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S. HRG. 107–1137

CORPORATE AVERAGE FUEL ECONOMY

(CAFE) REFORM

HEARING

BEFORE THE

COMMITTEE ON COMMERCE,

SCIENCE, AND TRANSPORTATION

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

DECEMBER 6, 2001

Printed for the use of the Committee on Commerce, Science, and Transportation

(

(II)

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

ERNEST F. HOLLINGS, South Carolina, Chairman

DANIEL K. INOUYE, Hawaii

JOHN D. ROCKEFELLER IV, West Virginia

JOHN F. KERRY, Massachusetts

JOHN B. BREAUX, Louisiana

BYRON L. DORGAN, North Dakota

RON WYDEN, Oregon

MAX CLELAND, Georgia

BARBARA BOXER, California

JOHN EDWARDS, North Carolina

JEAN CARNAHAN, Missouri

BILL NELSON, Florida

JOHN McCAIN, Arizona

TED STEVENS, Alaska

CONRAD BURNS, Montana

TRENT LOTT, Mississippi

KAY BAILEY HUTCHISON, Texas

OLYMPIA J. SNOWE, Maine

SAM BROWNBACK, Kansas

GORDON SMITH, Oregon

PETER G. FITZGERALD, Illinois

JOHN ENSIGN, Nevada

GEORGE ALLEN, Virginia

KEVIN D. KAYES, Democratic Staff Director

MOSES BOYD, Democratic Chief Counsel

MARK BUSE, Republican Staff Director

JEANNE BUMPUS, Republican General Counsel

(III)

CONTENTS

Page

Hearing held on December 6, 2001 ........................................................................ 1

Statement of Senator Boxer .................................................................................... 20

Statement of Senator Breaux ................................................................................. 25

Statement of Senator Burns ................................................................................... 13

Prepared statement .......................................................................................... 13

Statement of Senator Dorgan ................................................................................. 24

Statement of Senator Ensign .................................................................................. 12

Statement of Senator Kerry .................................................................................... 1

Statement of Senator McCain ................................................................................. 3

Statement of Senator Nelson .................................................................................. 21

Statement of Senator Smith ................................................................................... 4

Prepared statement .......................................................................................... 5

Statement of Senator Snowe ................................................................................... 15

WITNESSES

Bingaman, Hon. Jeff, U.S. Senator from New Mexico .......................................... 18

Boehlert, Hon. Sherwood, U.S. Representative from New York .......................... 8

Cischke, Susan M., Vice President, Environmental and Safety Engineering,

Ford Motor Company ........................................................................................... 44

Prepared statement .......................................................................................... 46

Cohen, Edward B., Vice President for Government and Industry Relations,

Honda North America .......................................................................................... 51

Prepared statement .......................................................................................... 52

Davis, Thomas J., Group Vice President, General Motors, North American

Product Development ........................................................................................... 40

Prepared statement .......................................................................................... 42

Ditlow, Clarence M., Director, Center for Auto Safety ......................................... 95

Prepared statement .......................................................................................... 97

Feinstein, Hon. Dianne, U.S. Senator from California ......................................... 6

Friedman, David, Senior Analyst, Clean Vehicles Program, Union of

Concerned Scientists ............................................................................................ 112

Prepared statement .......................................................................................... 114

Gravatt, Jr., Dr. Claude C., Director, Manufacturing Competitiveness and

Partnership for a New Generation of Vehicles, (PNGV), Department of

Commerce, Technology Administration .............................................................. 33

Prepared statement .......................................................................................... 34

Louckes, Theodore, Chief Operating Officer, Paice Corporation ......................... 126

Prepared statement .......................................................................................... 128

Mesnikoff, Ann R., Washington Representative, Sierra Club Global Warming

and Energy Program ............................................................................................ 57

Prepared statement .......................................................................................... 59

Olson, James, Senior Vice President, Toyota Motor North America, Inc. .......... 102

Prepared statement .......................................................................................... 103

Reuther, Alan, Legislative Director, International Union, United Automobile,

Aerospace and Agricultural Implement Workers of America (UAW) .............. 74

Prepared statement .......................................................................................... 76

Robertson, Bernard, Senior Vice President, Engineering Technologies and

Regulatory Affairs, Daimler/Chrysler Corporation ........................................... 107

Prepared statement .......................................................................................... 109

Runge, Hon. Jeffrey W., Administrator, National Highway Traffic Safety

Administration, Department of Transportation; accompanied by Robert

Shelton, Executive Director ................................................................................. 29

Prepared statement .......................................................................................... 31

(IV)

APPENDIX

Page

Association of International Automobile Manufacturers (AIAM), prepared

statement .............................................................................................................. 163

Cohen, Edward B., letter to Hon. John F. Kerry, dated Dec. 19, 2001 ............... 168

Duncan, William C., General Director, Japan Automobile Manufacturers

Association, prepared statement ......................................................................... 157

(1)

CORPORATE AVERAGE FUEL ECONOMY

(CAFE) REFORM

THURSDAY, DECEMBER 6, 2001

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC.

The Committee met, pursuant to notice, at 9:30 a.m., in room

SR–253, Russell Senate Office Building, Hon. John F. Kerry,

presiding.

OPENING STATEMENT OF HON. JOHN F. KERRY,

U.S. SENATOR FROM MASSACHUSETTS

Senator KERRY. Good morning. The Commerce Committee hearing on the subject of CAFE standards will now come to order, and

I welcome our colleagues. This morning, I will make a brief opening, and I am confident Senator McCain will want to say just a few

words. We will try to move along. We have a very ambitious, full

schedule today on a topic of enormous importance, and we really

want to try to maximize the expertise of the panels that are here,

so we want to try to keep it moving.

Let me just begin by saying that the hearing today seeks to focus

on corporate average fuel economy standards. I readily acknowledge to all the panelists that we are well aware that there are

other possibilities, other ways of trying to deal with average fuel

economy—or, not average fuel economy, but at any rate, fuel economy itself. Whether it is through tax incentives or cappage programs or biomass fuels, there are other options, and we have been

discussing them as we meet, and will continue to meet, over the

course of the next month or so. That is not what we are here to

talk about today, and I am going to keep bringing us back to the

fundamental issue, which is the CAFE standards themselves.

Some of those other policies, let me say, may well make sense.

They may well be part of a mix, of an intelligent policy to try to

approach this issue over the long term, but we are focusing on

CAFE because CAFE is going to be one component of it, and it is

one of the most pressing and onerous of policy questions that we

face.

All of us know that this CAFE program was created specifically

in response to the 1973–1974 Arab oil embargo as part of the Energy Policy and Conservation Act. It was signed into law by President Gerald Ford, I might remind everybody, a Republican from

Michigan, who years later said that enacting CAFE was the right

decision, and that he found it was a program that had been reasonably fair and produced significant benefits.

2

When President Ford signed that bill, the principal reason for

signing it was to reduce oil dependence and increase the overall

economic efficiency and conservation. Today, we have also come to

recognize that CAFE provides us with environmental benefits as

well. The accumulation of greenhouse gases has been one of the

most important considerations in the fuel economy debate, and to

a great extent CAFE has been successful in achieving technical efficiency, economic efficiency, and reducing pollution.

We have built more efficient vehicles. In 1974, the average car

sold in America got 13 miles per gallon. By 1988, fuel economy

climbed to a peak of almost 29 miles per gallon, a 120 percent increase in fuel economy over 14 years. Light trucks climbed from 18

miles per gallon in 1979 to a peak of almost 22 miles per gallon,

an increase of almost 20 percent in 9 years.

We reduced oil consumption as a consequence of this. The National Academy of Sciences estimates that the United States’ gasoline use would be 43 billion gallons per year more, 2.8 million barrels per day higher than it is today, were it not for this program.

As a result, the use by cars and light trucks today is roughly onethird lower than it would otherwise be, and overall oil consumption

is 5 percent lower.

We have also reduced pollution. The National Academy of

Sciences estimates that without these advances, carbon dioxide

emissions would be more than 100 million metric tons higher each

year than they are now. That is a 7 percent cut in emissions, and

as we consider the importance of global warming, it is something

to keep in mind as we go forward.

Now, there are important concerns raised on both sides, and Senator McCain and I, Senator Hollings, our Chairman, and others on

the Committee are determined to do the best job we can as a Committee fairly and thoughtfully listening to all the sides of this issue

as we proceed forward.

I have not arrived at an overall CAFE figure, a number that

should be the goal or standard. I have not even arrived yet at what

the structure might be, and there are several different proposals on

the table with respect to that, but I think it is important to all of

us to understand that some of the arguments we are hearing are

very similar to arguments that were posed when this program was

first proposed.

We hear from the Alliance of Automobile Manufacturers strenuous opposition to the CAFE program, including concerns that

there is a negative economic impact on individual companies and

the industry as a whole, that the public has not made a decision

to buy in these directions, and that you cannot force consumer decisions. They question whether CAFE is the most effective policy to

achieve the goal of reducing oil consumption, and are concerned

with the impact that a fixed figure with a specific set of time that

is not reasonable might have on the industry as a whole, and

therefore on jobs and on the economy of this country.

I want to make it as clear as I can I think every Member of this

Committee is deeply concerned about the economy of the country,

and obviously, none of us wants to adopt a policy that appears

mindless and geared to putting people out of work. But many of us

believe that there are ways to avoid those kinds of dire predictions

3

and consequences, and that is precisely what this hearing is geared

to try to examine.

I think by the same token there are some exaggerated claims on

other sides of the ledger, and we need to examine those also as we

go forward. Let me just close by saying one thing. After a decade

of the CAFE standards being frozen in place, there has been a decrease in the overall fleet economy, and we are coming back to a

place where we have been before. Many of us have been deeply concerned that the agencies responsible for trying to help work us

through this problem have literally been prohibited by congressional mandate from even being thoughtful about what the options

might be.

As we all know, in 1995 the Administration was prohibited from

even an evaluation of what might take place with further CAFE

standards. So we come to this debate mindful of the restraints

under which we have been forced to operate, and I also remind people that there is a track record here. During the Reagan and Bush

Administrations, it is interesting that some of those who opposed

CAFE looked to NHTSA to be the operating entity, and then when

people perhaps viewed as being less friendly to their interests were

in power, suddenly Congress became the empowered entity, and

now once again we see those people who oppose CAFE looking to

NHTSA to try to be the governing entity.

So there is a track record here of people forum-shopping, and I

think I am certainly going to encourage this Committee to not be

impressed by those forum-shopping efforts, and to try to do what

the Congress of the United States ought to do, which is to show

some leadership and try to set a standard.

There is a lot on the table today, and I will try to keep to my

own restraints here.

Senator McCain, do you have some opening comments?

STATEMENT OF HON. JOHN MCCAIN,

U.S. SENATOR FROM ARIZONA

Senator MCCAIN. Thank you, Mr. Chairman. I want to thank you

for having this hearing, and I want to thank you for your long involvement in this issue. I welcome our Senate colleagues, as well

as Congressman Boehlert, who has been a staunch leader in this

effort as well as in other environmental issues. We are pleased you

came over to discuss this issue with us today, Congressman Boehlert. And again, I want to thank you, Senator Kerry. With all of

the other issues that we are facing here, I think it is important

that we have this hearing, because I think it is important that we

act next year, and I think you would agree that we probably have

enough information to move some legislation, at least, through the

Commerce Committee.

The issue is a significant one. I hope today’s testimony will provide the Committee with an in-depth look at how best to address

the issue and balance consumer interests and environmental

issues. The debate is complex because it involves the environment,

public safety, and the economy. It involves a tension between the

consumer’s choice to drive vehicles that perform to the owner’s

standards and the environmental consequences that result from

those choices.

4

Moreover, higher CAFE standards may now play a more significant role in our discussions regarding efforts to decrease U.S. independence on the importation of foreign oil.

The recent NAS report concluded that the benefits resulting from

CAFE-type programs clearly warrant government intervention in

the market. The report points out that CAFE has produced many

positive results, including a reduction in the emission of greenhouse gases, a decreased dependence on foreign oil, and lower fuel

consumption. At the same time, NAS reported that CAFE standards have probably resulted in increased traffic fatalities due to the

down-sizing and down-weighing of vehicles by manufacturers in

their efforts to comply with the standards.

To properly address this issue requires careful evaluation of new

technologies and the costs associated with incorporating them into

the fleet. I am hopeful that today’s testimony will enable this Committee to learn more about the technology that exists to increase

CAFE standards, and how the auto industry can implement that

technology at minimal cost to the consumer without compromising

safety or performance. In particular, I hope the industry will speak

to the research and development in which they are currently engaged in their efforts to develop vehicles that are more fuel-efficient.

In conclusion, let me say that it is imperative that the Commerce

Committee examine this issue in a comprehensive manner, and formulate a balanced approach that achieves better fuel economy, and

at the same time, provides consumers with choice and enhanced vehicle performance.

I thank you, Mr. Chairman. I thank you for your involvement,

and I thank you for holding this hearing, and I know we will probably have to have some more, but I hope next year that we can

take some action. We have been reviewing it for a number of years

now.

I thank you, Mr. Chairman.

Senator KERRY. Thank you very much, Senator McCain.

Let me just say for everybody’s edification, the schedule of the

Committee will essentially be accelerated because, as everybody

knows, there have been a few skirmishes on the floor of the Senate

with respect to energy policy, and clearly, CAFE will be a component of that policy. It will be unavoidable that when we have energy on the floor of the U.S. Senate, there is going to be some effort

to deal with this issue, and so we are putting ourselves on an accelerated schedule to try to deal with it.

In that light, I met with Senator Daschle, we talked about it, we

met with Senator Bingaman, the Chairman of the Energy Committee, Senator Feinstein, other interested parties, and it will be

our intention to try to complete our task within this Committee in

time to be relevant to that debate and to make our recommendations, and that will be sometime late January, obviously.

Senator Smith.

STATEMENT OF HON. GORDON SMITH,

U.S. SENATOR FROM OREGON

Senator SMITH. Thank you, Mr. Chairman. As a Member of both

the Energy Committee and the Commerce Committee, I join SenVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00008 Fmt 6601 Sfmt 6601 D:\DOCS\89683.TXT SSC1 PsN: SSC1
5

ator McCain in thanking you for holding this hearing. I think it is

timely and very, very important. In the interest of time, I would

ask my full testimony be included in the record. I will sum up my

remarks by saying that in the past I voted to lift the moratorium

on CAFE standards, and I am open to a reasonable approach to increasing CAFE standards or to any alternative plan that can

achieve the same policy objectives.

Our challenge as we craft the legislation will be to proceed in the

manner that preserves consumer choice, protects passenger safety,

and does not impair the competitiveness of the domestic auto industry. I believe we can do all this while maintaining and increasing our environmental stewardship, and I note that the National

Academy of Sciences recently reported that technologies exist that

can significantly reduce fuel consumption within 15 years, especially for light trucks. If it exists, let us get on with it. Let us keep

the trucks rolling. Let us roll.

Thank you, Mr. Chairman.

[The prepared statement of Senator Smith follows:]

PREPARED STATEMENT OF HON. GORDON SMITH, U.S. SENATOR FROM OREGON

Mr. Chairman, I want to thank you for holding this timely hearing on Corporate

Average Fuel Economy (CAFE) standards. I believe this hearing will be very helpful

in the upcoming debate on national energy legislation, and I look forward to hearing

from the witnesses today.

I have voted in the past to remove the moratorium on raising CAFE standards,

and am open to a reasonable approach to increasing CAFE standards or to an alternative plan for achieving the same policy objectives.

Our challenge as we craft legislation will be to proceed in a manner that preserves consumer choice, protects passenger safety, and does not impair the competitiveness of the domestic auto industry. I believe that all of this can be attained

while we simultaneously enhance our environmental stewardship.

Combating global climate change must involve the transportation sector in order

to succeed. In addition, our dependence on imported oil continues to grow, and is

expected to reach 66 percent by the year 2010. To put that in context, the U.S. imported just 35 percent of its oil at the time of the 1973 oil embargo.

As the recent National Academy of Sciences report found, technologies exist that

can significantly reduce fuel consumption within 15 years, especially for light

trucks.

We need to apply American ingenuity to improving fuel efficiency, without sacrificing human safety. This is where the debate on this issue has largely centered—

fuel efficiency versus the increased traffic fatalities that resulted from the

downsizing and downweighting of vehicles that occurred in the 1970s and 1980s.

As a society, we are all the poorer for these deaths. Who knows what these individuals might have achieved, had they lived.

We should not, and need not, impose on auto manufacturers fuel efficiency standards that will lead to more fatalities. However, even under existing fuel standards,

today’s vehicles within the same class vary widely in their safety records. We need

to ensure that the safest designs are incorporated, and that auto safety requirements are adequate, regardless of the outcome of the CAFE debate.

There are a variety of technologies, such as turbo-charged engines, that are already available to increase our fuel efficiency without sacrificing performance.

1 am a co-sponsor of S. 760, sponsored by Senator Hatch, a bill to amend the tax

code to encourage and accelerate the production and sale of vehicles powered by fuel

cell technology, hybrid technology, alternative fuels or other advanced vehicle technologies.

I believe these tax credits can spur the commercial development of these vehicles

as effectively as the federal funds we spend on research.

I look forward to hearing more from the witnesses about the effectiveness of the

current CAFE standards. I think that in the coming months the Congress and the

Administration should also explore the alternative approaches that, in the Academy’s findings, could accomplish the same policy objective at lower cost, while providing more flexibility to manufacturers.

6

I also appreciate the report’s recognition that technology changes require very

long lead times to be introduced into the manufacturers’ product lines. We must ensure that any policies or actions taken relative to fuel economy reflect these lead

times, and don’t place U.S. auto manufacturers at a competitive disadvantage to foreign automakers.

I look forward to hearing from the witnesses today, and to working with my colleagues in the coming months to craft an effective policy on this important issue.

Senator KERRY. Thank you, Senator Smith, and without objection

your full statement will be placed in the record.

It is my understanding that Congressman Boehlert and Senator

Feinstein both have to leave early. Is it all right with Senator

Bingaman—as Senior Member, I just wanted to ask you if we could

proceed with them first.

Senator Feinstein, would you lead off then, and then Congressman Boehlert. We are delighted to have you here, and Senator

Snowe as well. Thank you for taking time to be with us, and we

look forward to your testimony.

STATEMENT OF HON. DIANNE FEINSTEIN,

U.S. SENATOR FROM CALIFORNIA

Senator FEINSTEIN. Thanks very much, Senator Kerry, Senator

McCain, Senator Smith.

Senator Kerry, this is the second time I have had the privilege

of appearing before you to speak about fuel efficiency standards for

SUVs. I am delighted that the Chairman of the Energy Committee

on which I am proud to serve is here, and my cosponsor in the legislation I am going to speak about this morning, Senator Snowe

from Maine, is also going to testify and, of course, Congressman,

we welcome your support.

