1 

August 2009 

MEMORANDUM

SUBJECT: Documentation of the Development of Indirect Cost Multipliers for Three 

Automotive Technologies 

FROM: Gloria Helfand, Assessment and Standards Division 

 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 light-duty vehicle greenhouse gas reduction 

technologies. The report “Automobile Industry Retail Price Equivalent and Indirect Cost 

Multipliers”1

 (the “RPE/IC Report”) estimates indirect cost multipliers 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 categories 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 recent expansion of the 

indirect cost multiplier (ICM) estimates through a documented expert elicitation process 

covering three automotive technologies not considered in the original February 2009 

Report. Reviewers’ comments on the RPE/IC report sought clarification and better 

documentation of the process used to develop adjustment factors. In response, EPA 

conducted a new exercise to estimate adjustment factors 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 adjustment factors for three technologies 

not considered in the RPE/IC Report. Technologies were selected which were deemed 

representative of low technological complexity, medium technological complexity, and 

high technological complexity, as described in the RPE/IC Report. 

 

1

 “Automotive Industry Retail Price Equivalent and Indirect 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 meeting, 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 pattern as those of the RPE/IC 

Report: the indirect cost multipliers increase with the complexity of the technology and 

decrease over time. The values derived in this process 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 following sections: 

- A description of the development process and high-level 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 Multipliers 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 Report”). This report provided a new 

calculation of the retail price equivalent (RPE) multiplier commonly used to estimate the 

indirect costs associated with a new technology. The RPE is a ratio of total revenue to 

direct manufacturing cost; put another way, it is the 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 unlikely to be a constant 

proportion of direct costs. Instead, indirect costs 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, the RPE is decomposed into the indirect cost 

contributors. Secondly, for three technologies representing different degrees of 

complexity, a panel of automotive engineering experts developed adjustment factors for 

each contributor. The adjustment factors were based on their judgment of the degree to 

which each contributor changed due to the new technology. Finally, each adjustment 

factor was multiplied by the value of that contributor in the RPE, and those products were 

summed to give indirect cost multipliers specific to the technologies and to the time 

frames. The three technologies were: for low complexity, low rolling resistance tires; for 

medium complexity, dual clutch transmission; and for 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 that first five years. 

The purpose of this memorandum is to document a recent expansion of the 

indirect cost multiplier (ICM) estimates through a documented expert elicitation process 

covering three automotive technologies not considered in the original February 2009 

Report. The RPE/IC Report developed adjustment factors 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 considered in the RPE/IC Report. 

Technologies were selected which were deemed representative of low technological 

complexity, medium technological complexity, and high technological complexity, as 

described in the RPE/IC Report. Our goal in this effort 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. We also increased the formality of the 

process to improve its clarity and transparency. 
4 

 The next section of this memo describes the process that was used to develop 

adjustment factors for three new technologies: for low complexity, passive aerodynamic 

improvements; for medium complexity, engine downsizing 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 interspersed 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 to a series of questions. The answers are 

then collected and shared (without attribution) with 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 indirect cost adjustment factors would 

be developed; 

2. Identification of experts to participate; 

3. Development of a questionnaire to elicit adjustment factors; 

4. An initial meeting to explain the process to participants; 

5. Completion of the questionnaire by participants and compilation of results; 

6. Distribution of the first-round results and a second meeting; 

7. An opportunity for participants to revise their estimates and recompilation of 

results; 

8. Distribution of second-round results and a third meeting; 

9. A final opportunity for individuals to revise their estimates. 

 Following is an elaboration of these steps. 

1. Identification of technologies for which indirect cost adjustment factors would be 

developed

 The RPE/ICM report used three technologies representing three degrees of 

complexity: 

 Low: low rolling resistance tires 

 Medium: dual-clutch transmission 

 High: hybrid electric vehicle 

Rather than recompute estimates of the adjustment factors for these technologies, EPA 

decided to develop multipliers for different technologies. We chose to examine different 

technologies for several reasons: first, the experts participating in the panel are less 

likely to be influenced by the previous estimates for 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 all 
5 

used in the future, there is now a greater number of technologies to which new 

technologies can be compared. The technologies analyzed 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 expected to be the same as in the previous 

exercise. Each technology is likely to have its unique 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 associated with a new technology, since 

one average multiplier is unlikely to be a good reflection 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 this process. Due to time constraints, 

NHTSA engineers were not available. However, representatives from the U.S. 

Department of Transportation’s Volpe Center and NHTSA staff provided input on the 

questionnaire and the process and attended the meetings. The final panel included 14 

EPA engineers. Seven of the engineers had participated in the development of 

adjustment factors for the RPE/IC Report; seven were new to the process. The panel 

included 14 bachelor’s degrees in engineering (including civil, mechanical, aerospace, 

electrical, and material sciences); 10 master’s degrees in engineering (electrical, 

mechanical, computer, and automotive); 3 master’s degrees 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 suppliers and related industries. This 

information is summarized in Appendix A. Because the engineers had work experience 

with the domestic automakers, but not foreign manufacturers, a question arises whether 

the adjustment factors developed here are applicable for foreign manufacturers. While it 

is possible that, for instance, a foreign manufacturer’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 much across manufacturers, suggesting 

that the differences in practices across this industry 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 adjustment factors 

 The questionnaire was developed by EPA staff and reviewed by NHTSA staff 

who were not among the staff who participated in the process as experts. The 

questionnaire includes background on the reason for the exercise, descriptions of the 

indirect cost contributors, descriptions of the role 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 each 
6 

expert provides. Finally, it asks for information on their education, experience, and 

expertise. The personal information was deleted from all materials provided to 

participants, to avoid disclosing identifying information. Participants provided their 

identification letter but no other identifying information on their responses. The 

questionnaire is included as Appendix B. 

4. An initial meeting to explain the process to participants 

 The group of experts gathered on Monday, June 1, 2009, 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 questions. 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 adjustment factors in the survey. An 

EPA staff member who was not one of the experts compiled the quantitative results in a 

spreadsheet: each row held the adjustment factors for each participant, identified by 

letter. The spreadsheet was used to calculate sample statistics on the responses (mean, 

standard deviation, median, maximum, and minimum for each adjustment factor for each 

technology and time frame). In addition, the adjustment factors were applied to the 

indirect cost contributors to calculate the indirect cost multiplier for each technology and 

time frame for each individual. Finally, the spreadsheet was used to calculate sample 

statistics for these individual multipliers. 

 The participants’ explanations for their adjustment factors were collated into a 

single document. The summary values and the questionnaires for each expert are 

provided in Appendix C. 

6. Distribution of the first-round results and a second meeting 

 The first-round summary spreadsheet was circulated to all participants 

electronically (this did not include the detailed questionnaires). 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 from the Round 1 results: general and 

administrative costs. The discussion evolved into further clarification of the meaning of 

the adjustment factors. Once participants expressed comfort with understanding of the 

adjustment factors, the group of experts reviewed their understanding of the indirect cost 

contributors as well as the definitions of each cost category and a discussion of where 

some specific costs fell when they might fit in multiple 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 results after the second meeting. 

Nine respondents changed some part of their responses; five respondents confirmed that 

their responses should stay the same; and one respondent dropped out of the process due 

to time constraints. The results for this second round were recompiled, using the same 
7 

format as before. A few methodological issues should 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 factors blank in their responses 

because they did not feel knowledgeable enough to respond. 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, the average adjustment factor (excluding 

the missing values) for all participants was substituted 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 calculated 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 multipliers 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 calculated as the standard deviation of 

the participants’ multipliers. Although the mean was not calculated as the average of 

participants’ multipliers, this method provides a measure of the dispersion of those 

multipliers. 

In Round 1, due to a clerical error, the wrong table 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 table. For the second-round results, the 

correct table of indirect cost contributor values was 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 Appendix D. 

8. Distribution of second-round results and a third meeting 

 The Round 2 results were distributed, along with the questionnaires and 

explanations that the experts provided with the Round 2 results. A third meeting was 

then held to review the results on June 4, 2009. For 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 seemed reasonable. In all cases where 

the variation was wide, the group of experts felt that the numbers reflected real variation 

in possible outcomes. The group of experts also reviewed the multipliers that came out 
8 

of the process. They felt that the means were reasonable, and that the differences 

between the values developed here and the values developed in the RPE/IC report 

reflected real differences in the technologies. 

9. A final opportunity for individuals to revise their estimates

 After the discussion in the third meeting, participants were offered the opportunity 

to revise their estimates again. No participant chose to revise results. 

Results

Table 1 below presents the Round 2 results of the exercise. 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 consensus process, there is no variation 

in those results. 

Table 1: Multipliers for Low-, Medium-, and High-Complexity 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 the RPE/IC report: the 

multipliers increase with the complexity of the technology and decrease over time. The 

RPE/IC results are consistently lower than the results 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 from the two processes may be 

due either to differences in the technologies, or to 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 complexity 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 comparison 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 means changed very little: the 

maximum difference is 0.06. The standard deviations dropped in Round 2 by values 

ranging from 0.02 to 0.29. This reduction in variation suggests that participants’ 

responses came closer together in the second round. Since there appears to have been 

increased understanding of the meanings of the adjustment factors between Rounds 1 and 

2, this result is not surprising. 

As the results in the appendix tables show, there is substantial variation in the 

individual estimates of adjustment factors, particularly for Round 1. Nevertheless, as the 

standard deviations in the tables above indicate, there is less variation in the multipliers 

that result from these factors. This result suggests that no person is consistently and 

substantially higher on all adjustment factors than others. 
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Appendix A: The Panel of Experts 
11 

 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 Chrysler 
12 

Appendix B: Questionnaire Provided to Expert Panel
13 

Documentation of the Development of Indirect Cost Multiplier Factors 

for Three Technologies, June 2009 

Purpose: 

 The purpose of this exercise is for the group of DOT and EPA experts to estimate 

adjustments to the retail price equivalent factor estimates developed and documented in 

the report “Automobile Industry Retail Price Equivalent and Indirect Cost Multipliers”, a 

report sponsored by US EPA which was prepared by RTI International and the University 

of Michigan’s Transportation Research Institute (referred to as the “Report” in this 

document). 

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

factors which estimate all of the indirect costs experienced by a major automotive 

manufacturer in the process of research, developing, manufacturing, and marketing of 

light-duty vehicles. In addition, this report includes estimates of the contribution to the 

retail price equivalent factor for indirect costs at the automotive dealership level. 

 In the Report, the authors also suggest that not all RPE indirect cost factors may 

scale at the exact same magnitude for changes required by the automotive OEM due to a 

new regulatory requirement, such as requirements which 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 derived by a careful review of each RPE 

contribution category (e.g., research and development, marketing, general and 

administrative costs) in light of the specific technology change required by the new 

federal regulation, and estimating how that new technology change impacts each RPE 

contribution category. The authors of the report suggest 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 technology-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 for the estimation of indirect costs, 

with the potential for indirect costs to be different 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 purchased 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 manufacturer 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 development, capital depreciation and 

amortization, and the maintenance, repair, and operation of the OEM production 

facilities. 
14 

Corporate overhead: the costs of running a corporation, including salaries of 

nonproduction workers, pensions, and health care expenses. 

