cost warranty than an average part, thus warranty is 0.25. There might be learning with time, so future warranty would be sli ghtly less.

Adding a turbo to an engine greatly increases compl exity of repair, increases the number of failure modes, and increases underhood heat. Wa rranty would go up by a 1.5 factor to the baseline. Long term, there may some learning t o mitigate this, hence a slightly lower

factor.

PHEV is new technology at this point. The number o f components in the vehicle is increased exponentially, as our the number of modul es subject to HW and SW bugs. Best guess – a factor of three in the first iterati on. This could probably be halved due to learning, but would still carry a factor of 1.75 du e to complexity and diagnostic

difficulties.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.30 3 Long Run 0 1.15 1.75 Explanation: In my estimation, the OEMs develop these types of p arts and then thrift them out due to cost because the OEM cannot earn a return on capita l based on the customer’s unwillingness to pay for marginal FE improvements. Thus, there would be no extra R&D as the parts are likely already developed.

Because it is a powertrain component, the R&D requi red would be more than average as the parts required to change are expensive and requ ire long lead times. However, most OEMs have experience with turbo-charging and nascen t DI programs. The calibration effort for a turbo-charged engine is about 50% more work than a N/A engine. The transmission calibration effort would require extra effort too. Finally, the thermal validation of this would require extra effort, as i t will likely be iterative. While there would be some learning, and thus lower costs for th e second generation, the turbo still adds a level of powertrain complexity that will alw ays require more effort and thus

money.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

32

A PHEV would likely be built from various commodity parts from outside suppliers. However, it also seems that at a minimum a new tran smission case would need to be cast leading to the addition or replacement of high valu e casting dies. Further, the software development task for such program is formidable, an d the environmental testing and

validation task would be enormous. While built fro m commodity components this is not an off-the shelf system and the initial integration task would be monumental. The second generation would not have the same learning level, but the calibration task of the engine/transmission/ESP system is still formidable.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.1 .8 3 Long Run 1.1 .8 1 Explanation:

Aero features would use mature production technique s in general, but would be very application specific (i.e. the spoiler for a miniva n would only work on a minivan) thus D&A would be higher than for a baseline part. This would not change with time.

Turbo downsizing products would primarily be change s to powertrain components which tend to be used for longer time periods, thus D&A w ould be lower than a normal part. This would not change with time.

PHEV components are in such a immature state of dev elopment that likely all of the tooling/technology would be outdated even before th e model was due for replacement, resulting in very high D&A. This would be much low er in the second generation, perhaps to the baseline part, assuming rapid techno logy maturation.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.2 1.2 2 Long Run 1.2 1.2 1.5 Explanation: Aero features would require some extra tooling to c are for, but otherwise would fit smoothly into the operation. Many plants are equip ped to handle aero features as it currently. The plant will suffer more in system da mage (ISD) with these components. This would change little with time.

Turbo DS would be similar to aero features. Howeve r, the engine plant would require extra space, more material handling, and more dunna ge for the extra components. There would be less ISD issues, as these parts are not co smetic.

PHEV would require a large amount of storage space, special tooling for installation, and safety training for plant personnel. The large bat teries and high voltage care would be aEPA STAFF DRAFT – DO NOT CITE OR QUOTE

33

real concern in an assembly plant. Some of the tra ining requirements would be relaxed on the second generation vehicle

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .1 .25 .5 Long Run .1 .25 .5 Explanation: All items - added part count will require more work in purchasing, SQA (supplier quality assurance) during the development phase (production costs are covered in the mfg. costs I am assuming). The fractions are based on assumed c omplexity, and would remain constant as long as the items were incorporated on the product.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .1 .5 Long Run 0 .1 .5 Explanation: If Purchasing & SQA staff were increased due to the additional complexity, it would increase these costs. Likely no staff would be add ed for aero treatments, perhaps 1-2 people for the turbo system, and perhaps 5-10 for t he PHEV.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .1 .5 Long Run 0 .1 .5 Explanation: If Purchasing & SQA staff were increased due to the additional complexity, it would increase these costs. Likely no staff would be add ed for aero treatments, perhaps 1-2 people for the turbo system, and perhaps 5-10 for t he PHEV.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 2 0 2 Long Run 1.8 0 1 Explanation: Adding aero elements will undoubtedly cause transpo rtation issues principally damage in transport, greatly exceeding the average cost. Pos sibly on the 2 nd iteration learning could be applied to “design for transportation” but in ge neral, items like spoilers splitters and trays are the first items to break off when loading onto a truck.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

34

Turbo downsizing will if anything, make vehicles li ghter. No effects

PHEV will require special instructions to the trans portation companies, and possibly different methods of tracking due to the inability of vehicles to sit for extended periods(?) Once the transportation system is set up for the de livery of these type of vehicles, the special handling will be baked in, but still a cost

.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .25 1.1 Long Run 0 0 0 Explanation: Aero - OEM’s already advertise their products as “a erodynamic” no change.

Turbo downsizing - There would be some effort in ed ucating the customer as to the benefits of this feature, but little incremental ad vertising as compared to the normal new

model fanfare.

PHEV – I think a unique model would warrant a marke ting campaign, but again, I do not think they would spend much more money on a new lau nch than “normal” launch, simply

because of this feature.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .25 1.25

Long Run 0 0 0
Explanation: Aero – The dealer might need to explain what the ae ro features do, but this would be rolled into standard new launch training.

Turbo DS – Same as above, though the training on th e technician side of the house would need to be more thorough assuming the dealers did n ot already have turbo and/or DI trained Technicians. Once done, this extra effort would not be required for a second generation.

PHEV – Dealers would need special training and poss ibly special facilities to

demonstrate and maintain the customer stock of vehi cles. This would likely include installing charging stations (however simple) on th e lot. Once done this would not need to be repeated for a second generation.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

35 Questionnaire: Expert Identification Letter ___ C______

For all the factors, the following assumptions have been made:

1. A new vehicle is in the product plan for anticipate d vehicle launch date in 3-5 years. A normal product development cycle is 3 year s from conception to launch. The technology is outlined in each case (low, mediu m, high) is known within three years of production and coordination of these systems can be implemented early in the “mule” vehicle phase. This is importan t to note as if this technology is changed mid-cycle, this drives increased effort for the additional system changes (ee architecture, other system changes), essentiall y doing the work over again. This typically occurs at the OEM’s as the product p lan may be considered a “top hat” where an existing vehicle is used as the basis for the new but during the evolution of the project, even weeks before vehicle launch, significant changes occur that drive additional cost in redesign, testi ng, durability, warranty, cost......

2. Product plan for this new vehicle is 5 years, with an annual average volume of 200K average. Normally the vehicle 1 st year volume is initially above average and the later years below average. This does help cost recovery as ER&D paid in piece cost is recovered more quickly. Total vehicle volume is 1 million.

3. Direct manufacturing costs are to remain constant e ven though likely communization with other platforms/OEM’s and effici encies gained in the manufacturing (e.g. labor or material).

4. It is assumed that the new technology is first impl emented on this vehicle with the appropriate lead time and the rest of the OEM’s pro ducts will use this new technology entirely or in concept for other later v ehicles in the 6-10 year time frame. The other platform teams will optimize this technology and the long term use of this technology will be considered “old” wit h minor incremental improvements over other vehicles but may be conside red “major” when compared to the original vehicle 5 years ago.

5. For comparison purposes in estimating the cost of t he low, medium, high complexity choices with definitions given previousl y – costs for assumptions were $100, $500 and $5000 respectively.

6. From one vehicle generation to the next – the compl exity of the technology is considered to be downgraded with respect to other s ystems each 5 year period. As an example – High complexity, near term – will be d owngraded to high complexity, long term while then equals medium tech nology near term. I may have written this confusing so I have put a dummy c hart below:

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle Near-term B (low) C (medium) D (high) Long Run A (real low) B (low) C (medium)

7. All numbers entered are considered a multiplier on the industry average RPE numbers. Example – a 0.5 value entered on warranty (currently 3%) assumes a future warranty value of 1.5%.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

36

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .3 1.0 2.0 Long Run .1 0.3 1.0 Explanation: The Aero improvements are considered passive and mo stly designed into the body structure in the initial stages with redesigning ex isting components within the current body design. There may be additional bold on pieces that can break in the future (tire covers, rear fin or aero feature ??). As the improv ements do not generally impact other systems, the additive warranty cost is considered m inimal. Long term, these technology items will become mainstream, completely known and the warranty cost should drive towards 0. Some parts will be replaced and the addi tional cost must be > 0.

An intermediate change such as turbo downsizing inv olves system interaction/complexity, therefore must have increas ed coordination with other groups and some components must be redesigned. Most of the car ry over systems would have established warranty costs that have been optimized to be as low as possible. These new designs both directly and indirectly will have incr eased warranty costs until fleet data can be used to understand warranty in the field. As exp erience is gathered in the vehicles duty cycle along with other vehicles, the part and vehic le durability testing will be more effective. This will reduce the long term warranty costs significantly.

A high complexity system will have many unknowns an d will be in constant design change well into the vehicle build stages as the sy stem interaction and issues are discovered. Unfortunately, normal protocol is that the first vehicles sold are tracked heavily to find/fix design flaws during normal cust omer usage that were not found in the durability tests or from customer “unanticipated” o peration. In the 2 nd iteration of the technology, the warranty costs will significantly d ecrease but will still be above the average as the system is complex and has more parts , interactions and possibilities of failure. The % increase is offset by the high price of the entire system. To summarize, the number of system failures will increase, cost of fa ilures is much less than system cost.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .3 1 2 Long Run 0 .3 1 Explanation:

- Aerodynamic improvement – passive aerodynamic impro vements defined as tire spats, air dams, rear visors, and first surfac e blendings. Does not include active systems such as active grill shutters or dyn amic drive height controls. [Aero]

- Engine downsizing combined with turbocharging [Down -turbo]

- Plug-in hybrid electric vehicle system with a 40-mi le plug-in range [PHEV]EPA STAFF DRAFT – DO NOT CITE OR QUOTE

37

Assuming the R&D is already staffed for the new veh icle design, R&D efforts will be directed towards the new design direction. There wi ll be additional engineering required as the use of full “carry-over” parts do not have t he engineering, development or validation required. Aero is considered to be minim al complexity and less than the average. Long term part, it will become a “carry-ov er part” with no additional engineering or testing required. Medium complexity systems are considered to have doubled the effort as low complexity items in the s hort term. Long term, again this will significantly decrease but will not trend to “0”.Hi gh complexity systems will require significant resources not planned for in a standard new vehicle. As this high complexity technology is used over time – it will be “medium” in the next generation.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .5 1 2 Long Run .3 .5 1 Explanation: Using the same logic as above, complex new technolo gy will have to be paid for in the first years of the new vehicle and the other low an d medium complexities probably used to be considered s “High”.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .5 1 2 Long Run .1 .5 1 Explanation: Similar to warranty discussion.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .5 1 2 Long Run .3 .5 1 Explanation: Total corporate overhead of does not appear to be s everely impacted by the complexity of the new technology but rather the number of parts t hat makeup the technology. There are some non-engineering functions that are increased w ith increased parts such as supplier quality and purchasing personnel. It is assumed com plexity = number of affected parts so the low complexity technology is significantly less work than the medium with the High technology much larger than the medium do to the nu mber of affected parts.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: As the current RPE is “0”, the numbers for the mult iplier do not impact the cost greatly. As such, they are left constant.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .5 1 2 Long Run .3 .5 1 Explanation: Similar to the corporate overhead thoughts and the low current RPE at < 1%, the numbers

are similar to table 7.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: Not an expert in this area, so take this with a gra in of salt. Assuming the cost to transport the vehicle is reflected in the “average” cost of t he vehicle, the increase in transportation

cost is a function of vehicle cost.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .8 1 1.4 Long Run .5 .8 1 Explanation: Highly complex systems require not only marketing t o “sell” the feature and explain the

value to customers but also include new sections in the owners manual, repair manuals, dealer service personnel, dealer salesman.........

Again, as the technology is available for a timefra me, it is downgraded as it becomes more mainstream and customers, dealers, service und erstand the system. These values across the different complexities are more compacte d.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

39 Improvements Electric Vehicle

Near-term 1 1 1

Long Run 1 1 1
Explanation: Not fully understanding vehicle selling costs, I be lieve it is strictly a function of vehicle price which is reflected in the technology.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Questionnaire: Expert Identification Letter ___D__

____

For each technology, and for the two time frames, p lease provide your expert estimate of the adjustment, if any, to the incremental change i n each indirect cost contributor due to the application by a typical OEM of the identified technologies. The range of values is any number equal to or greater than zero (see instr uctions on previous page). Please include a written description of your reasons for t he values you have estimated.

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 2.00 1.25 Long Run 1.00 1.50 1.25 Explanation:

Aero – Passive aerodynamics improvements should not incr ease warranty cost beyond a normal vehicle program.

Turbo – For Turbo-downsizing I assumed an engine similar to Ford’s Eco-boost. Turbochargers do have some history of problems and destroying bearings due to high temperatures and inadequate cooling at shutdown – s upposedly mostly fixed but a potential to increase warranty costs. I think this will be reduced over time.

PHEV – Hybrid technologies have become reasonably well spread without huge warranty concerns. PHEVs could do the same. I’m also givin g this a lower factor assuming that the incremental PHEV cost is far higher than turbo- downsizing.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.25 2.00 1.25 Long Run 1.00 1.25 1.25 Explanation:

Aero – Passive aerodynamics improvements will require so me design work, but would fit within an existing design process.

Turbo – The Eco-boost engine is similar to an existing e ngine, with slightly thicker/heavier components for increased pressure d ue to the turbo. I think the changes are within a normal engine program, however the wor k to support direct injection for Eco-boost has been more involved (e.g. spray imagin g lab, etc.).

PHEV – PHEV control strategies are still being develope d and will require research, however general hybrid drive strategies are becomin g better understood already. I’m also giving this a lower factor assuming that the increm ental PHEV cost is far higher than turbo-downsizing.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.25 1.00 1.50 Long Run 1.25 1.00 1.25 Explanation:

Aero – Aerodynamics improvements could involve more intr icate manufacturing and will likely require more precision manufacturing (e.g. r educed gaps, better fits) which will require a modest investment in more expensive machi nery and more maintenance.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional installation work above and beyond a nor mal engine program.

PHEV – PHEVs will require a significant additional amou nt of production space and equipment, and will initially suffer from low volum es.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.25 1.00 1.25 Long Run 1.25 1.00 1.25 Explanation:

Aero – Aerodynamics improvements could involve more intr icate manufacturing and will likely require more precision manufacturing (e.g. r educed gaps, better fits) which will require a modest investment in more expensive machi nery and more maintenance.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional installation work above and beyond a nor mal engine program.

PHEV – PHEVs will require a significant additional amou nt of production space and equipment, requiring more maintenance and repair.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 1.00. 2.00 Long Run 1.00 1.00 1.25 Explanation:

Aero – Passive aerodynamics changes should not require s ignificant additional administrative work above and beyond a vehicle prog ram.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional administrative work above and beyond a n ormal engine program.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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PHEV – PHEVs will require additional suppliers, and int eraction with utilities and local municipalities to determine charging protocols and locations for charging stations.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 1.00 1.25 Long Run 1.00 1.00 1.25 Explanation:

Aero – Passive aerodynamics changes should not require s ignificant additional retirement costs above and beyond a vehicle program.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional retirement costs above and beyond a norm al engine program.

PHEV – A PHEV vehicle program is likely to require more engineering investment than the other technologies, leading to an increased cos t for non-production retirees.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 1.00 1.25 Long Run 1.00 1.00 1.25 Explanation:

Aero – Passive aerodynamics changes should not require s ignificant additional health care costs above and beyond a vehicle program.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional health care costs above and beyond a nor mal engine program.

PHEV – A PHEV vehicle program is likely to require more engineering investment than the other technologies, leading to an increased cos t for non-production health care.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 0.00 1.25 Long Run 1.00 0.00 1.10 Explanation:

Aero – Passive aerodynamics changes should not change th e vehicle size or weight significantly.

Turbo – Downsizing and turbo charging will reduce the ve hicle weight and should save on transportation costs.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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PHEV – PHEVs will weigh more due to the large battery, a nd will cost more to transport

to dealers. This should reduce as batteries contin ue to improve.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 2.00 2.00 Long Run 1.00 2.00 2.00 Explanation:

Aero – You don’t see too much advertising for aerodynami cs. I think this would get normal new car advertising.

Turbo – Eco-boost will be heavily marketed as a new and innovative technology, and will likely continue to be advertised since Ford sees it as a competitive advantage.