Senator Snowe and I have introduced legislation which is very

straightforward and, as Senator Smith said, we believe a reasonable piece of legislation. That legislation would bring the fuel efficiency standards for SUVs and light trucks into conformance with

those standards on sedans, our legislation says, in 6 years. The National Academy of Sciences said that the time period—actually, a

report that was leaked was much more aggressive, but the final report said within 10 to 15 years.

I, for one—I have not had a chance to discuss this with Senator

Snowe, but it seems to me that this can be well-accommodated

within a 10–year period, and I would like to explain why.

At the time original CAFE legislation was introduced in 1975,

people did not drive SUVs. When the automotive companies began

to manufacture SUVs, they built them to meet truck specifications.

As a result, the vehicles were not held to the same fuel economy

standards as regular passenger vehicles. Now the rub is that today,

almost half of all new passenger vehicles sold in this country are

SUVs, or light duty trucks, so today they are used as passenger vehicles, and yet they get the lower fuel efficiency standards.

The United States contains only 3 percent of the world’s oil reserves, and we consume 25 percent of oil produced worldwide. We

use about 19 million barrels of oil a day, about 10 million of which

are imported. 40 percent of the oil we use in the United States goes

into our motor vehicles. The Feinstein-Snowe legislation saves 1

million barrels of oil a day, reducing our dependence on foreign oil

7

by 10 percent right off the bat. There is no bigger bang for the buck

than that.

The fuel economy for automobiles has not improved since 1987.

That is 14 years with no progress. Meanwhile, SUVs and light

trucks have not improved since 1981. That is 20 years with no

progress. As I have said, since almost half of the vehicles on the

road are SUVs and light duty trucks, fuel economy today has

reached its lowest overall level in 20 years. That is why we are

here.

I really believe that the Feinstein-Snowe legislation, which would

phase in an increase in fuel economy standards for SUVs and light

duty trucks and also increase the fuel economy of our government

fleet, may be the single most important energy policy we can implement right now, today.

Additionally, closing what is called the SUV loophole would prevent about 240 million tons of carbon dioxide—that is the top

greenhouse gas the single biggest cause of global warming—from

entering the atmosphere each year, so it is one of the best steps

we can take to help combat global warming.

I think all we have to do is sit here on this brilliant December

day in Washington and see cherry blossoms beginning to bloom to

understand that global warming is, indeed, a real phenomenon.

So why have we not raised CAFE standards? The short answer

is because of the automotive industry. The industry has opposed

fuel economy standards in 1975, and they have essentially recycled

the same arguments to oppose any new standards. They argue they

will cost jobs. They argue they will jeopardize safety. They argue

that they do not have the technology to improve fuel economy.

Let me just briefly respond. There is no evidence that improving

fuel economy will result in the loss of a single job in the United

States. The National Academy of Sciences was directed to assess

whether fuel economy would cost jobs. They found that it did not.

In fact, I believe the biggest threat to jobs will be the continuing

loss of market share by the Big Three to Toyota and Honda and

other foreign manufacturers who are producing more efficient vehicles.

Second, the automotive industry argument that the only way to

improve fuel economy would be to make vehicles lighter and thus

less safe is simply not true. The Academy of Sciences report points

out that there are other ways to improve fuel economy and safety

at the same time, and this is significant.

For instance, you can encourage weight reduction using advanced

lightweight materials that will not only keep light duty trucks safe,

but also improve the safety of all vehicles on the road. The academy report also points out that improvements in drive train and

engine technologies can greatly increase fuel economy without

changing a vehicle’s weight.

So the issues of fuel economy and safety can easily be both accommodated and separated. If you want to talk about safety, you

should talk about the SUV rollover and roof crush standards, not

the CAFE loophole.

Last, the automotive companies argue they do not have the technology to do this. Again, the academy report says that substantial

fuel economy gain can be made in 10 to 15 years, and the summary

8

of the draft report, as I also mentioned, was even more aggressive

in that direction.

In Europe, where regulations and the threat of regulations are

much stronger, the European automotive manufacturers, which include Ford, GM, and Chrysler, have promised to decrease carbon

dioxide emissions of all their new vehicles by 25 percent by 2005.

Ford has pledged a 25 percent improvement in fuel economy of its

domestic SUV fleet by 2005. That is here in the United States, and

the other automotive companies have pledged to follow suit, so it

seems the technology, indeed, is there to do this.

I strongly believe, and I think Senator Snowe and Senator Bingaman join me in this, that global warming is real. It is a threat, and

it may well be the greatest environmental threat facing us in our

lifetime, and the single most effective action we can take at this

time is to limit reliance on foreign oil and to reduce global warming

by increasing the fuel economy of our vehicles.

I thank you, Mr. Chairman.

Senator KERRY. Thank you very much, Senator Feinstein.

Congressman Boehlert.

STATEMENT OF HON. SHERWOOD BOEHLERT,

U.S. REPRESENTATIVE FROM NEW YORK

Mr. BOEHLERT. Mr. Chairman, thank you for your invitation to

appear here today. It is good to be here with you again in common

cause, and with my classmate and partner in so many adventures,

Senator McCain and the other Senators with whom I enjoy an outstanding working relationship.

I want to congratulate you on holding this hearing, because raising CAFE standards is the single most significant step we could

take as a Nation to reduce our dependence on foreign oil, improve

our national security, protect our environment and our economy,

and assist our consumers. Even a very moderate increase in CAFE

standards would save more oil than would be produced by drilling

in the Arctic National Wildlife Refuge under the most optimistic

scenarios.

In part, that is because transportation is the sector of our economy most dependent on oil. 43 percent of the oil the Nation used

in the year 2000 was consumed as gasoline. We are simply never

going to kick our dependency on foreign oil if we do not use less

fuel in our cars. That is why, when the House considered its energy

bill, H.R. 4, I proposed along with Mr. Markey that we phase in

a single CAFE standard for all cars and light trucks of 271⁄2 miles

per gallon over 5 years.

As you know, 271⁄2 miles per gallon is the current standard for

cars. The approach we took, a single average for all vehicles, provides maximum flexibility for automobile manufacturers. They can

choose to make cars more efficient, or SUVs and light trucks more

efficient, or some combination of both.

I would encourage the Senate to move forward with this proposal. Moving ahead should be easy, because in many ways it is

hard to argue against tighter CAFE standards. We all know that

we have to become less dependent on oil, and that CAFE standards

unarguably would contribute to that. Moreover, fuel standards can

9

save consumers money, which is one reason why pollsters consistently find public support for raising them.

Indeed, the case for tighter standards is so self-evident that their

opponents sometimes reach for scare tactics and sophistry to combat them. For example, opponents argue that CAFE standards represent interference with the marketplace, but there is no way for

consumers to send a market signal that they want more fuel-efficient SUVs. If you want an SUV, you have to buy gas guzzlers.

There are no other choices. This is a classic market failure, a case

in which individual choices cannot express a collective desire for

vehicles that use less energy.

Other arguments are less philosophical and even easier to refute,

thanks to the study released this past summer by the National

Academy of Sciences, and that is a well-read study, and it should

be read by a lot more people. This study was so damning for opponents of CAFE standards that the automobile industry actually

tried to argue that the academy, the Nation’s most prestigious scientific body, did not understand physics. Not surprisingly, just this

week the academy reiterated that it was sticking to its conclusions,

and what did they conclude?

First, the National Academy of Sciences said having separate

standards for cars and SUVs had been stretched well beyond the

original purpose, and makes no sense. You can refer to pages ES

4 and 5 through 10 of the academy report for confirmation.

Second, the Academy said that raising fuel economy standards

will be a net savings for consumers. Look at page 4 through 7 to

check that one out.

Third, the Academy said raising fuel economy standards will not

hurt American workers, and that is particularly important, and

they base that on the real experience of the past decades. That is

on page 2 through 16.

Fourth, the Academy said that improved fuel economy is perfectly feasible even with current available technology, technology

that is on the shelf, ready to be put to use, and capable of achieving higher standards than Mr. Markey and I have proposed. That

is on page ES 5.

You can also look at the May 14, 2001 issue of Automobile News

and find a list of the technologies that auto companies already have

to make dramatic improvements in fuel economy.

Fifth, and most important of all, the Academy said that increases

in fuel economy can be achieved without degradation of safety, and

let me emphasize that, without degradation of safety. In fact, the

report says that some available technologies can even improve fuel

economy and increase safety at the same time. That is on page 4

through 26.

In the House, I knew I won the debate on merit but I was going

to lose the vote on emotion when the opponents to increase CAFE

standards said in their closing arguments passage of this amendment will result in the loss of thousands of lives on our Nation’s

highways. That is unmitigated nonsense. Ask the National Academy of Sciences.

In short, raising CAFE standards can make our Nation more secure without harming workers or compromising safety. In the aftermath of September 11, we no longer have the luxury of hesitating

10

to take simple, painless, and proven steps of raising CAFE standards.

Thank you very much, and good luck with your most important

work.

Senator KERRY. Congressman, thank you very much. I would like

to ask you a couple of questions, and I meant to do so with Senator

Feinstein. I did not realize she was going to leave immediately.

But let me sort of put to you the industry point of view in response to what you just said. First of all, you made the argument

that we are not going to kick our dependency on foreign oil if we

do not improve fuel economy. Don’t we have to be careful of that?

I mean, if we are using 25 percent of the world’s oil resources, 50

percent of which go to transportation, and we have only 3 percent

of the reserves in the U.S., it seems unlikely that CAFE standards

are ultimately going to affect our dependency in any major way.

Mr. BOEHLERT. It will lessen the dependency significantly.

Senator KERRY. Significantly, you say? How is that? I am just

trying to understand.

Mr. BOEHLERT. Well, if we just had more fuel efficient automobiles we are not going to consume as much oil.

Senator KERRY. Correct. But while I am in favor of reducing our

consumption by 2.5 million barrels per day, I just do not want to

overplay an argument here.

Mr. BOEHLERT. Neither do I, Senator.

Senator KERRY. But reducing dependence on foreign oil is not

going to ultimately affect our need for fuel economy. Even if you

bring all the Alaska oil and everything else online, we are still

never going to be able to produce enough oil in this country. We

are still dependent.

Mr. BOEHLERT. But we do not have to have an economy exclusively dependent on oil for energy.

Senator KERRY. That raises the larger question, which is, which

of these arguments do you want to accent?

Mr. BOEHLERT. Well, I have so many valid arguments in support

of increasing CAFE standards that I will choose from the menu.

Senator KERRY. Well, let me give you the opportunity to do that.

The auto industry comes in and says, look, the first grab bag of

mileage was relatively easy. We were able to come in with lighter

vehicles, we were able to change the power train, different kinds

of engines, aluminum, so forth and so on. But their argument is

that those economies of scale have now been gained, and they disagree with the National Academy of Sciences that they can gain

these additional readily available technologies on a scale that is

going to make a difference. What do you say to that?

Mr. BOEHLERT. Well, I would point—and I have a chart right

here from Automotive News. This was a front page story with a

chart, and I would command your attention to some of the items

on there. It is probably too small for you to read from afar, but they

say, if we have adaptive automatic transmissions, we optimize

transmission performance. That will get a fuel economy gain of 5

to 7 percent. Now, that would increase the cost of the vehicles, admittedly, by an average of $2 a vehicle, not a bad investment.

They talk about improved aerodynamics, and that is in the lower

right-hand corner, changes to bumper and wheel covers and exteVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00014 Fmt 6601 Sfmt 6601 D:\DOCS\89683.TXT SSC1 PsN: SSC1
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rior mirrors reduces wind drag. That improves the economy by 5

percent. That might cost a little bit more, $20 or so per vehicle.

The point is, the technology is there, it exists in the marketplace,

at a very modest cost to increase the fuel efficiency, and I say get

on with the job.

I would also say that we do not have to have an economy exclusively dependent upon oil, no matter where the source. It is particularly abhorrent that so much of it is foreign-based. We can have

alternative fuel vehicles.

I am involved in a little venture right now with the U.S. Postal

Service. The U.S. Postal Service is right now in the first phase of

a contract to purchase 500 electric vehicles for use in areas like the

Los Angeles Basin, which is an area of non-attainment in clean air

standards. It is going to use electric vehicles. Coincidentally, they

happen to be manufactured by a consortium of Ford Motor Company and Baker Electromotive in my congressional district, so understandably I am a cheerleader, but not just because it provides

jobs in my district.

It is innovative. It is something for the future. It is so because

it lessens our dependence on foreign sourced oil, at the same time

helping us to meet the high Clean Air Act standards that we all

want to meet.

Senator NELSON. Mr. Chairman, I would like Congressman Boehlert to put back up that chart where you compared it to ANWR as

another means of answering your question on, if you just close the

light truck loophole look how much per day you are saving, as compared to how much you would be getting if you drilled in ANWR.

I think when Senator Bingaman testifies he is going to tell you

that most of our energy consumption is in the transportation sector, and if, in fact, we make a significant difference by utilizing

technology and increasing the miles per gallon you are going to see

a significant lessening of dependence on foreign oil.

Senator KERRY. My point was not that there would not be a lessening. My point was that independence is a difficult word, and so

I am drawing a distinction there.

Let me ask you one final question, and then we will go to my colleagues. The auto industry also comes in and makes the point that

the essential ingredient of profit within the industry today is almost exclusively within SUVs. Other automobiles are actually sold

at a loss, but that is made up for and the profitability in the industry comes from the current configuration of SUVs.

They then make the argument that if there is a mandate with

respect to the size and marketability of the current SUV, they

could be significantly disadvantaged in the marketplace, with loss

of jobs.

What is your comment to that?

Mr. BOEHLERT. If you buy that argument, I would encourage you

to go over to the House side and listen to the Judiciary Committee

and the Commissioner of Baseball making the sad commentary

that baseball is losing $500 million a year. Give me a break.

The fact of the matter is, the auto industry is a profitable sector.

I want the auto industry to continue to be a profitable sector. I just

want them to be wiser, and I would point out that the auto industry is the industry that told us many years ago, when we initiated

12

CAFE standards, do not do it, Congress. If you do that, we are

going to be a Nation driving compacts within a decade. Guess

what? It is hard to find a compact on the open road today. SUVs

are all over the place.

The fact of the matter is, profit is not a dirty word. I encourage

profit. Business goes into business to make a profit, but I want the

business to be responsible, and the fact of the matter is, it will enhance the competitive position of the domestic auto industry if they

follow some of the other manufacturers from abroad who are much

farther ahead in this area, and if you look at the future, and the

consumer is convinced that buying a more fuel-efficient vehicle will

save the family budget a lot of money, the consumer is going to go

to the marketplace option that provides that increased fuel efficiency.

Senator KERRY. Do any other colleagues have any questions?

Senator MCCAIN. I just have one. Mr. Chairman, the American

people overwhelmingly have decided they want to drive SUVs. If

standards were changed, which then would force changes in SUVs,

would we be denying the American people a choice?

Mr. BOEHLERT. Not at all, because as the National Academy of

Sciences study has conclusively proven, not only can you continue

to have SUVs, you do not have to sacrifice weight. There are a

number of things you can do to increase the fuel efficiency of SUVs.

I do not want to deny the consumer the option in the marketplace

that he or she would exercise. I just want to make certain that the

vehicles are more fuel-efficient for all the right national security

reasons for the country, and all the right reasons for the family

budget.

In the final analysis, the consumers are going to say, you have

done us a great favor, because now we can pull up the new, more

fuel-efficient SUV that we voluntarily selected in the marketplace

to the gas station and instead of requiring frequent visits to that

gas station, there will be less frequent visits, and they will require

less gasoline consumption, so the budget will be favorably impacted.

Senator MCCAIN. As an SUV owner, I look forward to that day.

Senator KERRY. Let me remind everybody, we do have a lot of

ground to cover, and we have two colleagues waiting.

STATEMENT OF HON. JOHN ENSIGN,

U.S. SENATOR FROM NEVADA

Senator ENSIGN. I just wanted to say—I think that everybody

would—in an ideal world, love to see more fuel efficiency from all

of our vehicles. I mean, I would love to be able to drive a Suburban

that got 100 miles to the gallon and was just as safe and just as

comfortable, and be able to drive the family around and all that.

I just wanted to challenge you, Congressman Boehlert, about

your comment about the market. You said that there is not a true

market force out there because there are no fuel-efficient SUVs to

be able to choose from, but it seemed a little inconsistent because

in your arguments, when you were talking about foreign competition, you stated that we were going to lose jobs to foreign competition because Toyota and Honda were going to produce more fuelefficient vehicles like this and take jobs away from the Big Three.

13

Well, if that is the case, why is that not happening today with

SUVs? In other words, why are they not building more fuel-efficient SUVs of the same size and taking market away? Last time

I checked, business is in business to get as much market share as

they can and be as profitable as they can, and so why wouldn’t

they do some of the simple things at $2 a car, or $20 a car that

you mentioned today, to gain an advantage in the marketplace? I

mean, these people are not stupid.

Mr. BOEHLERT. You are right, and they are beginning to move in

that direction. The American public is patient. I happen to believe

that basically the American public wants to buy American, but the

patience will wear thin. If you cannot buy American that is fuelefficient, then you look to other options, and that other option will

be across the sea, and that is not very favorable for us.

The biggest-growing SUV sector is smaller SUVs, where the Japanese have an advantage.

Senator ENSIGN. OK, but is that not the market? In other words,

isn’t the market then starting to work? Back in the 1970s, I remember we built some pretty lousy cars here in America, and the

Japanese came over and started outcompeting us, especially during

the oil crisis. People became much more conscious. They forced

American cars to become better. Well, is that not the way the market works? Are those not what market forces are all about?

Mr. BOEHLERT. But Senator, you know, there are a lot of other

factors here. We want the consumer to have the choice in the marketplace. What I am suggesting to you is that the American consumer essentially is patient, waiting. But I am wondering how long

they can wait before they say, ‘‘buy America is a good notion. It

provides jobs for our neighbors and our communities.’’ But I think

we are going to have to look elsewhere, and I do not want to do

that.

Senator KERRY. Colleagues, I have got to interrupt this if I can.

Senator Burns, are you urgent on your question?

STATEMENT OF HON. CONRAD BURNS,

U.S. SENATOR FROM MONTANA

Senator BURNS. Well, I want to follow up on light trucks, and

thank you, Mr. Chairman, for this hearing, and I will put my statement in the record this morning.

[The prepared statement of Senator Burns follows:

PREPARED STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR FROM MONTANA

Thank you, Mr. Chairman, and thank you to our witnesses for being here today

to discuss the National Research Council’s report on The Effectiveness and Impact

of CAFE Standards, or Corporate Average Fuel Efficiency Standards. As a Member

of both the Energy and Commerce Committees, this is a subject which is important

to me in many different aspects.

There is no doubt among any of us that today’s auto is cleaner, safer, and more

efficient than those made 30 years ago. While some would like to give the credit

for that to the U.S. Congress for all the rules and standards it has developed, I

would rather give credit where credit is due and thank the automakers. I would say

technology and competition have brought to where we are today much more than

any rule has.