Selling costs: These are OEM-level costs (not dealerships) and include the salaries 

of the marketing staff, advertising costs, and transportation costs. 

Dealers: Costs at the dealership level (not the OEM), including profits, and new 

vehicle selling costs such as dealership marketing and training. 

Profit: the difference between the total of the OEMs’ revenue and expenditures. 

Table 2 shows an illustrative example in actual dollars 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 final 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 1.46 
15 

Table 2: Example RPE Contributors for a Typical Vehicle 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 = $7,877
16 

Description of the ICM Estimation Process 

Round 1: Round 1 consists of each individual expert filling out this questionnaire. For 

this Round, you should not consult with any other participant; 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 the experts who participate in 

Round 1 will review the collective responses from Round 1, that is, the range, median, 

and mean responses for each of the respective indirect 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 Round 1. The discussion from Round 

two will be documented. 

Technology Description: 

For this exercise, we have selected three automotive technologies, representing a 

range of technological complexity, which can reduce CO2 and improve fuel economy: 

- Aerodynamic improvement – passive aerodynamic improvements defined as 

tire spats, air dams, rear visors, and first surface blendings. Does not include 

active systems such as active grill shutters or dynamic drive height controls. 

[Aero] 

- Engine downsizing combined with turbocharging [Down-turbo] 

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

For each of these technologies, the following assumptions apply. First, the base 

vehicle to which this technology is being applied is a 6-cylinder, modern gasoline 

powered vehicle with port-fuel injection, four-valves per cylinder, and a 5-speed 

automatic transmission. The vehicle is a typical mid-size passenger car (e.g., a Honda 

Accord, Chevy Malibu, or Toyota Camry sized vehicle. 

The new technology is being introduced in the typical vehicle redesign schedule 

for the automotive industry and for the typical manufacturer, that is, the vehicle is already 

scheduled for a redesign, and the new technology (aero 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 each 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 refers to the incremental change in indirect 

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

the fields in the tables which follows indicates that 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 incremental direct manufacturing costs. 

For example, Table 1 indicates that the OEMs’ warranty cost on a typical vehicle 

is equal to 3 percent of the direct manufacturing costs. 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 warranty cost increase for the new 

technology will be 3 percent of the incremental direct 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 $514; thus, total warranty costs will be 

$529 after the new technology. A value of 2 indicates the warranty cost increase 

associated with the new technology X is 6 percent of the incremental direct 

manufacturing costs associated with the new technology, 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 associated with addition of technology X.

With respect to the time frame, the near-term estimate is for the first 4-5 years of 

the production of the new technology. We suggest you 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 explain 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 potentially the dealership) may already be 

experiencing some costs for the engineering development, manufacturing, marketing and 

selling of a newly redesigned vehicle, which typically occurs every 5 years in the 

automotive industry today.
18 

Questionnaire: Expert Identification Letter _________ 

For each technology, and for the two time frames, please provide your expert estimate of 

the adjustment, if any, to the incremental change in 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 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 

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 workers

 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 Dealership

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 

Near-term 

 

Long Run 

Explanation: 
20 

Appendix C: Round 1 Results
Warranty 

 Short run Long run Short run Participant ID Low Medium High Low Medium High Low Medium High 

A 0.25 1 1.5 0 0 0.5 0.25 0.75 1.5 B 0.25 1.5 3 0.2 1.35 1.75 0 1.3 3 

C 0.3 1 2 0.1 0.3 1 0.3 1 2 D 1 2 1.25 1 1.5 1.25 1.25 2 1.25 

E 1 1.4 1.6 0 1 1.2 1.2 1.5 2 

G 0.1 1.2 2 0.1 0.8 1.5 1 2 3 

L 0 0.2 0.2 0 1.3 2.5 0.02 0.1 14 

N 0.3 4 2 0.1 1.8 3 0.4 2 8 

O 0.01 0.1 0.3 0 0.05 0.15 0.01 0.2 0.5 

P 0 0.1 3 0 0.1 0.5 0.01 0.03 3 

R 1.5 2 6 1.1 1.2 3 5 3 10 

S 0.1 1.2 1.4 0.1 1.1 1.2 1 1.2 2 

T 0 1.5 1.5 0 1 1 1 1.5 2 

V 1 1.5 2.5 0.5 1 1.2 0.5 1.5 2.5 

W 0 0.4 1 0 0.3 0.8 0.1 0.6 1 

Average 0.39 1.27 1.95 0.21 0.85 1.37 0.80 1.25 3.7

Std. Dev 0.49 0.98 1.39 0.36 0.57 0.86 1.25 0.83 3.8

Median 0.25 1.2 1.6 0.1 1 1.2 0.4 1.3 

Max 1.5 4 6 1.1 1.8 3 5 3 1

Min 0 0.1 0.2 0 0 0.15 0 0.03 0.

Coeff of Variation 1.26 0.77 0.71 1.71 0.67 0.63 1.56 0.66 1.0

Mean - Median 0.137 0.073 0.350 0.113 -0.147 0.170 0.403 -0.055 1.71

(Mean - 

Median)/Mean 0.35 0.06 0.18 0.53 0.17 0.12 0.50 0.04 0.4
Depreciation and Amortization Maintenance, Repair, & Operations 

Short run Long run Short run Long run 

Low Medium High Low Medium High Low Medium High Low Medium 

0.1 0.5 1 0 0 0 0.25 0.5 0.75 0.25 0.5 1.1 0.8 3 1.1 0.8 1 1.2 1.2 2 1.2 1.2 0.5 1 2 0.3 0.5 1 0.5 1 2 0.1 0.5 

1.25 1 1.5 1.25 1 1.25 1.25 1 1.25 1.25 1 

1 1 1 0 0 0 1 1.4 1.8 0 0 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0.2 0 0.6 0.2 0 

0 0.2 6 0 0.2 3 0.1 0.3 2 0.1 0.3 

0 0.01 0.02 0 0.005 0.01 0.005 0.1 0.2 0 0.005 0 0.01 1 0 0.01 1 0 0.01 1 0 0.01 1 1.5 2 1 1.5 2 1.1 1.5 3 1.1 1.5 0 1 1.3 0 1 1.1 0 1 1.4 0 1 1 1 1 1 1 1 1 1.25 1.25 1 1 0 0 1 0 0 1 0 0 1 0 0 0 0.8 1 0 0.8 1 0 0.7 1 0 0.5 

0.46 0.65 1.52 0.38 0.52 0.96 0.51 0.73 1.35 0.41 0.57 

0.52 0.49 1.44 0.52 0.52 0.80 0.52 0.54 0.70 0.52 0.51 

0.1 0.8 1 0 0.5 1 0.25 1 1.25 0.1 0.5 

1.25 1.5 6 1.25 1.5 3 1.25 1.5 3 1.25 1.5 

0 0 0 0 0 0 0 0 0.2 0 0 

1.13 0.75 0.95 1.37 0.99 0.84 1.02 0.74 0.52 1.26 0.91 

0.363 -0.145 0.521 0.377 0.021 -0.043 0.257 -0.269 0.100 0.313 0.068 

0.78 0.22 0.34 1.00 0.04 0.04 0.51 0.37 0.07 0.76 0.12 
General & Administrative Retirement Costs, non-production worke

Short run Long run Short run Long run 

Low Medium High Low Medium High Low Medium High Low Medium 

0 0.25 0.5 0 0 0 0 0.25 0.5 0 0 

0.1 0.25 0.5 0.1 0.25 0.5 0 0.1 0.5 0 0.1 0.5 1 2 0.3 0.5 1 1 1 1 1 1 

1 1 2 1 1 1.25 1 1 1.25 1 1 0 0.5 1.2 0 0.2 0.4 0 0 0 0 0 1 2 3 0.5 1 1.5 1 1 0.25 1 1 0 0 0.01 0 0 0.01 0 0 0 0 0 

0.1 1 10 0.1 1 10 0 0.5 1 0 0.5 

0.005 0.01 0.1 0 0 0.05 0 0.01 0.05 0 0.005 

0 0 1 0 0 1 0 0 1 0 0 1 1.1 2 1 1.1 2 1 1.1 2 1 1.1 0 0 1 0 0 0.5 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 0 0 0.5 0 0 0.5 0 0 0.5 0 0 

0.2 0.5 1 0.2 0.5 1 0.2 0.4 1 0.1 0.2 

0.33 0.57 1.72 0.28 0.44 1.38 0.35 0.42 0.67 0.34 0.39 

0.44 0.59 2.43 0.40 0.46 2.45 0.48 0.46 0.58 0.48 0.48 

0.1 0.5 1 0.1 0.25 1 0 0.25 0.5 0 0.1 

1 2 10 1 1.1 10 1 1.1 2 1 1.1 0 0 0.01 0 0 0 0 0 0 0 0 

1.34 1.03 1.41 1.42 1.05 1.78 1.39 1.09 0.86 1.42 1.21 

0.227 0.074 0.721 0.180 0.187 0.381 0.347 0.174 0.170 0.340 0.294 

0.69 0.13 0.42 0.64 0.43 0.28 1.00 0.41 0.25 1.00 0.75 
Health care, non-production workers Transportation 

Short run Long run Short run Long run 

Low Medium High Low Medium High Low Medium High Low Medium 

0 0.2 0.5 0 0 0 0.0001 0 0.1 0.0001 0 0 0.1 0.5 0 0.1 0.5 2 0 2 1.8 0 

0.5 1 2 0.3 0.5 1 1 1 1 1 1 

1 1 1.25 1 1 1.25 1 0 1.25 1 0 0 0 0 0 0 0 0.4 0 0.6 0 0 1 1 0.25 1 1 0.25 0 1 2 0 1 0 0 0 0 0 0 0.5 0 2.5 0.5 0 

0 0.5 2 0 0.5 2 0 0 0 0 0 

0 0.01 0.05 0 0.005 0.01 0 0.005 0.15 0 0 0 0 1 0 0 1 0 0 0.02 0 0 1 1.1 2 1 1.1 2 1 1 1 1 1 0 0 0 0 0 0 0.5 -0.1 1.3 0.5 -0.1 1 1 1 1 1 1 1 1 1 1 1 0 0 0.5 0 0 0.5 0 0 0.5 0 0 

0.2 0.4 1 0.1 0.2 0.5 0.1 0.3 1 0.1 0.3 

0.31 0.42 0.80 0.29 0.36 0.67 0.50 0.28 0.96 0.46 0.28 

0.45 0.46 0.74 0.45 0.45 0.69 0.59 0.46 0.77 0.57 0.46 

0 0.2 0.5 0 0.1 0.5 0.4 0 1 0.1 0 1 1.1 2 1 1.1 2 2 1 2.5 1.8 1 0 0 0 0 0 0 0 -0.1 0 0 -0.1 