PHEV – PHEVs will be heavily marketed as a new technolog y. I’m also giving this a lower factor assuming that the incremental PHEV cos t is far higher than turbodownsizing.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 2.00 2.00

Long Run 1.00 1.50 2.00
Explanation:

Aero – I don’t think aerodynamics would be a huge sellin g point.

Turbo – The initial Ford vehicles available with Eco-boo st are being packaged with high end content, which is usually high profit. If forc ed by gas prices or regulations, Ecoboost will likely become more widespread and cheape r to the consumer.

PHEV – PHEVs will sell at a premium price.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

44 Questionnaire: Expert Identification Letter ___E__

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.4 1.6 Long Run 0 1 1.2 Explanation:

- System complexity of technologies for Turbo downsiz ing and Plug-in will increase near-term warranty due to additional time for diagnosis and repair (plus more-expensive parts)

- Long run adjustment for ‘aero’ is not needed, but t urbo-downsize and plug-in will require on-going support to address service is sues as vehicles age

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.2 1.5 2.0 Long Run 0.0 0.8 1.0 Explanation:

- Near-term; aero requires add’l wind tunnel and engi neering time, turbo downsize and plug-in require add’l engineering reso urces for development

- Long run; on-going engineering support needed to in form service network with service bulletins and/or special service parts for vehicles at high mileage

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.0 1.0 Long Run 0.0 0.0 0.0 Explanation:

- depreciation is only a near-term issue, as tooling is likely to be replaced in next product cycle (5 years)

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.4 1.8 Long Run 0.0 0.0 0.0 Explanation:

- increased cost at mfg. plant is only a near-term co ncern; greater for turbo downsize and plug-in due to increased mfg. complexi ty

Corporate Overhead

Table 7: General and administrativeEPA STAFF DRAFT – DO NOT CITE OR QUOTE

45

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.0 0.5 1.2 Long Run 0.0 0.2 0.4 Explanation: - Near term, additional staff needed for turbo down size and plug-in technologies (logistical support for additional components - suc h as turbos, GDI systems, batteries, and power control hardware - arriving at the assem bly plant

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.0 0.0 0.0 Long Run 0.0 0.0 0.0 Explanation:

- additional cost of technologies should not affect t he retirement costs as a function of the technology cost, but only as a func tion of additional people hired to implement the technologies (but isn’t that already covered in R&D and G&A costs?)

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.0 0.0 0.0 Long Run 0.0 0.0 0.0 Explanation:

- additional cost of technologies should not affect t he retirement costs as a function of the technology cost, but only as a func tion of additional people hired to implement the technologies (but isn’t that already covered in R&D and G&A costs?)

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.4 0.0 0.6 Long Run 0.0 0.0 0.2 Explanation:

- aero improvements and plug-ins (which likely have a ero improvements) may require unique shipping and handling care to avoid damaging the aero components, plus some additional expensive for ship ping vehicles with highvoltage electrical systems

- long-term, some add’l expense for stocking batterie s and shipping them to dealerships for service replacement

Table 11: MarketingEPA STAFF DRAFT – DO NOT CITE OR QUOTE

46

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.0 0.4 0.8 Long Run 0.0 0.0 0.0 Explanation:

- some add’l cost to inform/convince consumers that t urbo downsize and plugin technologies are worth the extra vehicle cost

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.0 0.0 0.0

Long Run 0.0 0.0 0.0
Explanation:

- no additional selling costs for advanced technologi es (assume that this is handled by the mfrs. marketing budget)EPA STAFF DRAFT – DO NOT CITE OR QUOTE

47 Questionnaire: Expert Identification Letter ___G__

___

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 1.2 2.0 Long Run 0.1 0.8 1.5 Explanation: Aero changes have no moving/reciprocating parts, an d are most likely corrosion-resistant (plastics). Unless they create system issues via p oor design (e.g., an air dam that traps water near an HVAC intake or part of the body and e ncourages corrosion), I would expect warranty to be near zero. You couldn’t comp letely eliminate warranty, however.

A turbo-downsizing, while more complicated than a n aturally aspirated engine, is still rather conventional. OEMs have been making turbos for decades. There should not be any more warranty exposure than any other engine pr ogram. Assume we average to around 1 for multiple generations, with a little mo re warranty costs in the first generation and less in subsequent generations.

PHEVs will surely incur much more warranty. In ter ms of R/1000 (quality and reliability), I would expect them to have a much hi gher incidence rate than a redesigned gas ICE (there are two distinct powertrains!) Even when full learned out, PHEVs could never be more reliable than simple ICE vehicles.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 2.0 3.0 Long Run 0.5 1.0 1.5 Explanation: If anything, the most significant cost in aero impr ovements is in the upfront design and modeling for best Cd. However, computer simulation continues to evolve which can

continue to reduce R & D costs. You will still hav e to treat each new vehicle model as a unique case w/r/t platform dimensions and packaging , so it will never be “plug and chug”.

Meeting downsized turbo emissions might be challeng ing for the first generation of a new engine (for catalyst light-off and loading opti mization, calibrations, etc.). However,

the 2 nd and subsequent iterations will benefit from this e xperience.

PHEVs will be nothing short of a major R&D effort. All things from battery development, to packaging, to crashworthiness, dura bility, system integration and failure mode effects/enalysis. This is a huge task ! Call this a factor of 3 because, when accounting for the very large direct manuf. costs, this should come out to a very big number on the order of a couple billion $.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

48

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.0 1.0 Long Run 1.0 1.0 1.0 Explanation: Not knowing enough about the differences in tool li fe between injection/blow molding of plastic pieces for aero, vs. casting and machining tooling for turbos, vs. what tooling is

needed to fabricate and assemble a PHEV – I abstain from this one.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.0 1.0 Long Run 1.0 1.0 1.0 Explanation: In a similar context I don’t know enough to discern differences in terms of MRO for different types of mfr. equipment.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 2.0 3 Long Run 0.5 1.0 1.5 Explanation:

I assume these costs should scale with the level of R&D activities. You need more support staff as you increase R&D headcount, develo pment and testing activity.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 0.25 Long Run 1 1 0.25 Explanation: Assuming that aero and turbo technologies are produ ced domestically in existing plants where a workforce has been put in place for many ye ars. As such their average workforce age is probably a little older and has a higher retiree population. PHEV plants are either green-sheet plants in the US (with lower non-union benefits) or they are foreign plants.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 0.25 Long Run 1 1 0.25EPA STAFF DRAFT – DO NOT CITE OR QUOTE

49

Explanation: Ditto to previous question

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1 2 Long Run 0 1 1 Explanation: Assume aero changes do not affect the volume/weight of what is shipped significantly. There are more components involved for a turbo/DS p ackage so the additional components must incur shipping costs to to the engi ne plant. Assume most PHEV subsystems (battery packs, e.g.) are being built ov erseas initially, then perhaps being built domestically in the long run.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1 1.5 Long Run 0 0.25 0.75 Explanation: PHEVs will be marketed very heavy initially, as the y stand as “green” halo-type vehicles for mfr portfolios. Especially at reduced volume t heir advertising budget will be disproportionally high. Aero is not marketable to the masses. Turbo d-s will be marketed similar to any major engine launch, but in carryover applications it won’t receive the same advertising budget.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 1 2.0

Long Run 0.1 0.25 1.0
Explanation: Aero will require slightly more service training, a s do all new components. Turbo-downsizing will require yet more training, du e to a more complex engine and OBDII-related failures and hardware. PHEVs require not only extensive service training (especially SAFETY, etc.), but maybe new service eq uipment and customer literature

such as service manuals etc.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

50

Questionnaire: Expert Identification Letter _____L

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.2 0.2 Long Run 0 1.3 2.5 Explanation: Aero changes probably would not result in any direc t warranty cost changes. However, depending on how well the aero changes are executed , customer complaints may increase due to additional wind noise. Any issues such as th is would likely diminish after the first few years as a result of continuous improvement or changes in customer expectations. Either way, cost increase would be very low.

A boosted-downsized engine presents significant ris k to warranty costs. In addition to adding complex components (turbocharger), additiona l stress is placed on key engine components. Ignition systems are stressed which red uces durability and service intervals. Major engine hardware may wear prematurely and fail (piston rings, head gaskets, intake/exhaust valves). As these engines age, warra nty costs to the manufacturer may increase depending on the length of the warranty. L ong-term costs are calculated based on complete engine failure rate of 0.5% (increase o ver normal), production volume of 250k units annually, and $4000 replacement cost per occurrence. Near-term increases are based on a $200 repair (ignition system, other rela tively minor part replacement) at a 1% failure rate (increase over normal).

Plug-in hybrids represent a new technology, mainly related to the battery system. Additionally, the added complexity and additional c omponents related to the hybrid drive system may increase warranty claims. While the latt er component is more conventional (since hybrids are becoming more common), it is dif ficult to predict how well these new battery packs will perform in service. The long ter m factor is based on a warranty battery replacement rate of 0.5% at $8000 per unit. Near te rm, failure rates would be more consistent with conventional hybrids and I estimate d this at 1% above conventional vehicles with a $200 cost per occurrence.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.02 0.1 14 Long Run 0 0.02 0.1 Explanation: Additional modeling and wind-tunnel time would be r equired to make significant aerodynamic improvements. Conventional vehicles wo uld also have efforts made to reduce drag and wind noise, however this would need to be a more focused effort. Normal aero efforts may result in small changes to vehicle shape whereas this may define the shape of the vehicle. Long-term, previous devel opment work and lessons-learnedEPA STAFF DRAFT – DO NOT CITE OR QUOTE

51

would reduce the effort required for the next-gen v ehicle (little if any extra costs would be incurred to the vehicle after production starts) . Cost is based on initially having 4 engineers work full time for 1⁄2 year on aerodynamic development (100k/yr cost) and 100 hours of wind tunnel time at $500/hr. Factor based on 1yr payback and 250k units/yr.

For the turbo-downsized engine, a significant effor t beyond normal would need to be expended extending down to fundamental research in some cases. The normal engine development costs consisting of mapping (fuel/spark /EGR management), durability testing, packaging, etc would still apply. In addit ion, a number of extra concerns arise from the high power densities of these engines incl uding thermal management, increased risk to durability, and NVH. Each of these areas wo uld need special efforts beyond normal engine development. Most of these efforts w ould be up-front though resulting in little extra cost long term. Cost is estimated from having 4 extra full-time engineers working 3 years on R&D efforts, plus $1.5m in hardw are, and $700k in test cell expenses (290 8-hr days/yr for 3 years at $100/hr). Adjustme nt factor based on 250k units per year and a 3 yr payback.

For the PHEV, a significant amount of extra develop ment would need to be done beyond

a normal vehicle. The calibration is much more com plex (electric vs IC vs both strategies), durability demonstrations for the batt eries are still significant since the technology is new. As the model ages, I would assu me that significant efforts would still be made under continuous improvement pretenses to i ncrease durability and fuel economy and reduce costs, although these efforts wi ll be at a reduced level from the initial release. Cost based on the $750m developmen t cost GM included as part of their business plan that was submitted to congress in Dec ember, 2008. Adjustment factor is based on a 5 yr payback and 250k units annually.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation: Aero changes can most likely be accommodated in bod y redesign that would normally occur with a new model. In general, aerodynamic im provements usually result from simpler shapes, which (in theory) would be easier t o form. This could result in less complex tooling although the changes would have a r elatively small impact on cost.

A boosted-downsized engine would likely require cha nges to the block structure (dynamic loading reasons) and cylinder head (therma l management). Assuming the engine is designed as completely new, the cost of t hese considerations would be minimal over a normal engine (if not, new castings are very expensive). It should be noted however, that engines are rarely designed from the ground up as completely new and if they are it is much less frequent than body redesig ns. Long-term, it may be less expensive because of fewer components, and therefore less too ling, going from a V6 to an I4.CostsEPA STAFF DRAFT – DO NOT CITE OR QUOTE

52

to tool the turbo and related bolt-ons would likely be included with the piece price of the turbo from the supplier.

Plug-in hybrids would need to have design considera tion given to the body-in-white structure to package the battery pack. Assuming aga in that this is a new design (ground up), these considerations would not necessarily add any cost to the body structure. Given that the powertrain is more complex (involving both an IC engine and electric motor) there would be additional costs in tooling for the new/extra components over what would normally be in a conventional vehicle. However, mos t costs to tool the battery components would likely be amortized into the per p iece cost from the battery supplier.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0 0.6 Long Run 0.2 0 0.6 Explanation: The aero improvements may add assembly steps and/or stations at the vehicle assembly plant. Similarly, the PHEV would likely add several stations to the assembly process. Adjustment factors are based on assuming it require s 2% more stations for the PHEV and 0.5% more stations for the aero-improved vehicle an d the costs associated with maintaining and repairing those. I would not expec t a significant net increase or decrease with the downsized turbo engine.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 .01 Long Run 0 0 .01 Explanation: If the number of components in the vehicle increase s, then administration costs would increase (mainly related to purchasing and manageme nt of supply chains). I would not expect any of the three changes to increase G&A cos ts significantly, however there may be very slight increases for the PHEV’s because the re will be the largest increase in components to purchase and manage. The downsized t urbo could go either way depending on if the net change in components is an increase or decrease. The aero changes should have no effect at all. Cost factor f or the PHEV is based on adding two purchasing personnel based on $100k/year cost.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

53

As in Table 7, this would only increase if addition al personnel are needed to manage supply chains and purchasing of additional componen ts. If this is the case (only likely for the PHEV), retirement costs would be minimal since new hires generally only get a salary match to their 401k’s between 0 & 5% of thei r annual salary.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation: As in Table 7, this would only increase if addition al personnel are needed to manage supply chains and purchasing of additional componen ts. I would not expect a meaningful cost increase based on application of any of these technologies.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.5 0 2.5 Long Run 0.5 0 1.3 Explanation: Aero: Very small increase in cost if additional fai rings, air-dams, spoilers, etc make it

more difficult to load and secure vehicles onto car -haulers.

Turbo: Slight decrease in transportation due to the likelihood that a vehicle with a turbo-4 will weigh less than a vehicle with a NA-6. No appr eciable change in multiplier.

PHEV: Slight increase in transportation due to the likelihood that these vehicles will weigh more due to the battery pack. Factor is based off a 10% increase in weight (and associated 10% increase in transport costs per vehi cle) decreasing to 5% long term.

I would not expect these costs to change significan tly in the long-run, however continuous improvements would have the most weight reduction potential for the PHEV as battery technology improves.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.4 1.2 Long Run 0.4 0.4 0.2 Explanation: In order to justify the higher on-cost of the downs ized-turbo and PHEV powertrains, significant additional marketing will be needed (ma inly advertising). This is particularly true for the PHEVs since it is a new technology and people are not likely to be familiar with it (in addition to being very expensive). As the programs age, I would expectEPA STAFF DRAFT – DO NOT CITE OR QUOTE

54

marketing costs to trend in opposite directions for vehicles the depending on costs of the technologies. For instance, as people become more f amiliar with PHEV’s less marketing will be needed. However, since the cars with only a ero changes would likely be less efficient, they would need more marketing support ( rebates, incentives, etc) as the program ages. Factors represent a 5% increase in ma rketing support initially (1 st 5 yrs) for the PHEV, reducing to an extra 1% after 5 yrs; 2% increase for the turbo-downsized (regardless of timeframe) and a 1% initial increase for the aero-only vehicle increasing to 2% after 5 yrs.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.3 1

Long Run 0 0 0.3
Explanation: Aero: No change near or far-term Turbo: No change beyond normal training of sales pe rsonnel on the features of a new vehicle. Small increase in training costs for servi ce staff on how to repair the new engine. PHEV: Small increases, particularly near term, to u pgrade facilities to charge and service these types of vehicles.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

55

Questionnaire: Expert Identification Letter ______ N___

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .3 4 2 Long Run .1 1.8 3 Explanation: Minimal aero warranty, Turbo engines are more com plex and highly stressed compared to NA V6. PHEVs are even more complex but Toyota history shows decent service reliability.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .4 2 8 Long Run .2 2 4 Explanation: Minimal aero R&D required. Turbo developement more involved and complex than v6. PHEV requires a whole new branch of development. L ots of HR, development and suppliers interaction.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .2 6 Long Run 0 .2 3 Explanation: PHEV requires lots of new equipment purchases and i nfrastructure for testing and development and production.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .1 .3 2 Long Run .1 .3 2 Explanation:

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .1 1 10 Long Run .1 1 10 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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More components, parts and vendors to track.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .5 1 Long Run 0 .5 1 Explanation: More employees needed for PHEV support.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .5 2 Long Run 0 .5 2 Explanation: More employees needed for PHEV support. More healt h risks dealing with batteries.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation:

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .2 2 6 Long Run 0 2 4 Explanation: PHEV may require more marketing if gas prices low. Turbo and PHEV will require marketing to explain advantages. PHEV will require much explanation regarding the extended range aspect’s effect of fuel consumption.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .1 .1 4

Long Run .1 .1 1
Explanation: PHEV s will require new charging stations and elec tric power to charge before delivery.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Questionnaire: Expert Identification Letter ___O__

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.01 0.10 0.3 Long Run 0.00 0.05 0.15 Explanation: 1. Regarding aero improvements: Some initial dur ability and NVH concerns will be realized. The majority of modifications are to exi sting technologies, using proven designs. 2. Turbo-DS: Both technologies are currently kno wn and in high volume applications. Initial warranty will stem from performance, calibr ation, and NVH issues. All of these issues will decline over time with developing compe tence. 3. Plug-in Hybrid: New technology with a heavy d ependence on the supplier and limited knowledge of failure modes. Cost constraint s will prohibit large staffing, initially, by the OEM. In addition, low initial volumes will drive up the cost of replacement parts.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.01 0.20 0.5 Long Run 0.00 0.10 0.3 Explanation:

1. Aero: Design and development will leverage existin g tools and processes. New and modified components are simple designs. NV H and thermal requirements will be the biggest issues, however, t he OEM’s are well versed in mitigating these problems.