Coming from Montana, I have a different way of looking at cars and trucks than

many of my colleagues. Performance in Montana has a much different meaning than

it does on the Beltway. Yes, we have a lot of big cars and trucks to haul equipment,

14

but remember, people are hauling a lot more than boats and RV’s in Montana. We

are moving livestock around, or carrying ranch or farm equipment from one place

to another. And it might be 80 or 100 miles from one town to the next. For that

kind of a job you need a reliable truck, and you need to have the confidence that

it will get you and your merchandise without any trouble. Not for fun, or because

it looks cool, but because it’s your life.

Before we get too far into this, I ask my colleagues to take into consideration the

different situations that drivers in different parts of the country face. Larger vehicles cannot and should not be classified into some sort of luxury status. Without the

use of those vehicles at an affordable price, the American West would be a very different place than it is today. By asking that automakers place fuel efficiencies over

any other goal, I fear that a big chunk of the burden will fall on the people who

need these vehicles most to make a living. These are the farmers and ranchers who

feed this country, but are being squeezed from every direction. They are facing higher prices for the goods they buy including fuel and fertilizer, and lower places for

the goods they sell. Ranchers and farmers are interested in fuel efficiency, because

that hits them in the pocketbook. But they are also dependent on a lot of other features that cars and trucks provide. By focusing purely on fuel efficiency, we are

minimizing the importance of reliability, safety, and performance.

Today’s automakers have no choice but to build a better car or truck next year

than they did this year just to stay ahead of the competition. I have no doubt they

will continue to do this with or without a change in CAFE standards. However, if

we make changes in the standard without thinking about what the other effects will

be that is a big mistake. For example, by forcing manufacturers to pour all their

resources into fuel efficiency, what do we trade for it in safety and reliability that

may have been achieved otherwise?

The report estimates that 1300 to 2600 highway fatalities in 1993 alone may be

attributable to smaller, lighter cars that resulted partly from strict CAFE standards. Fuel efficiency, or any other attribute come at a cost. We need to know what

those costs are.

I support the continued research and development of technologies that may not

undertaken without federal support. The technology cycle can be drastically cut

when we are willing to undertake this research for the public good before it is feasible in the marketplace. I would like to recommend that we focus on research before we focus on restrictions because this gives our American automakers a chance

to compete in the global marketplace.

I am glad that the time and energy was put into producing this report because

it answers some questions about what CAFE standards have and have not accomplished. It guides us in deciding how to make these standards more fair and effective. But it does not answer all my questions, and I am glad to have the witnesses

here today to answer some of them.

Senator BURNS. Congressman Boehlert, I will be right honest

with you, I would drive a compact today if I could get in the damn

thing with a hat on.

[Laughter.]

Senator BURNS. I would probably drive a light truck that got

good gas mileage if it would get me to the back pasture and back.

That is the problem here. And if you want to worry about your patience, I will tell you what will drive the market to that lighter

SUV, is when gasoline goes back to $2.50 a gallon. It will not be

because we pass a law, and make companies or the people drive

what we, here in this 17 square miles of logic-free environment,

think that they should, because we are smarter than they are when

we are not.

I will tell you, it is hard to buy a new vehicle for rural America

that you can go down the road and use and get any kind of longevity out of it, and let it operate at any kind of efficiency.

What is happening in agriculture today, I mean, the cost of what

it takes to do business, to raise a crop and to run a ranch, is unbelievable, and vehicle expense—and I have got old friends that they

do everything the old way. They do not truck, they trail. I mean—

and they still make money maybe, but then they wear out more

15

leather than we do socks, and that kind of gets hard on the hide,

but nonetheless, that is one thing, and I think if you talk about patience, when gasoline goes back to $2.50 a gallon, then John over

here is exactly right, and that is what will happen, and it will not

happen because we pass a law or require some things to be done.

Now, I want to ask you one question. Whenever you convert to

electricity, or electric plus, you know, some sort of a hybrid situation, what does that do, the impact on the need for electrical power,

of which over 50 percent of it is produced by coal-fired generators?

Mr. BOEHLERT. Well, first of all, you have natural gas, which is

becoming increasingly more important in terms of generating electricity. There are other ways to generate energy, Senator, as you

well know, and there are a number of Members of this panel I have

worked in partnership with to deal with wind energy, solar energy,

geothermal energy, hydro energy. There are a number of sources.

We cannot focus all our attention exclusively on oil, which because

of circumstances a disproportionate share is elsewhere, and we

have to import that into our market. That does not work very favorably for the American economy.

Senator KERRY. Senator, we have got a number of panels, and

really we have tested the patience of our colleagues, and I think

we do need to move on. Congressman, thank you very, very much.

Mr. BOEHLERT. Thank you, Senator. I do want to point out that

hybrids are self-generating. That is very important to remember.

Senator KERRY. We will leave the record open for any further

questions.

Senator Snowe and Senator Bingaman, thank you very much for

hanging in and waiting.

Senator Snowe, if you would lead off, then Senator Bingaman,

and then we will engage in a very brief round of questions.

STATEMENT OF HON. OLYMPIA J. SNOWE,

U.S. SENATOR FROM MAINE

Senator SNOWE. Thank you, Mr. Chairman. I certainly will be

brief. As a Member of this Committee, I do not want to overextend

my time, but I am delighted to be here today. Most importantly,

thank you, Mr. Chairman, and Senator McCain and Members of

this Committee, for holding a hearing to examine and explore the

most vital issue of vehicle fuel economy.

And I am very pleased to join Senator Feinstein in cosponsoring

her legislation to explore the issues concerning the SUV loophole

for CAFE standards, and also to be here with Senator Bingaman,

who is Chair of the Energy Committee. His leadership has been exceptional, as well as Congressman Boehlert, who has really provided the legislative leadership in the House of Representatives on

closing the loophole regarding sport untilty vehicles, or SUVs. This

is precisely why we are here today, Mr. Chairman, because the current disparity that exists between the standards for light trucks

and passenger vehicles no longer makes sense the way it did when

CAFE standards went into effect in 1978.

Back then, the term SUV was not even coined, and, in fact, light

trucks were more likely to be delivering corn from the field than

coffee from Starbucks. Twenty-one years ago, light trucks comprised less than 20 percent of the market. For the first time in hisVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00019 Fmt 6601 Sfmt 6601 D:\DOCS\89683.TXT SSC1 PsN: SSC1
16

tory, however, we are likely to see the sales of light trucks—

minivans, SUVs, and pickup trucks—to exceed the sales of passenger cars nationwide this year. That is the kind of change that

has occurred in the marketplace.

In fact, this percentage of change has already been registered in

36 States across this country. We also see zero percent interest financing that has been offered by the automobile industry to consumers that has produced a record-breaking SUV sales month in

October, and so it is likely that the number of these vehicles sold

will be pushed even higher.

I happened to read recently where Volvo is intending to make an

SUV for eight passengers, three rows. That prompted Jay Leno to

say, ‘‘That is what we used to call a bus.’’

The point of it is that we have now seen that the SUV loophole

is not only an anachronism, but it is also a threat to our environment, it is a threat to our national security and oil interests, and

the ongoing war on terrorism with a pronounced instability in the

Middle East. Now is the time to begin taking steps to reduce oil

consumption. We know it is not going to eliminate our reliance on

imported foreign oil, but reducing it is a national imperative.

In closing, the SUV loophole is one of the single best steps that

we can take to reduce our reliance by more than 1 million barrels

a day. That represents 5 percent of the 20 million barrels of oil

that we consume on a daily basis. We currently import half of our

needs for oil, 10 million barrels a day. That is 300 million barrels

a month. That is what we have to import from one of the most unstable regions in the world—10 percent of our daily usage.

In fact, 2 weeks ago, OPEC was threatening to curb production

in order to drive up prices. Fortunately for us, Russia thwarted

that effort because it refused to join the OPEC cartel in that endeavor. But we know those threats are going to be repeated over

and over again, not only in the short term, but also in the long

term.

One of the fastest, most efficient, and cleanest ways that we can

reduce our dependency on imported oil is to improve the fuel economy of SUVs and minivans. These are the vehicles that are now

dominating our Nation’s highways. This loophole issue is multidimensional. First of all, it provides benefits as well to our environment, as it has already been mentioned. It will reduce the amount

of carbon dioxide emissions by more than 200 million tons of carbon dioxide—a greenhouse gas that contributes to global warming.

Just to put that into perspective, 200 million tons of carbon dioxide is the equivalent of the weight of 92 million Ford Explorers,

and as you well may know, SUVs and minivans, light truck category, can emit 27 to 49 percent more in the way of carbon dioxide.

For benefits to the consumer, we know that it will enhance the

savings for the consumer in the long term. There was a report done

in 1999 that indicated that if we had established the equivalency

with respect to fuel economies between the passenger vehicles and

light trucks, that it would have produced a savings to the consumers of more than $13.6 billion in the previous year. But, instead, what has happened is that the overall economy of all the

model year 2001 vehicles on the highway has fallen to an average

of 24.5 miles per gallon. That is the lowest in 20 years.

17

We are moving in the wrong direction, and it is the wrong road

to take.

Now, we have the ability to at least intervene and weigh in on

this issue to make a difference. It is not going to happen without

congressional action. That is abundantly apparent. The only way in

which we have had CAFE standards is when Congress has weighed

in and passed legislation.

And, we know it is doable. The National Academy of Sciences has

said so in its own report that was requested by Congress last year

to examine these issues. We know it is doable from the industry

standpoint. In our original legislation, we were saying, let us improve fuel efficiency by 33 percent by the year 2007. Ford Motor

Company has pledged to make those improvements of 25 percent

by the year 2005—25 percent. That is 4 percent higher than our

goals for that particular year in our legislation.

Chrysler and General Motors have indicated they also would be

willing to make improvements, and so we know that there is the

ability to do it.

The National Academy of Sciences said in their report that it is

doable within 10 to 15 years to achieve a 40 percent fuel efficiency—40 percent—and the cost could be recoverable for the consumer over the lifetime of the ownership of that vehicle, without

sacrificing performance.

The Chairman of the National Academy of Sciences, when he appeared before this Committee in August, indicated that he believed—and every member of the report committee agreed—that it

is possible to begin to achieve increased fuel economies within 3 to

4 years, but we have to start that process. We have to create the

lead time.

Senator Feinstein and I are willing to work with the industry to

achieve realistic timeframes and mandates. We are not saying this

is an all-or-nothing proposition and mutually exclusive. It is going

to take a combination of efforts in order to reduce reliance on imported oil and to make the difference in terms of what we are talking about, in terms of our environment as well as on saving in the

consumption of gasoline.

The fact of the matter is, without the CAFE standards, we would

have seen a consumption of gasoline 14 percent higher. Importantly, the National Academy of Sciences said in its report that it

could not be done without a mandate in the CAFE standards. That

is the reality.

And finally, with respect to the technologies, they exist. There

are some already on the table. If you look at the list that was provided by the report, they are all available today. They probably

could achieve just what we are establishing in our legislation, and

there are many more that are in the stages of being researched and

in development that could be available within the 10–year margin

we are talking about in the National Academy of Sciences report

to achieve a 40 percent increase in fuel economy.

But even then, in each of these new technologies that are being

developed, you can achieve improvements in fuel economies from 3

to 6 percent. Some are even higher. I do not think anybody believes

that America does not have the technological know-how. It is indisputable. It is already being deployed by manufacturers, as Senator

18

Feinstein indicated, in Europe and in Japan, because the incentive

for fuel economy in those countries is because of the higher gasoline prices at $4 to $5 per gallon, and so they are already being

deployed. It can be done.

So I thank you, Mr. Chairman and Members of the Committee,

for giving me this opportunity to testify. I do not think that there

is any doubt that this effort is just one aspect to many things that

we may ultimately have to achieve and accomplish. But this one

effort alone will be of benefit to consumers, to the environment,

and there is no question of benefit to our national security. We

have to begin to reduce and sever this kind of vulnerability that

we have with our overwhelming reliance on imported oil.

And lest there be no doubt, let me just add one more point. Our

imported oil back in 1980 was 37 percent. Today, it is 55 percent,

and running higher—55 percent. In my region of the country and

your region of the country, Mr. Chairman, it is more than 80 percent, so it is undeniable what the stakes are on this issue.

Thank you, Mr. Chairman.

Senator KERRY. Thank you very much, Senator Snowe.

Chairman Bingaman, thank you for your patience. We look forward to your testimony.

STATEMENT OF HON. JEFF BINGAMAN,

U.S. SENATOR FROM NEW MEXICO

Senator BINGAMAN. I will be very brief, Mr. Chairman.

We do have a very real interest in this in the Energy Committee,

as, of course, some of your Members are with me on the Energy

Committee, and they are very familiar with this, but in the energy

bill that was introduced by Senator Daschle and myself yesterday

along with many of our colleagues, we left a place there for this

Committee to make a recommendation as to what should be done

with CAFE standards, and we think this is a very important part

of what has to be dealt with if we are going to be responsible in

the area of national energy policy.

This chart that we put up here I think makes the case very dramatically. It shows U.S. oil consumption, millions of barrels per

day. I take several conclusions from it. The green line down toward

the bottom, that represents domestic oil production. You can see

that we peaked in domestic oil production in about 1970. It has

been coming down since then. It will continue to come down, and

that is just because we do not have a lot of reserves. We have got

something like 3 percent of the world’s reserves.

If the Congress and the President decide to go ahead and open

ANWR to drilling, that will improve our situation as far as domestic production, and that is the little red line down there you can

see, the uptick on domestic oil production, but still the inevitable

long-term trend of declining U.S. production will continue, and that

is, I think, agreed to by all.

The total oil demand has been increasing, and by far the largest

factor in that increase, the growth in demand, is in the transportation sector, and that is what you are talking about today, gasoline for fueling our cars and trucks, and SUVs, so what you propose

is going to be crucial as to whether or not we can take that middle

line, that transportation demand line and begin to flatten that out.

19

Frankly, that is what we are talking about. The Chairman is

right, we are not going to become independent of foreign sources

of oil any time in the foreseeable future, but we can reduce the

growing dependence. We can flatten out the demand, the growth in

the demand, and that, I think, is a very major accomplishment.

Some suggestions that been made that let the market solve this

problem. The problem with that is, the market will not solve this

problem. There is a very interesting chart in the report that the

National Research Council, or the National Academy of Sciences

National Research Council issued its figure 2–4, and I do not have

copies for everybody, but I am sure you have a copy of that report.

What it does, it shows passenger and light truck fuel economy

from 1965 through the year 2000. It is very interesting, for the first

10 years of that, 1965 through about 1977, the first 12 years of

that, the fuel efficiency is essentially static. That is because we did

not have in place any requirement for it to improve.

Then Congress came along in response to the Arab oil embargo

and required improvement, adopted the CAFE requirement, and

you did substantial improvement up until about 1988, when the requirements for improvement each year stopped, and since 1988, or

1989, it has been again steady, just like it was back between 1965

and 1977. It has been steady and, in fact, has declined somewhat.

The fuel efficiency has declined somewhat, and so that is left to its

own devices.

The truth is, you can buy gasoline in Albuquerque, New Mexico, for $1.00 a gallon today, and when gasoline is $1 a gallon there is

very little financial incentive for people to go out and worry about

the fuel efficiency of cars and trucks and SUVs. It will be back at

$2.50 a gallon, but it is extremely volatile, and that means that the

market signals that people need are not going to be there to solve

this problem, so we need to put in place policies if there is going

to be continued and persistent attention to this problem, and I

think frankly we have a great experiment coming up here in this

next session, this last session of this Congress, and the experiment

is, can the Congress adopt an enlightened policy that serves our

country’s best interest with regard to fuel efficiency in a circumstance where you have very low prices for gasoline? That is exactly the circumstance we are in.

Last time we did this, we had the Arab oil embargo, which was

a crisis situation that prompted action by Congress. This time we

do not have that crisis situation. I commend the President and the

Vice President for making energy policy a real priority for the Congress and for the Administration, but frankly, they have not made

improvement in vehicle fuel efficiency a priority, and the question

is, will we have the will to do that in this Congress?

I think we need to, and I hope this Committee will do that, and

I hope we will come up with a proposal that we can all adopt on

the Senate floor.

Senator KERRY. Well, Senator Bingaman, thank you very much.

Thanks for your leadership, particularly on the Committee and on

the energy bill, and we look forward to that debate in January and

to your leadership then.

There are two colleagues who need to go to another Committee,

and they have asked the indulgence of the Committee just to make

20

2 minutes of comments each before they have to go. I would recognize Senator Boxer, then Senator Nelson to do that, and Senators,

could you stay just for a moment? I think there may be a couple

of questions.

STATEMENT OF HON. BARBARA BOXER,

U.S. SENATOR FROM CALIFORNIA

Senator BOXER. Thank you very much, Mr. Chairman. I will be

brief and very much to the point. I really want to say to this panel,

two of whom are still here, how important their work is and how

pleased and proud I am that a bipartisan group can get together

and make such a coherent case for what I consider to be a nobrainer, frankly. Listening to you, you just laid it right out there.

The President has asked us all to help in this war against terrorism, and I think you are really helping because clearly, if we can

all get into more fuel efficient cars and reduce our dependence on

that area of the world which we are now fighting, it makes us a

stronger country, and we should in this Committee, I hope, lead

the way as well.

I remember—and I probably should not say this—when cars got

10 miles to the gallon, 12 miles to the gallon, and the auto companies said, ‘‘Oh, my God, we really cannot do better, it is impossible.’’ And they could not make seat belts, and they could not

make airbags. So when one of my colleagues, Senator Burns, whom

I greatly admire and respect, says we do not have to do it, I would

respectfully disagree.

In closing, let me just say a quick personal story.

In 1993, I bought a car here in Washington, DC., and I made a

big mistake. I got a very comfortable gas-guzzler, and every time

I drive it I have regrets. Now, and in California, I decided to make

things better, because when gas prices went up over $2 a gallon—

well over $2 a gallon, we bought a hybrid car.

Now, it is true, I am a little person, and I fit very comfortably

in there, but other people who are not little people fit very comfortably in that car, this hybrid car. My regret is I could not get

an American car because they do not make them yet. They keep

saying they are going to make the SUVs pretty soon as hybrid vehicles, and this is going to be a big breakthrough.

I have worked with a number of colleagues, including Senators

McCain, Wyden, and others, on pushing the regulatory agencies to

crack down on what we call ‘‘zone pricing’’ and these ridiculously

high prices that even the agencies themselves say are not warranted. We cannot get anywhere—I mean, my view is that—and

excuse me for saying this as bluntly as I will, that the special interests really weigh heavily on those agencies.

Therefore, the answer, Mr. Chairman, to not energy independence, but less dependence on the Middle East. And the answer to

avoid these terrible prices is to reduce demand, and I am very excited about this panel and very pleased that you have brought us

together today.

Senator KERRY. Thank you, Senator Boxer.

Senator Nelson.

21

STATEMENT OF HON. BILL NELSON,

U.S. SENATOR FROM FLORIDA

Senator NELSON. Thank you, Mr. Chairman. I drive an SUV. By

the way, when I bought it—a Jeep Grand Cherokee—a couple of

years ago, it was an American company and it is now a foreign

company. And you all can see my SUV, because since we do not

have an office in Hart and we are spread out everyplace, sometimes

I park it in front of the Senate steps, and I hail forth with staff

and cell phones and so forth.