1.43 1.10 0.92 1.53 1.24 1.04 1.19 1.63 0.80 1.24 1.63 

0.313 0.221 0.303 0.293 0.260 0.167 0.100 0.280 -0.039 0.360 0.280 

1.00 0.52 0.38 1.00 0.72 0.25 0.20 1.00 0.04 0.78 1.00 
Marketing Dealer New Vehicle Selling 

Short run Long run Short run Long run 

Low Medium High Low Medium High Low Medium High Low Medium 

0 0.25 0.25 0 0 0 0 0 0 0 0 0 0.25 1.1 0 0 0 0 0.25 1.25 0 0 

0.8 1 1.4 0.5 0.8 1 1 1 1 1 1 

1 2 2 1 2 2 1 2 2 1 1.5 0 0.4 0.8 0 0 0 0 0 0 0 0 0 1 1.5 0 0.25 0.75 0.2 1 2 0.1 0.25 

0.2 0.4 1.2 0.4 0.4 0.2 0 0.3 1 0 0 

0.2 2 6 0 2 4 0.1 0.1 4 0.1 0.1 

0.005 0.2 0.4 0 0.01 0.15 0 0.2 0.4 0 0.1 

0 0 0 0 0 0 0 0 0.01 0 0 1 2 4 1 1 1 1 1 2 1 1 0 1.5 3 0 1 1 0 1.2 1.5 0 1 1 1 1 1 1 1 1 1 1 1 1 0 0 1.5 0 0 0.5 0 0.2 1.5 0 0 

0.6 0.6 1 0.4 0.4 0.7 0.2 0.6 1 0.2 0.5 

0.32 0.84 1.68 0.29 0.59 0.82 0.30 0.59 1.24 0.29 0.43 

0.43 0.73 1.58 0.41 0.70 1.04 0.44 0.59 1.04 0.44 0.52 

0.005 0.6 1.2 0 0.4 0.7 0 0.3 1 0 0.1 

1 2 6 1 2 4 1 2 4 1 1.5 0 0 0 0 0 0 0 0 0 0 0 

1.33 0.87 0.94 1.43 1.18 1.27 1.47 0.99 0.83 1.52 1.21 

0.315 0.240 0.477 0.287 0.191 0.120 0.300 0.290 0.244 0.293 0.330 

0.98 0.29 0.28 1.00 0.32 0.15 1.00 0.49 0.20 1.00 0.77 
Multipliers RPE Multiplier Contributor* 

Indu

Ave

Short run Long run Vehicle Manufacturing 

Low Medium High Low Medium High Cost of sales 1.0

1.034 1.145 1.265 1.007 1.014 1.078 Production Overhead 1.214 1.244 1.761 1.204 1.206 1.335 Warranty 1.252 1.401 1.666 1.180 1.252 1.401 R&D (product development) 1.439 1.540 1.644 1.426 1.454 1.571 Depreciation and amortization 1.209 1.276 1.404 1.000 1.082 1.120 Maintenance, repair, operations cost 1.243 1.522 1.780 1.179 1.319 1.455 Total production overhead 1.036 1.045 1.970 1.042 1.052 1.175 Corporate Overhead 1.052 1.388 3.106 1.029 1.327 2.436 General and administrative 1.001 1.038 1.096 1.000 1.014 1.044 Retirement 1.001 1.005 1.416 1.001 1.004 1.243 Health 1.626 1.628 2.389 1.412 1.516 1.764 Total corporate overhead 1.076 1.327 1.607 1.076 1.282 1.389 Selling 1.373 1.448 1.474 1.373 1.401 1.401 Transportation 1.054 1.133 1.513 1.014 1.028 1.303 Marketing 

Dealers Dealer new vehicle net profit 

1.178 1.291 1.699 1.133 1.210 1.405 Dealer new vehicle selling cost 0.185 0.195 0.496 0.156 0.173 0.342 Total selling and dealer contributors 1.076 1.276 1.607 1.051 1.206 1.355 Sum of Indirect Costs 1.626 1.628 3.106 1.426 1.516 2.436 Net income 1.001 1.005 1.096 1.000 1.004 1.044 Other costs (not included as contributors) 0.157 0.151 0.292 0.138 0.143 0.244 RPE Multiplier 0.102 0.015 0.093 0.082 0.003 0.050

*As noted in the text, this is an incorrect table. It is presented here for consistency with the results reviewed by the experts. 

0.086 0.012 0.055 0.072 0.003 0.035
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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 existing engineers. There would 

be minor short-term warranty costs due to the additional parts and pieces added to the 

vehicle for improvement. In the longer term any additional warranty costs would no 

longer exist as the parts would not change. 

• I assumed that turbo downsizing would be done in-house completely from 

development to production. 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 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 additional warranty costs would no longer exist as the parts 

would not change. 

• I assumed that Plug-in Hybrids would be developed in-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 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 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 0.75 1.5 

Long Run 0 0 0.75 

Explanation: 

• There would be incremental R&D costs due to aero improvements because of some 

additional testing to measure and prove the improvements as well as additional 

durability on the components that are part of the package. In the 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 activity would be done outside of 

what is already necessary each year. 

• Plug in Hybrids would require substantial additional R&D because there is a great 

deal of learning for a technology such as plug-in hybrids as there is not a great deal of 

knowledge inside the company. As the technology matures there will be constant 
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improvement and learning going on requiring some additional 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 results from the additional tooling 

necessary to install the aero treatments in the plant. 

• The additional turbo -downsizing depreciation and amortization results from plant 

upgrades made necessary by the new technology and how it will fit into the assembly 

process. 

• The additional plug-in hybrid depreciation and amortization 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 depreciation 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 costs due to the additional activity on 

the line or changes made to the manufacturing processes. These costs will remain as 

a part of doing business throughout the full life of 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 additional non-production workers 

either in the short term or the longer term as there is already 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 resources 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 
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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 the longer term the needs for 

additional resources would go away 

Table 8: Retirement costs for non-production workers

 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 additional non-production workers 

either in the short term or the longer term as there is already 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 staff 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 the 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 additional non-production workers 

either in the short term or the longer term as there is already 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-house completely from 

development to production. Therefore, this would require some additional staff in the 

short term as there would be minor incremental staff 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 the 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: 
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• There would be VERY small incremental transportation costs (potential for costs) due 

to different configurations on the vehicles with the aero improvements. If any less 

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

• Plug in hybrids would have incremental transportation 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). This would be the same for turbo 

downsizing and plug in hybrids 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 shops 
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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 minimal, 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 slightly less. 

Adding a turbo to an engine greatly increases complexity of repair, increases the number 

of failure modes, and increases underhood heat. Warranty would go up by a 1.5 factor to 

the baseline. Long term, there may some learning to mitigate this, hence a slightly lower 

factor. 

PHEV is new technology at this point. The number of 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 probably be halved due to 

learning, but would still carry a factor of 1.75 due 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 parts and then thrift them out due to 

cost because the OEM cannot earn a return on capital 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 required 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 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 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. 
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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 testing and 

validation task would be enormous. While built from 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 techniques 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 change with time. 

Turbo downsizing products would primarily be changes 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 development that likely all of the 

tooling/technology would be outdated even before the 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 care 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 components. 

This would change little with time. 

Turbo DS would be similar to aero features. However, 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 
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real concern in an assembly plant. Some of the training 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 complexity, and would remain 

constant as long as the items were incorporated on the product. 

Table 8: Retirement costs 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 aero 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 aero 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 transportation issues principally damage in 

transport, greatly exceeding the average cost. Possibly on the 2nd iteration learning could 

be applied to “design for transportation” but in general, items like spoilers splitters and 

trays are the first items to break off when loading onto a truck. 
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Turbo downsizing will if anything, make vehicles lighter. No effects 

PHEV will require special instructions to the transportation 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 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 “aerodynamic” no change. 

Turbo downsizing - There would be some effort in educating 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 marketing campaign, but again, I do not 

think they would spend much more money on a new launch than “normal” launch, simply 

because of this feature. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 aero features do, but this would be 

rolled into standard new launch training. 

Turbo DS – Same as above, though the training on the technician side of the house would 

need to be more thorough assuming the dealers did not 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 possibly special facilities to 

demonstrate and maintain the customer stock of vehicles. This would likely include 

installing charging stations (however simple) on the lot. Once done this would not need 

to be repeated for a second generation. 
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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 anticipated vehicle launch date in 3-5 

years. A normal product development cycle is 3 years from conception to launch. 

The technology is outlined in each case (low, medium, high) is known within 

three years of production and coordination of these systems can be implemented 

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 architecture, other system changes), essentially doing the work over again. 

This typically occurs at the OEM’s as the product plan 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, testing, durability, warranty, cost...... 

2. Product plan for this new vehicle is 5 years, with an annual average volume of 

200K average. Normally the vehicle 1st 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 even though likely 

communization with other platforms/OEM’s and efficiencies gained in the 

manufacturing (e.g. labor or material). 

4. It is assumed that the new technology is first implemented on this vehicle with the 

appropriate lead time and the rest of the OEM’s products 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 the long term 

use of this technology will be considered “old” with minor incremental 

improvements over other vehicles but may be considered “major” when compared 

to the original vehicle 5 years ago. 

5. For comparison purposes in estimating the cost of the low, medium, high 

complexity choices with definitions given previously – costs for assumptions 

were $100, $500 and $5000 respectively. 

6. From one vehicle generation to the next – the complexity 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) 

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%. 
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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 mostly designed into the body 

structure in the initial stages with redesigning existing 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 improvements do not generally impact other 

systems, the additive warranty cost is considered minimal. 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 additional cost must be > 0. 

An intermediate change such as turbo downsizing involves system 

interaction/complexity, therefore must have increased coordination with other groups and 

some components must be redesigned. Most of the carry 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 increased warranty costs until fleet data can 

be used to understand warranty in the field. As experience is gathered in the vehicles duty 

cycle along with other vehicles, the part and vehicle durability testing will be more 

effective. This will reduce the long term warranty costs significantly. 

A high complexity system will have many unknowns and will be in constant design 

change well into the vehicle build stages as the system interaction 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 

durability tests or from customer “unanticipated” operation. In the 2nd iteration of the 

technology, the warranty costs will significantly decrease 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 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 improvements defined as 

tire spats, air dams, rear visors, and first surface blendings. Does not include 

active systems such as active grill shutters or dynamic drive height controls. 

[Aero] 

- Engine downsizing combined with turbocharging [Down-turbo] 

- Plug-in hybrid electric vehicle system with a 40-mile plug-in range [PHEV] 
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Assuming the R&D is already staffed for the new vehicle design, R&D efforts will be 

directed towards the new design direction. There will be additional engineering required 

as the use of full “carry-over” parts do not have the engineering, development or 

validation required. Aero is considered to be minimal complexity and less than the 

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 complexity 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 technology will have to be paid for in the 

first years of the new vehicle and the other low and 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 severely impacted by the complexity of 

the new technology but rather the number of parts that makeup the technology. There are 

some non-engineering functions that are increased with increased parts such as supplier 

quality and purchasing personnel. It is assumed complexity = 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 number of affected parts. 
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Table 8: Retirement costs for non-production workers

 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 multiplier 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 grain of salt. Assuming the cost to transport 

the vehicle is reflected in the “average” cost of the 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 to “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 timeframe, it is downgraded as it becomes 

more mainstream and customers, dealers, service understand the system. These values 

across the different complexities are more compacted. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 Aero Turbo-downsizing Plug-in Hybrid 
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Improvements Electric Vehicle 

Near-term 1 1 1 

Long Run 1 1 1 

Explanation: 

Not fully understanding vehicle selling costs, I believe it is strictly a function of 

vehicle price which is reflected in the technology.
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Questionnaire: Expert Identification Letter ___D______

For each technology, and for the two time frames, please provide your expert estimate of 

the adjustment, if any, to the incremental change in 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 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 increase 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 – 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 giving 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 some design work, but would fit 

within an existing design process. 