2. Turbo-DS: Calibration, thermal management, durabil ity, and NVH will be form the majority of the development. Although OEM ’s are well versed in managing all 3 factors, additional resources will b e assigned to ensure the product meets vehicle functional objectives.

3. PHEV: There will be major calibration work associa ted with a PHEV. Durability, NVH, drivability, and verification of f ail-safe modes will require a high level of R&D. In addition, blended regenerati ve brakes and thermal issues will require significant development attenti on.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.00 0.01 0.02 Long Run 0.00 0.005 0.01 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.005 0.10 0.20 Long Run 0.00 0.005 0.10 Explanation:

1. Aero: These modifications should result in little to no additional MRO, if the designs are early in the program, and the proper Co mputation Fluid Dynamics (CFD) work is done “up-front”. Should the OEM deci de to piece meal these items late in the program it will result in additio nal use of wind tunnels and

thermal chambers which would increase MRO.

2. Turbo-downsizing: Same as above, with the exceptio n that due to the limited exposure of turbo systems across most OEM’s, some a ddition use of internal resources requiring MRO can be expected.

3. PHEV: New technology with limited knowledge base a nd immature development tools. There will more hands-on trial- and-error across all the OEM resources that require MRO – wind tunnels, ther mal chambers, electrical labs, development labs, etc...

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.005 0.01 0.10 Long Run 0.00 0.00 0.05 Explanation:

1. Aero: There will be some additional parts associat ed with aero improvements, which will drive administration costs for part rele ase and change management. The majority of the aero enablers are existing comp onents which will result in no additional administration requirements.

2. Turbo-downsizing: This will require incrementally more administration due to the number and complexity of the components.

3. PHEV: Due to the number of new components required , and the safety considerations, the PHEV’s will require a measurabl e increase in G&A costs.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.00 0.01 0.05 Long Run 0.00 0.005 0.01 Explanation: The numbers above represent the relative increase i n staff required to design, develop, and release the associated systems. Retirement cos ts will increase accordingly.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

59 Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.00 0.01 0.05 Long Run 0.00 0.005 0.01 Explanation:

Same as above.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.00 0.005 0.15 Long Run 0.00 0.00 0.05 Explanation: There will be very little increase in transportatio n costs associated with aero improvements and turbo-downsizing due to the limite d number of new components. Essentially, there will be more modified existing c omponents in the designs which will mean no change in transportation costs.

The PHEV will result in additional transportation c osts, particularly in the short term. This will be the result of new components that are built at remote locations: Batteries, controllers, invertors. In addition, these compone nts tend to be large and bulky. Over time, and with increased volume, these components w ill be brought “in-house”, which will reduce overall transportation costs.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.005 0.20 0.40 Long Run 0.00 0.01 0.15 Explanation: The marketing of aero improvements will take the fo rm of providing a drag coefficient, in the most extreme case. The real marketing will be in the form of improved fuel economy, which the OEM’s already market.

Turbo-downsizing will require a measurable amount m arketing due to the current lack of market penetration and lack of familiarity with the majority of the consumers. This will fall off steeply as market penetration increases.

PHEV’s will require a large amount of marketing. On ce again, due to lack of consumer knowledge, the OEM’s will need to increase consumer recognition. Additionally, the high capital requirements will drive large marketin g campaigns to recover expenses as quickly as possible.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

60

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.00 0.20 0.40

Long Run 0.00 0.10 0.15
Explanation:

The rationale is basically the same as above: The above numbers reflect a lack of consumer knowledge, and in the case of dealers, dea ler knowledge in the technologies. In the short term there will be required sales and service training, as well as documentation to provide customer knowledge. This will decrease as the sales and service staff, and customer become aware of the pro duct changes.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

61

Questionnaire: Expert Identification Letter ___P

______

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .10 3 Long Run 0 .10 .5 Explanation: Aero improvements at this level shoul d not affect warranty since they are only cosmetic changes to the body.

I am assuming the Turbo downsized engine will have direct injection, and VVT. Based on the increased complexity of the new engine, I ex pect warranty to increase in both the near term, and long term. This increase is due to the increased number of components.

For the PHEV, I am assuming that the engine will st ay the same, the transmission will be replaced with a hybrid electric transmission, and a high voltage electrical system will be added with a 300 volt lithium battery pack. The co oling system will also be upgraded to handle the extra heat added by the hybrid component s. Warranty will increase by a large factor the first few years, because the system will have significantly more failures due to the increased complexity. In the long run, the m anufacturer will correct the design to greatly reduce the warranty.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .01 .03 3 Long Run .01 .01 1 Explanation: My assumption is that a manufacturer normally is ok with aero being in a range based an expected look for a vehicle at the end of a design. If a specific goal is set, aero improvements will require more testing and more des ign time. This is not a big change, but will be necessary even in the long run if the v ehicle is refreshed.

Turbo downsizing will require the same amount of dy no testing as a standard engine. Assuming a company already has some design experien ce with turbo chargers and direct injection, a turbo system will probably be more dif ficult to calibrate, and the new engine will require a learning curve in the near term. In the long term, calibrators will know how to calibrate the system, and the effort will de crease.

Plug-in hybrid electric vehicle systems are complex , and require more man power for design, testing and validation, and calibration. I would expect that the effort for the first

time to be three times as difficult as a standard v ehicle design. In the long term, there will still be an increased testing and design burde n on a refreshed vehicle, but it will be at a significantly lower level.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

62

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .01 1 Long Run 0 .01 1 Explanation: For aero improvements, I do not see a ny changes necessary to a plant; therefore, there will not be any addition costs in these categories.

For a turbo downsized engine, I expect extra testin g fixtures in the plant that will slightly increase costs verse a standard 6 cylinder engine. The costs will continue long term as fixtures and test equipment wear out and are replac ed.

For plug-in hybrid electric vehicles, there will be more installation fixtures and test equipment at the plant. I expect these to be signi ficant and to add costs in both the near and long term.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .01 1 Long Run 0 .01 1 Explanation:

For aero improvements, I do not see any changes nec essary to a plant; therefore, there will not be any addition costs in these categories.

For a turbo downsized engine, I expect extra testin g fixtures in the plant that will slightly increase costs verse a standard 6 cylinder engine. The costs will continue long term as fixtures and test equipment wear out and are replac ed.

For plug-in hybrid electric vehicles, there will be more installation fixtures and test equipment at the plant. I expect these to be signi ficant and to add costs in both the near and long term

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1 Long Run 0 0 1 Explanation: I don’t expect increased staff for ae ro improvements and turbo-downsizing.

For plug-in hybrid electric vehicles, I expected in creased staff which will increase cost in this category.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

63

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1 Long Run 0 0 1 Explanation: I don’t expect increased staff for aero improvement s and turbo-downsizing.

For plug-in hybrid electric vehicles, I expected in creased staff which will increase cost in this category.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1 Long Run 0 0 1 Explanation:

I don’t expect increased staff for aero improvement s and turbo-downsizing.

For plug-in hybrid electric vehicles, I expected in creased staff which will increase cost in this category.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 .02 Long Run 0 0 .02 Explanation:

Aero and turbo downsizing will not effect transport ing the vehicle to a dealer.

Plug-in hybrid vehicles will cost more because of t he extra weight, and the handling. Hybrid batteries may need to be disconnected and re connected during transport.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

64

I expect that the normal rush of advertising for an y new vehicle would be sufficient for these categories. I don’t believe that the plug-in hybrid would need any extra marketing

to sell it to individuals.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 .01

Long Run 0 0 .01
Explanation: I expect that with aero and turbo downsizing dealer costs will be the same.

I expect that costs for plug-in hybrids will be mor e since the vehicles may need to be plugged in, and handled differently than standar d vehicles.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

65

Questionnaire: Expert Identification Letter ____R_

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.5 2 6 Long Run 1.1 1.2 3 Explanation: Most warranty increase would be due to non-passive systems and would decrease as component knowledge increased.

I helped develop and release a NA and turbocharged version of the same engine. Turbocharged vehicles require extra cats, engine co mponents, and have much higher warranty than sister NA engines.

There are no OEM PHEVs now on the market. PHEVs sh ould see higher warranty simply due to the fact that warranty now accounts f or 2 drive systems and the integration

of both.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 5 3 10 Long Run 1.1 2 3 Explanation: Aero is largely free, if metal is being bent anyway . Once Aero is done, it is done. Once Companies learn how to apply advanced aero techniqu es and enable Aero development on all models (aka facitlies), it is just a matter of application and measurement.

Turbocharging is an off the shelf tech, but impleme ntation is difficult. The turbo group I worked with was twice the size of any NA engine and three times as large in implementation.

There are no OEM PHEVs now on the market. PHEV R&D , even for companies experienced in hybrids, is likely to be the largest single cost of PHEV’s. PHEV R&D will be largest on the first adopters (both company and model). The R&D is so large, it cannot initially be priced. Battery development is included.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.5 2 Long Run 1 1.5 2 Explanation: Only changes are due to component complexity and co untEPA STAFF DRAFT – DO NOT CITE OR QUOTE

66

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.1 1.5 3 Long Run 1.1 1.5 3 Explanation: Only changes are due to component complexity and co unt

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.1 2 Long Run 1 1.1 2 Explanation: Only changes are due to component complexity and co unt

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.1 2 Long Run 1 1.1 2 Explanation: Only changes are due to component complexity and co unt

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.1 2 Long Run 1 1.1 2 Explanation: Only changes are due to component complexity and co unt

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: Transporters are paid per unit, independent of Powe rtrain, and contractually. Transport costs would only increase if more shuttling was req uired (large inventory), if less units could be shipped per car carrier (long box pickups) , or if special shipping were required (closed trailers).EPA STAFF DRAFT – DO NOT CITE OR QUOTE

67

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 2 4 Long Run 1 1 1 Explanation: Turbochargers are still a hard sell in US, especial ly for nonperformance or non-diesel.

PHEV’s will require significant consumer outreach. Examples include how determine cost of ownership, optimal usage of PHEV’s, unique operation, and being able to price

some of the tech.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 2

Long Run 1 1 1
Explanation: Dealer education required for consumer outreach.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

68

Questionnaire: Expert Identification Letter ____S_

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 1.2 1.4 Long Run 0.1 1.1 1.2 Explanation:

• Passive aero improvements pose no additional warran ty risk, besides the very small risk of them falling off, or being damaged du ring vehicle handling. My

entries reflect the small chance that one of these components may be damaged and in need of repair.

• Turbo-Downsizing is well-understood throughout the industry. There are additional components which can fail, and some engi ne components are under increased stress. Also, repair procedures can be m ore involved due to additional

components.

• A PHEV should not be significantly more complex tha n a hybrid, but additional software features may cause consumer confusion and therefore warranty claims. The larger battery and increased dependence on the battery for propulsion increases the warranty cost if there is a failure i n this system.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.2 2 Long Run 1 1 1.2 Explanation:

• R&D costs for aero changes involve wind tunnel test ing and development. The costs for these passive devices are the same as tho se for all other body panels and

features.

• Turbo-Downsizing R&D costs are slightly higher in t he near term due to new software requirements and test procedures as well a s new calibration strategies to take advantage of the technology. In the long-term , these costs would be no more than conventional technologies once the institution al knowledge is in place.

• PHEVs will have higher R&D costs in the near term d ue to greatly expanded software development and testing needs. In the lon g term, these costs will still be slightly higher than conventional due to increased system complexity.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1 1.3 Long Run 0 1 1.1 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

69

• There should be no additional Depreciation and Amor tization costs associated with passive aero technologies

• Turbo-Downsizing will require some additional capit al capital equipment which will be depreciated at the same rate as other engin e technologies. This will not change in the long term.

• PHEV technologies will have some additional, unique technologies that will have higher initial amort and depreciation costs associa ted with them like battery testers and specialized diagnostic equipment. Ther e will also need to be additional safety hardware at plants for workers to handle high voltage equipment. These costs will decrease in the long term as this equipment becomes mainstream.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1 1.4 Long Run 0 1 1.1 Explanation:

• Like depreciation and amortization, there should be no additional MRO costs associated with aero improvements

• MRO costs for turbo-downsizing technologies should be similar to those for other technologies in the short and long term

• PHEV MRO costs will be slightly higher due to addit ional equipment needed to develop, test, and assemble the vehicles. These co sts will decrease with time as learning takes place.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1 Long Run 0 0 0.5 Explanation:

• There should be no additional G&A expenses associat ed with aero or turbodownsizing because these technologies are similar t o conventional technologies

• PHEVs will require additional safety training and d ocumentation as well as additional work to certify and possibly interface w ith utilities. In the long term, these costs should drop, but will still be incurred (at a lower rate).

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

70

• There should be no additional retirement costs asso ciated with these new technologies, provided the prospect of implementing these technologies do not cause personnel to consider early retirement.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation:

• These technologies will not impact health care cost s.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.5 -0.1 1.3 Long Run 0.5 -0.1 1.1 Explanation:

• Aero improvements may slightly increase transportat ion costs due to changed approach/departure angles for loading/unloading tha t could affect loading density

on trucks and railcars.

• Turbo downsizing may actually decrease transportati on costs due to reduced vehicle weight because of a smaller, lighter powert rain. This will likely offset any additional insurance costs due to increased veh icle value.

• PHEV transportation costs could rise somewhat due t o the need to maintain battery charge level during storage and transportat ion. Insurance costs could also increase due to the presence of high voltage and in creased vehicle value. Vehicle weight is assumed to be somewhat higher, leading to higher shipping charges.

These effects should decrease with time and learnin g.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.5 3 Long Run 0 1 1 Explanation:

• Aero improvements should not increase marketing cos ts in the short or long term. Automakers will implement the technology, but marke ting will ignore it.

• Turbo-downsizing will have a short-term marketing c ost increase over the base due to educating consumers on the technology’s bene fits. In the long-term this cost will be similar to conventional technologies, but some effort will be made to educate consumers as an ongoing task.

• PHEVs will have a very high initial marketing cost compared to conventional technologies. As they become mainstream, the marke ting cost will be similar to other technologies.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

71

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.2 1.5

Long Run 0 1 1
Explanation:

• Aero improvments will have no additional selling co sts at the dealership

• Turbo-downsizing will some initial marketing costs at the dealer level as sales people will need to be educated and expend addition al effort to sell the new technology to customers. Additional service tools and training will also be required. This will decrease to levels similar to conventional technologies in the long term

• PHEVs will have significant additional selling cost s associated with them for training, service training tools, and promotions. In the long-term, these costs will decrease to be similar to other technologies.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

72 Questionnaire: Expert Identification Letter ____T_

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.5 1.5 Long Run 0 1 1 Explanation: Aero: Passive aero improvements are typically sheet metal changes or bolt on composite items that have no moving parts and are d amaged through misuse or accident that would not be covered by the vehicle warranty. Turbo-downsizing: Turbochargers by nature are compl ex devices that have high fallout rates at the supplier and customer level du e to the precision involved. This is complicated by the smaller, higher revving, units b eing designed for smaller vehicles and the trend toward longer powertrain warranties. Ove r the long term, processes and materials should improve resulting in these devices having similar reliability to other engine components. Plug-in Hybrid Electric Vehicle: PHEV’s have two c omplete powertrains that must work together. Many of the components require d are new to this technology and the calibration will be complex. In addition, cust omer charging cables and high power onboard charging electronics must be provided that will be operated at duty cycles and power levels that far exceed current automotive des ign criteria.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.5 2 Long Run 1 1 1 Explanation: Aero: Passive aero improvements are easily applied to all vehicles in a similar

fashion. Turbo-downsizing: Implementation and calibration o f turbocharged vehicles is complex due to all of the operating points to consi der. The NVH treatments are challenging as well and crucial to the acceptance o f this technology by the customer. Plug-in Hybrid Electric Vehicle: PHEV’s have two c omplete powertrains that must be calibrated together. The electric powertra in requires critical algorithms to maintain charge and to ensure battery life and safe ty. Each generation of battery technology must be integrated separately.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

73

All of these technologies consist of supplier purch ased components that would not require any special requirements for the OEM in thi s area.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.25 1.25 Long Run 1 1 1 Explanation: Aero: Aero treatments are typically low maintenanc e except for underbody items that are easily damaged. Turbo-downsizing: Increased maintenance and repair is to be expected in the short term as this technology matures due to the co mplex nature of the systems involved. Plug-in Hybrid Electric Vehicle: PHEV’s have two c omplete powertrains that will require more maintenance than a mature vehicle with one powertrain. As the electrical powertrain matures, the system should be maintenance free. Only the IC engine will need regular maintenance.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Selling Table 10: Transportation Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

74 Improvements Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1

Long Run 1 1 1
Explanation: The OEM should not have any special needs in this a rea for these technologies.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

75 Questionnaire: Expert Identification Letter ____V_

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.5 2.5 Long Run 0.5 1.0 1.2 Explanation: Assumption: The warranty indirect cost is an averag e value which consists of frequency and cost of repair. I assume that new products as a whole have higher warranty claim frequency than older products. I also assume that powertrain components have a higher claim frequency and higher cost of repair than othe r parts such as body components.