Senator KERRY. Does it have a for sale sign on it?

[Laughter.]

Senator NELSON. Well, as a matter of fact, I have always gotten

an American car, and I am in the market for another American

car. You automobile manufacturers do a great job, and you do a

terrific product for us. But there is no reason why you would oppose increasing miles per gallon, which with all the testimony

here—and we have not heard your testimony, but we have heard

four of our colleagues, two Democrats and two Republicans at the

table—telling us of the logic of this and what we can do to lessen

dependence on foreign oil.

Now, mark my word, with everything that is going on in this

world with regard to terrorism, sooner or later, a terrorist is going

to try to sink a tanker in the Strait of Hormuz, and when that occurs, and the free flow of oil out of the Persian Gulf to the free

world stops, you are going to have another great energy crisis, and

we could well be on the road to solving it.

As Senator Bingaman has pointed out by his chart, most of the

energy consumption is in the transportation sector, and what better way than right here, and this is about as common sense as it

can be.

And Senator Burns, speaking of common sense and agriculture,

I think you ought to have every right, with your hat, to get into

a vehicle that you feel like that you have the room, and the marketplace will determine that. But the marketplace ought to have

choices, and if you want to drive an SUV, you ought to have the

choice of an SUV that does not have nearly as much consumption

of miles per gallon when technology would allow us today to offer

another choice.

Thank you, Mr. Chairman.

Senator KERRY. Thank you very much, Senator.

We are going to have a very brief round of questions, because we

need to move to the next panel. We have got several panels, and

I think we can get into a more exhaustive examination of some of

the objections and conflicts that exist here. Let me raise one of

them, if I can, Senator Snowe, with you.

The testimony that you will not hear unless you are sitting with

us at that time, from Honda, from Ed Cohen, who is going to testify, he says the following: We caution that if cars and trucks are

combined into a single fleet with a single standard, or if the same

standard is adopted for both cars and light trucks, there must be

sufficient lead time.

Your lead time currently is 2007 in the bill.

Senator SNOWE. It is incremental, 26 mpg by 2005 and 27.5 mpg

by 2007.

22

Senator KERRY. 2007 is the final, 6 years from now. It then says,

technology will help, but the lead time must be sufficient. Time

frames reflected in the NAS report appear to be more reasonable,

and this is the important sentence: but we know of no technology

or imminent breakthroughs that can take CAFE to 39 or 40 miles

per gallon, as some have proposed, in a decade or so without severe

marketplace disruptions.

Now, that will be essentially the testimony of almost all of the

automobile manufacturers today. Are we missing something? Are

you missing something?

Senator SNOWE. Well, first of all, Mr. Chairman, in our legislation we move to 27.5 miles per gallon, which is the equivalent to

what passenger vehicles have to meet, so I do not think that that

is an unrealistic timeframe.

Obviously, as Senator Feinstein indicated, we are even willing to

adjust the timeframe to meet that standard, but Ford Motor Company—let me repeat that, and I have not read anything differently

since Ford’s announcement, the Ford Motor Company pledged to

improve, to reach their goal of 25 percent improvement by the year

2005. That brings them to 25.815 miles per gallon, which actually

is even 4 percent higher than our goal for that particular year.

So the point, obviously, for Ford Motor Company to make that

type of commitment, is an indication that the technology does exist,

and going back to the National Academy of Sciences report, it does

really enumerate a number of technologies that exist that could

bring the industry to a certain point.

There are obviously other technologies that go to the 39 or 40

percent increase, and obviously it is going to require the development of other technologies that are in the research and development stage.

Senator KERRY. You are saying, then, that you believe the SUV

capacity could reach the passenger vehicle standard, as opposed to

the overall CAFE standard, because as we know, the CAFE standard applies to the whole fleet. It is a fleet average and not individual, and so you are suggesting, then, that the SUVs are a particular target of opportunity that somehow can be greater, it could

be greater gain there than otherwise?

Senator SNOWE. That is correct, and also I think that Congress

really ought to look at doing this in multiple stages in timeframes

that are achievable, and working with the industry, because it does

take significant lead time to accomplish these objectives. No one is

suggesting it can be done overnight, but obviously, the industry has

already developed many modifications to automobiles over time,

but to the exclusion of fuel economy.

I mean, there has not been any adjustments in fuel economy on

a voluntary basis.

Senator KERRY. Senator Ensign.

Senator ENSIGN. Just very briefly, Chairman Bingaman, in your

graph—because I think, Mr. Chairman, the point you were making

about not being able to be energy independent is a valid point, and

I just wanted to pursue that just a little further, and that is, with

these CAFE standards being raised, are there studies that have

been done as part of the National Academy of Sciences, that would

obviously—people feel that there would be savings involved

23

percentagewise. What does that do to your graph? In other words,

how much of a difference does it make to your graph? Do you have

other graphs that suggest that it is going up, that it is going to continue to go up, because it goes up just a little bit slower, and in

that, is that worth what we are going to do, I guess?

Senator BINGAMAN. Well, I do not have alternative graphs this

morning, but we could try to develop some of those statistics for

you. I think the main change here is that after some period of

years, and that relates to how quickly any additional CAFE requirements would be phased in, but after some period of years you

would begin to see transportation demand flatten to some extent,

and the inexorable increase that we see on this chart would be

mitigated, and that is the single largest thing we can do to reduce

our dependence on foreign oil.

Senator ENSIGN. Just to further a point, and this may be something we cannot answer right now, I am a big believer in alternative fuels. I think we are way too dependent on oil, and hopefully

we will be developing more of the technologies, the hybrid vehicles,

fuel cells, all kinds of different things that are out there today. I

hope that we become less dependent on our cars just running on

gasoline.

In that vein, if we become less dependent on oil, that means the

price is going to go down, which, is there a perverse incentive, or

lack of incentive, then, to develop some of these alternative fuels?

Senator BINGAMAN. Well, as I tried to indicate before, I do think

that the market does not send us very consistent signals about

what people—what their priorities ought to be and where their financial interest lies, and that is one reason why you need to put

policies in place in order to provide some of those outcomes.

I think you are exactly right that, as the price of oil goes down,

there is less incentive to develop alternatives, and less incentive on

the part of people to buy alternatives, and I think that is why

something like a CAFE standard has been required in order to give

some priority to the issue of how much fuel we are going to use

in our vehicles.

Senator ENSIGN. Just last, Mr. Chairman, the reason I bring up

that point is because, yes, we put in CAFE standards, but they did

not fully go into effect when you saw those drops. The reason that

we saw in the late, or basically the 1980s was a change in consumer behavior. I was one of those concerned. I had a Mustang

that got about 8 to 10 miles to the gallon, and the energy problem

was hitting, the price of gasoline went up, and I bought a Honda,

and dramatically changed, because the price of gasoline—I mean,

in those days it was the price.

I guess that is a question I think we have to ask ourselves is,

are we going to affect, with policies that we put into place, a significant enough change in behavior to affect those lives, because it

would seem to me that those lives are the most critical parts of

this, not only environmental things, but also those lives as far as

energy, less energy dependence in the future.

Senator BINGAMAN. Those are excellent questions.

Senator KERRY. Senator Dorgan.

24

STATEMENT OF HON. BYRON L. DORGAN,

U.S. SENATOR FROM NORTH DAKOTA

Senator DORGAN. Mr. Chairman, first of all, let me thank my colleagues. I worked with Senator Bingaman on the energy plan we

have introduced, and I am anxious to work in this Committee on

this other aspect of it.

I do not think the choices are between doing nothing and doing

the wrong thing, as some seem to imply. If we will do something,

we will do the wrong thing, that is not the choice at all. I think

that things have changed here in this country in a fundamental

way, and we would be foolish to believe that this is all about convenience and nothing is changed in our future.

If, God forbid, tonight some terrorist interrupted oil supply tomorrow, our economy, because of our dependence on foreign source

energy, would be in devastating shape, and so I think we need a

balance of interests here. I am not quite sure how we should come

out of this, but we need to balance the interests and understand

that we have a role to play in public policy.

I like all of the talk about the marketplace. I used to teach economics, and I respect the marketplace, but it is not perfect. It has

certain perverse influences. Judge Judy, that cranky little judge on

TV, makes $7 million a year, and a Texas shortstop is paid $50

million, so that is the marketplace, too. The marketplace works

sometimes and does not work so well other times.

Let me tell you, if you roll those cowboy hats up on the sides you

can get more in a pickup truck in Montana, but aside from that,

let me just make this point. It is the responsibility of this Committee to address the subject, and that is why Senator Bingaman

and I and others on the Energy Committee left a place-holder in

the energy bill.

We would be ill-advised, given the time and place, to do nothing.

We ought to do something. The question is what, how do we make

it thoughtful, and how do we balance the interests, but I think

there is a significant role to play in public policy here, and one of

the pieces of testimony we will receive shortly, I think, is from

General Motors. I was reading some of the testimony and they

were talking about CAFE standards they are not very happy about,

but there were other policies, replacing, for example, the older and

less-efficient cars, getting them off the road more quickly. That

makes sense.

I stopped at a donut shop about 3 days ago, I was telling Senator

Breaux, and there was this wonderful circumstance—not for the

two drivers—but there was the largest black Mercedes that you can

buy with the big chrome on the bottom, and then there was a 20–

25 year old Dodge with the bumpers hanging and no paint left, and

the Dodge was backing out of the parking lot by this donut shop

and it grazed the fender, ever so slightly, of this Mercedes, and the

two drivers were standing there with their engines running, and

the old Dodge was belching all of this blue stuff out the back end.

I had my window down just a bit, and I heard them discussing

the fact that the guy in the Dodge did not have insurance, and I

did not finish my donut and listen to the conversation, but I was

thinking about the paradox here of this old car, relatively ineffiVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00028 Fmt 6601 Sfmt 6601 D:\DOCS\89683.TXT SSC1 PsN: SSC1
25

cient car, and he backs into probably the wrong vehicle to back

into.

But the testimony I was reading last night about getting the

less-efficient cars off the road, the older, less-efficient cars, makes

sense. That is one part of the policy. There are several things we

can do that are important, one of which, I think, is CAFE standards, in a way that is thoughtful in a way to try to pull and to push

public policy along, because Senator Bingaman has the chart that

says it all. Transportation demand is the relentless upward push

of our consumption for oil, and if we do not address that, if we do

not address that in some meaningful way and thoughtful way, we

will not, in my judgment, serve this country’s energy interest.

I did not ask a question, but I did want to make a statement,

because I came late. Thank you, Mr. Chairman, for holding the

hearing.

Senator KERRY. Thank you very much, Senator. Let me just say

to everybody we are going to take as long today as we need to to

make sure that we are not going to give any panel short shrift. I

think it is an important topic, and we do want to run through the

questions.

Senator Breaux.

STATEMENT OF HON. JOHN B. BREAUX,

U.S. SENATOR FROM LOUISIANA

Senator BREAUX. Thank you, Mr. Chairman, and I thank our

Members and colleagues for being with us.

You know, I think that many times all of us seek simple solutions to difficult problems and think that there is one answer, and

there really in this business is not a single answer. There are some

who advocate that the solution to America’s energy problem is very

simple, just produce more energy. Others say no, it is simple, but

that is the wrong answer. The right answer is to consume less energy, and in reality it has got to be a combination of both those

things.

We have to produce more. What we do today is intolerable, in the

sense that we import about 57 percent of our energy from foreign

countries, many of which are not friendly to us, many of which are

engaged in activities in setting the prices that if they did that

while they were in this country they would go to the penitentiary,

because they regularly fix prices, and that is illegal, and yet we

allow this country to buy from people who would go to the penitentiary. Were they doing the same thing every day in this country it

would send them to the pen, but some people say, well, it is cheap,

so that is fine.

That is intolerable and cannot be continued. We have to have energy bills that allow for a rational production and rational production in all parts of the country, and do it in an environmentally

safe manner, which we can. Also, I am a believer in alternative

fuels, and I believe in solar power and geothermal power and any

other kind that we can possibly produce. That is not going to solve

the problem, but it should be a part of the ingredient and ultimate

solution to the problem.

My concern—and also using less, obviously, is also important,

and trying to make sure that the trucks and cars we use get the

26

best bang for the buck and the greatest miles for the gallon that

we possibly can, seeing that there is a limit, though.

If we require everybody in America to drive the little new vehicle

I saw on Good Morning America, the little scooter—you lean forward, and it goes forward. You lean back, and it goes backwards,

and you can probably solve America’s problem real quick, but I

doubt whether Americans would put up with that, and so there has

got to be a degree of how far we can go in making cars smaller and

littler and lighter before you start adversely affecting safety and

convenience.

The question I would have maybe for either one of you maybe

just to comment on, because you have given a great deal of thought

to this, I notice in one of the comments from one of the manufacturers that they quote that the National Academy of Sciences concluded that downweighting and downsizing of the vehicles in the

1970s and 1980s in which there was a very aggressive effort to do

so, probably resulted, according to the National Academy, in an additional 1,800, or 1,300 to 2,600 traffic fatalities in this country,

and so there is a concern here from a safety standpoint.

We could make them a lot smaller and get 100 miles to the gallon probably easy if we put everybody in scooters, but where is the

breaking point? Where is the dividing point between concern for

safety and concern for greater mileage efficiency? How do we get

to that point and say, look, we can make it a lot cheaper to operate,

but that is not going to be as safe? What is the dividing line?

Senator BINGAMAN. I cannot tell you where the line is. That is

your job here on this Committee to figure that out.

Senator BREAUX. We need your help, though.

Senator BINGAMAN. I think you can make a good case that if all

of us drove Humvees we would be better off safetywise. I do not

think that is a practical solution. I do not think it makes sense for

the country to have everybody in military vehicles.

Senator BREAUX. I agree with that.

Senator BINGAMAN. But the question is, how much safety is

enough safety, and of course there are a lot of things you could do

to improve safety with additional requirements on driver training

and other things.

There are all sorts of ways to improve safety on the highways,

and I favor virtually all of them, but it is a question of how much

is enough, and at some point you have other policies that you also

need to factor in, and that is my view on it. I think you could have

a very safe vehicle. I think the hybrid vehicles that are in the market today are safe vehicles. I think they provide adequate safety.

You also have this problem of escalating weight, in the sense

that it is almost like the nuclear arms race, in the sense that if everybody on the road is going to be driving an enormous, extremely

heavy vehicle, that it does become less safe for people to drive a

normal-sized vehicle.

So do you say the solution is to ratchet everybody up to that

same level? I do not know. I do not think it is necessarily the right

answer.

Senator SNOWE. I would also like to address that question, because obviously, that is one that has been raised consistently, even

in the course of the National Academy of Sciences report, and these

27

issues, again, are not mutually exclusive. In fact, there is in a stage

of developing composite materials that are lightweight with high

strength that could address the question of weight. You could also

look at the question of the current weight of SUVs. If you are hit

by an SUV and you are in a smaller size car, who is likely to be

the victim? There are statistics that support that argument as

well,when you are talking about traffic fatalities.

But I do think that this is a question that ought to be addressed

to resolves people’s questions concerning this issue. In fact, the National Academy of Sciences recommendation, their seventh recommendation, does suggest having the National Highway Traffic

and Safety Administration conduct research on this issue between

fuel economy and safety, and I would recommend, Mr. Chairman,

that the Committee pursue that recommendation and I make a request of the National Highway Traffic Safety Administration today

to research this particular issue.

Senator KERRY. They are the next people to testify, and they are

hearing your request.

Senator SNOWE. Let me just make one further comment, and

that is that one member of the National Academy of Sciences said

there is no fundamental scientific reason why increasing fuel economy should be deadly compensated.

Senator KERRY. Should be what?

Senator SNOWE. Deadly compensated, so we are not saying you

should accomplish fuel economy at the expense of safety, and it

does not necessarily have to be that way even the modest goals we

are establishing in the Feinstein-Snowe legislation do not sacrifice

safety. In fact, the National Academy of Sciences would indicate

that as well.

Senator BREAUX. Well, I just want to comment, I think this is an

issue we cannot dodge and cannot ignore. It is easy to meet the

standards if you make the cars smaller and lighter and smaller and

lighter, but an awful lot of families and people are very concerned

that what are they going to do in a smaller and smaller car that

is lighter and lighter when they are on the highways with 18-

wheelers and everything else going 70 miles an hour plus? I mean,

it is not a comfortable feeling.

Thank you all very much for your contribution.

Senator KERRY. Just to follow up on that, again—and I am just

now posing questions to draw the issue out and create the record,

but the auto industry would point out that under the requirements

of the original CAFE standards, station wagons as we knew them

ceased to be manufactured, and that is why people shifted into

SUVs, because it met the market demand for size, for family, for

numbers of seats, et cetera, and they were able to provide the size

the market wanted. How do you respond to that? Should there be

a mandated ratcheting down of that demand?

Senator SNOWE. Not necessarily, because I think that they possess sufficient ingenuity and technological know-how to accomplish

both goals.

Senator KERRY. But they say they do not. We are going to have

to wind our way through this issue.

Senator SNOWE. We are talking about setting reasonable goals,

and obviously the Ford Motor Company recognizes that improving

28

fuel economies by 25 percent by the year 2005 must be a reasonable goal, because it is one that they said they are striving for, so

obviously it can be done, and why not give consumers a choice to

purchase an SUV that gets better gas mileage.

I just cannot believe that in today’s corporate environment, that

they cannot develop an SUV or a minivan that provides comfortable choices for the consumer and also achieves some fuel economy savings. I just cannot believe it.

Senator KERRY. We are going to explore that with them thoroughly. We have a terrific panel from the auto industry and we are

certainly going to explore those questions.

The one thing I would point out, as I thank both of you very,

very much for the length of time you have spent and for your efforts on this, it seems to me that we have got to frame this discussion perhaps differently than we have in the past. I think one of

the most significant arguments made for reducing the level of oil

consumption is the resulting reduction in carbon dioxide emissions

tonnage. The gains with respect to the environment are perhaps

more compelling and more important than the relative level of,

quote, energy independence.

The reason I say that is, when we began this debate in 1973 we

were 30 percent dependent on oil from the Middle East and elsewhere, foreign oil. Now we are over 50 percent dependent, and in

the same breath, many people make an argument that you should

not drill in ANWR, because if you were going to drill there, it is

going to make a tiny dent in independence, ultimately maybe 2 to

3 percent maximum. You are still going to be 50 percent dependent, so even if you drive the industry most significantly to improve

fuel economy, you are still likely to be almost 50 percent dependent

on foreign oil, and that is unacceptable from a national security

point of view.

So the real argument is not how do you marginalize your reduction of oil. All of us know we are going to be using oil for the next

30, 40, 50 years. The question is how much oil should we use and

for what purposes? In the transportation sector we should be talking about how we reduce oil consumption altogether, and that is

what the hydrogen fuel cell race is about, that is what the hybrid

is about and so forth, and it seems to me that is a more compelling

place for us to go. The question is not how do you fractionalize this

dependency, but how do you reduce dependency on oil altogether

with respect to transportation sector. That is where I think the debate ought to move.