Turbo – The Eco-boost engine is similar to an existing engine, 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 developed 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 cost is far higher than 

turbo-downsizing. 
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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 intricate 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 maintenance. 

Turbo – The turbocharger will be a supplied part and should not require significant 

additional installation work above and beyond a normal engine program. 

PHEV – PHEVs will require a significant additional amount 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 intricate 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 maintenance. 

Turbo – The turbocharger will be a supplied part and should not require significant 

additional installation work above and beyond a normal engine program. 

PHEV – PHEVs will require a significant additional amount 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 significant additional 

administrative work above and beyond a vehicle program. 

Turbo – The turbocharger will be a supplied part and should not require significant 

additional administrative work above and beyond a normal engine program. 
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PHEV – PHEVs will require additional suppliers, and interaction with utilities and local 

municipalities to determine charging protocols and locations for charging stations. 

Table 8: Retirement costs 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 significant additional retirement 

costs above and beyond a vehicle program. 

Turbo – The turbocharger will be a supplied part and should not require significant 

additional retirement 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 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 significant additional health 

care costs above and beyond a vehicle program. 

Turbo – The turbocharger will be a supplied part and should 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 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 the vehicle size or weight 

significantly. 

Turbo – Downsizing and turbo charging will reduce the vehicle weight and should save 

on transportation costs. 
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PHEV – PHEVs will weigh more due to the large battery, and 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 aerodynamics. 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 technology. I’m also giving this a 

lower factor assuming that the incremental PHEV cost is far higher than turbodownsizing. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 selling point. 

Turbo – The initial Ford vehicles available with Eco-boost are being packaged with high 

end content, which is usually high profit. If forced by gas prices or regulations, Ecoboost will likely become more widespread and cheaper to the consumer. 

PHEV – PHEVs will sell at a premium price. 
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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 downsizing 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 turbo-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 engineering time, turbo 

downsize and plug-in require add’l engineering resources for development 

- Long run; on-going engineering support needed to inform 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 concern; greater for turbo 

downsize and plug-in due to increased mfg. complexity 

Corporate Overhead 

Table 7: General and administrative
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 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 downsize 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 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 the retirement costs as a 

function of the technology cost, but only as a function 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 the retirement costs as a 

function of the technology cost, but only as a function 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 aero improvements) may 

require unique shipping and handling care to avoid damaging the aero 

components, plus some additional expensive for shipping vehicles with highvoltage electrical systems 

- long-term, some add’l expense for stocking batteries and shipping them to 

dealerships for service replacement 

Table 11: Marketing
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 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 turbo downsize and plugin technologies are worth the extra vehicle cost 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 technologies (assume that this is 

handled by the mfrs. marketing budget) 
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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, and are most likely corrosion-resistant 

(plastics). Unless they create system issues via poor design (e.g., an air dam that traps 

water near an HVAC intake or part of the body and encourages corrosion), I would 

expect warranty to be near zero. You couldn’t completely eliminate warranty, however. 

A turbo-downsizing, while more complicated than a naturally 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 program. Assume we average to 

around 1 for multiple generations, with a little more warranty costs in the first generation 

and less in subsequent generations. 

PHEVs will surely incur much more warranty. In terms of R/1000 (quality and 

reliability), I would expect them to have a much higher 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 improvements 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 have 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 challenging for the first generation of a 

new engine (for catalyst light-off and loading optimization, calibrations, etc.). However, 

the 2nd and subsequent iterations will benefit from this experience. 

PHEVs will be nothing short of a major R&D effort. All things from battery 

development, to packaging, to crashworthiness, durability, 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 $. 
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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 life 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, development and testing activity. 

Table 8: Retirement costs 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: 

Assuming that aero and turbo technologies are produced 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 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 0.25 
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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 package so the additional 

components must incur shipping costs to to the engine plant. Assume most PHEV 

subsystems (battery packs, e.g.) are being built overseas 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 they stand as “green” halo-type vehicles 

for mfr portfolios. Especially at reduced volume their 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 Dealership

 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, as do all new components. 

Turbo-downsizing will require yet more training, due 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 equipment and customer literature 

such as service manuals etc.
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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 direct 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 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 risk to warranty costs. In addition to 

adding complex components (turbocharger), additional stress is placed on key engine 

components. Ignition systems are stressed which reduces durability and service intervals. 

Major engine hardware may wear prematurely and fail (piston rings, head gaskets, 

intake/exhaust valves). As these engines age, warranty costs to the manufacturer 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 units annually, and $4000 replacement cost per occurrence. Near-term increases are 

based on a $200 repair (ignition system, other relatively 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 components related 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 these 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, failure rates would be more 

consistent with conventional hybrids and I estimated 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 required to make significant 

aerodynamic improvements. Conventional vehicles would 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 development work and lessons-learned 
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51 

would reduce the effort required for the next-gen vehicle (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 effort 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 addition, a number of extra concerns arise 

from the high power densities of these engines including thermal management, increased 

risk to durability, and NVH. Each of these areas would need special efforts beyond 

normal engine development. Most of these efforts would 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 hardware, and $700k in test cell expenses 

(290 8-hr days/yr for 3 years at $100/hr). Adjustment factor based on 250k units per year 

and a 3 yr payback. 

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

a normal vehicle. The calibration is much more complex (electric vs IC vs both 

strategies), durability demonstrations for the batteries are still significant since the 

technology is new. As the model ages, I would assume that significant efforts would still 

be made under continuous improvement pretenses to increase durability and fuel 

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 that was submitted to congress in December, 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 body redesign that would normally 

occur with a new model. In general, aerodynamic improvements usually result from 

simpler shapes, which (in theory) would be easier to form. This could result in less 

complex tooling although the changes would have a relatively small impact on cost. 

A boosted-downsized engine would likely require changes to the block structure 

(dynamic loading reasons) and cylinder head (thermal management). Assuming the 

engine is designed as completely new, the cost of these 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 redesigns. Long-term, it may be less expensive 

because of fewer components, and therefore less tooling, going from a V6 to an I4.Costs 
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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 consideration 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 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, most costs to tool the 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 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 requires 2% more stations for the PHEV and 

0.5% more stations for the aero-improved vehicle and the costs associated with 

maintaining and repairing those. I would not expect 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 increases, then administration costs would 

increase (mainly related to purchasing and management of supply 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 increase in 

components to purchase and manage. The downsized turbo 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 for the PHEV is based on adding two 

purchasing personnel based on $100k/year cost. 

Table 8: Retirement costs for non-production workers

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 

Near-term 0 0 0 

Long Run 0 0 0 

Explanation: 
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As in Table 7, this would only increase if additional 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 generally only get a 

salary match to their 401k’s between 0 & 5% of their 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 additional personnel are needed to manage 

supply chains and purchasing of additional components. 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 fairings, 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 appreciable 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 vehicle) decreasing to 5% long term. 

I would not expect these costs to change significantly 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 downsized-turbo and PHEV powertrains, 

significant additional marketing will be needed (mainly 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 expect 
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marketing costs to trend in opposite directions for vehicles the depending on costs of the 

technologies. For instance, as people become more familiar with PHEV’s less marketing 

will be needed. However, since the cars with only aero 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 marketing support initially (1st 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 Dealership

 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 personnel 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 upgrade facilities to charge and 

service these types of vehicles. 
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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 complex 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. Lots 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 infrastructure 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: 
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More components, parts and vendors to track. 

Table 8: Retirement costs for non-production workers

 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 health 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 Dealership

 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 electric power to charge before 

delivery. 
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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 durability and NVH concerns will be 

realized. The majority of modifications are to existing technologies, using proven 

designs. 

2. Turbo-DS: Both technologies are currently known and in high volume applications. 

Initial warranty will stem from performance, calibration, and NVH issues. All of these 

issues will decline over time with developing competence. 

3. Plug-in Hybrid: New technology with a heavy dependence on the supplier and 

limited knowledge of failure modes. Cost constraints 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 existing tools and processes. 

New and modified components are simple designs. NVH and thermal 

requirements will be the biggest issues, however, the OEM’s are well versed 

in mitigating these problems. 

2. Turbo-DS: Calibration, thermal management, durability, and NVH will be 

form the majority of the development. Although OEM’s are well versed in 

managing all 3 factors, additional resources will be assigned to ensure the 

product meets vehicle functional objectives. 

3. PHEV: There will be major calibration work associated with a PHEV. 

Durability, NVH, drivability, and verification of fail-safe modes will require a 

high level of R&D. In addition, blended regenerative brakes and thermal 

issues will require significant development attention. 

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: 
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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 Computation Fluid Dynamics 

(CFD) work is done “up-front”. Should the OEM decide to piece meal these 

items late in the program it will result in additional use of wind tunnels and 

thermal chambers which would increase MRO. 

2. Turbo-downsizing: Same as above, with the exception that due to the limited 

exposure of turbo systems across most OEM’s, some addition use of internal 

resources requiring MRO can be expected. 

3. PHEV: New technology with limited knowledge base and immature 

development tools. There will more hands-on trial-and-error across all the 

OEM resources that require MRO – wind tunnels, thermal 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 associated with aero improvements, 

which will drive administration costs for part release and change management. 

The majority of the aero enablers are existing components 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 measurable increase in G&A costs. 

Table 8: Retirement costs 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: 

The numbers above represent the relative increase in staff required to design, develop, 

and release the associated systems. Retirement costs will increase accordingly. 
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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 transportation costs associated with aero 

improvements and turbo-downsizing due to the limited number of new components. 

Essentially, there will be more modified existing components in the designs which will 

mean no change in transportation costs. 

The PHEV will result in additional transportation costs, 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 components tend to be large and bulky. Over 

time, and with increased volume, these components will 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 form 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 marketing 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. Once 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 campaigns to recover expenses as 

quickly as possible. 
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Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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, dealer 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 product changes.
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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 should 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 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 stay 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. 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 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 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 design time. This 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 dyno testing as a standard engine. 

Assuming a company already has some design experience with turbo 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, calibrators 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 expect that the effort for the first 

time to be three times as difficult as a standard vehicle design. In the long term, there 

will still be an increased testing and design burden on a refreshed vehicle, but it will be at 

a significantly lower level. 
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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 any changes necessary to a plant; 

therefore, there will not be any addition costs in these categories. 

For a turbo downsized engine, I expect extra testing 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 necessary to a plant; therefore, there 

will not be any addition costs in these categories.