• Aero: I assumed the near-term factor would be about average – the claims are slightly higher because the parts are new body comp onents.

• Turbo-downsize: I assume that it’s higher than aver age because a turbocharged engine has more things to go wrong (such as turbo o verspeed, higher cylinder pressures to manage, etc.) and it costs more than t he average part to fix an engine.

• PHEV: The PHEV has several new components that cost more to replace (batteries), have a higher likelihood for failures since there is less experience with the part (new customer use cycles which include rec harging).

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.5 1.5 2.5 Long Run 0 0 0.5 Explanation: R&D = staff, design, testing (dynamometers, stress lab, test cells, wind tunnel, development trips)

• Aero: Some R&D is required to design the vehicle in more aerodynamically. Additional wind tunnel and/or CFD work will be requ ired to optimize. However, it should not require extra staff.

• Turbo downsizing: I assumed that the engine would b e designed by the OEM, that turbocharger and other components except the engine block will be purchased, and the engine will be assembled by the OEM. I als o assumed that the turbocharged engine will be based on an existing (or rep lacement) 4-cylinder engine. Therefore, the turbocharged version will include ne w pistons, connecting rods, fuel injectors, intercooler, and cooling system, re quire OBD development of the turbocharger, and contain additional complexity for the engine calibration. There will be a few additional staff required to design a nd develop a turbocharged engine over a naturally aspirated engine. There wi ll also be more testing/development requirements for this version o ver a naturally aspirated

version.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

76

• PHEV: Similar to a hybrid, the plug-in will require significant personnel, new testing capability, design and development.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1.0 Long Run 0 0 1.0 Explanation:

• Aero: I assumed the aerodynamic features will be bu ilt into the skin of the vehicle and require no special assembly tools or the additi onal features will be replacement of existing parts.

• Turbo: I assumed a replacement engine was being dev eloped for this vehicle so the OEM was required to purchase new tools and dunn age at the engine plant regardless of the regulation. The four cylinder en gine will also require handling fewer parts such as pistons, con-rods, valves, etc. because it has two less cylinders than the V6 it replaces. I assumed the turbocharge r and intercooler were purchased parts so they would only require handling equipment.

• PHEV: The hybrid contains a significant number of n ew parts and systems, such as batteries, control modules, etc. which are addit ive over the base vehicle. These parts will depreciate at the normal rate.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1.0 Long Run 0 0 1.0 Explanation:

Same as Table 5

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0.5 Long Run 0 0 0.5 Explanation:

• Aero: Assume work can be done with existing resourc es.

• Turbo: Assume work can be accomplished with resourc es that would have been dedicated to the replacement engine.

• Assume the PHEV will require extra resources.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric VehicleEPA STAFF DRAFT – DO NOT CITE OR QUOTE

77

Near-term 0 0 0.5 Long Run 0 0 0.5 Explanation:

Same as Table 7

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0.5 Long Run 0 0 0.5 Explanation:

Same as Table 7

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0.5 Long Run 0 0 0.5 Explanation:

• Aero & Turbo: No additional requirements and minim al cost differential will lead to zero impact on transportation costs.

• PHEV: The vehicles will cost more over a non hybrid version. The vehicles may also weigh more due to the batteries. Lastly, the PHEV may have special transportation requirements.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1.5 Long Run 0 0 0.5 Explanation:

I assumed that marketing is required if the new tec hnology affects the manner the driver

uses the vehicle or has to interface with the vehic le. Neither aero nor turbos impact the driver so no additional marketing is required. The PHEV requires marketing for consumer awareness and training.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.2 1.5

Long Run 0 0 1.0
Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

78

I assumed the selling costs are due to interest and insurance of the vehicles on the floor, sales staff, repair staff, training, and dealer ove rhead. The aero improvements do not impact any of these items. The turbo engine may re quire additional repair training if this is the first turbo engine produced by the OEM. The PHEV will have higher interest and insurance costs and will require training for the s ales staff and repair staff.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

79 Questionnaire: Expert Identification Letter ___W__

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.4 1 Long Run 0 0.3 0.8 Explanation: - Aero is built into the design of the vehicle exte rior, so it’s highly unlikely to cause warranty issues. - TD is an established technology but may have some bugs to work out in the early stages since it is not commonly used by all manufacturers. Turbos may also fail. After the first design, warranty issues should decrease. - PHEVs are a new technology and I would expect to see many warranty issues in the initial release. These will drop off after a redes ign, but will still likely have more issues than a more established technology like TD.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 0.6 1 Long Run 0.1 0.3 0.9 Explanation: - autos continually run aero tests in wind tunnels and are tweaking vehicles all the time. There is r&d overhead in this, even though only a s mall amount in comparison to the other technologies. - TDs are often developed in house by the OEMs so r equire some R&D. After the initial engine, this is likely to be cheaper, but history h as taught us that there is continual room for improvement in engines. - PHEVs require A LOT of R&D and will continue to d o so since they are not even in their first generation yet. - For every successful project in research to make it onto a vehicle there may be 9 others that fail. Engines and advanced technologies thus h ave much overhead and cost.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.8 1 Long Run 0 0.8 1 Explanation: - aero does not depreciate. - TDs engines depreciate immediately and rapidly as do electrical components such as

batteries on PHEVs

Table 6: Maintenance, Repair, and Operations Cost Adjustment FactorsEPA STAFF DRAFT – DO NOT CITE OR QUOTE

80

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.7 1 Long Run 0 0.5 0.8 Explanation: - Aero requires no maintenance. - TD engines will require a fair amount of maintena nce and repair. These engines run hotter than todays engines and thus may need even m ore. After a while, (as usual) some of the bugs may be worked out, this warranting a lo wer score in the long run. - PHEVs are likely to have very expensive repairs w hen needed. First generation PHEvs are likely to be quite buggy, and get better after that.

I’m not sure why maintenance is on indirect costs, since this is born by the car owner and not the seller. Warranty repairs are different of course.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.5 1 Long Run 0.2 0.5 1 Explanation: More complex and flashy technologies just require m ore support – more staff, more space, more stuff to keep the programs running. Th ere may be no difference between short and long term here.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.4 1 Long Run 0.1 0.2 0.5 Explanation: Staffing and overhead increases with technology com plexity. Also, staffing reduces once a program is launched.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.4 1 Long Run 0.1 0.2 0.5 Explanation: Same argument here as previous question.

Selling Table 10: Transportation Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

81 Improvements Electric Vehicle

Near-term 0.1 0.3 1 Long Run 0.1 0.3 1 Explanation: Here I equate weight with transportation cost. So aero treatments are miniscule, engines are a significant part of the weight and PHEVs are heavy to transport. This includes transporting the components to the plant? These c osts should not depend on where in the product cycle you are.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.6 0.6 1 Long Run 0.4 0.4 0.7 Explanation: - Aero improvements are related to styling and that is heavily marketed. Marketing is heaviest when vehicles are initially released. The n it falls off rapidly. - engines are also marketed heavily upon release, e specially when they have the word

“turbo” associated with it. - PHEVs are of course marketed as the next great th ing, and will receive maximum attention from this department.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.6 1

Long Run 0.2 0.5 0.8
Explanation: - aero treatments can sometimes be seen as part of premium package, but most aero is part of the vehicle. - turbo is historically associated with premium and may fetch a higher profit margin in the beginning. - PHEVs are likely going to be marked up quite a bi t because of the initial demand. This may fall off over time as the early adopters are sa tisfied and the vehicles become more

mainstream.82 Appendix D: Round 2 Results83WarrantyR&DShort run Long run Short run Long runParticipant ID Low Medium High Low Medium High Low Medium High Low Medium HighA11.52.50.2511.50.2511.5000.75B0.251.530.21.351.7501.3301.151.75C0.3120.10.310.31200.31D121.2511.51.251.2521.2511.251.25E11.41.6011.21.21.5200.81G0.11.220.10.81.51230.511.5L01101.32.50.52100.5210N0.2210.10.820.41.560.213O0.11.11.301.051.150.11.21.501.11.3P00.5600.320.010.0350.010.011R0250124310123S0.11.21.40.11.11.211.22.5111.2T01.51.501111.52111V11.52.50.511.20.51.52.5000.5Average0.3611.3862.2890.1680.9641.5180.8221.4813.7320.3720.9012.018Std. Dev0.4300.4311.4970.2770.3420.4611.0140.6722.9690.4470.6482.415Median0.1501.4501.8000.1001.0001.3750.5001.5002.5000.1051.0001.225Max12611.52.543101210Min00.5100.3100.031.25000.5Coeff ofVariation1.191380.311180.654121.650670.354270.303731.233160.454030.795391.202010.719981.19677Mean - Median0.211-0.0640.4890.068-0.0360.1430.322-0.0191.2320.267-0.0990.793(Mean -Median)/Mean0.5840.0460.2140.4040.0370.0940.3920.0130.3300.7180.1100.39384Depreciation and AmortizationMaintenance, Repair, & OperationsShort run Long run Short run Long runLow Medium High Low Medium High Low Medium High Low Medium High000.750000.10.50.750.10.50.751.10.831.10.811.21.221.21.21.50.5120.30.510.5120.10.511.2511.51.2511.251.2511.251.2511.2511100011.41.80000000000.2010.20100.2300.220.050.31.50.050.31.500.11.0200.051.010.051.11.200.051.100.01100.01100.01100.01101.5201.52112112011.5011.100.51.400.31.111111111.251.251110010010010010.3730.5851.4440.2810.4660.9510.4880.7121.3960.3770.4511.0920.5170.5390.8660.4860.5290.6480.5170.5140.4320.5180.4550.4600.0000.8001.0200.0000.2001.0000.2001.0001.2500.1000.3001.0001.251.531.251.521.251.421.251.22000000000.750001.386980.920640.599871.731981.134750.681711.058140.721170.309271.37391.008730.420710.373-0.2150.4240.2810.266-0.0490.288-0.2880.1460.2770.1510.0921.0000.3670.2941.0000.5710.0520.5910.4040.1050.7350.3340.08585General & AdministrativeRetirement Costs, non-production workersShort run Long run Short run Long runLow Medium High Low Medium High Low MediumHigh Low Medium High00.25100000.250.50000.10.250.50.10.250.500.10.500.10.50.5120.30.51111111112111.25111.25111.2500.51.200.20.41230.511.5110.25110.25000.1000.10000000.1110.111000.2000.20.050.10.1000.0500.010.0500.0050.01000.1000.1000.1000.1111111111111001.3001001001111111111111000.5000.5000.5000.50.3390.5791.0570.2860.4250.6710.3850.4120.5650.3850.3930.5240.4520.6010.8330.4130.4660.4950.5060.4880.4350.5060.5000.4660.0750.3751.0000.0500.2250.7500.0000.1000.5000.0000.0050.500123111.5111.25111.25000.10000000001.333451.039090.78771.445421.096610.737031.316561.18460.769591.316561.274390.889890.2640.2040.0570.2360.200-0.0790.3850.3120.0650.3850.3880.0240.7790.3520.0540.8250.4710.1171.0000.7570.1161.0000.9870.04686Health care, non-production workersTransportationShort run Long run Short run Long runLow Medium High Low MediumHigh Low Medium High Low Medium High00.20.50000.000100.10.000100.100.10.500.10.52021.8010.5120.30.51111111111.25111.25101.25101.10.400.6000.2110.25110.250.10.10.10.10.10.10000000.502.50.501.3000.1000.1000.1000.100.010.0500.0050.0100.0050.15000.05000.1000.10010011111110000000010010.1-0.11.30.1-0.11111111111111000.5000.5000.5000.50.3460.4080.6350.3310.3540.5160.4360.1430.8290.3930.1430.6040.4740.4900.5890.4710.4680.4730.6060.3650.7620.5780.3650.4900.0000.1000.5000.0000.0050.5000.1000.0000.8000.0500.0000.750112111.25212.51.811.30000000-0.100-0.101.368371.199620.9281.425451.32130.915871.39052.549330.919971.472282.556740.811970.3460.3080.1350.3310.3490.0160.3360.1430.0290.3430.143-0.1461.0000.7550.2121.0000.9860.0310.7701.0000.0340.8731.0000.24387MarketingDealer New Vehicle SellingShort run Long run Short run Long runLow Medium High Low Medium High Low MediumHigh Low Medium High01.251.250110.20.51000.7500.251.100000.251.250000.811.40.50.8111111112212212211.5200.40.8000000000011.500.250.750.2120.10.2510.20.41.20.40.40.200.31000.300.51.5000.50.10.110.10.10.50.0051.21.401.011.1501.21.401.11.15000.5000.500.01100.010.0101300000200001.5301.5301.22011111111111111001.5000.500.21.50010.2150.8211.5110.2070.5690.8290.2500.6261.2960.2290.4260.6940.3960.5840.7240.3730.6570.8350.4130.6110.5710.4200.5540.5880.0001.0001.4000.0000.3250.6250.0000.4001.1250.0000.0550.87512312312211.52000.50000000001.84330.711340.479481.800991.155051.007741.651110.97630.440641.835641.302230.847390.215-0.1790.1110.2070.2440.2040.2500.2260.1710.2290.371-0.1811.0000.2170.0731.0000.4280.2461.0000.3610.1321.0000.8710.26288MultipliersRPE Multiplier ContributorIndustryAverageShort run Long runVehicle ManufacturingLow Medium High Low Medium HighCost of sales11.061.201.401.011.081.19Production Overhead1.211.241.751.201.211.34Warranty0.0291.251.401.661.171.251.40R&D (product development)0.0501.431.531.631.421.451.56Depreciation and amortization0.0731.211.281.411.001.081.12Maintenance, repair, operations cost0.0281.191.441.731.111.231.41Total production overhead0.1801.061.161.781.071.151.69Corporate Overhead1.041.251.781.031.171.52General and administrative0.0671.011.251.371.001.191.32Retirement0.0051.001.021.651.001.011.28Health0.0061.311.462.151.161.341.49Total corporate overhead0.0801.061.301.701.061.271.50Selling1.371.441.471.371.401.40Transportation0.0441.051.131.501.011.031.30Marketing0.037DealersDealer new vehicle net profit0.0041.161.291.641.121.201.39Dealer new vehicle selling cost0.0580.140.140.210.140.130.15Total selling and dealer contributors0.1431.121.261.661.061.201.40Sum of Indirect Costs0.4021.431.532.151.421.451.69Net income0.0551.001.021.371.001.011.12Other costs (not included ascontributors) 0.0420.1210.1120.1260.1230.1090.109RPE Multiplier1.4570.0370.030-0.0170.0530.005-0.0030.0320.0230.0100.0480.0040.002EPA STAFF DRAFT – DO NOT CITE OR QUOTE

89

Questionnaire: Expert Identification Letter _____A

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.5 2.5 Long Run 0.25 1.0 1.5 Explanation:

• Aerodynamic improvements would be developed by exis ting engineers. There would be proportionally incremental short-term warranty cost s due to the additional parts and pieces added to the vehicle for improvement. In the longe r term any additional warranty costs would be reduced as the parts would not change.

• I assumed that turbo downsizing would be done in-ho use completely from development to production. There would be additional short-term wa rranty costs because of the new and as yet unproven technology development. I assumed tha t there would not have normally been a new engine development done as part of the vehicle launch as this is common in the industry to not launch a new engine as part of a new vehicle launch. Typically powertrain and vehicle launched are staggered.. In the longer term any ad ditional warranty costs would no longer exist as the parts would not change, however there would still be some warranty cost proportional to the additional cost of the engine.