I want to thank both of you for being here, and we will move

right away to the next panel if we can. Dr. Runge and Dr. Gravatt,

if you would both come to the table.

Administrator Runge, thank you very much for your patience,

and Dr. Gravatt, thank you for being with us. Would you lead off

with your testimony?

29

STATEMENT OF HON. JEFFREY W. RUNGE, ADMINISTRATOR,

NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION,

DEPARTMENT OF TRANSPORTATION; ACCOMPANIED BY

ROBERT SHELTON, EXECUTIVE DIRECTOR

Mr. RUNGE. Mr. Chairman, thank you very much, Members of

the Committee. I am Dr. Jeff Runge, Administrator of the National

Highway Traffic Administration. On my left is Mr. Robert Shelton,

who is the Executive Director of the National Highway Traffic

Safety Administration. On behalf of the U.S. Department of Transportation, I want to thank you for the opportunity to contribute to

your deliberations of automobile fuel economy.

Mr. Chairman, I have submitted written testimony for the

record, and with your permission I would like to summarize my

comments.

Senator KERRY. Without objection, your full testimony will be in

the record.

Mr. RUNGE. The Department of Transportation has the responsibility to administer the CAFE program. The CAFE standard for

passenger cars is set by statute at 27.5 miles per gallon, whereas

the CAFE standard for light trucks is set for each model year by

the Department through the rulemaking process. Since fiscal year

1996, as you mentioned, Congress has frozen the standard for light

trucks at the level of 20.7 miles per gallon through provisions in

the appropriations acts.

There were significant improvements in fuel economy during the

early years of the CAFE program in the 1970s and 1980s, with

strong public demand for energy-efficient vehicles. Since the mid–

1980s, however, gasoline prices have typically been declining, and

consumer demand has shifted toward vehicle performance and utility, away from fuel economy, with the result that the fuel economy

level for the passenger vehicle fleet as a whole has declined from

its peaks.

Senator KERRY. Do you mind if I interrupt as we go along? Why

did that shift occur? Is that market-driven, or was that a relaxation

of the enforcement of standards?

Mr. RUNGE. We believe it was market-driven. As the price of fuel

declined, people began to value performance and space and size

over fuel economy.

Senator KERRY. And in a sense the rules empowered them to

push for those attributes because there was no constraint, there

was no target, there was no goal, there was nothing that constrained their ability to just do what they wanted to do, even if it

was bad policy?

Mr. RUNGE. Yes, sir. To the extent that the industry could make

cars to comply with the rules, I suppose that is true.

Senator KERRY. But they do not comply with the rules. In fact,

the real-world fuel economy is 17 percent lower than the CAFE certified fuel economy level, so they do not comply, so it comes down

to mechanism enforcement and structure, does it not, to some degree?

Mr. SHELTON. Mr. Chairman, if I may elaborate, they do, of

course, literally comply with the rules, since the statute said we

were to use the EPA test procedure to determine the fuel economy

level for compliance, but certainly there has been a recognition

30

since the program started that vehicles do not achieve the level on

the EPA cycle in the real world. There is, like you say, around a

15- to 17-percent difference.

Senator KERRY. Right, but that is the bottom line, the real world.

Mr. SHELTON. Yes, absolutely.

Senator KERRY. OK, but it seems to me that makes a compelling

argument that, (1) you need enforcement; (2) you need a structure

that is adequate to enforce, and then you condition some of the

market behavior.

Mr. RUNGE. Well, thank you for that comment.

Senator KERRY. You agree with me, then, and I am sorry to

screw up your day.

[Laughter.]

Senator KERRY. Go ahead.

Mr. RUNGE. I am just glad I have my technician here to my left.

As you indicated, today’s drivers are, indeed, using more petroleum than if the fuel efficiency program had continued as it did in

the early years of the CAFE program. Fortunately, the appropriations act passed by you all this week does not continue the prohibition on our CAFE rulemaking, so the agency will be free to begin

rulemaking to set the light truck standard at the maximum feasible level for the upcoming model years.

We welcome the lifting of the restrictions so we may now fulfill

our statutory duty to set the fuel economy standard for light trucks

this summer. When it was apparent the restriction was likely to be

lifted, Secretary Mineta urged the Congress to do so before the end

of the fiscal year so that we would have sufficient time to begin

such rulemaking to effectuate changes for model year 2004, rather

than waiting for the fiscal year 2002 appropriations act to be enacted. Unfortunately, this did not occur.

The CAFE law requires the standard be set at the maximum feasible level. We are further required to issue any standard for a

given model year at least 18 months before the model year begins,

which for model year 2004 would be April 1, 2002. Therefore, because of the lateness of the date, and although we began our work

the day the freeze was lifted, the rulemaking for model year 2004

will not likely result in a significant increase in fuel economy for

that model year.

However, if the agency concludes through its processes that the

maximum feasible model year 2004 fuel economy standard is higher than 20.7, we will not hesitate to set such a higher standard.

Therefore, our primary focus will be gathering and analyzing data

so that we can determine the maximum feasible levels for model

year 2005 and beyond.

At the beginning of the Administration, the President directed a

review of these issues which is contained in the President’s national energy report. It recommends that fuel economy standards

should be based on sound science and should consider passenger

safety, economic concerns, and the impact on the U.S. versus the

foreign fleet of automobiles. We will consider both the National

Academy of Sciences report and the National Energy Policy report

as we review those alternatives available to improve fuel economy.

The NAS report also points out the potential adverse safety consequences of improving fuel economy by measures that simply reVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00034 Fmt 6601 Sfmt 6601 D:\DOCS\89683.TXT SSC1 PsN: SSC1
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duce the size and weight of vehicles. I want to assure you we will

consider vehicle safety in any rulemaking that we undertake on

CAFE consistent with our obligations to meet statutory criteria

governing the CAFE program. As an agency whose primary mission is safety, we are committed to the safety of Americans on the

Nation’s highways.

We want to further assure the Committee we will carry out our

responsibility under the CAFE law to the best of our ability toward

the goal of improving fleet fuel economy and with the gains we

have made in passenger safety over the last 20 years.

This concludes my statement. Mr. Chairman, I will be glad to answer any question I can.

[The prepared statement of Mr. Runge follows:]

PREPARED STATEMENT OF HON. JEFFREY W. RUNGE, ADMINISTRATOR, NATIONAL

HIGHWAY TRAFFIC SAFETY ADMINISTRATION, DEPARTMENT OF

TRANSPORTATION

Mr. Chairman and Members of the Committee: On behalf of the U.S. Department

of Transportation and Secretary Mineta, I welcome the opportunity to contribute to

the Committee’s consideration of automobile fuel economy. This is a matter of great

importance to the economy, our national energy security, and passenger safety.

The Department administers the corporate average fuel economy (CAFE) program

as its principal contribution to energy conservation in the light-duty vehicle fleet.

Enacted in 1975 in response to the energy crisis caused by the 1973–1974 oil embargo, the CAFE program requires motor vehicle manufacturers to ensure that their

new-vehicle fleets meet a specified average level of fuel economy in each model year.

The CAFE standard for passenger cars is set by statute at 27.5 miles per gallon

(mpg), whereas the CAFE standard for light trucks is set by the Department by regulation for each model year. The light-truck CAFE standard has been frozen at the

model year 1996 level of 20.7 mpg (through model year 2003) by provisions in the

Department’s annual appropriations acts.

The early years of the CAFE program were marked by significant improvements

in fuel economy, as the public demand for energy-efficient vehicles during the late

1970s and early 1980s was strong. This was in part caused by the downsizing of

vehicles, as well as by improvements in vehicle technology. Since the mid-1980s,

however, gasoline prices have typically been stable or declining (in constant dollars)

and consumer demand has tended to favor vehicle utility, safety, and performance

over fuel economy, with the result that the fuel economy level for the passenger car

fleet has leveled off. Lower gasoline prices and consumer preferences have attracted

buyers away from passenger cars into less fuel-efficient vehicles such as minivans

and sport utility vehicles. These vehicles filled the public’s desire for vehicles that

can accommodate family and sporting activities, such as carrying numbers of children, and play and sports equipment. The result is that the average fuel economy

for the new light duty vehicle fleet as a whole (the fleet of vehicles with a gross

vehicle weight rating of 8,500 pounds or less) has declined from an all time high

of 26.2 mpg in model year 1987 to 24.5 mpg in model year 2001. Under actual driving conditions, as shown by the Environmental Protection Agency’s annual Fuel

Economy Trends report, the new-car fleet fuel economy was 22.1 in model year 1987

and 20.4 in model year 2001.

This decline means that today’s fleet is using more petroleum, an increasing percentage of which is imported, than it would if fuel efficiency had continued to improve beyond the early years of the CAFE program.

The Department welcomes lifting the restrictions on CAFE rulemaking Congress

has imposed since fiscal year 1996, to permit the Department to once again engage

in rulemaking that will set fuel economy standards for the light truck fleet. The Appropriations act passed by the House and Senate does not continue the restrictions

on CAFE rulemaking, so that we will soon be free to begin rulemaking to set the

light truck standard for model year 2004.

When it became apparent this summer that the restriction on rulemaking would

not be perpetuated in fiscal year 2002, Secretary Mineta urged the appropriations

committees to consider legislation that would remove the restriction before the end

of fiscal year 2001, so that the Department would not need to wait until the enactment of appropriations for fiscal year 2002, but could begin work right away. Unfortunately, the Congress did not act on the Secretary’s request.

32

We now face an immediate need to begin rulemaking for the light truck fleet for

model year 2004. Under the CAFE law, we must issue a standard for that model

year not later than 18 months before the model year begins. We consider model

years to begin on October 1, so we will need to issue the MY 2004 standard by April

1, 2002, 18 months before October 1, 2003, the beginning of MY 2004.

Although we will begin our work immediately, I must caution you that our knowledge of the potential to improve fuel economy is limited. We have not been able to

collect data on our own or conduct any analyses that would be needed to support

the statutorily required determination that a specific level is the ‘‘maximum feasible

average fuel economy level.’’ In making this determination, we are directed by the

statute to consider ‘‘technological feasibility, economic practicability, the effect of

other motor vehicle standards of the Government on fuel economy, and the need of

the United States to conserve energy.’’ Due to the freeze on activity related to

CAFE, we have not been able to address these issues.

Our rulemaking for MY 2004 will not likely result in a significant change in the

CAFE standard. The time available between April 2002 and October 2003 is simply

too short for a significant change, since the technologies with the largest potential

for increasing fuel efficiency would require much longer to incorporate into vehicles.

The CAFE law requires us to consider ‘‘economic practicability,’’ which means that

we must provide the lead-time necessary to incorporate changes without substantial

economic disruption to the vehicle manufacturers. As a result, we do not anticipate

adopting a standard that would result in significant changes in the manufacturers’

current plans for light truck CAFE for MY 2004. We will immediately begin the

process of reviewing fuel economy levels for model years 2005 and beyond. We believe focusing our efforts on the MY 2005 rulemaking will allow us to consider more

significant changes in the light truck CAFE standard. Our CAFE rulemaking faces

a further challenge, in that the new appropriations act does not give us the resources to conduct the analyses that we need to support our regulatory determinations.

Beyond the context of near-term fuel economy rulemaking, our work will be aided

by the July 2001 report on the CAFE program prepared by a committee of the National Academy of Sciences. The report contains a number of findings and recommendations that bear on the future of the CAFE program.

While the report supports a Federal program to ensure fuel economy levels beyond those expected to result from market forces alone, it cautions that selecting

fuel economy targets will require ‘‘uncertain and difficult tradeoffs among environmental benefits, vehicle safety, cost, oil import dependence, and consumer preferences.’’ The report found that ‘‘the downweighting and downsizing that occurred

in the late 1970s and early 1980s, some of which was due to CAFE standards, probably resulted in an additional 1,300 to 2,600 traffic fatalities in 1993.’’ This finding

was based primarily on research conducted by NHTSA in the mid-1990s, which we

are updating in a study that we expect to complete next spring. The National Academy of Sciences’ report went on to observe ‘‘that the likelihood of similar response

to further increases in fuel economy must be taken seriously.’’ I want to assure you

that we will consider vehicle safety in any rulemaking that we undertake on CAFE,

consistent with our obligations to meet the statutory criteria governing the CAFE

program. As an agency whose primary mission is safety, NHTSA is completely committed to the safety of Americans on the nation’s highways.

We agree that there will be difficult tradeoffs. At the beginning of this administration, the President directed a review of these issues, which is contained in the President’s National Energy Policy report. That report recommends that the standards

should be based on sound science, and should consider passenger safety, economic

concerns, and the impact on the U.S. versus the foreign fleet of automobiles.

We will consider both the National Academy of Sciences report and the National

Energy Policy report as we review the alternatives available to improve fuel economy. These reports also highlighted the opportunities for the use of new technologies and the development of alternative fuel vehicles such as those powered by

fuel cells. However, we are not prepared at this time to recommend specific changes

to the fuel economy law.

It is clear that there are many points of view about the best means to improve

the fuel economy of the light duty vehicle fleet, as illustrated by the continuing debate in the Congress on whether to legislate higher CAFE standards or to require

specific reductions in fuel consumption by certain segments of the fleet, such as

light trucks. The National Academy of Sciences committee examined a number of

alternative measures, some of which are represented in pending legislation. The debates on these measures illustrate the difficult nature of the choices facing us.

To achieve a specified CAFE level, a manufacturer must produce fuel efficient vehicles that the public will buy. If cost-effective measures can be devised to increase

33

consumer demand for fuel-efficient vehicles without compromising passenger safety,

those measures should be examined. The President’s National Energy Policy report

recommends that the Secretary of Transportation evaluate market-based approaches

to increasing new motor vehicle fuel economy. We are moving forward to consider

these approaches. The National Academy of Sciences report also notes that we need

to consider consumer demand, vehicle attributes, and the impact on passenger safety of fuel economy standards.

We want to assure the Committee that the Department will carry out its responsibilities under the CAFE law to the best of its ability, with the goal of improving

fleet fuel economy without sacrificing passenger safety, thereby producing benefits

to the economy, our national energy security, and our nation’s traveling public.

This concludes my statement. I look forward to working with the committee as

we continue to address the issue of fuel economy. I will be glad to answer your questions.

Senator KERRY. Thank you very much. Do either of the other of

you have testimony you want to make at this point?

Dr. GRAVATT. Mr. Chairman, I have submitted testimony for the

record. I can quickly summarize or wait.

Senator KERRY. I think that would be helpful. I would like to

hear that, thank you.

STATEMENT OF DR. CLAUDE C. GRAVATT, JR., DIRECTOR,

MANUFACTURING COMPETITIVENESS AND PARTNERSHIP

FOR A NEW GENERATION OF VEHICLES, DEPARTMENT OF

COMMERCE, TECHNOLOGY ADMINISTRATION

Dr. GRAVATT. I am Claude Gravatt. I work in the Department of

Commerce Office of the Under Secretary for Technology, and I also

serve as the U.S. Government’s Director for the Partnership for a

New Generation of Vehicles. That partnership is an industry-government partnership R&D activity started about 8 years ago to try

to increase the menu of technologies and components and materials

that would be available to the auto industry to use in increasing

the mileage of future vehicles.

We give a number of the details of the program in the written

testimony. Let me just quickly summarize it. For the first approximately 4 years, we studied a wide variety of technologies, since we

truly did not know which might be most effective, either on a cost

or a technology or fuel economy basis.

In 1997, we selected from among that rather large number a

smaller number to focus on more thoroughly in the 3 years up until

the year 2000. At that time, the three industry participants in the

program, Daimler/Chrysler, Ford, and General Motors, each revealed and displayed here in Washington a concept vehicle that

they had put together that represented their thinking at that point

in time as to how they would achieve the one goal of the program,

three times fuel efficiency of increase over what was available in

1994, when the program started.

I think the interesting thing about those three concept vehicles

was that although they in a sense selected from the same menu of

options and there was a lot of commonality in the vehicles, there

was a lot of diversity as well. Each company selected what they

thought they could do best, would be most appealing to the consumer, and moved in that direction, and I think that diversity is

very important in an activity of this sort.

One other interesting aspect of the program, each year we have

a review of the program by a panel of the National Academy of EnVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00037 Fmt 6601 Sfmt 6601 D:\DOCS\89683.TXT SSC1 PsN: SSC1
34

gineering, and their seventh report was released about 3 or 4

months ago which we summarized in here as well. They point out

that we have made good progress, but we still have some considerable issues to address, one of which is cost, the need to get the cost

down for many of these technologies so that they are more acceptable to the consumer.

Second, that there are some emission issues, serious technical

ones as well related to one of the engines we were working on at

the time and still are; and third, that we probably needed to pay

more attention to the fuels and components of the fuel.

The initial declaration of intent of the partnership addressed

fuels, but it is only now that we are getting to the point where it

is a major issue and we are moving in that direction. Let me conclude at this point, and I will be glad to also answer any questions.

[The prepared statement of Dr. Gravatt follows:]

PREPARED STATEMENT OF DR. CLAUDE C. GRAVATT, JR., DIRECTOR, MANUFACTURING

COMPETITIVENESS AND PARTNERSHIP FOR A NEW GENERATION OF VEHICLES

(PNGV), DEPARTMENT OF COMMERCE, TECHNOLOGY ADMINISTRATION

Mr. Chairman. I am Dr. Claude C. Gravatt, Jr., Director of Manufacturing Competitiveness and PNGV in the Technology Administration at the Department of

Commerce. I wish to thank you for the opportunity to testify before you today. My

remarks will be focused solely on the Government and Industry’s research investments in improving fuel economy under PNGV, and in no way suggests that the Department or the Administration have taken a position on CAFE or on the PNGV

program.

THE ROLE OF THE PNGV PROGRAM IN DEVELOPING TECHNOLOGIES TO IMPROVE FUEL

ECONOMY OF LIGHT DUTY VEHICLES

Background

The Partnership for a New Generation of Vehicles (PNGV) is a groundbreaking

partnership between the Federal Government and the U.S. Council for Automotive

Research (USCAR)—whose members include Daimler/Chrysler, Ford, and General

Motors (GM)—to plan and manage research and development activities for a wide

range of leading-edge technologies that have the potential to dramatically improve

the fuel economy of, while also reducing the emissions from, cars and other light

duty vehicles, including vans, SUVs and pick-up trucks.

The U.S. Department of Commerce, Office of the Under Secretary for Technology,

leads the Federal Government’s participation in the partnership and also serves as

the government secretariat. Federal agencies participating in the PNGV Program at

the technical level include the Departments of Commerce, Energy, Transportation

and Defense; the Environmental Protection Agency; the National Science Foundation; and NASA. More than 20 Federal laboratories from these agencies are involved

in the program. In addition to the Federal partners and USCAR, more than 350

automotive suppliers, universities, and small businesses have participated in PNGV.