For a turbo downsized engine, I expect extra testing 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 aero improvements and turbo-downsizing. 

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

this category. 
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Table 8: Retirement costs 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 improvements and turbo-downsizing. 

For plug-in hybrid electric vehicles, I expected increased 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 improvements and turbo-downsizing. 

For plug-in hybrid electric vehicles, I expected increased 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 transporting the vehicle to a dealer. 

Plug-in hybrid vehicles will cost more because of the extra weight, and the handling. 

Hybrid batteries may need to be disconnected and reconnected 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: 
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I expect that the normal rush of advertising for any 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 Dealership

 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 more since the vehicles may need to 

be plugged in, and handled differently than standard vehicles.
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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 components, and have much higher 

warranty than sister NA engines. 

There are no OEM PHEVs now on the market. PHEVs should see higher warranty 

simply due to the fact that warranty now accounts for 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 techniques 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 implementation 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 count 
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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 count 

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 count 

Table 8: Retirement costs 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 count 

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 count 

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 Powertrain, 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 special shipping were required 

(closed trailers). 
EPA STAFF DRAFT – DO NOT CITE OR QUOTE 

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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, especially 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 Dealership

 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 warranty risk, besides the very 

small risk of them falling off, or being damaged during 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 engine components are under 

increased stress. Also, repair procedures can be more involved due to additional 

components. 

• A PHEV should not be significantly more complex than 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. 

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 testing 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 the near term due to new 

software requirements and test procedures as well as new calibration strategies to 

take advantage of the technology. In the long-term, these costs would be no more 

than conventional technologies once the institutional knowledge is in place. 

• PHEVs will have higher R&D costs in the near term due to greatly expanded 

software development and testing needs. In the long 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: 
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69 

• There should be no additional Depreciation and Amortization costs associated 

with passive aero technologies 

• Turbo-Downsizing will require some additional capital capital equipment which 

will be depreciated at the same rate as other engine 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 associated with them like battery 

testers and specialized diagnostic equipment. 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 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 additional equipment needed to 

develop, test, and assemble the vehicles. These costs 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 associated with aero or turbodownsizing because these technologies are similar to conventional technologies 

• PHEVs will require additional safety training and documentation as well as 

additional work to certify and possibly interface with 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 workers

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 

Near-term 0 0 0 

Long Run 0 0 0 

Explanation: 
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70 

• There should be no additional retirement costs associated 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 costs. 

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 transportation costs due to changed 

approach/departure angles for loading/unloading that could affect loading density 

on trucks and railcars. 

• Turbo downsizing may actually decrease transportation costs due to reduced 

vehicle weight because of a smaller, lighter powertrain. This will likely offset 

any additional insurance costs due to increased vehicle value. 

• PHEV transportation costs could rise somewhat due to the need to maintain 

battery charge level during storage and transportation. Insurance 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 

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 costs in the short or long term. 

Automakers will implement the technology, but marketing will ignore it. 

• Turbo-downsizing will have a short-term marketing cost 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 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 marketing cost will be similar to 

other technologies. 
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71 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 costs 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 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 costs 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 damaged through misuse or accident 

that would not be covered by the vehicle warranty. 

Turbo-downsizing: Turbochargers by nature are complex 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 smaller vehicles and 

the trend toward longer powertrain warranties. Over 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 complete 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 cycles 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 of turbocharged vehicles is 

complex due to all of the operating points to consider. The 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 complete powertrains that 

must be calibrated together. The electric powertrain requires 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: 
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73 

All of these technologies consist of supplier purchased components that would not 

require any special requirements for the OEM in this 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 maintenance 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 nature of the systems involved. 

Plug-in Hybrid Electric Vehicle: PHEV’s have two complete 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 area for these technologies. 

Table 8: Retirement costs 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 area 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 area for these technologies. 

Selling 

Table 10: Transportation

 Aero Turbo-downsizing Plug-in Hybrid 
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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 area 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 area for these technologies. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 area 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 average 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 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 average because a turbocharged 

engine has more things to go wrong (such as turbo overspeed, higher cylinder 

pressures to manage, etc.) and it costs more than the 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 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 optimize. However, 

it should not require extra staff. 

• Turbo downsizing: I assumed that the engine would be 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 assumed that the turbocharged 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 additional staff required to design and develop a turbocharged 

engine over a naturally aspirated engine. There will also be more 

testing/development requirements for this version over a naturally aspirated 

version. 
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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 built 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 developed for this vehicle so 

the OEM was required to purchase new tools and dunnage at the engine plant 

regardless of the regulation. The four cylinder engine 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 turbocharger and intercooler were 

purchased parts so they would only require handling equipment. 

• PHEV: The hybrid contains a significant number of new 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 resources. 

• Turbo: Assume work can be accomplished with resources that would have been 

dedicated to the replacement engine. 

• Assume the PHEV will require extra resources. 

Table 8: Retirement costs for non-production workers

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 
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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 minimal 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 technology affects the manner the driver 

uses the vehicle or has to interface with the vehicle. 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 Dealership

 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 overhead. The aero improvements do not 

impact any of these items. The turbo engine may require 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 sales 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 exterior, 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 amount in comparison to the 

other technologies. 

- TDs are often developed in house by the OEMs so require some R&D. After the initial 

engine, this is likely to be cheaper, but history has taught us that there is continual room 

for improvement in engines. 

- PHEVs require A LOT of R&D and will continue to do 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 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 Factors
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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 maintenance 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 long run. 

- PHEVs are likely to have very expensive repairs when 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 more support – more staff, more 

space, more stuff to keep the programs running. There may be no difference between 

short and long term here. 

Table 8: Retirement costs 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: 

Staffing and overhead increases with technology complexity. 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 Hybrid 
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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 costs 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. Then it falls off rapidly. 

- engines are also marketed heavily upon release, especially when they have the word 

“turbo” associated with it. 

- PHEVs are of course marketed as the next great thing, and will receive maximum 

attention from this department. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 bit because of the initial demand. This 

may fall off over time as the early adopters are satisfied and the vehicles become more 

mainstream. 
82 

Appendix D: Round 2 Results
Warranty R

 Short run Long run Short run  Participant ID Low Medium High Low Medium High Low Medium High 

A 1 1.5 2.5 0.25 1 1.5 0.25 1 1.5 B 0.25 1.5 3 0.2 1.35 1.75 0 1.3 3 

C 0.3 1 2 0.1 0.3 1 0.3 1 2 D 1 2 1.25 1 1.5 1.25 1.25 2 1.25 

E 1 1.4 1.6 0 1 1.2 1.2 1.5 2 

G 0.1 1.2 2 0.1 0.8 1.5 1 2 3 

L 0 1 1 0 1.3 2.5 0.5 2 10 

N 0.2 2 1 0.1 0.8 2 0.4 1.5 6 

O 0.1 1.1 1.3 0 1.05 1.15 0.1 1.2 1.5 

P 0 0.5 6 0 0.3 2 0.01 0.03 5 

R 0 2 5 0 1 2 4 3 10 

S 0.1 1.2 1.4 0.1 1.1 1.2 1 1.2 2.5 

T 0 1.5 1.5 0 1 1 1 1.5 2 

V 1 1.5 2.5 0.5 1 1.2 0.5 1.5 2.5 

Average 0.361 1.386 2.289 0.168 0.964 1.518 0.822 1.481 3.732 

Std. Dev 0.430 0.431 1.497 0.277 0.342 0.461 1.014 0.672 2.969 

Median 0.150 1.450 1.800 0.100 1.000 1.375 0.500 1.500 2.500 

Max 1 2 6 1 1.5 2.5 4 3 10 

Min 0 0.5 1 0 0.3 1 0 0.03 1.25 

Coeff of 

Variation 1.19138 0.31118 0.65412 1.65067 0.35427 0.30373 1.23316 0.45403 0.79539 

Mean - Median 0.211 -0.064 0.489 0.068 -0.036 0.143 0.322 -0.019 1.232 

(Mean - 

Median)/Mean 0.584 0.046 0.214 0.404 0.037 0.094 0.392 0.013 0.330 
Depreciation and Amortization Maintenance, Repair, & Operations 

Short run Long run Short run Long ru

Low Medium High Low Medium High Low Medium High Low Medium 

0 0 0.75 0 0 0 0.1 0.5 0.75 0.1 0.

1.1 0.8 3 1.1 0.8 1 1.2 1.2 2 1.2 1.0.5 1 2 0.3 0.5 1 0.5 1 2 0.1 0.

1.25 1 1.5 1.25 1 1.25 1.25 1 1.25 1.25 

1 1 1 0 0 0 1 1.4 1.8 0 0 0 0 0 0 0 0.2 0 1 0.2 0 0.2 3 0 0.2 2 0.05 0.3 1.5 0.05 0.0 0.1 1.02 0 0.05 1.01 0.05 1.1 1.2 0 0.00 0.01 1 0 0.01 1 0 0.01 1 0 0.00 1.5 2 0 1.5 2 1 1 2 1 0 1 1.5 0 1 1.1 0 0.5 1.4 0 0.1 1 1 1 1 1 1 1.25 1.25 1 0 0 1 0 0 1 0 0 1 0 

0.373 0.585 1.444 0.281 0.466 0.951 0.488 0.712 1.396 0.377 0.45

0.517 0.539 0.866 0.486 0.529 0.648 0.517 0.514 0.432 0.518 0.450.000 0.800 1.020 0.000 0.200 1.000 0.200 1.000 1.250 0.100 0.30

1.25 1.5 3 1.25 1.5 2 1.25 1.4 2 1.25 1.