• I assumed that Plug-in Hybrids would be developed i n-house completely through the process. There would be additional short-term warranty costs because of the new and as yet unproven technology development. I assumed that there would not have normally been a new complete powertrain system done as part of the vehi cle launch as this is common in the industry to not launch a new engine as part of a ne w vehicle launch. Typically powertrain and vehicle launched are staggered. In the longer t erm any additional warranty costs would be reduced because of learning, but because of the radical technology changes there may be some additional incremental warranty

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.25 1.0 1.5 Long Run 0 0 0.75 Explanation:

• There would be incremental R&D costs due to aero im provements because of some additional testing to measure and prove the improve ments as well as additional durability on the components that are part of the package. In th e long term, there would not be R&D necessary for these existing components

• There would be incremental R&D for turbo downsizing for all of the same reasons stated above. In the longer term no additional R&D activi ty would be done outside of what is already necessary each year.

• Plug in Hybrids would require substantial additiona l R&D because there is a great deal of learning for a technology such as plug-in hybrids a s there is not a great deal of knowledgeEPA STAFF DRAFT – DO NOT CITE OR QUOTE

90

inside the company. As the technology matures ther e will be constant improvement and learning going on requiring some additional R&D ove r and above a normal vehicle launch

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 0.5 1.0 Long Run 0 0 0 Explanation:

• The additional aero depreciation and amortization r esults from the additional tooling necessary to install the aero treatments in the pla nt.

• The additional turbo -downsizing depreciation and a mortization results from plant upgrades made necessary by the new technology and how it wil l fit into the assembly process.

• The additional plug-in hybrid depreciation and amor tization results from larger scale improvements necessary in the plant to accommodate all of upgrades necessary in the plant (these would include health and safety upgrades and training to protect the workers, tooling, line upgrades and plant reconfiguration)

• There are no long-term amortization and depreciatio n for any of the technologies because these technologies are not changing on the next gen eration launch,

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 0.5 0.75 Long Run 0.1 0.5 0.75 Explanation:

• For all technologies there will be incremental cost s due to the additional activity on the line or changes made to the manufacturing processes. Th ese costs will remain as a part of doing business throughout the full life of the vehicle (b oth short and long term).

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.25 1.0 Long Run 0 0 0 Explanation:

• Aero dynamic improvements would not add any additio nal non-production workers either in the short term or the longer term as there is alrea dy manpower in all areas to sell a new vehicle. In the longer term, without any changes, there would also be no required additional

resources

• Turbo-downsizing would require some additional reso urces in the short term as there would be minor incremental staff and resources required f or this new technology. In the longer

term there would be no additional costsEPA STAFF DRAFT – DO NOT CITE OR QUOTE

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• Plug-in hybrids would require additional resources in the short term to manage the development and launch of the new technology. In t he longer term the needs for additional resources would go away

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.25 0.5 Long Run 0 0 0 Explanation:

• Aero dynamic improvements would not add any additio nal non-production workers either in the short term or the longer term as there is alrea dy manpower in all areas to sell a new vehicle. In the longer term, without any changes, there would also be no required additional

resources

• Turbo-downsizing would require some additional staf f in the short term as there would be minor incremental staff and resources required for this new technology. In the longer term

there would be no additional costs

• Plug-in hybrids would require additional resources in the short term to manage the development and launch of the new technology. In t he longer term the needs for additional resources would go away

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.2 0.5 Long Run 0 0 0 Explanation:

• Aero dynamic improvements would not add any additio nal non-production workers either in the short term or the longer term as there is alrea dy manpower in all areas to sell a new vehicle. In the longer term, without any changes, there would also be no required additional

resources

• I assumed that turbo downsizing would be done in-ho use completely from development to production. Therefore, this would require some addi tional staff in the short term as there would be minor incremental staff an resources requi red for this new technology.

• Plug-in hybrids would require additional resources in the short term to manage the development and launch of the new technology. In t he longer term the needs for additional resources would go away

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric VehicleEPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Near-term 0.0001 0 0.1 Long Run 0.0001 0 0.1 Explanation:

• There would be VERY small incremental transportatio n costs (potential for costs) due to different configurations on the vehicles with the a ero improvements. If any less vehicles fit on the rail cars or trucks then the transportation costs will rise

• Plug in hybrids would have incremental transportati on costs due to the weight increase of hybrids versus conventional vehicles.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.25 1.25 Long Run 0 1 1 Explanation:

• No special marketing would be done because of aero improvements

• Some marketing would need to be done to educate the customer on the benefits of the new technology (an example is Chrysler and MDS). This w ould be the same for turbo downsizing and plug in hybrids

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.5 1.0

Long Run 0 0 0.75
Explanation:

• These additional costs include educating the dealer network and repair shopsEPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Questionnaire: Expert Identification Letter ___B

______

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.25 1.5 3 Long Run 0.20 1.35 1.75 Explanation: Warranty implications of Aero details would be mini mal, undertrays and spoilers would have lower cost warranty than an average part, thus warr anty is 0.25. There might be learning with time, so future warranty would be slightly less.

Adding a turbo to an engine greatly increases compl exity of repair, increases the number of failure modes, and increases underhood heat. Warra nty would go up by a 1.5 factor to the baseline. Long term, there may some learning to mi tigate this, hence a slightly lower factor.

PHEV is new technology at this point. The number o f components in the vehicle is increased exponentially, as our the number of modules subject to HW and SW bugs. Best guess – a factor of three in the first iteration. This could probab ly be halved due to learning, but would still carry a factor of 1.75 due to complexity and diagnostic d ifficulties.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.30 3 Long Run 0 1.15 1.75 Explanation: In my estimation, the OEMs develop these types of p arts and then thrift them out due to cost because the OEM cannot earn a return on capital bas ed on the customer’s unwillingness to pay for marginal FE improvements. Thus, there would be no extra R&D as the parts are likely already developed.

Because it is a powertrain component, the R&D requi red would be more than average as the parts required to change are expensive and require long lead times. However, most OEMs have experience with turbo-charging and nascent DI progr ams. The calibration effort for a turbocharged engine is about 50% more work than a N/A en gine. The transmission calibration effort would require extra effort too. Finally, the therm al validation of this would require extra effort, as it will likely be iterative. While there would be some learning, and thus lower costs for the second generation, the turbo still adds a level of powertrain complexity that will always require more effort and thus money.

A PHEV would likely be built from various commodity parts from outside suppliers. However,

it also seems that at a minimum a new transmission case would need to be cast leading to the addition or replacement of high value casting dies. Further, the software development task for such program is formidable, and the environmental t esting and validation task would beEPA STAFF DRAFT – DO NOT CITE OR QUOTE

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enormous. While built from commodity components th is is not an off-the shelf system and the initial integration task would be monumental. The second generation would not have the same learning level, but the calibration task of the eng ine/transmission/ESP system is still formidable.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.1 .8 3 Long Run 1.1 .8 1 Explanation:

Aero features would use mature production technique s in general, but would be very application specific (i.e. the spoiler for a minivan would only work on a minivan) thus D&A would be higher than for a baseline part. This would not ch ange with time.

Turbo downsizing products would primarily be change s to powertrain components which tend to be used for longer time periods, thus D&A would be lower than a normal part. This would not change with time.

PHEV components are in such a immature state of dev elopment that likely all of the tooling/technology would be outdated even before th e model was due for replacement, resulting in very high D&A. This would be much lower in the second generation, perhaps to the baseline part, assuming rapid technology maturation.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.2 1.2 2 Long Run 1.2 1.2 1.5 Explanation: Aero features would require some extra tooling to c are for, but otherwise would fit smoothly into the operation. Many plants are equipped to handle aero features as it currently. The plant will suffer more in system damage (ISD) with these compo nents. This would change little with time.

Turbo DS would be similar to aero features. Howeve r, the engine plant would require extra space, more material handling, and more dunnage for the extra components. There would be less ISD issues, as these parts are not cosmetic.

PHEV would require a large amount of storage space, special tooling for installation, and safety training for plant personnel. The large batteries and high voltage care would be a real concern in an assembly plant. Some of the training requiremen ts would be relaxed on the second generation

vehicle

Corporate Overhead

Table 7: General and administrative Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

95 Improvements Electric Vehicle

Near-term .1 .25 .5 Long Run .1 .25 .5 Explanation: All items - added part count will require more work in purchasing, SQA (supplier quality assurance) during the development phase (production costs are covered in the mfg. costs I am assuming). The fractions are based on assumed comp lexity, and would remain constant as long as the items were incorporated on the product.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .1 .5 Long Run 0 .1 .5 Explanation: If Purchasing & SQA staff were increased due to the additional complexity, it would increase these costs. Likely no staff would be added for ae ro treatments, perhaps 1-2 people for the turbo system, and perhaps 5-10 for the PHEV.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .1 .5 Long Run 0 .1 .5 Explanation: If Purchasing & SQA staff were increased due to the additional complexity, it would increase these costs. Likely no staff would be added for ae ro treatments, perhaps 1-2 people for the turbo system, and perhaps 5-10 for the PHEV.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 2 0 2 Long Run 1.8 0 1 Explanation: Adding aero elements will undoubtedly cause transpo rtation issues principally damage in transport, greatly exceeding the average cost. Pos sibly on the 2 nd iteration learning could be applied to “design for transportation” but in gener al, items like spoilers splitters and trays are the first items to break off when loading onto a truck.

Turbo downsizing will if anything, make vehicles li ghter. No effects

PHEV will require special instructions to the trans portation companies, and possibly different methods of tracking due to the inability of vehicle s to sit for extended periods(?) Once theEPA STAFF DRAFT – DO NOT CITE OR QUOTE

96

transportation system is set up for the delivery of these type of vehicles, the special handling will be baked in, but still a cost.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .25 1.1 Long Run 0 0 0 Explanation: Aero - OEM’s already advertise their products as “a erodynamic” no change.

Turbo downsizing - There would be some effort in ed ucating the customer as to the benefits of this feature, but little incremental advertising as compared to the normal new model fanfare.

PHEV – I think a unique model would warrant a marke ting campaign, but again, I do not think they would spend much more money on a new launch th an “normal” launch, simply because of

this feature.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .25 1.25

Long Run 0 0 0
Explanation: Aero – The dealer might need to explain what the ae ro features do, but this would be rolled into standard new launch training.

Turbo DS – Same as above, though the training on th e technician side of the house would need to be more thorough assuming the dealers did not al ready have turbo and/or DI trained Technicians. Once done, this extra effort would no t be required for a second generation.

PHEV – Dealers would need special training and poss ibly special facilities to demonstrate and

maintain the customer stock of vehicles. This woul d likely include installing charging stations (however simple) on the lot. Once done this would not need to be repeated for a second generation.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Questionnaire: Expert Identification Letter ___ C______

For all the factors, the following assumptions have been made:

8. A new vehicle is in the product plan for anticipate d vehicle launch date in 3-5 years. A normal product development cycle is 3 years from co nception to launch. The technology is outlined in each case (low, medium, high) is kno wn within three years of production and coordination of these systems can be implemente d early in the “mule” vehicle phase. This is important to note as if this technology is changed mid-cycle, this drives increased effort for the additional system changes (ee archit ecture, other system changes), essentially doing the work over again. This typical ly occurs at the OEM’s as the product plan may be considered a “top hat” where an existin g vehicle is used as the basis for the new but during the evolution of the project, even w eeks before vehicle launch, significant changes occur that drive additional cost in redesig n, testing, durability, warranty,

cost......
9. Product plan for this new vehicle is 5 years, with an annual average volume of 200K average. Normally the vehicle 1 st year volume is initially above average and the lat er years below average. This does help cost recovery a s ER&D paid in piece cost is recovered more quickly. Total vehicle volume is 1 m illion.

10. Direct manufacturing costs are to remain constant e ven though likely communization with other platforms/OEM’s and efficiencies gained in the manufacturing (e.g. labor or material).

11. It is assumed that the new technology is first impl emented on this vehicle with the appropriate lead time and the rest of the OEM’s pro ducts will use this new technology entirely or in concept for other later vehicles in the 6-10 year time frame. The other platform teams will optimize this technology and th e long term use of this technology will be considered “old” with minor incremental imp rovements over other vehicles but may be considered “major” when compared to the orig inal vehicle 5 years ago.

12. For comparison purposes in estimating the cost of t he low, medium, high complexity choices with definitions given previously – costs f or assumptions were $100, $500 and $5000 respectively.

13. From one vehicle generation to the next – the compl exity of the technology is considered to be downgraded with respect to other systems each 5 year period. As an example – High complexity, near term – will be downgraded to high complexity, long term while then equals medium technology near term. I may have written this confusing so I have put a dummy chart below:

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle Near-term B (low) C (medium) D (high) Long Run A (real low) B (low) C (medium)

14. All numbers entered are considered a multiplier on the industry average RPE numbers. Example – a 0.5 value entered on warranty (currentl y 3%) assumes a future warranty

value of 1.5%.

Production OverheadEPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .3 1.0 2.0 Long Run .1 0.3 1.0 Explanation: The Aero improvements are considered passive and mo stly designed into the body structure in the initial stages with redesigning existing compon ents within the current body design. There may be additional bold on pieces that can break in the future (tire covers, rear fin or aero feature ??). As the improvements do not generally impact ot her systems, the additive warranty cost is considered minimal. Long term, these technology ite ms will become mainstream, completely known and the warranty cost should drive towards 0. Some parts will be replaced and the

additional cost must be > 0.

An intermediate change such as turbo downsizing inv olves system interaction/complexity,

therefore must have increased coordination with oth er groups and some components must be redesigned. Most of the carry over systems would ha ve established warranty costs that have been optimized to be as low as possible. These new desig ns both directly and indirectly will have increased warranty costs until fleet data can be us ed to understand warranty in the field. As experience is gathered in the vehicles duty cycle a long with other vehicles, the part and vehicle durability testing will be more effective. This wil l reduce the long term warranty costs significantly.

A high complexity system will have many unknowns an d will be in constant design change well into the vehicle build stages as the system interac tion and issues are discovered. Unfortunately, normal protocol is that the first vehicles sold are tracked heavily to find/fix design flaws during normal customer usage that were not found in the du rability tests or from customer “unanticipated” operation. In the 2 nd iteration of the technology, the warranty costs wi ll significantly decrease but will still be above the average as the system is complex and has more parts, interactions and possibilities of failure. T he % increase is offset by the high price of the entire system. To summarize, the number of system f ailures will increase, cost of failures is much less than system cost.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .3 1 2 Long Run 0 .3 1 Explanation:

- Aerodynamic improvement – passive aerodynamic impro vements defined as tire spats, air dams, rear visors, and first surface ble ndings. Does not include active systems such as active grill shutters or dynamic dr ive height controls. [Aero]

- Engine downsizing combined with turbocharging [Down -turbo]

- Plug-in hybrid electric vehicle system with a 40-mi le plug-in range [PHEV]EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Assuming the R&D is already staffed for the new veh icle design, R&D efforts will be directed towards the new design direction. There will be add itional engineering required as the use of full “carry-over” parts do not have the engineering, dev elopment or validation required. Aero is considered to be minimal complexity and less than t he average. Long term part, it will become a “carry-over part” with no additional engineering or testing required. Medium complexity systems

are considered to have doubled the effort as low co mplexity items in the short term. Long term, again this will significantly decrease but will not trend to “0”.High complexity systems will require significant resources not planned for in a standard new vehicle. As this high complexity technology is used over time – it will be “medium” in the next generation.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .5 1 2 Long Run .3 .5 1 Explanation: Using the same logic as above, complex new technolo gy will have to be paid for in the first years

of the new vehicle and the other low and medium com plexities probably used to be considered s “High”.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .5 1 2 Long Run .1 .5 1 Explanation: Similar to warranty discussion.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .5 1 2 Long Run .3 .5 1 Explanation: Total corporate overhead of does not appear to be s everely impacted by the complexity of the new technology but rather the number of parts that makeup the technology. There are some nonengineering functions that are increased with incre ased parts such as supplier quality and purchasing personnel. It is assumed complexity = nu mber of affected parts so the low complexity technology is significantly less work than the medi um with the High technology much larger than the medium do to the number of affected parts.

Table 8: Retirement costs for non-production worke rs Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

100 Improvements Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: As the current RPE is “0”, the numbers for the mult iplier do not impact the cost greatly. As such, they are left constant.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .5 1 2 Long Run .3 .5 1 Explanation: Similar to the corporate overhead thoughts and the low current RPE at < 1%, the numbers are

similar to table 7.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: Not an expert in this area, so take this with a gra in of salt. Assuming the cost to transport the vehicle is reflected in the “average” cost of the v ehicle, the increase in transportation cost is a

function of vehicle cost.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .8 1 1.4 Long Run .5 .8 1 Explanation: Highly complex systems require not only marketing t o “sell” the feature and explain the value to

customers but also include new sections in the owne rs manual, repair manuals, dealer service personnel, dealer salesman.........