PNGV is best known for its long term objective: developing the technologies required to enable the production of environmentally friendly cars with up to three

times the fuel efficiency of cars in production at the start of the program (1994).

This objective specifically would increase the fuel efficiency of mid-size family sedans from 27 mpg to 80 mpg. However, the technologies being developed by the program are not limited to application in just mid-size sedans, but instead are applicable across the entire range of light duty vehicles. This objective is expected to be

accomplished without sacrificing affordability, performance, or safety. PNGV’s other

goals are: (1) to significantly improve national competitiveness in automotive manufacturing across all components, sub-systems and vehicle lines; and (2) to apply commercially viable innovations developed under the PNGV research effort to conventional vehicles as quickly as possible.

The level of effort among the participating agencies varies, based on the specific

technical activities under active R&D at any point in time, and based on the missions and current core competences of the agency and its laboratories. In fiscal year

2001, total government support for PNGV-related research is $234 million, of which

$162 million is for R&D activities directly focused on PNGV goals and coordinated

by the PNGV technical teams. Currently, the U.S. Department of Energy and EPA

35

provide approximately one-half of direct Federal funding for PNGV, with DoE being

the largest, and EPA second. The National Research Council estimated the industry’s contribution to PNGV research and development to be $980 million in 1999,

which includes major efforts on the part of the industry partners to develop the year

2000 concept cars.

Status

The initial PNGV R&D program consisted of an extremely wide range of technical

areas which might be combined at the vehicle level to achieve the program goals.

In 1997 the first major program milestone was achieved when these technical areas

were reduced to focus on those that appeared to have the highest potential in terms

of technical feasibility and affordability. In 2000 the program achieved its second

major program milestone with the unveiling of the PNGV Concept cars. Although

these cars all were based on the R&D activities of the program, each manufacturer

selected from among them in ways which best met their corporate competitive strategy.

• The Daimler/Chrysler concept car, the Dodge ESX3, was a diesel-electric hybrid

with an estimated fuel economy of 72 mpg.

• The Ford Prodigy was a diesel-electric hybrid with fuel economy estimated at

more than 70 mpg.

• Two versions of the GM Precept were unveiled. The diesel-electric hybrid

version of the Precept had a projected fuel economy of 80 mpg. GM estimated the

fuel cell version of the Precept might achieve 108 mpg.

Many PNGV technologies—such as thermoplastics, lightweight aluminum, and

composite materials—have already been used in production vehicles.

• Migration of PNGV technologies into production vehicles, such as;

—production of a new, lighter, recyclable thermoplastic hardtop for the Jeep

Wrangler in 2001,

—use of 412 pounds of lightweight aluminum in the 2000 Lincoln LS, saving 188

pounds,

—a new composite pickup truck box on the 2001 Chevrolet Silverado that is 50

pounds lighter than the traditional steel box aluminum used for door, deck, and

hood panels for Cadillac, Oldsmobile, and Chevrolet vehicles

• Development of near-production technologies

—complete demonstration of thin-slab continuous casting of aluminum,

—development of laser welding techniques.

• Progress in manufacturing processes, to include

—standardization, scrap recovery initiatives with the aluminum industry, and recycling and design of hybrid material bodies

—through development of more accurate software to predict springback behavior

in large steel and aluminum stampings, die-recuts are reduced by 50 percent and

cost of new die sets is reduced by 30 percent.

Examples of significant accomplishments in the area of science and technology

are:

• Development of carbon foam with extremely high heat conductivity (2000 R&D

100 Award)

• Near frictionless carbon coating, many times slicker than Teflon (1998 R&D 100

Award)

• Oxygen-rich air supplier for clean diesel technology (1999 R&D 100 Award)

• Development of a compact microchannel fuel vaporizer to convert gasoline to hydrogen for fuel cells (1999 R&D 100 Award)

• Development of aftertreatment devices to remove nitrogen oxides from diesel exhaust with efficiencies greater than 90 percent, when used with diesel fuel containing 3 ppm of sulfur

• Improvement of the overall efficiency and power-to-weight ratios of power electronics to within 25 percent of targets, while reducing cost by 86 percent to $10/

kW since 1995

• Reduction in cost of lightweight aluminum, magnesium, and glass-fiber-reinforced polymer components to less than 50 percent the cost of steel

• Reduction in the costs of fuel cells from $10,000/kW in 1994 to $300/kW in 2000

• Substantial weight reduction to within 5 to 10 percent of the vehicle weight reduction goal

Additionally, each of the USCAR partners has announced it will begin volume

production of new generation hybrid-electric vehicles in 2003–2004 timeframe. Each

of these products is in the light truck/sport utility vehicle segments where hybrid

technology provides greater fuel saving opportunities.

36

Daimler/Chrysler

• 2003 Hybrid Dodge Durango

• 2004 Hybrid Dodge Ram

Ford

• 2003 Hybrid Escape

• 2004 Ford Focus Fuel Cell Vehicle

General Motors

• 2004 Hybrid Chevrolet Silverado/GMC Sierra

• 2004 ParadiGM Propulsion

The National Academies 7th Annual Peer Review Report on the PNGV Research

Program, administered by the National Research Council, was released in August

2001. This annual Peer Review process provides independent validation of the program’s progress and success and has been very helpful in the past in focusing and

streamlining the PNGV research portfolio. This year’s review of the PNGV program

identified several barriers to volume production of vehicles incorporating the full

range of PNGV technologies, including: (1) the remaining high cost of PNGV technologies; (2) the uncertainty of meeting the more stringent Tier 2 emissions regulations issued by the Environmental Protection Agency last year, using advanced diesel engines as were included in the 2000 Concept Cars; and (3) the availability of

advanced low-sulfur reformulated fuels. The PNGV participants are continuing to

address each of these areas, and are optimistic that solutions will be developed.

Once again, I want to thank the Committee for the invitation to testify. I would

be happy to answer any questions you might have.

Senator KERRY. Thank you very much, doctor. I appreciate it.

Tell me, how long have you been with the program?

Dr. GRAVATT. I was with the program when it started for approximately 2 years, in its initial formative process and the initial

aspects of it. I then went back to in a sense what was my normal

job and was working in an industry-government partnership in

semiconductor manufacturing, and I came back to it about a year

or year-and-a-half ago and have been with it since then, so in a

sense I was there the first 2, approximately 2 or 3 years, and I

have been back approximately one.

Senator KERRY. You heard the testimony of our colleagues who

sat at the table ahead of you, who talked with optimism and confidence about the technological capacity to move forward, certainly

to close the SUV loophole, and certainly to strengthen the overall

CAFE standard. What have you learned from the PNGV program

that would weigh on your acceptance of their arguments, or what

measurement would you make of their arguments based upon what

you have learned?

Dr. GRAVATT. Well, they made a range of arguments. Let me just

touch on several of them. Technological progress has been very

good. There is quite a menu of materials, components, systems, and

subsystems that can be brought together into a vehicle to increase

the fuel efficiency, fuel economy, and reduce the emissions of that

vehicle, and some of these are getting into the marketplace at this

point in time, and we have a list of them in there, and I am sure

that industry speakers who will follow can be more specific in

many of those areas.

As the National Academy pointed out, cost is still in advanced

technology a serious issue, and the industry is always trading off

the concept of cost versus the technical gains that they have there,

and so I think cost is one, and second, looking at fuels and looking

at the emission issues related to, in the one particular case, the direct injection diesel engine, compression ignition engine, is one that

37

we still have to address, so I think the menu of options is certainly

better than it was when the program started.

Senator KERRY. How tangible are those options?

Dr. GRAVATT. Some of them are very tangible. Some of them need

both more technical work and cost reduction, and manufacturing

engineering.

Senator KERRY. In your judgment, are they sufficiently tangible

to permit the industry to meet the goal of passenger car standards

for SUVs?

Dr. GRAVATT. The passenger cars?

Senator KERRY. Could you close the loophole as it is known with

respect to SUVs?

Dr. GRAVATT. All of the technologies that we have been working

on will certainly apply to SUVs as well as other light duty vehicles,

and they are bringing brought out in that component. Certainly,

each manufacturer has indicated they could move in that direction.

In addition to the technical capability, as I say, there is the cost

issue and manufacturer ability, and just the rate of introduction,

how quickly you can turn over the fleet, but I think things can

move in a positive direction, yes, sir.

Senator KERRY. You cite significant accomplishments in the area

of science and technology and the development of carbon foam with

high heat conductivity, and near frictionless carbon coating many

times slicker than teflon, oxygen-rich air supplier for clean diesel

technology, development of a compact micro-channel fuel vaporizer,

the conversion of gasoline to hydrogen for fuel cells, improvement

of overall efficiency in power-to-weight ratios of power electronics

to within 25 percent of targets, reducing cost by 86 percent since

1995, reduction in cost of lightweight aluminum magnesium glass

fiber reinforced polymer components, reduction in the cost of fuel

cells and so forth.

Have any of those advances been embraced by the industry at

this point, incorporated into current production?

Dr. GRAVATT. Well, they have certainly participated in work on

all of them.

Senator KERRY. Have they been incorporated into the production

of automobiles at this point in time?

Dr. GRAVATT. Some have been incorporated in. Others are in the

planning stages. I would prefer that you ask them with regards to

exactly what each company is doing. Some of that is very proprietary. Others they might be able to comment on.

Senator KERRY. Usually when we ask them it is sufficiently proprietary that we do not get told what they are doing at all, and so

I am not sure how far we will get with that.

What I am trying to get from you is, in your judgment, are there

technologies that are real, that are sufficiently within reach or that

could be pushed by setting a standard that you believe can be

reached within a reasonable period of time, that would assist in

meeting a stronger and more enforced CAFE standard?

Dr. GRAVATT. Yes, sir, there are certainly things there that will

assist in moving in that direction and providing the possibility of

meeting the standard.

Senator KERRY. In your judgment, what are the most promising

of those?

38

Dr. GRAVATT. As I indicated earlier, each company takes a diverse approach. I am not the best one to design the vehicle.

Senator KERRY. I understand that, but what I am trying to do

is to get as hard a sense as the Committee can get of the real possibilities here. If it is a menu of possibilities, so be it. I know there

is some vision involved here. You have got to look ahead and say,

I think these things are real, but that is the judgment we are looking to you for from the experience. That is precisely why this partnership was created, and I am trying to get a judgment from you

that we can measure some public policy thoughts on.

Dr. GRAVATT. Well, the hybrid concept, hybrid is a broad term,

and it includes many things, but the combination of an electric

drive, where significant progress has been made both in the electric

motor itself, the regenerative braking and all the rather difficult

control systems that go into putting that together, along with internal combustion or diesel engine, are very attractive, and each manufacturer has announced the intent to get these things into production in the next several years. I think that looks very promising.

Senator KERRY. In that context, in terms of hybrid, we will hear

later on one of the later panels from the Paice Corporation about

the development of a power train system called Hyperdrive. Did

you examine that in this context?

Dr. GRAVATT. I met with them just several weeks ago and got an

update on some of their activities over and above what I was aware

of 3 or 4 years ago, and I think they have some very interesting

things to present, and have done some significant work in that

area.

Senator KERRY. In your program, in the PNGV concept cars, the

Daimler/Chrysler concept car, the Dodge EX–3, had estimated fuel

economy of 72 miles per gallon, is that correct?

Dr. GRAVATT. Yes, sir.

Senator KERRY. And the Ford Prodigy was a diesel electric hybrid with fuel economy estimated at more than 70 miles per gallon,

and there were two versions of a GM precept unveiled. What was

the conclusion you drew with respect to these concept cars and

those efforts?

Dr. GRAVATT. Concept cars are put together in onesies and

twosies, and many of them do not drive, but these certainly have

that capability. They are rolled onto the floor to demonstrate a concept, but these were vehicles that could be driven and have been

evaluated, and each company has moved forward from where they

were at that point about a year-and-a-half ago.

They proved that there was the capability of bringing these

pieces together, the technical pieces, and you could achieve this

kind of performance, what they need in vehicles that met other requirements as well, but that much needed to be done in manufacturer ability and cost of components and cost of bringing the whole

thing together, and that is where they are, and that is where they

are working, but it was shown that there was a way of taking the

pieces and addressing them and combining them and getting these

kinds of performance characteristics.

Senator KERRY. I gather each of the U.S. car partners have

agreed, or announced that they are going to begin volume production of those new generation hybrid electric vehicles in the 2003–

39

2004 timeframe, in the truck, sport utility vehicle segments. So you

have got a Daimler/Chrysler offering; you have got a Ford offering;

a General Motors offering, to the best of my knowledge, and those

will be coming online.

Should the fact of their production coming online in 2003 and

2004 suggest to the Committee that if that technology is available

for production now, in that sector, and if we set some goals and

standards, that within a 10-year frame of time one could hope for

much broader production in that area and much more rapid gain

than we might even imagine today?

Dr. GRAVATT. Well, the introduction of the first products will give

them a sense to do a good job of answering that question. The SUV

provides an attractive platform to bring some of the hybrid technologies out. You have got space, you can handle the weight, it is

really a very attractive platform from a technical point of view as

well as a market sector point of view.

As several people previously pointed out, that market sector has

just exploded since this program started from near zero to 20-some

percent at this point in time, so it has all the attractive features.

It is technically a convenient one to put the devices in, and it is

a high-volume seller, which is what you are trying to achieve.

Senator KERRY. Dr. Runge, I know you have not been on the job

that long, and your background is as a physician handling countless thousands of motor vehicle trauma accidents, etcetera, and

that is a different area of experience, but given the responsibilities

of NHTSA and where we are trying to head here, can you share

with us a sense of what you would anticipate as a schedule for your

activities, and what kind of enforcement we might find from you

with respect to this particular issue and the other issues that sort

of dovetail with it?

Mr. RUNGE. Yes, sir. Thank you. As I indicated in my remarks,

for the year 2004 we are required to issue a rule by March 31 or

April 1 of 2002. That puts us on a very, very short timeframe to

issue a standard. We will have to do the work of 18 months in

about less than 4 months in order to get that standard out.

Senator KERRY. The standard with respect to what model year?

Mr. RUNGE. 2004. However, simultaneously we will begin to

amass data as soon as the freeze is lifted on 2005 and beyond,

hopefully with a multiyear standard. The staff is cocked and ready,

and as soon as we are able, we will pull the trigger and have them

begin this in earnest.

Senator KERRY. The auto industry obviously hopes your standard

will be the only game in town. Do you have a view with respect

to how that ought to play out?

Mr. RUNGE. Senator, you all make the laws and we administer

them, and we will do that to the best of our ability. We look forward to working with you in the development of that law to the

extent that you will allow us to do so.

Senator KERRY. Let me ask you this. Since you are on an accelerated schedule, and we are, too, obviously, would you be prepared

to meet with us and share some thinking on this as we go along

over the course of the next weeks?

Mr. RUNGE. Absolutely, with the caveat that we have been prohibited from gathering data, and so our data are old. We do have

40

the NAS report. We have the energy policy. We do have experts

who have been actively engaged in thinking about it, on their own

time, of course.

[Laughter.]

Mr. RUNGE. And we will be ready to devote whatever time is necessary to do that.

Senator KERRY. They have had about 6 years to think about it.

[Laughter.]

Senator KERRY. We look forward to the results of your 6 years

of thinking. It should be very productive. Thank you. While pending that I think it would be beneficial for us to move on to the next

panel. We certainly appreciate you being here, Dr. Gravatt, thank

you very much, very much.

If we could call the second panel: Mr. Tom Davis; Susan Cischke;

Edward Cohen; Ann Mesnikoff; and Alan Reuther.

Welcome to all of you and thank you for being here.

First of all, thank you for your patience. We appreciate very

much everybody participating in this. What I would like to do is

just run down the table here.

Mr. Davis, if you would lead off. I know you are on the end there,

and maybe you could share the mike and just run on down. I appreciate it.

Thank you.

STATEMENT OF THOMAS J. DAVIS, GROUP VICE PRESIDENT,

GENERAL MOTORS, NORTH AMERICAN PRODUCT

DEVELOPMENT

Mr. DAVIS. Thank you for the opportunity to testify on this important subject. My name is Tom Davis. I am Group Vice President, North American Product Development.

My organization has the responsibility to conceive, style, engineer, and develop vehicles for the North American market. We

work to ensure that our vehicles meet a wide spectrum of customer

requirements and are the kind of vehicles that Americans will buy

and want to drive.

Because the Congress has examined energy policy this year, a

number of statements have been made about the continuing need

for the U.S. to conserve energy, to increase and diversify energy

supplies, and to enhance energy security.

We at GM share these concerns. We expect to meet the growing

demand for safe personal transportation with technology over the

past century, power train technology has changed dramatically—to

the point today where it is a highly refined and very mature technology.

While we continue to aggressively push for technological refinement in those systems, we recognize that the continuing incremental evolution of drive trains based upon the internal combustion engines can eventually be surpassed by shift to a new, more

advanced technology.

As a company, we are committed to be the leader in new technologies to meet the energy, environmental and economic challenges of the 21st century. U.S. technology leadership historically

has provided the key to efficient transportation, environmental protection and a strong American economy. We see the ultimate vision

41

for sustainable energy future in vehicles powered by hydrogen fuel

cells. Hydrogen fuel made from renewable sources of energy can be

used to power fuel cell vehicles that are more than twice as energy

efficient as today’s vehicles and emit only pure water.

These same fuel celled vehicles could be a clean reserve of electrical power sources for home or work sites. The pacing element to

make this vision a reality are the development of a hydrogen fuel

infrastructure and the reduction in system costs. Our government

and industry together have to take a global leadership role in moving toward a hydrogen future for personal transportation.

In the meantime, we are pressing for incremental gains in fuel

economy for the driving public. As a result, we have announced the

deployment of displacement on demand engine systems, continuously variable transmissions which are in production today and hybrid systems, but what does all this have to do with CAFE policy?

Well, CAFE is actually an obstacle to the realization of this vision.

With relatively low gasoline prices, CAFE works against the market, the consumer and the long-term technology development. As

the National Academy of Sciences report states: ‘‘There is a marked

inconsistency between pressing automobile manufacturers for improved fuel economy from new vehicles on the one hand and insisting on low real gasoline prices on the other.’’

We are investing significant engineering resources to create a

completely revolutionary technical capability. A near-term shift in

CAFE policy engineering resources back to the incremental advancements in internal combustion engine systems and through reductions in vehicle power, weight, and size.

Today’s regulatory process provides for a review of CAFE standards by the Department of Transportation that is intended to consider technical feasibility, highway safety, American employment

and the economy, costs to the American consumer, the historical

and continuing impacts on domestic automakers, and the American

consumers’ right to choose vehicles that meet their safety and

transportation needs.

Now, these are exceedingly complex and intertwined issues, as

indicated by many of the other speakers, but issues of great significance. The regulatory process calls for an in-depth analysis and

balancing of these diverse CAFE impacts and that comprehensive

process should be used to consider any change to CAFE and any

legislative support of such changes.