0 0 0 0 0 0 0 0 0.75 0 

1.38698 0.92064 0.59987 1.73198 1.13475 0.68171 1.05814 0.72117 0.30927 1.3739 1.0087

0.373 -0.215 0.424 0.281 0.266 -0.049 0.288 -0.288 0.146 0.277 0.151.000 0.367 0.294 1.000 0.571 0.052 0.591 0.404 0.105 0.735 0.33
General & Administrative Retirement Costs, non-production work

Short run Long run Short run Long ru

Low Medium High Low Medium High Low Medium High Low Medium 

0 0.25 1 0 0 0 0 0.25 0.5 0 0 

0.1 0.25 0.5 0.1 0.25 0.5 0 0.1 0.5 0 0.0.5 1 2 0.3 0.5 1 1 1 1 1 

1 1 2 1 1 1.25 1 1 1.25 1 0 0.5 1.2 0 0.2 0.41 2 3 0.5 1 1.5 1 1 0.25 1 0 0 0.1 0 0 0.1 0 0 0 0 0 

0.1 1 1 0.1 1 1 0 0 0.2 0 0 

0.05 0.1 0.1 0 0 0.05 0 0.01 0.05 0 0.005 

0 0 0.1 0 0 0.1 0 0 0.1 0 0 1 1 1 1 1 1 1 1 1 1 0 0 1.3 0 0 1 0 0 1 0 0 1 1 1 1 1 1 1 1 1 1 0 0 0.5 0 0 0.5 0 0 0.5 0 0 

0.339 0.579 1.057 0.286 0.425 0.671 0.385 0.412 0.565 0.385 0.393 

0.452 0.601 0.833 0.413 0.466 0.495 0.506 0.488 0.435 0.506 0.500.075 0.375 1.000 0.050 0.225 0.750 0.000 0.100 0.500 0.000 0.005 

1 2 3 1 1 1.5 1 1 1.25 1 0 0 0.1 0 0 0 0 0 0 0 

1.33345 1.03909 0.7877 1.44542 1.09661 0.73703 1.31656 1.1846 0.76959 1.31656 1.2743

0.264 0.204 0.057 0.236 0.200 -0.079 0.385 0.312 0.065 0.385 0.380.779 0.352 0.054 0.825 0.471 0.117 1.000 0.757 0.116 1.000 0.98
Health care, non-production workers Transportation 

Short run Long run Short run Long run 

Low Medium High Low Medium High Low Medium High Low Medium 

0 0.2 0.5 0 0 0 0.0001 0 0.1 0.0001 0 0 0.1 0.5 0 0.1 0.5 2 0 2 1.8 0 

0.5 1 2 0.3 0.5 1 1 1 1 1 1 

1 1 1.25 1 1 1.25 1 0 1.25 1 0 

0.4 0 0.6 0 0 

1 1 0.25 1 1 0.25 0.1 0.1 0.1 0.1 0.1 0 0 0 0 0 0 0.5 0 2.5 0.5 0 0 0 0.1 0 0 0.1 0 0 0.1 0 0 0 0.01 0.05 0 0.005 0.01 0 0.005 0.15 0 0 0 0 0.1 0 0 0.1 0 0 1 0 0 1 1 1 1 1 1 0 0 0 0 0 0 0 1 0 0 1 0.1 -0.1 1.3 0.1 -0.1 1 1 1 1 1 1 1 1 1 1 1 0 0 0.5 0 0 0.5 0 0 0.5 0 0 

0.346 0.408 0.635 0.331 0.354 0.516 0.436 0.143 0.829 0.393 0.143 

0.474 0.490 0.589 0.471 0.468 0.473 0.606 0.365 0.762 0.578 0.365 0.000 0.100 0.500 0.000 0.005 0.500 0.100 0.000 0.800 0.050 0.000 

1 1 2 1 1 1.25 2 1 2.5 1.8 1 0 0 0 0 0 0 0 -0.1 0 0 -0.1 

1.36837 1.19962 0.928 1.42545 1.3213 0.91587 1.3905 2.54933 0.91997 1.47228 2.55674 

0.346 0.308 0.135 0.331 0.349 0.016 0.336 0.143 0.029 0.343 0.143 1.000 0.755 0.212 1.000 0.986 0.031 0.770 1.000 0.034 0.873 1.000 
Marketing Dealer New Vehicle Selling 

Short run Long run Short run Long ru

Low Medium High Low Medium High Low Medium High Low Medium 

0 1.25 1.25 0 1 1 0.2 0.5 1 0 0 0 0.25 1.1 0 0 0 0 0.25 1.25 0 0 

0.8 1 1.4 0.5 0.8 1 1 1 1 1 

1 2 2 1 2 2 1 2 2 1 1.5 0 0.4 0.8 0 0 0 0 0 0 0 0 0 1 1.5 0 0.25 0.75 0.2 1 2 0.1 0.25 

0.2 0.4 1.2 0.4 0.4 0.2 0 0.3 1 0 0 

0 0.5 1.5 0 0 0.5 0.1 0.1 1 0.1 0.

0.005 1.2 1.4 0 1.01 1.15 0 1.2 1.4 0 1.

0 0 0.5 0 0 0.5 0 0.01 1 0 0.00 1 3 0 0 0 0 0 2 0 0 0 1.5 3 0 1.5 3 0 1.2 2 0 1 1 1 1 1 1 1 1 1 1 0 0 1.5 0 0 0.5 0 0.2 1.5 0 0 

0.215 0.821 1.511 0.207 0.569 0.829 0.250 0.626 1.296 0.229 0.42

0.396 0.584 0.724 0.373 0.657 0.835 0.413 0.611 0.571 0.420 0.554 0.000 1.000 1.400 0.000 0.325 0.625 0.000 0.400 1.125 0.000 0.055 

1 2 3 1 2 3 1 2 2 1 1.5 0 0 0.5 0 0 0 0 0 0 0 

1.8433 0.71134 0.47948 1.80099 1.15505 1.00774 1.65111 0.9763 0.44064 1.83564 1.30223 

0.215 -0.179 0.111 0.207 0.244 0.204 0.250 0.226 0.171 0.229 0.371.000 0.217 0.073 1.000 0.428 0.246 1.000 0.361 0.132 1.000 0.87
Multipliers RPE Multiplier Contributor 

Indu

Ave

Short run Long run Vehicle Manufacturing 

Low Medium High Low Medium High Cost of sales 

1.06 1.20 1.40 1.01 1.08 1.19 Production Overhead 1.21 1.24 1.75 1.20 1.21 1.34 Warranty 1.25 1.40 1.66 1.17 1.25 1.40 R&D (product development) 1.43 1.53 1.63 1.42 1.45 1.56 Depreciation and amortization 1.21 1.28 1.41 1.00 1.08 1.12 Maintenance, repair, operations cost 1.19 1.44 1.73 1.11 1.23 1.41 Total production overhead 1.06 1.16 1.78 1.07 1.15 1.69 Corporate Overhead 1.04 1.25 1.78 1.03 1.17 1.52 General and administrative 1.01 1.25 1.37 1.00 1.19 1.32 Retirement 1.00 1.02 1.65 1.00 1.01 1.28 Health 1.31 1.46 2.15 1.16 1.34 1.49 Total corporate overhead 1.06 1.30 1.70 1.06 1.27 1.50 Selling 1.37 1.44 1.47 1.37 1.40 1.40 Transportation 1.05 1.13 1.50 1.01 1.03 1.30 Marketing 

Dealers Dealer new vehicle net profit 

1.16 1.29 1.64 1.12 1.20 1.39 Dealer new vehicle selling cost 0.14 0.14 0.21 0.14 0.13 0.15 Total selling and dealer contributors 1.12 1.26 1.66 1.06 1.20 1.40 Sum of Indirect Costs 1.43 1.53 2.15 1.42 1.45 1.69 Net income 1.00 1.02 1.37 1.00 1.01 1.12

Other costs (not included as contributors) 

0.121 0.112 0.126 0.123 0.109 0.109

RPE Multiplier 

0.037 0.030 -0.017 0.053 0.005 -0.0030.032 0.023 0.010 0.048 0.004 0.002
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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 existing engineers. There would be 

proportionally incremental short-term warranty costs due to the additional parts and pieces 

added to the vehicle for improvement. In the longer term any additional warranty costs 

would be reduced as the parts would not change. 

• I assumed that turbo downsizing would be done in-house completely from development to 

production. 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 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 additional 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 in-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 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 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 improvements because of some 

additional testing to measure and prove the improvements as well as additional durability on 

the components that are part of the package. In the 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 activity would be done outside of what is 

already necessary each year. 

• Plug in Hybrids would require substantial additional R&D because there is a great deal of 

learning for a technology such as plug-in hybrids as there is not a great deal of knowledge 
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inside the company. As the technology matures there will be constant improvement and 

learning going on requiring some additional 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 results from the additional tooling 

necessary to install the aero treatments in the plant. 

• The additional turbo -downsizing depreciation and amortization results from plant upgrades 

made necessary by the new technology and how it will fit into the assembly process. 

• The additional plug-in hybrid depreciation and amortization 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 depreciation 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 0.1 0.5 0.75 

Long Run 0.1 0.5 0.75 

Explanation: 

• For all technologies there will be incremental costs due to the additional activity on the line 

or changes made to the manufacturing processes. These costs will remain as a part of doing 

business throughout the full life of 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 1.0 

Long Run 0 0 0 

Explanation: 

• Aero dynamic improvements would not add any additional non-production workers either in 

the short term or the longer term as there is already 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 resources 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 
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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 the longer term the needs for additional 

resources would go away 

Table 8: Retirement costs for non-production workers

 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 additional non-production workers either in 

the short term or the longer term as there is already 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 staff 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 the 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 additional non-production workers either in 

the short term or the longer term as there is already 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-house completely from development to 

production. Therefore, this would require some additional staff in the short term as there 

would be minor incremental staff 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 the longer term the needs for additional 

resources would go away 

Selling 

Table 10: Transportation

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 
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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 transportation costs (potential for costs) due to 

different configurations on the vehicles with the aero improvements. If any less vehicles fit 

on the rail cars or trucks then the transportation costs will rise 

• Plug in hybrids would have incremental transportation 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 would be the same for turbo downsizing 

and plug in hybrids 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 shops 
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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 minimal, 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 slightly less. 

Adding a turbo to an engine greatly increases complexity of repair, increases the number of 

failure modes, and increases underhood heat. Warranty would go up by a 1.5 factor to the 

baseline. Long term, there may some learning to mitigate this, hence a slightly lower factor. 

PHEV is new technology at this point. The number of 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 probably be halved due to learning, but would still carry

a factor of 1.75 due 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 parts and then thrift them out due to cost 

because the OEM cannot earn a return on capital 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 required 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 programs. The calibration effort for a turbocharged 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 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 testing and validation task would be 
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enormous. While built from 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 techniques 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 change with time. 

Turbo downsizing products would primarily be changes 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 development that likely all of the 

tooling/technology would be outdated even before the 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 care 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 components. This would change little with time. 

Turbo DS would be similar to aero features. However, 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 requirements would be relaxed on the second generation 

vehicle 

Corporate Overhead 

Table 7: General and administrative

 Aero Turbo-downsizing Plug-in Hybrid 
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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 complexity, and would remain constant as long 

as the items were incorporated on the product. 

Table 8: Retirement costs 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 aero 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 aero 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 transportation issues principally damage in 

transport, greatly exceeding the average cost. Possibly on the 2nd iteration learning could be 

applied to “design for transportation” but in general, 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 lighter. No effects 

PHEV will require special instructions to the transportation companies, and possibly different 

methods of tracking due to the inability of vehicles to sit for extended periods(?) Once the 
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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 “aerodynamic” no change. 

Turbo downsizing - There would be some effort in educating 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 marketing campaign, but again, I do not think 

they would spend much more money on a new launch than “normal” launch, simply because of 

this feature. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 aero features do, but this would be rolled into 

standard new launch training. 

Turbo DS – Same as above, though the training on the technician side of the house would need 

to be more thorough assuming the dealers did not 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 possibly special facilities to demonstrate and 

maintain the customer stock of vehicles. This would likely include installing charging stations 

(however simple) on the lot. Once done this would not need to be repeated for a second 

generation. 
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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 anticipated vehicle launch date in 3-5 years. A 

normal product development cycle is 3 years from conception to launch. The technology 

is outlined in each case (low, medium, high) is known within three years of production 

and coordination of these systems can be implemented 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 architecture, other system changes), 

essentially doing the work over again. This typically occurs at the OEM’s as the product 

plan 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, 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 1st 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. 