Again, as the technology is available for a timefra me, it is downgraded as it becomes more mainstream and customers, dealers, service understa nd the system. These values across the different complexities are more compacted.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric VehicleEPA STAFF DRAFT – DO NOT CITE OR QUOTE

101

Near-term 1 1 1

Long Run 1 1 1
Explanation: Not fully understanding vehicle selling costs, I be lieve it is strictly a function of vehicle price which is reflected in the technology.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Questionnaire: Expert Identification Letter ___D__

____

For each technology, and for the two time frames, p lease provide your expert estimate of the adjustment, if any, to the incremental change in ea ch indirect cost contributor due to the application by a typical OEM of the identified tech nologies. The range of values is any number equal to or greater than zero (see instructions on previous page). Please include a written description of your reasons for the values you have estimated.

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 2.00 1.25 Long Run 1.00 1.50 1.25 Explanation:

Aero – Passive aerodynamics improvements should not incr ease warranty cost beyond a normal vehicle program.

Turbo – For Turbo-downsizing I assumed an engine similar to Ford’s Eco-boost. Turbochargers do have some history of problems and destroying bea rings due to high temperatures and inadequate cooling at shutdown – supposedly mostly fixed but a potential to increase warranty

costs. I think this will be reduced over time.

PHEV – Hybrid technologies have become reasonably well spread without huge warranty concerns. PHEVs could do the same. I’m also givin g this a lower factor assuming that the incremental PHEV cost is far higher than turbo-down sizing.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.25 2.00 1.25 Long Run 1.00 1.25 1.25 Explanation:

Aero – Passive aerodynamics improvements will require so me design work, but would fit within an existing design process.

Turbo – The Eco-boost engine is similar to an existing e ngine, with slightly thicker/heavier components for increased pressure due to the turbo. I think the changes are within a normal engine program, however the work to support direct injection for Eco-boost has been more involved (e.g. spray imaging lab, etc.).

PHEV – PHEV control strategies are still being develope d and will require research, however general hybrid drive strategies are becoming better understood already. I’m also giving this a lower factor assuming that the incremental PHEV cos t is far higher than turbo-downsizing.

Table 5: Depreciation and Amortization Adjustment FactorsEPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.25 1.00 1.50 Long Run 1.25 1.00 1.25 Explanation:

Aero – Aerodynamics improvements could involve more intr icate manufacturing and will likely require more precision manufacturing (e.g. reduced gaps, better fits) which will require a modest investment in more expensive machinery and more mai ntenance.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional installation work above and beyond a normal engine program.

PHEV – PHEVs will require a significant additional amou nt of production space and equipment, and will initially suffer from low volumes.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.25 1.00 1.25 Long Run 1.25 1.00 1.25 Explanation:

Aero – Aerodynamics improvements could involve more intr icate manufacturing and will likely require more precision manufacturing (e.g. reduced gaps, better fits) which will require a modest investment in more expensive machinery and more mai ntenance.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional installation work above and beyond a normal engine program.

PHEV – PHEVs will require a significant additional amou nt of production space and equipment, requiring more maintenance and repair.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 1.00. 2.00 Long Run 1.00 1.00 1.25 Explanation:

Aero – Passive aerodynamics changes should not require s ignificant additional administrative work above and beyond a vehicle program.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional administrative work above and beyond a normal engin e program.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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PHEV – PHEVs will require additional suppliers, and int eraction with utilities and local municipalities to determine charging protocols and locations for charging stations.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 1.00 1.25 Long Run 1.00 1.00 1.25 Explanation:

Aero – Passive aerodynamics changes should not require s ignificant additional retirement costs above and beyond a vehicle program.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional retirement costs above and beyond a normal engine p rogram.

PHEV – A PHEV vehicle program is likely to require more engineering investment than the other technologies, leading to an increased cost fo r non-production retirees.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 1.00 1.25 Long Run 1.00 1.00 1.25 Explanation:

Aero – Passive aerodynamics changes should not require s ignificant additional health care costs above and beyond a vehicle program.

Turbo – The turbocharger will be a supplied part and sho uld not require significant additional health care costs above and beyond a normal engine program.

PHEV – A PHEV vehicle program is likely to require more engineering investment than the other technologies, leading to an increased cost fo r non-production health care.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 0.00 1.25 Long Run 1.00 0.00 1.10 Explanation:

Aero – Passive aerodynamics changes should not change th e vehicle size or weight significantly.

Turbo – Downsizing and turbo charging will reduce the ve hicle weight and should save on transportation costs.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

105

PHEV – PHEVs will weigh more due to the large battery, a nd will cost more to transport to

dealers. This should reduce as batteries continue to improve.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 2.00 2.00 Long Run 1.00 2.00 2.00 Explanation:

Aero – You don’t see too much advertising for aerodynami cs. I think this would get normal new car advertising.

Turbo – Eco-boost will be heavily marketed as a new and innovative technology, and will likely

continue to be advertised since Ford sees it as a c ompetitive advantage.

PHEV – PHEVs will be heavily marketed as a new technolog y. I’m also giving this a lower factor assuming that the incremental PHEV cost is f ar higher than turbo-downsizing.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.00 2.00 2.00

Long Run 1.00 1.50 2.00
Explanation:

Aero – I don’t think aerodynamics would be a huge sellin g point.

Turbo – The initial Ford vehicles available with Eco-boo st are being packaged with high end content, which is usually high profit. If forced b y gas prices or regulations, Eco-boost will likely become more widespread and cheaper to the consumer.

PHEV – PHEVs will sell at a premium price.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Questionnaire: Expert Identification Letter ___E__

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.4 1.6 Long Run 0 1 1.2 Explanation:

- System complexity of technologies for Turbo downsiz ing and Plug-in will increase near-term warranty due to additional time for diagn osis and repair (plus moreexpensive parts)

- Long run adjustment for ‘aero’ is not needed, but t urbo-downsize and plug-in will require on-going support to address service issues as vehicles age

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.2 1.5 2.0 Long Run 0.0 0.8 1.0 Explanation:

- Near-term; aero requires add’l wind tunnel and engi neering time, turbo downsize and plug-in require add’l engineering resources for dev elopment

- Long run; on-going engineering support needed to in form service network with service bulletins and/or special service parts for vehicles at high mileage

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.0 1.0 Long Run 0.0 0.0 0.0 Explanation:

- depreciation is only a near-term issue, as tooling is likely to be replaced in next product cycle (5 years)

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.4 1.8 Long Run 0.0 0.0 0.0 Explanation:

- increased cost at mfg. plant is only a near-term co ncern; greater for turbo downsize and plug-in due to increased mfg. complexityEPA STAFF DRAFT – DO NOT CITE OR QUOTE

107

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.0 0.5 1.2 Long Run 0.0 0.2 0.4 Explanation: - Near term, additional staff needed for turbo down size and plug-in technologies (logistical support for additional components - such as turbos, GDI systems, batteries, and power control hardware - arriving at the assembly plant

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term -- -- -- Long Run -- -- -- Explanation:

- don’t know enough about retirement costs to comment on these factors

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term -- -- -- Long Run -- -- -- Explanation:

- additional cost of technologies should not affect t he retirement costs as a function of the technology cost, but only as a function of addi tional people hired to implement the technologies (but isn’t that already covered in R&D and G&A costs?)

- don’t know enough about health care costs to commen t on these factors

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.4 0.0 0.6 Long Run 0.0 0.0 0.2 Explanation:

- aero improvements and plug-ins (which likely have a ero improvements) may require unique shipping and handling care to avoid damaging the aero components, plus some additional expensive for shipping vehicles wit h high-voltage electrical systems

- long-term, some add’l expense for stocking batterie s and shipping them to dealerships for service replacement

Table 11: Marketing Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

108 Improvements Electric Vehicle

Near-term 0.0 0.4 0.8 Long Run 0.0 0.0 0.0 Explanation:

- some add’l cost to inform/convince consumers that t urbo downsize and plug-in technologies are worth the extra vehicle cost

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.0 0.0 0.0

Long Run 0.0 0.0 0.0
Explanation:

- no additional selling costs for advanced technologi es (assume that this is handled by the mfrs. marketing budget)EPA STAFF DRAFT – DO NOT CITE OR QUOTE

109

Questionnaire: Expert Identification Letter ___G__

___

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 1.2 2.0 Long Run 0.1 0.8 1.5 Explanation: Aero changes have no moving/reciprocating parts, an d are most likely corrosion-resistant (plastics). Unless they create system issues via p oor design (e.g., an air dam that traps water near an HVAC intake or part of the body and encourages c orrosion), I would expect warranty to be near zero. You couldn’t completely eliminate warra nty, however.

A turbo-downsizing, while more complicated than a n aturally aspirated engine, is still rather conventional. OEMs have been making turbos for dec ades. There should not be any more warranty exposure than any other engine program. A ssume we average to around 1 for multiple generations, with a little more warranty costs in t he first generation and less in subsequent generations.

PHEVs will surely incur much more warranty. In ter ms of R/1000 (quality and reliability), I would expect them to have a much higher incidence r ate than a redesigned gas ICE (there are two distinct powertrains!) Even when full learned out, PHEVs could never be more reliable than simple ICE vehicles.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 2.0 3.0 Long Run 0.5 1.0 1.5 Explanation: If anything, the most significant cost in aero impr ovements is in the upfront design and modeling for best Cd. However, computer simulation continue s to evolve which can continue to reduce R

& D costs. You will still have to treat each new v ehicle model as a unique case w/r/t platform dimensions and packaging, so it will never be “plug and chug”.

Meeting downsized turbo emissions might be challeng ing for the first generation of a new engine (for catalyst light-off and loading optimization, c alibrations, etc.). However, the 2 nd and subsequent iterations will benefit from this experi ence.

PHEVs will be nothing short of a major R&D effort. All things from battery development, to packaging, to crashworthiness, durability, system i ntegration and failure mode effects/enalysis. This is a huge task ! Call this a factor of 3 because, when accounting for the very large direct manuf. costs, this should come out to a very big nu mber on the order of a couple billion $. Table 5: Depreciation and Amortization Adjustment Factors Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

110 Improvements Electric Vehicle

Near-term Long Run Explanation: Not knowing enough about the differences in tool li fe between injection/blow molding of plastic pieces for aero, vs. casting and machining tooling for turbos, vs. what tooling is needed to

fabricate and assemble a PHEV – I abstain from this one.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term Long Run Explanation: In a similar context I don’t know enough to discern differences in terms of MRO for different types of mfr. equipment.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 2.0 3 Long Run 0.5 1.0 1.5 Explanation:

I assume these costs should scale with the level of R&D activities. You need more support staff as you increase R&D headcount, development and test ing activity.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 0.25 Long Run 1 1 0.25 Explanation: Assuming that aero and turbo technologies are produ ced domestically in existing plants where a workforce has been put in place for many years. As such their average workforce age is probably a little older and has a higher retiree po pulation. PHEV plants are either green-sheet plants in the US (with lower non-union benefits) or they are foreign plants.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 0.25 Long Run 1 1 0.25 Explanation: Ditto to previous questionEPA STAFF DRAFT – DO NOT CITE OR QUOTE

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Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 0.1 0.1 Long Run 0.1 0.1 0.1 Explanation: Assuming shipping from final assembly to dealers on ly, and assuming that all vehicles are built domestically, there should not be any increased shi pping distances. Assuming shipping costs (rail + haulers) are volume and not weight-determin ed. These technologies will not alter the size of the vehicles noticeably, therefore only shipping costs will be due to insurance changes on cargo. Transportation costs should increase as va lue of goods shipped increases (insurance), although only very slightly.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1 1.5 Long Run 0 0.25 0.75 Explanation: PHEVs will be marketed very heavy initially, as the y stand as “green” halo-type vehicles for mfr portfolios. Especially at reduced volume their adv ertising budget will be disproportionally high.

Aero is not marketable to the masses. Turbo d-s wi ll be marketed similar to any major engine launch, but in carryover applications it won’t rece ive the same advertising budget.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 1 2.0

Long Run 0.1 0.25 1.0
Explanation: Aero will require slightly more service training, a s do all new components. Turbodownsizing will require yet more training, due to a more complex engine and OBDII-related failures and hardware. PHEVs require not only exte nsive service training (especially SAFETY, etc.), but maybe new service equipment and customer literature such as service manuals etc.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

112

Questionnaire: Expert Identification Letter _____L

____

For each technology, and for the two time frames, p lease provide your expert estimate of the adjustment, if any, to the incremental change in ea ch indirect cost contributor due to the application by a typical OEM of the identified tech nologies. The range of values is any number equal to or greater than zero (see instructions on previous page). Please include a written description of your reasons for the values you have estimated.

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.0 1.0 Long Run 0 1.3 2.5

Explanation: Aero changes probably would not result in any direc t warranty cost changes. However, depending on how well the aero changes are executed , customer complaints may increase due to additional wind noise. Any issues such as this woul d likely diminish after the first few years as a result of continuous improvement or changes in cust omer expectations. Either way, cost increase would be very low.

A boosted-downsized engine presents significant ris k to warranty costs. In addition to adding complex components (turbocharger), additional stres s is placed on key engine components. Ignition systems are stressed which reduces durabil ity and service intervals. Major engine hardware may wear prematurely and fail (piston ring s, head gaskets, intake/exhaust valves). As these engines age, warranty costs to the manufactur er may increase depending on the length of the warranty. Long-term costs are calculated based on complete engine failure rate of 0.5% (increase over normal), production volume of 250k u nits annually, and $4000 replacement cost per occurrence. Near-term increases are expected to increase at an equivalent rate to the increase

in vehicle cost.

Plug-in hybrids represent a new technology, mainly related to the battery system. Additionally, the added complexity and additional components rela ted to the hybrid drive system may increase warranty claims. While the latter component is more conventional (since hybrids are becoming more common), it is difficult to predict how well t hese new battery packs will perform in service. The long term factor is based on a warranty battery replacement rate of 0.5% at $8000 per unit. Near-term increases are expected to increase at an equivalent rate to the increase in vehicle cost.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.5 2.0 10 Long Run 0 0.2 1 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

113

Additional modeling and wind-tunnel time would be r equired to make significant aerodynamic improvements. Conventional vehicles would also hav e efforts made to reduce drag and wind noise, however this would need to be a more focused effort. Normal aero efforts may result in small changes to vehicle shape whereas this may def ine the shape of the vehicle. Long-term, previous development work and lessons-learned would reduce the effort required for the nextgen vehicle (little if any extra costs would be inc urred to the vehicle after production starts).

For the turbo-downsized engine, a significant effor t beyond normal would need to be expended extending down to fundamental research in some case s. The normal engine development costs consisting of mapping (fuel/spark/EGR management), durability testing, packaging, etc would still apply. In addition, a number of extra concern s arise from the high power densities of these engines including thermal management, increased ris k to durability, and NVH. Each of these areas would need special efforts beyond normal engi ne development. I would expect the cost of

this effort to increase at a rate of twice the vehi cle incremental cost increase. Most of these efforts would be up-front though resulting in littl e extra cost long term.

For the PHEV, a significant amount of extra develop ment would need to be done beyond a normal vehicle. The calibration is much more compl ex (electric vs IC vs both strategies), durability demonstrations for the batteries are sti ll significant since the technology is new. As the model ages, I would assume that significant eff orts would still be made under continuous improvement pretenses to increase durability and fu el economy and reduce costs, although these

efforts will be at a reduced level from the initial release. Cost based on the $750m development cost GM included as part of their business plan tha t was submitted to congress in December, 2008. Adjustment factor is based on a 5 yr payback and 250k units annually. Long-term, continuous improvement efforts would likely be a si gnificant activity due to the new technology.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation: Aero changes can most likely be accommodated in bod y redesign that would normally occur with a new model. In general, aerodynamic improvem ents usually result from simpler shapes, which (in theory) would be easier to form. This cou ld result in less complex tooling although the changes would have a relatively small impact on cos t.