There have also been discussions about changes to the structure

of the CAFE program. Any reform of CAFE would have to address

the significant adverse consequences of the current system, including the disparate impact on domestic, foreign automakers; the failure to recognize the lead time required for development and manufacturing of new vehicles; the adverse impact on driver and passenger safety; the opposition to natural market forces; the negative

impact on the consumer’s choice of vehicle; the encouragement to

increase driving by reduced mile per gallon costs.

So changes to CAFE system which have been studied for 20

years and one conclusion is very clear. CAFE cannot be fixed by

simply a simple shift in the formula. CAFE is determined primarily

by what people choose to buy, and that choice reflects consumer

needs.

42

In addition, there are better ways to conserve petroleum in the

transportation sector. With over 200 million passenger vehicles already on the American roads today, reducing their overall fuel consumption would be a great policy to pursue. For example, we see

opportunities in incentives to scrap older, less efficient vehicles and

to reduce fuel-consuming congestion on American roads.

In addition, large fuel savings are possible through the use of hybrid buses for urban mass transit. Another attractive option would

be to find ways to permit the new clean diesel engines that were

just discussed and now capture nearly 40 percent of the European

passenger car sales. These types of policies would engage the power

of market forces and act to reduce fuel consumption by the large

number of vehicles already on the road.

Let me summarize by saying we are convinced sound regulatory

policy is critical to provide a constructive environment for the pursuit of significant technology advances.

Our challenge is to balance our resources between meeting today’s regulatory market demands and responding to the long-term

needs of the American driving public and society at large.

We urge that the regulatory process be used to develop recommendations for CAFE policy.

Thank you very much. And I’d be pleased to welcome your questions.

[The prepared statement of Mr. Davis follows:]

PREPARED STATEMENT OF THOMAS J. DAVIS, GROUP VICE PRESIDENT,

GENERAL MOTORS, NORTH AMERICAN PRODUCT DEVELOPMENT

Thank you for giving me the opportunity to testify on behalf of General Motors

on this important subject. My name is Tom Davis, GM Group Vice President, North

American Product Development. My organization has the responsibility to conceive,

style, engineer, and develop vehicles for the North American market. We work to

ensure that our vehicles meet a wide spectrum of customer requirements and are

the kind of vehicles that Americans choose to buy and drive.

As the Congress has examined energy policy this year, a number of statements

have been made about the continuing need for the U.S. to conserve energy, to increase and diversify energy supplies, and to enhance energy security. We share

these concerns.

We expect to meet the growing demand for safe personal transportation with technology. The internal combustion engine has powered our vehicles for a century. Over

that time, powertrain technology has changed dramatically—to the point today

where it is a highly refined, mature technology. While we continue to aggressively

push for technical refinements in those systems and to explore the benefits of hybrid

drivetrain variants, we recognize that the continuing incremental evolution of

drivetrains based on internal combustion engines will eventually be surpassed by

a shift to new, advanced technologies. And like the shift we have seen to a computer-based information age and the shift to the new world of wireless personal

communication, new technologies for transportation must address emerging needs

of customers and must be embraced by the market.

Ultimately then, meeting our energy goals, addressing the growing demand for

transportation and retaining the functions and performance of the vehicles that our

customers demand requires a significant advance in technology. So this is a challenging time for General Motors. As a company, we are committed to being a leader

in developing new technologies to meet the energy, environmental and economic

challenges of the 21st Century. U.S. technology leadership historically has provided

the key to efficient transportation, environmental protection, and a strong American

economy. And leadership in developing technology will be key to our future competitiveness.

We see the ultimate vision for a sustainable energy future in vehicles powered by

hydrogen fuel cells. Hydrogen fuel made from renewable sources of energy can be

used to power fuel cell vehicles that are more than twice as energy efficient as today’s vehicles and emit only pure water. These same fuel-cell vehicles could, and

43

should, be a clean reserve electrical power source for homes and work sites—and

may indeed find their easiest commercial applications in clean stationary sources of

electricity for residences and businesses.

This technology offers a path to balance environmental stewardship with the

growing demand for energy that supports our quality of life and rising populations.

The pacing elements to make this vision a reality are the development of a hydrogen

fuel infrastructure and the reduction in system costs. Our government and industry

together have to take a global leadership role in moving toward a hydrogen-fueled

future for personal transportation.

In the meantime, we are pressing for incremental gains in fuel economy for the

driving public. As a result we have announced the deployment of displacement-ondemand engine systems, continuously variable transmissions, and hybrid systems.

CVT transmissions are in production today.

For those who argue the need for more high fuel economy vehicles, many such

vehicles are available today. In fact, over 50 models in the U.S. market offer fuel

economy above 35 mpg, but they attract less than 1 percent of sales. Hence, they

have an insignificant impact on Corporate Average Fuel Economy, or CAFE. Indeed,

as the recent National Academy of Sciences report on CAFE notes, ‘‘Consumers have

a wide variety of opportunities to exercise their preference for a fuel efficient vehicle

if that is an important attribute to them.’’ What does our long-term vision for hydrogen-based, clean, efficient, personal mobility have to do with CAFE policy? Well,

CAFE is actually an obstacle to the realization of this vision. With relatively low

gasoline prices, CAFE works against the market, the consumer and long-term technology development. As the National Academy of Sciences report states, ‘‘There is

a marked inconsistency between pressing automobile manufacturers for improved

fuel economy from new vehicles on the one hand and insisting on low real gasoline

prices on the other.’’

We are investing significant engineering resources to create a completely revolutionary technical capability. A near-term shift in CAFE pulls engineering resources

back to incremental advancements in internal combustion engine systems and to reductions in vehicle power, weight and size. Much has been written on the risks of

focusing on vehicle weight reduction as a means to accomplish increase in fuel economy. The CAFE report by the National Academy of Sciences concluded, ‘‘the downweighting and downsizing that occurred in the late 1970s and 1980s, some of which

was due to CAFE standards, probably resulted in an additional 1300 to 2600 traffic

fatalities. . .’’ annually. Furthermore, reduced power and size degrade the vehicle

utility required by American farmers and tradesmen, and chosen for family travel

and personal use.

Today’s regulatory process provides for a review of CAFE standards by the Department of Transportation. This review is intended to consider technical feasibility,

highway safety, American employment and the economy, costs to the American consumer, the historical and continuing impacts on domestic automakers, and the

American consumers’ right to choose vehicles that meet their safety and transportation needs. These are exceedingly complex and intertwined issues of great significance for our nation.

The regulatory process for review of CAFE standards calls for in-depth analysis

and balancing of these diverse CAFE impacts. That comprehensive regulatory process should be used to consider any changes to CAFE and any legislative support

such changes would require. We intend to work closely with the Department of

Transportation as it resumes full CAFE rulemaking authority.

There have also been discussions about changes to the structure of the CAFE program. A change in the mathematical formulation of the CAFE standards is not likely to significantly affect U.S. petroleum consumption in the face of abundant gasoline. Any reform of CAFE would have to address the significant adverse consequences of the current system:

• disparate impact on domestic automakers

• failure to recognize the lead time required for development and manufacture of

new vehicles

• adverse impact on driver and passenger safety associated with reduced vehicle

weight

• opposition to natural market forces

• negative impact on the consumer’s choice of vehicle

• new vehicle cost that encourages retention of older less-efficient vehicles

• encourages increased driving by reducing per-mile cost

However, changes to the CAFE system have been studied for 20 years and one

conclusion is clear—CAFE can’t be fixed by a simple shift in the formula. CAFE is

determined primarily by what people choose to buy, and that choice reflects consumer needs and the abundance of gasoline.

44

There are better ways than CAFE to conserve petroleum in the transportation

sector. With over 200 million passenger vehicles already on American roads today,

reducing their fuel consumption would be the best policy to pursue. For example,

we see opportunities in incentives to scrap older, less efficient vehicles and to reduce

fuel-consuming congestion on American roads. In addition, fuel savings can be encouraged through incentives to deploy hybrid buses for urban mass transit since the

fuel savings of hybrid powertrains are greatest in stop-and-go urban driving and in

high-consumption vehicles like buses, and the purchase of hybrid vehicles for government fleets. Another attractive option would be to find ways to permit the new

clean diesel engines that now capture nearly 40 percent of European passenger car

sales. These types of policies would engage the power of market forces and act to

reduce fuel consumption by the large number of vehicles already on the road. In

that regard, they offer the opportunity for immediate impact. Advances in the energy efficiency of future vehicle production can also contribute, though at a slower

pace because new vehicles replace approximately 5 percent of the on-road fleet each

year.

In conclusion, let me summarize by saying that we are convinced that sound regulatory policy is critical to provide a constructive environment for the pursuit of significant technology advances. We now see our way to fuel cell technology advances

that will fundamentally change personal transportation during this century.

Our challenge is to balance our resources between meeting today’s regulatory and

market demands and responding to the long-term needs of the American driving

public and society at large. Therefore, we urge that the regulatory agencies proceed

in that spirit to develop recommendations for CAFE policy.

Thank you. I look forward to responding to your questions.

Senator KERRY. Thank you very much, Mr. Davis.

Ms. Cischke.

STATEMENT OF SUSAN M. CISCHKE, VICE PRESIDENT,

ENVIRONMENTAL AND SAFETY ENGINEERING, FORD MOTOR

COMPANY

Ms. CISCHKE. Thank you, Mr. Chairman, and Members of the

Committee. Thank you for inviting me to address the Committee

on this very important issue.

My name is Susan Cischke, and I am Vice President of Environmental and Safety Engineering for Ford Motor Company.

I appreciate the opportunity to share with you our views on these

subjects, which are of critical importance to our business, our customers, shareholders and the Nation. We support efforts to create

an effective energy policy for the U.S., and believe that industry

and government both have a role to play in addressing energy concerns.

Industry should continue to invest in development of energy efficient technologies and government should help bring advanced

technologies to market more quickly and cost-effectively through

policies that encourage early adoption and are providing incentives

to make it more affordable to consumers.

In regard to CAFE, it is been widely recognized that this is a

complex issue, because many of the tradeoffs and conflicts involve

Congress and the Energy Policy Act authorized, NHTSA to periodically review the standards. We believe that NHTSA has the required expertise and is appropriately positioned to consider existing standards on the maximum feasible truck CAFE levels.

Looking at today’s fuel economy data on a model-to-model basis,

you will see very little difference in the fuel economy performance

across the major manufacturers. Contrary to what you may have

heard or believe, on an apples-to-apples basis, the fuel efficiency of

domestic manufactured vehicles are comparable to imports.

45

What is different is the model mix. Simply put, CAFE is the calculated average of all the vehicles a company sells. Some manufacturers, mostly domestic manufacturers like Ford, offer a full product line-up with sales of larger cars and trucks like the best-selling

F-Series that can haul and tow while other manufacturers have

higher sales and small vehicle segments. This has created what

you could call a model mix loophole, where some manufacturers

have been able to enter the larger vehicle segments unrestricted by

CAFE for the past 10 years. Thus, the difference in CAFE performance is not vehicle-to-vehicle differences, and we have shown in the

attached table in our written testimony, but the differences in the

segments in which the companies choose to compete.

At the end of the day, any solutions to reduce fuel consumption

or correct CAFE structure inadequacies must result in vehicles

that customers can afford and that they are willing to and inclined

to purchase.

Ford has been in the business of making and selling vehicles for

98 years, and we know that when customers consider purchasing

a vehicle, they are concerned with vehicle affordability, quality, reliability, safety, appearance, comfort and utility. From our perspective, no one factor can be ignored in the highly competitive U.S.

marketplace.

We have reviewed the National Academy of Sciences report on

the Effectiveness and Impact of Corporate Average Fuel Economy

(CAFE) standards. While we cannot endorse the cost of technology

in the report or the methodology for estimated break-even pricing,

the report has many findings and recommendations that were

thoughtfully prepared. Among them, the panel recommends that

consideration be given to an attribute-based system such as vehicle

weight. We believe there is merit to investigating this further.

A few years ago, Ford announced an approach we call cleaner,

safer, sooner. This is part of a larger strategic vision to improve

safety and fuel economy and reduce emissions. I would like to take

a minute to share what we have done and plan to do to improve

the fuel economy of our vehicles.

First, we have pledged to improve the SUV fuel economy of our

U.S. fleet by 25 percent. I would like to thank everyone for recognizing Ford’s pledge to improve SUV fuel economy by 25 percent

in 2005. As was mentioned earlier, we are committed and on track

to do so.

It is a very challenging task made even more challenging in

these present economic conditions, but I would like to clarify that

this does not translate into a 25 percent truck CAFE increase,

which is based on model mix—in other words, what people will be

buying 4 years from now, as well as the other categories that are

included in truck CAFE, including light trucks, minivans as well.

So you have to remember CAFE is complex and it is not an average.

Second, I would like to mention that Ford is the leader in offering clean running alternative fuel vehicles, and we make and sell

10 vehicle lines capable of running on fuels other than gasoline, including ethanol, natural gas, and propane.

And third, we are leading the world’s automakers by providing

consumers with the broadest lineup of electric vehicles, including

46

a new zero emissions brand and we are not stopping here. We continue to research other promising technologies, including hydrogen

powered fuel cells. Our objective is simple. Give consumers more of

what they want. Performance, driveability, and utility using less

fuel, emitting lower emissions, and requiring less maintenance.

In closing, we believe that policies that promote research, development, and deployment of advanced technologies and provide consumer incentives to accelerate demands for these technologies are

two key elements of our coordinated strategy to reducing U.S. fuel

consumption.

Ford is committed to taking action to address societal concerns

when we have the technology, when it can be done cost effectively,

and introduced in sufficient volumes to make a difference.

Thank you again for the opportunity to address the Committee.

[The prepared statement of Ms. Cischke follows.]

PREPARED STATEMENT OF SUSAN M. CISCHKE, VICE PRESIDENT, ENVIRONMENTAL

AND SAFETY ENGINEERING, FORD MOTOR COMPANY

Mr. Chairman and Members of the Committee: Thank you for inviting me to address the committee on this important issue. My name is Susan Cischke, and I am

Vice-President of Environmental and Safety Engineering for Ford Motor Company.

Ford Motor Company has 48 manufacturing facilities located in North America employing 163,000 people in the United States.

I appreciate the opportunity to share with you Ford Motor Company’s views on

motor vehicle fuel efficiency and what role advance technology will play. These

issues are of critical importance to our business, customers, shareholders, and the

nation.

We are committed to reducing energy consumption through development of fuelefficient advanced technology and alternative fuel vehicles, and improving plant and

facility energy use. To that end, a few years ago Ford announced an approach we

call ‘‘Cleaner, Safer, Sooner’’. This theme actually is part of a larger strategic vision

of where we are headed with technology as a company to improve safety and fuel

economy and reduce emissions. I would like to take a few minutes to share what

we have done and plan to do to improve the fuel economy of our vehicles.

• We have pledged to improve the fuel economy of our U.S. SUV fleet. This will

be done through a combination of new vehicle introductions, significant powertrain

and non-powertrain actions, and additional use of lightweight materials.

• Already, today, Ford is the leader in offering clean-running alternative fuel vehicles. We make and sell ten vehicle lines capable of running on fuels other than

gasoline, including ethanol, natural gas, and propane. One of the key hurdles to

overcome in commercializing alternative fuel vehicles is the lack of fueling infrastructure. Incentives will help the distributors overcome the costs to establish the

alternative fuel outlets and support distributors during initial lower sales volumes

as the number of alternative fuel vehicles increases.

• We are leading the world’s automakers by providing consumers with the broadest lineup of electric vehicles, including a new zero-emissions brand, TH!NK—dedicated to the development and marketing of alternative fuel powertrains and vehicles.

• Fuel cells are one of the most promising long-term technologies and offer the

hope of breakthrough fuel economy improvements, zero emissions, and a shift away

from petroleum-based fuels. Ford is working hard on this promising technology and

has also recently announced a new direct hydrogen internal combustion engine research vehicle. We introduced our first drivable fuel cell vehicle in 1998 and last

year introduced the Ford Focus FCV. However, there are significant obstacles to

overcome, including cost, infrastructure, and new technologies that need to be invented.

• We recognize that electronics that integrate electric drive with an internal combustion engine offer improvements in fuel economy. For example, we plan to have

the Escape Hybrid Electric Vehicle on the road in 2003 that incorporates electric

drive technology.

As we work to improve the fuel economy of our vehicles, we keep several important objectives in mind. We must provide consumers with the vehicles they want

to drive that provide the functionality they look for and the safety they demand.

47

Vehicles that do not meet customer needs, do not sell, and will not improve the

country’s environmental performance. It is also important to set equitable tasks for

all manufacturers and to provide adequate lead-time to accomplish these tasks. We

have looked at the CAFE standards from a manufacturers perspective and we believe that as a policy tool, it does not measure up to these principles. The goal of

the initial CAFE program was to improve the average fuel economy performance of

three companies. This is a different objective than setting up a program that conserves energy for the nation.

Contrary to what you may have heard or believe, on an apples-to-apples basis, the

fuel efficiency of vehicles from domestic manufacturers is comparable to those from

import companies. Looking at today’s fuel economy data, on a model-to-model basis,

you will see very little difference in the fuel economy performance across the major

manufacturers. What is different is the model mix. Simply put, CAFE is a calculated average of all the vehicles a company sells. Some manufacturers, mostly domestic manufacturers like Ford, offer a full product line-up with sales of larger cars

and trucks like the best selling F-Series that can help with the chores on the farm,

while other manufacturers have higher sales in small vehicle segments. This has

created what you could call a ‘‘model mix loophole’’ where some manufacturers have

been able to enter the larger vehicle segments unrestricted by CAFE for the past

10 years. Thus, the difference in CAFE performance is not vehicle-to-vehicle differences, as we show in the attached table, but differences in the segments in which

a company chooses to compete.

At the end of the day, any solutions to reduce fuel consumption or correct CAFE

structure inadequacies must result in vehicles that customers can afford and that

they are willing to and want to purchase. Ford has been in the business of making

and selling vehicles for 98 years and we know that when customers consider purchasing a vehicle, they are concerned with vehicle affordability, quality, reliability,

safety, appearance, comfort, and utility. Automakers also must consider all competing regulatory challenges, not just reducing fuel consumption, but improving

safety and reducing emissions. From our perspective, no one factor can be ignored

in the highly competitive U.S. marketplace.

In regards to CAFE, we agree with the National Academy of Sciences that ‘‘understanding the impact of potential changes to CAFE standards is, indeed, a difficult

and complex task.’’ Because of the many tradeoffs and conflicts involved, Congress,

in the Energy Policy Act, authorized the National Highway Traffic Safety Administration (NHTSA) to periodically review the standards, which requires expert and intensive review of competitive information and analysis of competing priorities. We

believe that NHTSA is appropriately positioned to set standards at the ‘‘maximum

feasible’’ truck levels as required by law. The regulatory process to do this is already

in place and scheduled to begin shortly.