10. Direct manufacturing costs are to remain constant even 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 implemented on this vehicle with the 

appropriate lead time and the rest of the OEM’s products 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 the long term use of this technology 

will be considered “old” with minor incremental improvements over other vehicles but 

may be considered “major” when compared to the original vehicle 5 years ago. 

12. For comparison purposes in estimating the cost of the low, medium, high complexity 

choices with definitions given previously – costs for assumptions were $100, $500 and 

$5000 respectively. 

13. From one vehicle generation to the next – the complexity 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 (currently 3%) assumes a future warranty 

value of 1.5%. 

Production Overhead
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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 mostly designed into the body structure in 

the initial stages with redesigning existing 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 improvements do not generally impact other systems, the additive warranty cost is 

considered minimal. 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 

additional cost must be > 0. 

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

therefore must have increased coordination with other groups and some components must be 

redesigned. Most of the carry 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 

increased warranty costs until fleet data can be used to understand warranty in the field. As 

experience is gathered in the vehicles duty cycle along with other vehicles, the part and vehicle 

durability testing will be more effective. This will reduce the long term warranty costs 

significantly. 

A high complexity system will have many unknowns and will be in constant design change well 

into the vehicle build stages as the system interaction 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 durability tests or from customer 

“unanticipated” operation. In the 2nd iteration of the technology, the warranty costs will 

significantly decrease 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 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 improvements defined as tire 

spats, air dams, rear visors, and first surface blendings. Does not include active 

systems such as active grill shutters or dynamic drive height controls. [Aero] 

- Engine downsizing combined with turbocharging [Down-turbo] 

- Plug-in hybrid electric vehicle system with a 40-mile plug-in range [PHEV] 
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Assuming the R&D is already staffed for the new vehicle design, R&D efforts will be directed 

towards the new design direction. There will be additional engineering required as the use of full 

“carry-over” parts do not have the engineering, development or validation required. Aero is 

considered to be minimal complexity and less than the 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 complexity 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 technology will have to be paid for in the first years 

of the new vehicle and the other low and 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 severely 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 increased parts such as supplier quality and 

purchasing personnel. It is assumed complexity = 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 number of affected parts.

Table 8: Retirement costs for non-production workers

 Aero Turbo-downsizing Plug-in Hybrid 
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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 multiplier 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 grain of salt. Assuming the cost to transport the 

vehicle is reflected in the “average” cost of the 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 to “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 timeframe, it is downgraded as it becomes more 

mainstream and customers, dealers, service understand the system. These values across the 

different complexities are more compacted. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 
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Near-term 1 1 1 

Long Run 1 1 1 

Explanation: 

Not fully understanding vehicle selling costs, I believe it is strictly a function of vehicle 

price which is reflected in the technology.
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Questionnaire: Expert Identification Letter ___D______

For each technology, and for the two time frames, please provide your expert estimate of the 

adjustment, if any, to the incremental change in 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 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 increase 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 – 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 giving 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 some design work, but would fit within 

an existing design process. 

Turbo – The Eco-boost engine is similar to an existing engine, 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 developed 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 cost is far higher than turbo-downsizing. 

Table 5: Depreciation and Amortization Adjustment Factors
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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 intricate 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 maintenance. 

Turbo – The turbocharger will be a supplied part and should not require significant additional 

installation work above and beyond a normal engine program. 

PHEV – PHEVs will require a significant additional amount 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 intricate 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 maintenance. 

Turbo – The turbocharger will be a supplied part and should not require significant additional 

installation work above and beyond a normal engine program. 

PHEV – PHEVs will require a significant additional amount 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 significant additional administrative 

work above and beyond a vehicle program. 

Turbo – The turbocharger will be a supplied part and should not require significant additional 

administrative work above and beyond a normal engine program. 
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PHEV – PHEVs will require additional suppliers, and interaction with utilities and local 

municipalities to determine charging protocols and locations for charging stations. 

Table 8: Retirement costs 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 significant additional retirement costs 

above and beyond a vehicle program. 

Turbo – The turbocharger will be a supplied part and should not require significant additional 

retirement 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 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 significant additional health care costs 

above and beyond a vehicle program. 

Turbo – The turbocharger will be a supplied part and should 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 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 the vehicle size or weight significantly. 

Turbo – Downsizing and turbo charging will reduce the vehicle weight and should save on 

transportation costs. 
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105 

PHEV – PHEVs will weigh more due to the large battery, and 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 aerodynamics. 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 technology. I’m also giving this a lower 

factor assuming that the incremental PHEV cost is far higher than turbo-downsizing. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 selling point. 

Turbo – The initial Ford vehicles available with Eco-boost are being packaged with high end 

content, which is usually high profit. If forced by gas prices or regulations, Eco-boost will likely 

become more widespread and cheaper to the consumer.

PHEV – PHEVs will sell at a premium price. 
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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 downsizing and Plug-in will increase 

near-term warranty due to additional time for diagnosis and repair (plus moreexpensive parts) 

- Long run adjustment for ‘aero’ is not needed, but turbo-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 engineering time, turbo downsize and 

plug-in require add’l engineering resources for development 

- Long run; on-going engineering support needed to inform 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 concern; greater for turbo downsize 

and plug-in due to increased mfg. complexity 
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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 downsize 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 workers

 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 the retirement costs as a function of 

the technology cost, but only as a function of additional 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 comment 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 aero improvements) may require 

unique shipping and handling care to avoid damaging the aero components, plus 

some additional expensive for shipping vehicles with high-voltage electrical systems 

- long-term, some add’l expense for stocking batteries and shipping them to dealerships 

for service replacement 

Table 11: Marketing

 Aero Turbo-downsizing Plug-in Hybrid 
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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 turbo downsize and plug-in 

technologies are worth the extra vehicle cost 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 technologies (assume that this is handled by 

the mfrs. marketing budget) 
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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, and are most likely corrosion-resistant 

(plastics). Unless they create system issues via poor design (e.g., an air dam that traps water near 

an HVAC intake or part of the body and encourages corrosion), I would expect warranty to be 

near zero. You couldn’t completely eliminate warranty, however. 

A turbo-downsizing, while more complicated than a naturally 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 program. Assume we average to around 1 for multiple 

generations, with a little more warranty costs in the first generation and less in subsequent 

generations. 

PHEVs will surely incur much more warranty. In terms of R/1000 (quality and reliability), I 

would expect them to have a much higher 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 improvements 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 have 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 challenging for the first generation of a new engine 

(for catalyst light-off and loading optimization, calibrations, etc.). However, the 2nd and 

subsequent iterations will benefit from this experience. 

PHEVs will be nothing short of a major R&D effort. All things from battery development, to 

packaging, to crashworthiness, durability, 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 $. 

Table 5: Depreciation and Amortization Adjustment Factors

 Aero Turbo-downsizing Plug-in Hybrid 
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110 

Improvements Electric Vehicle 

Near-term 

Long Run 

Explanation: 

Not knowing enough about the differences in tool life 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 testing activity. 

Table 8: Retirement costs 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: 

Assuming that aero and turbo technologies are produced 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 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 0.25 

Explanation: 

Ditto to previous question 
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111 

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 only, and assuming that all vehicles are built 

domestically, there should not be any increased shipping distances. Assuming shipping costs 

(rail + haulers) are volume and not weight-determined. 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 value 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 they stand as “green” halo-type vehicles for mfr 

portfolios. Especially at reduced volume their 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 Dealership

 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, as 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 extensive service training (especially SAFETY, 

etc.), but maybe new service equipment and customer literature such as service manuals etc.
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112 

Questionnaire: Expert Identification Letter _____L____ 

For each technology, and for the two time frames, please provide your expert estimate of the 

adjustment, if any, to the incremental change in 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 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 direct 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 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 risk to warranty costs. In addition to adding 

complex components (turbocharger), additional stress is placed on key engine components. 

Ignition systems are stressed which reduces durability and service intervals. Major engine 

hardware may wear prematurely and fail (piston rings, head gaskets, intake/exhaust valves). As 

these engines age, warranty costs to the manufacturer 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 units 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 related 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 these 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: 
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113 

Additional modeling and wind-tunnel time would be required to make significant aerodynamic 

improvements. Conventional vehicles would 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 development work and lessons-learned would reduce the effort required for the nextgen vehicle (little if any extra costs would be incurred to the vehicle after production starts). 

For the turbo-downsized engine, a significant effort 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 addition, a number of extra concerns arise from the high power densities of these 

engines including thermal management, increased risk to durability, and NVH. Each of these 

areas would need special efforts beyond normal engine development. I would expect the cost of 

this effort to increase at a rate of twice the vehicle incremental cost increase. Most of these 

efforts would be up-front though resulting in little extra cost long term. 

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

normal vehicle. The calibration is much more complex (electric vs IC vs both strategies), 

durability demonstrations for the batteries are still significant since the technology is new. As 

the model ages, I would assume that significant efforts would still be made under continuous 

improvement pretenses to increase durability and fuel 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 that 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 significant 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 body redesign that would normally occur 

with a new model. In general, aerodynamic improvements usually result from simpler shapes, 

which (in theory) would be easier to form. This could result in less complex tooling although the 

changes would have a relatively small impact on cost. 

A boosted-downsized engine would likely require changes to the block structure (dynamic 

loading reasons) and cylinder head (thermal management). Assuming the engine is designed as 

completely new, the cost of these 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 

redesigns. Long-term, it may be less expensive because 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. 
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Plug-in hybrids would need to have design consideration 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 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, most costs to tool the 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 stations to the assembly process. Adjustment 

factors are based on assuming it requires 4% more stations for the PHEV and 0.5% more stations 

for the aero-improved vehicle and the costs associated with maintaining and repairing those. I 

would not expect 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 .1 

Long Run 0 0 .1 

Explanation: 

If the number of components in the vehicle increases, then administration costs would increase 

(mainly related to purchasing and management of supply 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 increase in components to purchase and 

manage. The downsized turbo 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. 

Table 8: Retirement costs 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 additional 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 generally only get a salary match to their 

401k’s between 0 & 5% of their annual salary. 
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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 additional personnel are needed to manage supply 

chains and purchasing of additional components. 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 fairings, 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 appreciable 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 significantly 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 downsized-turbo and PHEV powertrains, significant 

additional marketing will be needed (mainly 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 expect marketing costs to trend in opposite 

directions for vehicles the depending on costs of the technologies. For instance, as people 

become more familiar with PHEV’s less marketing will be needed. However, since the cars with 

only aero 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 marketing 

support initially (1st 5 yrs) for the PHEV, reducing to an extra 1% after 5 yrs; 2% increase for the 
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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 Dealership

 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 personnel 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 upgrade facilities to charge and service 

these types of vehicles. 
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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 complex 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 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 of 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 infrastructure 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. 
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Table 8: Retirement costs for non-production workers

 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 health 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 explanation regarding the extended range 

aspect’s effect of fuel consumption. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 electric power to charge before delivery. 
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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 0.10 1.10 1.3 

Long Run 0.00 1.05 1.15 

Explanation: 

1. Regarding aero improvements: Some initial durability and NVH concerns will be realized. 

The majority of modifications are to existing technologies, using proven designs. 