A boosted-downsized engine would likely require cha nges to the block structure (dynamic loading reasons) and cylinder head (thermal managem ent). Assuming the engine is designed as completely new, the cost of these considerations wo uld be minimal over a normal engine (if not, new castings are very expensive). It should be not ed however, that engines are rarely designed from the ground up as completely new and if they ar e, it is much less frequent than body redesigns. Long-term, it may be less expensive beca use of fewer components, and therefore less tooling, going from a V6 to an I4.Costs to tool the turbo and related bolt-ons would likely be included with the piece price of the turbo from the supplier.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

114

Plug-in hybrids would need to have design considera tion given to the body-in-white structure to package the battery pack. Assuming again that this is a new design (ground up), these considerations would not necessarily add any cost t o the body structure. Given that the powertrain is more complex (involving both an IC en gine and electric motor) there would be additional costs in tooling for the new/extra compo nents over what would normally be in a conventional vehicle. However, most costs to tool t he battery components would likely be amortized into the per piece cost from the battery supplier.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0 1 Long Run 0.2 0 1 Explanation:

The aero improvements may add assembly steps and/or stations at the vehicle assembly plant. Similarly, the PHEV would likely add several statio ns to the assembly process. Adjustment factors are based on assuming it requires 4% more s tations for the PHEV and 0.5% more stations for the aero-improved vehicle and the costs associa ted with maintaining and repairing those. I would not expect a significant net increase or decr ease with the downsized turbo engine.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 .1 Long Run 0 0 .1 Explanation: If the number of components in the vehicle increase s, then administration costs would increase (mainly related to purchasing and management of sup ply chains). I would not expect any of the three changes to increase G&A costs significantly, however there may be very slight increases for the PHEV’s because there will be the largest in crease in components to purchase and manage. The downsized turbo could go either way de pending on if the net change in components is an increase or decrease. The aero ch anges should have no effect at all.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation: As in Table 7, this would only increase if addition al personnel are needed to manage supply chains and purchasing of additional components. If this is the case (only likely for the PHEV), retirement costs would be minimal since new hires g enerally only get a salary match to their 401k’s between 0 & 5% of their annual salary.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

115

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation: As in Table 7, this would only increase if addition al personnel are needed to manage supply chains and purchasing of additional components. I w ould not expect a meaningful cost increase based on application of any of these technologies.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.5 0 2.5 Long Run 0.5 0 1.3 Explanation: Aero: Very small increase in cost if additional fai rings, air-dams, spoilers, etc make it more

difficult to load and secure vehicles onto car-haul ers.

Turbo: Slight decrease in transportation due to the likelihood that a vehicle with a turbo-4 will weigh less than a vehicle with a NA-6. No appreciab le change in multiplier.

PHEV: Slight increase in transportation due to the likelihood that these vehicles will weigh more because of the battery pack. Factor is based off a 10% increase in weight (and associated 10% increase in transport costs per vehicle) decreasing to 5% long term.

I would not expect these costs to change significan tly in the long-run, however continuous improvements would have the most weight reduction p otential for the PHEV as battery technology improves.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.4 1.2 Long Run 0.4 0.4 0.2 Explanation: In order to justify the higher on-cost of the downs ized-turbo and PHEV powertrains, significant additional marketing will be needed (mainly adverti sing). This is particularly true for the PHEVs since it is a new technology and people are not lik ely to be familiar with it (in addition to being very expensive). As the programs age, I would expe ct marketing costs to trend in opposite directions for vehicles the depending on costs of t he technologies. For instance, as people become more familiar with PHEV’s less marketing wil l be needed. However, since the cars with only aero changes would likely be less efficient, t hey would need more marketing support (rebates, incentives, etc) as the program ages. Fac tors represent a 5% increase in marketing support initially (1 st 5 yrs) for the PHEV, reducing to an extra 1% after 5 yrs; 2% increase for theEPA STAFF DRAFT – DO NOT CITE OR QUOTE

116

turbo-downsized (regardless of timeframe) and a 1% initial increase for the aero-only vehicle increasing to 2% after 5 yrs.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.3 1

Long Run 0 0 0.3
Explanation:

Aero: No change near or far-term Turbo: No change beyond normal training of sales pe rsonnel on the features of a new vehicle. Small increase in training costs for service staff on how to repair the new engine. PHEV: Small increases, particularly near term, to u pgrade facilities to charge and service these types of vehicles.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

117

Questionnaire: Expert Identification Letter ______ N___

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .2 2 1 Long Run .1 .8 2 Explanation: Minimal aero warranty, Turbo engines are more com plex and highly stressed compared to NA V6. PHEVs are even more complex but Toyota histor y shows decent service reliability.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .4 1.5 6 Long Run .2 1 3 Explanation: Minimal aero R&D required. Turbo developement more involved and complex than v6. PHEV requires a whole new branch of development. Lots o f manpower cost, development and suppliers interaction.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .2 3 Long Run 0 .2 2 Explanation: PHEV requires lots of new equipment purchases and i nfrastructure for testing and development and production.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .05 .3 1.5 Long Run .05 .3 1.5 Explanation:

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .1 1 1 Long Run .1 1 1 Explanation: More components, parts and vendors to track.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

118

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 .2 Long Run 0 0 .2 Explanation: More employees needed for PHEV support.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0.1 Long Run 0 0 0.1 Explanation: More employees needed for PHEV support. More healt h risks dealing with batteries.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0.1 Long Run 0 0 0.1 Explanation:

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .5 1.5 Long Run 0 0 .5 Explanation: PHEV may require more marketing if gas prices low. Turbo and PHEV will require marketing to explain advantages. PHEV will require much expl anation regarding the extended range aspect’s effect of fuel consumption.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .1 .1 1

Long Run .1 .1 .5
Explanation: PHEV s will require new charging stations and elec tric power to charge before delivery.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

119

Questionnaire: Expert Identification Letter ___O__

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.10 1.10 1.3 Long Run 0.00 1.05 1.15 Explanation: 1. Regarding aero improvements: Some initial dur ability and NVH concerns will be realized. The majority of modifications are to existing techn ologies, using proven designs. 2. Turbo-DS: Both technologies are currently kno wn and in high volume applications. Initial warranty will stem from performance, calibration, a nd NVH issues. All of these issues will decline over time with developing competence. 3. Plug-in Hybrid: New technology with a heavy d ependence on the supplier and limited knowledge of failure modes. Cost constraints will p rohibit large staffing, initially, by the OEM. In addition, low initial volumes will drive up the cost of replacement parts.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.10 1.20 1.5 Long Run 0.00 1.10 1.3 Explanation:

4. Aero: Design and development will leverage existin g tools and processes. New and modified components are simple designs. NVH and th ermal requirements will be the biggest issues, however, the OEM’s are well versed in mitigating these problems.

5. Turbo-DS: Calibration, thermal management, durabil ity, and NVH will be form the majority of the development. Although OEM’s are we ll versed in managing all 3 factors, additional resources will be assigned to e nsure the product meets vehicle functional objectives.

6. PHEV: There will be major calibration work associa ted with a PHEV. Durability, NVH, drivability, and verification of fail-safe mod es will require a high level of R&D. In addition, blended regenerative brakes and thermal issues will require significant development attention.

Questionnaire: Expert Identification Letter ___O__

____

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.00 0.10 1.02 Long Run 0.00 0.05 1.01 Explanation:

Table 6: Maintenance, Repair, and Operations Cost Adjustment FactorsEPA STAFF DRAFT – DO NOT CITE OR QUOTE

120

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.05 1.10 1.20 Long Run 0.00 0.05 1.10 Explanation:

4. Aero: These modifications should result in little to no additional MRO, if the designs are early in the program, and the proper Computatio n Fluid Dynamics (CFD) work is done “up-front”. Should the OEM decide to piece me al these items late in the program it will result in additional use of wind tu nnels and thermal chambers which

would increase MRO.

5. Turbo-downsizing: Same as above, with the exceptio n that due to the limited exposure of turbo systems across most OEM’s, some a ddition use of internal resources requiring MRO can be expected.

6. PHEV: New technology with limited knowledge base a nd immature development

tools. There will more hands-on trial-and-error ac ross all the OEM resources that require MRO – wind tunnels, thermal chambers, elect rical labs, development labs,

etc...

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.05 0.10 0.10 Long Run 0.00 0.00 0.05 Explanation:

4. Aero: There will be some additional parts associat ed with aero improvements, which will drive administration costs for part release an d change management. The majority of the aero enablers are existing components which will result in no additional administration requirements.

5. Turbo-downsizing: This will require incrementally more administration due to the number and complexity of the components.

6. PHEV: Due to the number of new components required , and the safety considerations, the PHEV’s will require a measurabl e increase in G&A costs.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.00 0.01 0.05 Long Run 0.00 0.005 0.01 Explanation: The numbers above represent the relative increase i n staff required to design, develop, and release the associated systems. Retirement costs w ill increase accordingly.

Table 9: Health care for non-production workers Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

121 Improvements Electric Vehicle

Near-term 0.00 0.01 0.05 Long Run 0.00 0.005 0.01 Explanation:

Same as above.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.00 0.005 0.15 Long Run 0.00 0.00 0.05 Explanation: There will be very little increase in transportatio n costs associated with aero improvements and turbo-downsizing due to the limited number of new c omponents. Essentially, there will be more modified existing components in the designs which w ill mean no change in transportation costs.

The PHEV will result in additional transportation c osts, particularly in the short term. This will be the result of new components that are built at r emote locations: Batteries, controllers, invertors. In addition, these components tend to b e large and bulky. Over time, and with increased volume, these components will be brought “in-house”, which will reduce overall transportation costs. Vehicles may way more in the short term.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.005 1.20 1.40 Long Run 0.00 1.01 1.15 Explanation: The marketing of aero improvements will take the fo rm of providing a drag coefficient, in the most extreme case. The real marketing will be in t he form of improved fuel economy, which the OEM’s already market.

Turbo-downsizing will require a measurable amount m arketing due to the current lack of market penetration and lack of familiarity with the majori ty of the consumers. This will fall off steeply as market penetration increases.

PHEV’s will require a large amount of marketing. On ce again, due to lack of consumer knowledge, the OEM’s will need to increase consumer recognition. Additionally, the high capital requirements will drive large marketing cam paigns to recover expenses as quickly as possible.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

122 Improvements Electric Vehicle

Near-term 0.00 1.20 1.40

Long Run 0.00 1.10 1.15
Explanation:

The rationale is basically the same as above: The above numbers reflect a lack of consumer knowledge, and in the case of dealers, dea ler knowledge in the technologies. In the short term there will be required sales and service training, as well as documentation to provide customer knowledge. This will decrease as the sale s and service staff, and customer become aware of the product changes.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

123

Questionnaire: Expert Identification Letter ___P

______

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .50 6 Long Run 0 .30 2 Explanation: Aero improvements at this level shoul d not affect warranty since they are only cosmetic changes to the body.

I am assuming the Turbo downsized engine will have direct injection, and VVT. Based on the increased complexity of the new engine, I expect wa rranty to increase in both the near term, and long term. This increase is due to the increased n umber of components. The increase in the near and long term is also do to the new engine requirin g more parts to be available for warranty

For the PHEV, I am assuming that the engine will st ay the same, the transmission will be replaced with a hybrid electric transmission, and a high voltage electrical system will be added with a 300 volt lithium battery pack. The cooling system will also be upgraded to handle the extra heat added by the hybrid components. Warrant y will increase by a large factor the first few years, because the system will have significantly m ore failures due to the increased complexity. In the long run, the manufacturer will correct the design to greatly reduce the warranty.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term .01 .03 5 Long Run .01 .01 1 Explanation: My assumption is that a manufacturer normally is ok with aero being in a range based an expected look for a vehicle at the end of a design. If a specific goal is set, aero improvements will require more testing and more design time. Th is is not a big change, but will be necessary even in the long run if the vehicle is refreshed.

Turbo downsizing will require the same amount of dy no testing as a standard engine. Assuming a company already has some design experience with t urbo chargers and direct injection, a turbo system will probably be more difficult to calibrate , and the new engine will require a learning curve in the near term. In the long term, calibrat ors will know how to calibrate the system, and

the effort will decrease.

Plug-in hybrid electric vehicle systems are complex , and require more man power for design, testing and validation, and calibration. I would e xpect that the effort for the first time to be thre e times as difficult as a standard vehicle design. I n the long term, there will still be an increased testing and design burden on a refreshed vehicle, b ut it will be at a significantly lower level.

Table 5: Depreciation and Amortization Adjustment FactorsEPA STAFF DRAFT – DO NOT CITE OR QUOTE

124

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .01 1 Long Run 0 .01 1 Explanation: For aero improvements, I do not see a ny changes necessary to a plant; therefore, there will not be any addition costs in these categ ories.

For a turbo downsized engine, I expect extra testin g fixtures in the plant that will slightly increase costs verse a standard 6 cylinder engine. The costs will continue long term as fixtures and test equipment wear out and are replaced.

For plug-in hybrid electric vehicles, there will be more installation fixtures and test equipment at the plant. I expect these to be significant and to add costs in both the near and long term.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 .01 1 Long Run 0 .01 1 Explanation:

For aero improvements, I do not see any changes nec essary to a plant; therefore, there will not be any addition costs in these categories.

For a turbo downsized engine, I expect extra testin g fixtures in the plant that will slightly increase costs verse a standard 6 cylinder engine. The costs will continue long term as fixtures and test equipment wear out and are replaced.

For plug-in hybrid electric vehicles, there will be more installation fixtures and test equipment at the plant. I expect these to be significant and to add costs in both the near and long term

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 .1 Long Run 0 0 .1 Explanation: I don’t expect increased staff for ae ro improvements and turbo-downsizing.

For plug-in hybrid electric vehicles, I expected in creased staff which will increase cost in this

category.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 .1EPA STAFF DRAFT – DO NOT CITE OR QUOTE

125

Long Run 0 0 .1 Explanation: I don’t expect increased staff for aero improvement s and turbo-downsizing.

For plug-in hybrid electric vehicles, I expected in creased staff which will increase cost in this

category.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 .1 Long Run 0 0 .1 Explanation:

I don’t expect increased staff for aero improvement s and turbo-downsizing.

For plug-in hybrid electric vehicles, I expected in creased staff which will increase cost in this

category.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1 Long Run 0 0 1 Explanation: Aero and turbo downsizing will not effect transport ing the vehicle to a dealer.

Plug-in hybrid vehicles will cost more because of t he extra weight, and the handling. Hybrid batteries may need to be disconnected and reconnect ed during transport.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 .5 Long Run 0 0 .5 Explanation: I expect that the normal rush of advertising for an y new vehicle would be sufficient for these categories. I don’t believe that the plug-in hybri d would need any extra marketing to sell it to

individuals.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric VehicleEPA STAFF DRAFT – DO NOT CITE OR QUOTE

126

Near-term 0 .01 1

Long Run 0 .01 .01
Explanation: I expect that with aero and turbo downsizing dealer costs will be the same.

I expect that costs for plug-in hybrids will be mor e since the vehicles may need to be plugged in, and handled differently than standard v ehicles.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

127

Questionnaire: Expert Identification Letter ____R_

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 2 5 Long Run 0 1 2 Explanation: Most warranty increase would be due to non-passive systems and would decrease as component knowledge increased.

I helped develop and release a NA and turbocharged version of the same engine. Turbocharged vehicles require extra cats, engine components, and have much higher warranty than sister NA engines.

There are no OEM PHEVs now on the market. PHEVs sh ould see higher warranty simply due to the fact that warranty now accounts for 2 drive sys tems and the integration of both.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 4 3 10 Long Run 1 2 3 Explanation: Aero is largely free, if metal is being bent anyway . Once Aero is done, it is done. Once Companies learn how to apply advanced aero techniqu es and enable Aero development on all models (aka facitlies), it is just a matter of appl ication and measurement.

Turbocharging is an off the shelf tech, but impleme ntation is difficult. The turbo group I worked with was twice the size of any NA engine and three times as large in implementation.

There are no OEM PHEVs now on the market. PHEV R&D , even for companies experienced in hybrids, is likely to be the largest single cost of PHEV’s. PHEV R&D will be largest on the first adopters (both company and model). The R&D is so l arge, it cannot initially be priced. Battery development is included.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.5 2 Long Run 0 1.5 2 Explanation: Only changes are due to component complexity and co unt. Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

128 Improvements Electric Vehicle

Near-term 1 1 2 Long Run 1 1 2 Explanation: Only changes are due to component complexity and co unt

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: Only changes are due to component complexity and co unt

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: Only changes are due to component complexity and co unt

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: Only changes are due to component complexity and co unt

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0 Long Run 0 0 0 Explanation: Transporters are paid per unit, independent of Powe rtrain, and contractually. Transport costs would only increase if more shuttling was required (large inventory), if less units could be shipped per car carrier (long box pickups), or if s pecial shipping were required (closed trailers).

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric VehicleEPA STAFF DRAFT – DO NOT CITE OR QUOTE

129

Near-term 0 1 3 Long Run 0 0 0 Explanation: Turbochargers are still a hard sell in US, especial ly for nonperformance or non-diesel.

PHEV’s will require significant consumer outreach. Examples include how determine cost of ownership, optimal usage of PHEV’s, unique operatio n, and being able to price some of the tech.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 2

Long Run 0 0 0
Explanation: Dealer education required for consumer outreach.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

130

Questionnaire: Expert Identification Letter ____S_

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 1.2 1.4 Long Run 0.1 1.1 1.2 Explanation:

• Passive aero improvements pose no additional warran ty risk, besides the very small risk of them falling off, or being damaged during vehicl e handling. My entries reflect the small chance that one of these components may be da maged and in need of repair.

• Turbo-Downsizing is well-understood throughout the industry. There are additional components which can fail, and some engine componen ts are under increased stress. Also, repair procedures can be more involved due to additional components. In the longterm, these warranty costs will be reduced to near the same levels as conventional technologies.

• A PHEV should not be significantly more complex tha n a hybrid, but additional software features may cause consumer confusion and therefore warranty claims. The larger battery and increased dependence on the battery for propulsion increases the warranty cost if there is a failure in this system. Additio nal training is required for service personnel. Not sure if this is binned under warran ty or some other area. In any case, it doesn’t affect my factor.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.2 2.5 Long Run 1 1 1.2 Explanation:

• R&D costs for aero changes involve wind tunnel test ing and development. The costs for these passive devices are the same as those for all other body panels and features.

• Turbo-Downsizing R&D costs are slightly higher in t he near term due to new software requirements and test procedures as well as new cal ibration strategies to take advantage of the technology. In the long-term, these costs w ould be no more than conventional technologies once the institutional knowledge is in place.

• PHEVs will have higher R&D costs in the near term d ue to greatly expanded software development and testing needs. In the long term, t hese costs will still be slightly higher than conventional due to increased system complexit y. There will also be additional testing equipment and lab facilities required to de velop these technologies. These facilities will be used in subsequent models also.

Table 5: Depreciation and Amortization Adjustment Factors Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

131 Improvements Electric Vehicle

Near-term 0 1 1.5 Long Run 0 1 1.1 Explanation:

• There should be no additional Depreciation and Amor tization costs associated with passive aero technologies

• Turbo-Downsizing will require little extra capital equipment at the manufacturing plants because the powertrains will be replacing conventio nal powertrains. There will be some additional capital equipment at the engine plants w hich will be depreciated at the same rate as other engine technologies. This will not c hange in the long term.

• PHEV technologies will have some additional, unique technologies that will require some additional assembly plant equipment like diagnostic tools and battery handling/charging equipment. In the short term, this equipment will be relatively low volume and may become obsolete more quickly than other equipment a nd so will likely have slightly higher amortization and depreciation costs associat ed with them. There will also need to be additional safety hardware at plants for workers to handle high voltage equipment. These costs will decrease in the long term as this equipment becomes mainstream.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.5 1.4 Long Run 0 0.3 1.1 Explanation:

• Like depreciation and amortization, there should be no additional MRO costs associated with aero improvements

• There should be little additional MRO costs for tur bo-downsizing technologies in the short and long term

• PHEV MRO costs will be slightly higher due to addit ional equipment needed to develop, test, and assemble the vehicles. These costs will decrease with time as learning takes place and the equipment becomes mainstream.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1.3 Long Run 0 0 1 Explanation:

• There should be no additional G&A expenses associat ed with aero or turbo-downsizing because these technologies are similar to conventio nal technologies

• PHEVs will require additional safety training and d ocumentation as well as additional work to certify and possibly interface with utiliti es. Also, purchasing specialists in batteries and other HEV components will need to be hired. In the long term, these costs should drop, but will still be incurred (at a lower rate).EPA STAFF DRAFT – DO NOT CITE OR QUOTE

132

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1 Long Run 0 0 1 Explanation:

• There should be no additional retirement costs asso ciated with Aero improvements and turbo-downsizing, provided the prospect of implemen ting these technologies do not cause personnel to consider early retirement.

• For PHEVs, additional retirement costs result from additional personnel needed for safety training, purchasing, and other functions associate d with radically different technology.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1 Long Run 0 0 1 Explanation:

• There should be no additional health care costs ass ociated with Aero improvements and turbo-downsizing, provided the prospect of implemen ting these technologies do not cause personnel to consider early retirement.

• For PHEVs, additional health care costs result from additional personnel needed for safety training, purchasing, and other functions as sociated with radically different technology.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 -0.1 1.3 Long Run 0.1 -0.1 1 Explanation:

• Aero improvements may slightly increase transportat ion costs due to changed approach/departure angles for loading/unloading tha t could affect loading density on

trucks and railcars.

• Turbo downsizing may actually decrease transportati on costs due to reduced vehicle weight because of a smaller, lighter powertrain. T his could be offset by any additional

insurance costs due to increased vehicle value.

• PHEV transportation costs could rise somewhat due t o the need to maintain battery charge level during storage and transportation. In surance costs could also increase due to the presence of high voltage and increased vehicle value. Vehicle weight is assumed to be somewhat higher, leading to higher shipping charges . These effects should decrease with time and learning.

Table 11: Marketing Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

133 Improvements Electric Vehicle

Near-term 0 1.5 3 Long Run 0 .5 1 Explanation:

• Aero improvements should not increase marketing cos ts in the short or long term. Automakers will implement the technology, but marke ting will ignore it.

• Turbo-downsizing will have a short-term marketing c ost increase over the base due to educating consumers on the technology’s benefits. In the long-term this cost will be similar to conventional technologies, but some effo rt will be made to educate consumers as an ongoing task.

• PHEVs will have a very high initial marketing cost compared to conventional technologies. As they become mainstream, the marke ting cost will be similar to other technologies.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.2 2

Long Run 0 1 1

• Aero improvments will have no additional selling co sts at the dealership

• Turbo-downsizing will some initial marketing costs at the dealer level as sales people will need to be educated and expend additional effo rt to sell the new technology to customers. Additional service tools and training w ill also be required. This will decrease to levels similar to conventional technologies in t he long term

• PHEVs will have significant additional selling cost s associated with them for training, service training tools, and promotions. In the lon g-term, these costs will decrease to be similar to other technologies.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

134

Questionnaire: Expert Identification Letter ____T_

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 1.5 1.5 Long Run 0 1 1 Explanation: Aero: Passive aero improvements are typically sheet metal changes or bolt on composite items that have no moving parts and are damaged thr ough misuse or accident that would not be covered by the vehicle warranty. Turbo-downsizing: Turbochargers by nature are compl ex devices that have high fallout rates at the supplier and customer level due to the precision involved. This is complicated by the smaller, higher revving, units being designed for s maller vehicles and the trend toward longer powertrain warranties. Over the long term, process es and materials should improve resulting in these devices having similar reliability to other e ngine components. Plug-in Hybrid Electric Vehicle: PHEV’s have two c omplete powertrains that must work together. Many of the components required are new to this technology and the calibration will be complex. In addition, customer charging cables and high power onboard charging electronics must be provided that will be operated at duty cycl es and power levels that far exceed current automotive design criteria.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.5 2 Long Run 1 1 1 Explanation: Aero: Passive aero improvements are easily applied to all vehicles in a similar fashion. Turbo-downsizing: Implementation and calibration o f turbocharged vehicles is complex due to all of the operating points to consider. Th e NVH treatments are challenging as well and crucial to the acceptance of this technology by the customer. Plug-in Hybrid Electric Vehicle: PHEV’s have two c omplete powertrains that must be calibrated together. The electric powertrain requi res critical algorithms to maintain charge and to ensure battery life and safety. Each generation of battery technology must be integrated separately.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: All of these technologies consist of supplier purch ased components that would not require any special requirements for the OEM in this area.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

135

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1.25 1.25 Long Run 1 1 1 Explanation: Aero: Aero treatments are typically low maintenanc e except for underbody items that are easily damaged. Turbo-downsizing: Increased maintenance and repair is to be expected in the short term as this technology matures due to the complex natur e of the systems involved. Plug-in Hybrid Electric Vehicle: PHEV’s have two c omplete powertrains that will require more maintenance than a mature vehicle with one powertrain. As the electrical powertrain matures, the system should be maintenanc e free. Only the IC engine will need regular maintenance.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1EPA STAFF DRAFT – DO NOT CITE OR QUOTE

136

Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1 Long Run 1 1 1 Explanation: The OEM should not have any special needs in this a rea for these technologies.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1 1 1

Long Run 1 1 1
Explanation: The OEM should not have any special needs in this a rea for these technologies.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

137

Questionnaire: Expert Identification Letter ____V_

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 1.0 1.5 2.5 Long Run 0.5 1.0 1.2 Explanation: Assumption: The warranty indirect cost is an averag e value which consists of frequency and cost of repair. I assume that new products as a whole h ave higher warranty claim frequency than older products. I also assume that powertrain comp onents have a higher claim frequency and higher cost of repair than other parts such as body components.

• Aero: I assumed the near-term factor would be about average – the claims are slightly higher because the parts are new body components.

• Turbo-downsize: I assume that it’s higher than aver age because a turbocharged engine has more things to go wrong (such as turbo overspee d, higher cylinder pressures to manage, etc.) and it costs more than the average pa rt to fix an engine.

• PHEV: The PHEV has several new components that cost more to replace (batteries), have a higher likelihood for failures since there is les s experience with the part (new customer use cycles which include recharging).

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.5 1.5 2.5 Long Run 0 0 0.5 Explanation: R&D = staff, design, testing (dynamometers, stress lab, test cells, wind tunnel, development trips)

• Aero: Some R&D is required to design the vehicle in more aerodynamically. Additional wind tunnel and/or CFD work will be required to opt imize. However, it should not require extra staff.

• Turbo downsizing: I assumed that the engine would b e designed by the OEM, that turbocharger and other components except the engine block will be purchased, and the engine will be assembled by the OEM. I also assume d that the turbo-charged engine will be based on an existing (or replacement) 4-cylinder engine. Therefore, the turbocharged version will include new pistons, connecting rods, fuel injectors, intercooler, and cooling system, require OBD development of the turbocharger , and contain additional complexity for the engine calibration. There will be a few ad ditional staff required to design and develop a turbocharged engine over a naturally aspi rated engine. There will also be more testing/development requirements for this version o ver a naturally aspirated version.

• PHEV: Similar to a hybrid, the plug-in will require significant personnel, new testing capability, design and development.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

138

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1.0 Long Run 0 0 1.0 Explanation:

• Aero: I assumed the aerodynamic features will be bu ilt into the skin of the vehicle and require no special assembly tools or the additional features will be replacement of existing parts.

• Turbo: I assumed a replacement engine was being dev eloped for this vehicle so the OEM was required to purchase new tools and dunnage at t he engine plant regardless of the regulation. The four cylinder engine will also req uire handling fewer parts such as pistons, con-rods, valves, etc. because it has two less cylinders than the V6 it replaces. I assumed the turbocharger and intercooler were purch ased parts so they would only require handling equipment.

• PHEV: The hybrid contains a significant number of n ew parts and systems, such as batteries, control modules, etc. which are additive over the base vehicle. These parts will depreciate at the normal rate.

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1.0 Long Run 0 0 1.0 Explanation:

Same as Table 5

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0.5 Long Run 0 0 0.5 Explanation:

• Aero: Assume work can be done with existing resourc es.

• Turbo: Assume work can be accomplished with resourc es that would have been dedicated to the replacement engine.

• Assume the PHEV will require extra resources.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0.5 Long Run 0 0 0.5 Explanation:EPA STAFF DRAFT – DO NOT CITE OR QUOTE

139

Same as Table 7

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0.5 Long Run 0 0 0.5 Explanation:

Same as Table 7

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 0.5 Long Run 0 0 0.5 Explanation:

• Aero & Turbo: No additional requirements and minim al cost differential will lead to zero impact on transportation costs.

• PHEV: The vehicles will cost more over a non hybrid version. The vehicles may also weigh more due to the batteries. Lastly, the PHEV may have special transportation requirements.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0 1.5 Long Run 0 0 0.5 Explanation:

I assumed that marketing is required if the new tec hnology affects the manner the driver uses the

vehicle or has to interface with the vehicle. Neit her aero nor turbos impact the driver so no additional marketing is required. The PHEV require s marketing for consumer awareness and training.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.2 1.5

Long Run 0 0 1.0
Explanation: I assumed the selling costs are due to interest and insurance of the vehicles on the floor, sales staff, repair staff, training, and dealer overhead. The aero improvements do not impact any of these items. The turbo engine may require addition al repair training if this is the first turboEPA STAFF DRAFT – DO NOT CITE OR QUOTE

140

engine produced by the OEM. The PHEV will have hig her interest and insurance costs and will require training for the sales staff and repair sta ff.EPA STAFF DRAFT – DO NOT CITE OR QUOTE

141

Questionnaire: Expert Identification Letter ___W__

____

Production Overhead Table 3: Warranty Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.4 1 Long Run 0 0.3 0.8 Explanation: - Aero is built into the design of the vehicle exte rior, so it’s highly unlikely to cause warranty

issues. - TD is an established technology but may have some bugs to work out in the early stages since it is not commonly used by all manufacturers. Turbos may also fail. After the first design, warranty issues should decrease. - PHEVs are a new technology and I would expect to see many warranty issues in the initial release. These will drop off after a redesign, but will still likely have more issues than a more established technology like TD.

Table 4: R&D Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.1 0.6 1 Long Run 0.1 0.3 0.9 Explanation: - autos continually run aero tests in wind tunnels and are tweaking vehicles all the time. There is r&d overhead in this, even though only a small amou nt in comparison to the other technologies. - TDs are often developed in house by the OEMs so r equire some R&D. After the initial engine, this is likely to be cheaper, but history has taugh t us that there is continual room for improvement in engines. - PHEVs require A LOT of R&D and will continue to d o so since they are not even in their first generation yet. - For every successful project in research to make it onto a vehicle there may be 9 others that fail. Engines and advanced technologies thus have much ov erhead and cost.

Table 5: Depreciation and Amortization Adjustment Factors

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0 0.8 1 Long Run 0 0.8 1 Explanation: - aero does not depreciate. - TDs engines depreciate immediately and rapidly as do electrical components such as batteries

on PHEVs

Table 6: Maintenance, Repair, and Operations Cost Adjustment Factors Aero Turbo-downsizing Plug-in HybridEPA STAFF DRAFT – DO NOT CITE OR QUOTE

142 Improvements Electric Vehicle

Near-term 0 0.7 1 Long Run 0 0.5 0.8 Explanation: - Aero requires no maintenance. - TD engines will require a fair amount of maintena nce and repair. These engines run hotter than todays engines and thus may need even more. After a while, (as usual) some of the bugs may be worked out, this warranting a lower score in the lo ng run. - PHEVs are likely to have very expensive repairs w hen needed. First generation PHEvs are likely to be quite buggy, and get better after that

.

I’m not sure why maintenance is on indirect costs, since this is born by the car owner and not the seller. Warranty repairs are different of course.

Corporate Overhead

Table 7: General and administrative

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.5 1 Long Run 0.2 0.5 1 Explanation: More complex and flashy technologies just require m ore support – more staff, more space, more stuff to keep the programs running. There may be n o difference between short and long term

here.

Table 8: Retirement costs for non-production worke rs
Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.4 1 Long Run 0.1 0.2 0.5 Explanation: Staffing and overhead increases with technology com plexity. Also, staffing reduces once a program is launched.

Table 9: Health care for non-production workers

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.4 1 Long Run 0.1 0.2 0.5 Explanation: Same argument here as previous question.

Selling Table 10: Transportation

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric VehicleEPA STAFF DRAFT – DO NOT CITE OR QUOTE

143

Near-term 0.1 0.3 1 Long Run 0.1 0.3 1 Explanation: Here I equate weight with transportation cost. So aero treatments are miniscule, engines are a significant part of the weight and PHEVs are heavy to transport. This includes transporting the components to the plant? These costs should not d epend on where in the product cycle you are.

Table 11: Marketing

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.6 0.6 1 Long Run 0.4 0.4 0.7 Explanation: - Aero improvements are related to styling and that is heavily marketed. Marketing is heaviest when vehicles are initially released. Then it fall s off rapidly. - engines are also marketed heavily upon release, e specially when they have the word “turbo”

associated with it. - PHEVs are of course marketed as the next great th ing, and will receive maximum attention from this department.

Dealer New Vehicle Selling Costs Table 12: New Vehicle Selling Costs at the Dealers hip

Aero

Improvements Turbo-downsizing Plug-in Hybrid

Electric Vehicle

Near-term 0.2 0.6 1

Long Run 0.2 0.5 0.8
Explanation: - aero treatments can sometimes be seen as part of premium package, but most aero is part of the

vehicle. - turbo is historically associated with premium and may fetch a higher profit margin in the beginning. - PHEVs are likely going to be marked up quite a bi t because of the initial demand. This may fall off over time as the early adopters are satisf ied and the vehicles become more mainstream.