2. Turbo-DS: Both technologies are currently known and in high volume applications. Initial 

warranty will stem from performance, calibration, and NVH issues. All of these issues will 

decline over time with developing competence. 

3. Plug-in Hybrid: New technology with a heavy dependence on the supplier and limited 

knowledge of failure modes. Cost constraints 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 0.10 1.20 1.5 

Long Run 0.00 1.10 1.3 

Explanation: 

4. Aero: Design and development will leverage existing tools and processes. New and 

modified components are simple designs. NVH and thermal requirements will be the 

biggest issues, however, the OEM’s are well versed in mitigating these problems. 

5. Turbo-DS: Calibration, thermal management, durability, and NVH will be form the 

majority of the development. Although OEM’s are well versed in managing all 3 

factors, additional resources will be assigned to ensure the product meets vehicle 

functional objectives. 

6. PHEV: There will be major calibration work associated with a PHEV. Durability, 

NVH, drivability, and verification of fail-safe modes 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 Factors
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 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 Computation Fluid Dynamics (CFD) work is 

done “up-front”. Should the OEM decide to piece meal these items late in the 

program it will result in additional use of wind tunnels and thermal chambers which 

would increase MRO. 

5. Turbo-downsizing: Same as above, with the exception that due to the limited 

exposure of turbo systems across most OEM’s, some addition use of internal 

resources requiring MRO can be expected. 

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

tools. There will more hands-on trial-and-error across all the OEM resources that 

require MRO – wind tunnels, thermal chambers, electrical labs, development labs, 

etc...

Corporate Overhead 

Table 7: General and administrative

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 

Near-term 0.05 0.10 0.10 

Long Run 0.00 0.00 0.05 

Explanation: 

4. Aero: There will be some additional parts associated with aero improvements, which 

will drive administration costs for part release and 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 measurable increase in G&A costs. 

Table 8: Retirement costs 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: 

The numbers above represent the relative increase in staff required to design, develop, and 

release the associated systems. Retirement costs will increase accordingly. 

Table 9: Health care for non-production workers

 Aero Turbo-downsizing Plug-in Hybrid 
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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 transportation costs associated with aero improvements and 

turbo-downsizing due to the limited number of new components. Essentially, there will be more 

modified existing components in the designs which will mean no change in transportation costs. 

The PHEV will result in additional transportation costs, 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 components tend to be 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 form 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 marketing 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. Once 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 campaigns to recover expenses as quickly as 

possible. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 Aero Turbo-downsizing Plug-in Hybrid 
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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, dealer 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 product changes.
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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 should 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 warranty to increase in both the near term, and 

long term. This increase is due to the increased number of components. The increase in the near 

and long term is also do to the new engine requiring more parts to be available for warranty 

For the PHEV, I am assuming that the engine will stay 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. 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 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. This 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 dyno testing as a standard engine. Assuming 

a company already has some design experience with turbo 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, calibrators 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 expect that the effort for the first time to be three 

times as difficult as a standard vehicle design. In the long term, there will still be an increased 

testing and design burden on a refreshed vehicle, but it will be at a significantly lower level. 

Table 5: Depreciation and Amortization Adjustment Factors
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 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 necessary to a plant; therefore, 

there will not be any addition costs in these categories. 

For a turbo downsized engine, I expect extra testing 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 necessary to a plant; therefore, there will not be 

any addition costs in these categories. 

For a turbo downsized engine, I expect extra testing 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 aero improvements and turbo-downsizing. 

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

category. 

Table 8: Retirement costs for non-production workers

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 

Near-term 0 0 .1 
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Long Run 0 0 .1 

Explanation: 

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

For plug-in hybrid electric vehicles, I expected increased 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 improvements and turbo-downsizing. 

For plug-in hybrid electric vehicles, I expected increased 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 transporting the vehicle to a dealer. 

Plug-in hybrid vehicles will cost more because of the extra weight, and the handling. Hybrid 

batteries may need to be disconnected and reconnected 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 any 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 Dealership

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 
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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 more since the vehicles may need to be 

plugged in, and handled differently than standard vehicles.
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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 should see higher warranty simply due to 

the fact that warranty now accounts for 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 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 techniques 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 implementation 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 0 1.5 2 

Long Run 0 1.5 2 

Explanation: 

Only changes are due to component complexity and count. 

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

 Aero Turbo-downsizing Plug-in Hybrid 
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Improvements Electric Vehicle 

Near-term 1 1 2 

Long Run 1 1 2 

Explanation: 

Only changes are due to component complexity and count 

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 count 

Table 8: Retirement costs 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 count 

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 count 

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 Powertrain, 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 special shipping were required (closed trailers). 

Table 11: Marketing

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 
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Near-term 0 1 3 

Long Run 0 0 0 

Explanation: 

Turbochargers are still a hard sell in US, especially 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 Dealership

 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.
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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 warranty risk, besides the very small risk 

of them falling off, or being damaged during 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 engine components 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 than 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. Additional training is required for service 

personnel. Not sure if this is binned under warranty 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 testing 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 the near term due to new software 

requirements and test procedures as well as new calibration strategies to take advantage 

of the technology. In the long-term, these costs would be no more than conventional 

technologies once the institutional knowledge is in place. 

• PHEVs will have higher R&D costs in the near term due to greatly expanded software 

development and testing needs. In the long term, these costs will still be slightly higher 

than conventional due to increased system complexity. There will also be additional 

testing equipment and lab facilities required to develop these technologies. These 

facilities will be used in subsequent models also. 

Table 5: Depreciation and Amortization Adjustment Factors

 Aero Turbo-downsizing Plug-in Hybrid 
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Improvements Electric Vehicle 

Near-term 0 1 1.5 

Long Run 0 1 1.1 

Explanation: 

• There should be no additional Depreciation and Amortization costs associated with 

passive aero technologies 

• Turbo-Downsizing will require little extra capital equipment at the manufacturing plants 

because the powertrains will be replacing conventional powertrains. There will be some 

additional capital equipment at the engine plants which will be depreciated at the same 

rate as other engine technologies. This will not change 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 and so will likely have slightly 

higher amortization and depreciation costs associated 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 turbo-downsizing technologies in the 

short and long term 

• PHEV MRO costs will be slightly higher due to additional 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 associated with aero or turbo-downsizing 

because these technologies are similar to conventional technologies 

• PHEVs will require additional safety training and documentation as well as additional 

work to certify and possibly interface with utilities. 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). 
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Table 8: Retirement costs 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 retirement costs associated with Aero improvements and 

turbo-downsizing, provided the prospect of implementing 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 associated 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 associated with Aero improvements and 

turbo-downsizing, provided the prospect of implementing 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 associated 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 transportation costs due to changed 

approach/departure angles for loading/unloading that could affect loading density on 

trucks and railcars. 

• Turbo downsizing may actually decrease transportation costs due to reduced vehicle 

weight because of a smaller, lighter powertrain. This could be offset by any additional 

insurance costs due to increased vehicle value. 

• PHEV transportation costs could rise somewhat due to the need to maintain battery 

charge level during storage and transportation. Insurance 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 Hybrid 
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Improvements Electric Vehicle 

Near-term 0 1.5 3 

Long Run 0 .5 1 

Explanation: 

• Aero improvements should not increase marketing costs in the short or long term. 

Automakers will implement the technology, but marketing will ignore it. 

• Turbo-downsizing will have a short-term marketing cost 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 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 marketing cost will be similar to other 

technologies. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 costs 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 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 costs associated with them for training, 

service training tools, and promotions. In the long-term, these costs will decrease to be 

similar to other technologies. 
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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 through misuse or accident that would not be 

covered by the vehicle warranty. 

Turbo-downsizing: Turbochargers by nature are complex 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 smaller vehicles and the trend toward longer 

powertrain warranties. Over 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 complete 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 cycles 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 of turbocharged vehicles is complex 

due to all of the operating points to consider. The 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 complete powertrains that must be 

calibrated together. The electric powertrain requires 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 purchased components that would not require any 

special requirements for the OEM in this area. 
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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 maintenance 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 nature of the systems involved. 

Plug-in Hybrid Electric Vehicle: PHEV’s have two complete 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 area for these technologies. 

Table 8: Retirement costs 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 area 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 area for these technologies. 

Selling 

Table 10: Transportation

 Aero 

Improvements 

Turbo-downsizing Plug-in Hybrid 

Electric Vehicle 

Near-term 1 1 1 
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Long Run 1 1 1 

Explanation: 

The OEM should not have any special needs in this area 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 area for these technologies. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 area for these technologies. 
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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 average 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 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 average because a turbocharged engine 

has more things to go wrong (such as turbo overspeed, higher cylinder pressures to 

manage, etc.) and it costs more than the 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 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 optimize. However, it should not 

require extra staff. 

• Turbo downsizing: I assumed that the engine would be 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 assumed 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 additional staff required to design and 

develop a turbocharged engine over a naturally aspirated engine. There will also be more 

testing/development requirements for this version over a naturally aspirated version. 

• PHEV: Similar to a hybrid, the plug-in will require significant personnel, new testing 

capability, design and development. 
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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 built 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 developed for this vehicle so the OEM 

was required to purchase new tools and dunnage at the engine plant regardless of the 

regulation. The four cylinder engine 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 turbocharger and intercooler were purchased parts so they would only 

require handling equipment. 

• PHEV: The hybrid contains a significant number of new 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 resources. 

• Turbo: Assume work can be accomplished with resources that would have been dedicated 

to the replacement engine. 

• Assume the PHEV will require extra resources. 

Table 8: Retirement costs 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: 
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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 minimal 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 technology affects the manner the driver uses the 

vehicle or has to interface with the vehicle. 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 Dealership

 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 additional repair training if this is the first turbo 
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engine produced by the OEM. The PHEV will have higher interest and insurance costs and will 

require training for the sales staff and repair staff. 
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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 exterior, 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 amount in comparison to the other technologies. 

- TDs are often developed in house by the OEMs so require some R&D. After the initial engine, 

this is likely to be cheaper, but history has taught us that there is continual room for improvement 

in engines. 

- PHEVs require A LOT of R&D and will continue to do 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 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 Factors

 Aero Turbo-downsizing Plug-in Hybrid 
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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 maintenance 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 long run. 

- PHEVs are likely to have very expensive repairs when 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 more support – more staff, more space, more 

stuff to keep the programs running. There may be no difference between short and long term 

here. 

Table 8: Retirement costs 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: 

Staffing and overhead increases with technology complexity. 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 Vehicle 
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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 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. Then it falls off rapidly. 

- engines are also marketed heavily upon release, especially when they have the word “turbo” 

associated with it. 

- PHEVs are of course marketed as the next great thing, and will receive maximum attention 

from this department. 

Dealer New Vehicle Selling Costs 

Table 12: New Vehicle Selling Costs at the Dealership

 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 bit because of the initial demand. This may 

fall off over time as the early adopters are satisfied and the vehicles become more mainstream.