We have reviewed the National Academy of Sciences report on ‘‘The Effectiveness

and Impact of Corporate Average Fuel Economy (CAFE) Standards.’’ While we cannot endorse the cost of technology in the report or the methodology for estimating

breakeven pricing, the report has many findings and recommendations that deserve

further comment:

(1) NAS recommended that the government should be involved in setting fuel economy standards for societal reasons. We agree that government has an appropriate

role to play in establishing national energy objectives and evaluating the tradeoffs

between competing national objectives. We support the current regulatory process

already in place to have the National Highway Traffic Safety Administration review

the fuel economy standards and set responsibly crafted standards at maximum feasible levels that consider among other things the interactions between fuel economy

and safety, economic concerns, and U.S. competitiveness. As I mentioned, this review process is already in place and scheduled to begin shortly.

(2) NAS recommended that consideration should be given to an attribute based system, such as vehicle weight. We believe that there is merit to investigating this further.

(3) NAS recommended that the CAFE system, or any alternative system, should include broad trading of ‘‘Credits.’’ We do not envision an inter-manufacturer trading

system that would work since it would inevitably lead to a transference of wealth

from full line manufacturers—who provide working class vehicles to working Americans—to foreign companies who provide small vehicles unless equitable tasks are

developed for all manufacturers.

(4) NAS recommended that the dual-fuel vehicle credits should be eliminated. Ford

believes this recommendation should have been modified to add a phrase at the end

‘‘or we should add additional incentives to build a fuel infrastructure to support alternative fueled vehicles.’’ We believe that bio-fuels and renewables will play an important role in energy diversity. We should not be cutting off a fruitful path to get

48

to a renewable market because the fuel infrastructure has not grown as fast as

some critics would like. There should be additional incentives to build a fuel infrastructure to support alternative fueled vehicles.

We can not emphasis enough the uncertainties in the NAS report, these ‘‘Uncertainties include the cost of implementing existing technologies or developing new

ones; the future price of gasoline; the nature of consumer preferences for vehicle

types, performance, and other features; and potential safety consequences of altered

standards. The higher the target for average fuel economy, the greater the uncertainty about the cost of reaching that target.’’ (ES–7)

In closing, we believe that policies that promote research, development and deployment of advanced technologies and provide consumer incentives to accelerate demand for these technologies are two key elements of a coordinated strategy to address reducing U.S. fuel consumption. Advanced Technology Vehicles hold great

promise for increasing fuel efficiency without sacrificing the other vehicle attributes

consumers desire. Just as important, the technology is transparent to the customer.

Incentives will help consumers overcome the initial higher costs of advanced technology and alternative fuel vehicles during market introduction, bringing more energy efficient vehicles into the marketplace more affordably. Enabling consumers to

make more effective fuel-efficient choices makes more sense to achieve the desired

outcome.

Ford is committed to taking action to address societal concerns when we have the

technology and when it can be cost-effectively introduced in sufficient volume to

make a difference.

Thank you again for the opportunity to address the Committee.

49

50

51

Senator KERRY. Thank you very much, Ms. Cischke.

Mr. Cohen.

STATEMENT OF EDWARD B. COHEN, VICE PRESIDENT FOR

GOVERNMENT AND INDUSTRY RELATIONS, HONDA NORTH

AMERICA

Mr. COHEN. Thank you, Mr. Chairman.

Good morning. My name is Ed Cohen. I am Vice President for

Industry and Government Relations, Honda North America. With

your permission, Mr. Chairman, I ask that our complete statement

be included in the record.

Senator KERRY. Without objection, it is entered.

Mr. COHEN. Thank you, Mr. Chairman. Since its beginning in

1948, Honda has been guided by our philosophy of providing clean,

efficient and high performance products of the highest quality, yet

at reasonable prices that customers are willing to pay. We believe

Honda’s products are the purest expression of Honda’s commitment

to the environment and so we have set out to ensure that Honda’s

fleet has not only set the standard for cleaner emissions, but also

that it is one of the most efficient in our Nation.

Our combined CAFE average for cars and trucks, based on the

NHTSA 2001 mid-model year report was 30.3 miles per gallon. And

our vehicles are either at the top or close to the top of each segment in which we choose to compete. Also, 100 percent of the cars

that we manufacture in 2002 will be low emission vehicles or better. In excess of 40 percent of those vehicles will be ultra low-emission vehicles (ULEV). While fuel efficiency is a high priority for

Honda, we also must produce vehicles that our customers will want

to buy. The challenge for all of us is finding the critical balance between society’s environmental priorities and the needs of our customers.

The report of the National Academy of Sciences provides a good

foundation for the Committee’s inquiry into the fuel economy issue.

While we do not agree with all the findings and recommendations,

the National Academy does point out that there are policies other

than CAFE that could accomplish the same ends at a lower cost

and provide more flexibility to manufacturers. However, you have

asked us this morning to focus on CAFE and I will do so now.

We encourage the Committee in focusing on CAFE that close attention be paid to the importance of providing sufficient lead time

to design and introduce new technology to meet future standards.

The NAS panel focuses on a 10 to 15-year timeframe. While CAFE

does create market distortions, they can be mitigated if manufacturers can design in fuel economy attributes during the initial design stages, rather than as a process of retrofits or weight reductions. Certainly, this has been Honda’s experience as we incorporate fuel efficiency goals into the base concept of new model development. The NAS endorsed establishing fuel economy targets

based on vehicle attributes such as size or weight.

The NAS panel seems to have opted for weight adjustments because of its belief that it is important to eliminate influences toward small cars due to safety considerations.

However, we agree with the view of panel members David Green

and Mary Ann Keller, who in dissenting, expressed their belief that

52

existing safety data is inadequate to reach different conclusions

about fuel economy related safety issues. Significant existing studies do not address the safety impact of using lightweight materials

without reducing size, especially with vehicles with advanced safety technology.

Mr. Chairman, you have asked us to focus on ways to adjust

CAFE or alter CAFE. Let me offer one that you should not use,

and that is a proposal that some have mentioned that CAFE increases should be based on a fixed percentage applied against each

manufacturer’s own CAFE average.

As the NAS pointed out, such an approach would be unfair,

shortsighted and unwise. It would impose a higher burden on those

manufacturers that have already done the most to help energy consumption. It would reward those who have done the least, or as the

NAS puts it, ‘‘it conveys a moral lesson that it is better to lag than

it is to lead.’’

It is bad public policy. It creates a strong disincentive for any

manufacturer to ever exceed a standard in the future. No good

deed will go unpunished for that manufacturer. But most importantly, it harms consumers and it harms American workers. It

would reduce competition and keep the most efficient manufacturers out of product classes that they might not yet have entered by

locking them into their current market positions.

It also would hurt American workers. Three-quarters of the cars

that Honda sells in the United States are made in North America.

94 percent of the steel that goes into those cars are made in U.S.

factories. The great proportion of parts, the preponderance of parts

that go into those cars, come from suppliers here in the U.S. made

by American workers in over 35 States.

Just 2 days ago, I was in Alabama to dedicate the opening of our

new Honda Odyssey plant. That plant represents a $580 million investment and employs 1,500 Americans. We will be making

120,000 Odysseys. At the same time we dedicated the plant, we

also announced that we were going to expand it. We are going to

hire a total of 2,300 Americans. This also will increase production

for the U.S. suppliers that supply parts for those vehicles.

Mr. Chairman, we appreciate the opportunity to testify this

morning. At Honda, we have always adopted a can-do approach to

building cars that exceed our customer’s expectations while achieving levels of emission and fuel efficiency that are compatible with

the needs of the environment.

We look forward to working with the Committee as it considers

the current CAFE program.

[The prepared statement of Mr. Cohen follows:]

PREPARED STATEMENT OF EDWARD B. COHEN, VICE PRESIDENT FOR GOVERNMENT

AND INDUSTRY RELATIONS, HONDA NORTH AMERICA

Good morning. My name is Edward B. Cohen. I am Vice President for Government and Industry Relations, Honda North America. We are delighted to once again

appear before the Committee. As you will recall, we were pleased to testify on automotive fuel efficiency and technology before the Committee at its hearing on July

10, 2001. The focus of today’s hearing and of our testimony is the various issues

associated with the regulation of motor vehicle fuel economy. The recent report of

the National Academy of Sciences (NAS) entitled ‘‘Effectiveness and Impact of Corporate Average Fuel Economy Standards’’ provides the Committee with a good point

53

of departure for considering this complex technological, economic and public policy

issue.

Since its beginning in 1948, Honda has been guided by its philosophy of providing

clean and efficient products of the highest quality at a reasonable price to its customers worldwide. In 1974, the founder of our company, Soichiro Honda, said, ‘‘I

cannot overstate the importance of continuing to cope with the pollution problem.’’

In this spirit, we believe Honda’s products—more than mere words—are the purest

expression of Mr. Honda’s commitment to the environment. And it is this commitment that has led to the can-do approach that has been the hallmark of Honda’s

efforts to meet the environmental challenge—while still meeting the needs of our

customers.

In this coming year, for example, every vehicle that we sell in the United States

will be categorized as a low emission vehicle (LEV) or better, and 40 percent are

ultra-low emission vehicles. Every Civic we make is ULEV, the first complete ULEV

model line to be sold in all 50 states. The 2000 Accord meets California’s Super

Ultra Low Emission Vehicle standard, emitting 96 percent less hydrocarbons than

a typical car. The 2000 Honda Insight, which achieves an EPA rating of 61 mpg

(city) and 68 mpg (highway), was the first gasoline-electric hybrid vehicle introduced

in the United States. And this spring, we will introduce the all new Civic Hybrid—

the first regular production vehicle that will be available with three different

powertrains—conventional gasoline, compressed natural gas and hybrid engines.

In this same light, Honda’s fleet has always been one of the most efficient in the

nation. Our combined car and light truck CAFE average for 2001, based on

NHTSA’s mid-model year report, is 30.3 mpg . While fuel efficiency is a high priority

for us, we know from our long experience with this issue that we must produce vehicles that our customers will want to buy. The challenge for all of us is finding the

critical balance between overall societal needs (reduction of greenhouse gas emissions and reduced reliance on petroleum) with the individual needs and demands

of our customers. We look forward to and believe it is time for a constructive discussion about motor vehicle fuel efficiency. The goal must be to develop requirements

that are fair and equitable for all manufacturers and that improve energy efficiency

and resource conservation.

We commend the NAS on its report on fuel economy. While we do not agree with

all the findings and recommendations, the Panel had a formidable task, which it

completed on an extremely tight timeframe.

As we will discuss, a number of the recommendations of the NAS on any future

increase in CAFE parallel our thinking. The report recognizes the importance of

providing adequate lead-time to design and introduce new technology to meet future

standards. The report focuses on a 15-year timeframe. Certainly, the more significant the increase in the standard, the longer the lead-time needed. The report also

discusses alternatives to the current CAFE program. We concur in the Panel’s observation that some of these alternatives have the potential to reduce the nation’s

fuel consumption without the market distortions created by the CAFE system. We

also note the report is not unanimous on its position with regard to safety. We have

more to say about this critical issue later, but we concur that more research is warranted.

We believe that any future fuel economy requirements should be stated in terms

of performance and be technology neutral. Standards should be set with due consideration of the challenges faced by manufacturers to offer consumers the mix of vehicles and vehicle attributes they desire. For these reasons, we believe that specific

CAFE standards should be set by an expert agency, such as the National Highway

Traffic Safety Administration, with direction and oversight from Congress.

POLICY CHOICES

The NAS stated that it is appropriate for the Federal Government to set fuel

economy levels in order to achieve the twin goals of reducing greenhouse gas emissions and decreasing the level of petroleum imports. However, the NAS also pointed

out that fuel economy standards alone are not sufficient to guarantee achievement

of these twin goals. Consumer behavior, as reflected in vehicle miles traveled, fuel

substitution, incentives and consumer demand for various makes and models also

are critical factors. Similarly, the availability and price of gasoline (including the

level of gasoline taxation) also directly influence consumers’ purchasing decisions.

When gasoline prices rose to close to $2.00 per gallon earlier this year, customer

demand for our fuel-efficient Insight also increased. The current system of CAFE

standards does little, if anything, to influence these consumer-based factors.

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Alternatives to CAFE

The structure of any fuel economy requirement has significant impacts on how the

program operates and its influence on the marketplace. One critical choice facing

policymakers in designing a fuel economy program is whether the fuel economy improvement will be certain or whether the costs of the program will be certain. Costs

include not only dollar and cents impacts on the price of vehicles, but also tradeoffs

such as vehicle performance and convenience factors. The current CAFE structure

fixes the fuel economy improvement, but its costs are very uncertain as it depends

on future market choices, fuel prices and the rate of technology development. It cannot be predicted with much accuracy. If the CAFE level is set too high, the costs

increase rapidly and may force sales of unwanted vehicles. If the CAFE level is set

too low, cost effective technology may not be used, as there is little incentive to do

more than the absolute minimum.

The NAS recognized this policy conundrum and observed that there are

‘‘. . . policies [other than CAFE that] could accomplish the same end at a lower

cost, provide more flexibility to manufacturers, or address inequities arising from

the present system.’’ (Finding 10). While the NAS was asked only to examine CAFE

policies, alternatives to the current system, that warrant closer scrutiny by Congress, include tradable credits for fuel economy improvements, as well as feebates,

higher fuel taxes, and standards based on vehicle attributes.

Attribute-Based Systems

Among the alternatives evaluated by the NAS are fuel economy targets based on

vehicle attributes such as size class or weight. This approach would make the vehicle mix each manufacturer offers in the marketplace less significant for the purposes

of fuel economy compliance. At the same time, a weight-based system has a significant negative side, as manufacturers would get no credit for substitution of lightweight materials or better packaging efficiency. There simply would be no reward

for such changes, and in fact, if not properly structured, there may even be an incentive for increasing weight. Significantly, these disincentives would not exist for

a system based on size or vehicle class.

The NAS Committee seems to have opted for weight rather than size adjustments

because of its belief that—due to safety considerations—it is important to eliminate

influences toward small cars. It is significant that these safety considerations are

the only issue that produced a dissenting opinion in the report. And Honda concurs

with that dissenting opinion expressed by committee members David Greene and

Maryann Keller that the data is insufficient to conclude that safety is compromised

by smaller cars. The level of uncertainty about fuel economy related safety issues

is much higher than stated in the majority report. Significantly, existing studies do

not address the safety impact of using lightweight materials without reducing size,

especially for vehicles with advanced safety technology.

As the dissenters state, ‘‘[t]he relationship between vehicle weight and safety are

complex and not measurable with any degree of certainty at present.’’ We believe

it is important to understand the differences between size and weight. We have

demonstrated through the use of sophisticated engineering and advanced lightweight materials that smaller cars can be made increasingly safer. For example,

Honda’s 2001 Civic Coupe, with a curb weight of 2502 pounds, was the first compact

car to receive a five star safety rating in the NHTSA crash results for the driver

and all passenger seating positions in frontal and side crashes. The fuel economy

of the Civic HX coupe with a continuously variable automatic transmission (CVT)

and a gasoline engine is 40 mpg (highway) and 35 mpg (city). In addition, there are

many ways to increase fuel efficiency that do not affect weight including power train

technology and the efficient use of space.

Thus, vehicle design and size, and not just vehicle mass, must be considered when

studying the relationship between fuel economy and safety. There are accident scenarios where less weight may actually be an advantage in some vehicle accidents.

In others, it is a disadvantage. But, there is much we do not know. For example,

to what extent can advanced crash avoidance technologies, such as forward collision

warning/avoidance, lane keeping and road departure prevention, and lane change

collision warning/avoidance systems, be employed to make weight considerations

less relevant? To what extent can new, lightweight materials and sophisticated engineering provide a level of crash protection comparable or even superior to vehicles

with traditional materials and designs? Honda supports the NAS recommendation

that NHTSA undertake additional research to clarify the relationship of weight and

size in the context of newly evolving advanced materials and engineering techniques

in the array of accident scenarios that are encountered on American roads. There

have been too many assumptions made in terms of the factors influencing fuel efficiency and safety. But there simply has not been the detailed analysis of the various

55

crash dynamics and crash scenarios on vehicles with modern safety designs to draw

any definitive conclusions.

The Introduction of Fuel Efficient Technologies and Importance of Leadtime

There is a popular misconception that vehicle manufacturers have not introduced

fuel-efficient technologies since the mid 1980s. This is understandable, as the car

and light truck CAFE have remained relatively constant for the last 15 years. However, the reason for this flat line is not a lack of technological progress. The combined fleet has gone down due to increasing light truck market penetration—and

due to the increasing array of features demanded by customers. There has been a

substantial amount of efficiency technology introduced by the industry in that time

period. As EPA has reported in its 2000 Fuel Economy Trends Report, penetration

of lock-up torque converters increased from just under 30 percent in 1980 to 100

percent in 2000. Similarly, the use of port fuel injection increased from 5 percent

in 1980 to 100 percent in 2000. From its introduction in 1985, penetration of 4

valves per cylinder reached 40 percent in 2000. The dilemma facing manufacturers

is that consumers may not value using these technologies to improve fuel economy

given the relatively low price of gasoline.

These new technologies have been employed more to respond to vehicle attributes

demanded by the marketplace than to increase fuel economy. Over the past two decades, consumers have insisted on such features as enhanced performance, luxury,

utility, and safety without decreasing fuel economy. Although vehicle weight increased 12 percent from 1987 to 2000, the 0–60 time improved by 22 percent in the

same time period. This is because average horsepower increased by 70 percent from

1982 (99 hp) to 2000 (170hp). In addition, the proportion of manual transmissions,

which are more fuel-efficient than automatic transmissions, decreased from 32 percent in 1980 to 14 percent in 2000. It is clear that technology has been used for

vehicle attributes which consumers have demanded and value more than fuel economy.

If the current car fleet were still at 1981 performance, weight and transmission

levels, the passenger car CAFE would be almost 36 mpg instead of the current level

of 28.1 mpg. The trend is particularly pronounced since 1987. Based on EPA’s data,

technology has gone into the fleet from 1987 to 2000 at a rate that could have increased fuel economy by about 1.5 percent per year, if it had not instead focused

on other vehicle attributes demanded by the market. There is no reason why this

technology trend of improved efficiency (as opposed to fuel economy) should not continue.

This pace of potential improvement is significant in the context of the NAS finding that ‘‘[t]technology changes require very long lead times to be introduced into

the manufacturers’ product lines.’’ Accelerated mandates that are met through

piecemeal modifications to existing vehicle designs rather than through integration

of fuel-efficient technologies from the inception of a new vehicle design can have disruptive and undesirable effects. The NAS notes that the downweighting and

downsizing that occurred in the late 1970s and early 1980s, may have had negative

safety ramifications. But the ability to ‘‘design in’’ fuel economy from the beginning—through the use of aerodynamic styling, enhanced use of lightweight materials, and incorporation of the newest drivetrain technologies—can produce significant fuel savings with little sacrifice of other vehicle attributes that consumers desire. And I can say unequivocally that this has been Honda’s experience.

OTHER POLICY OPTIONS FOR MODIFICATION OF THE EXISTING CAFE PROGRAM

Two Fleet Rule

The NAS report raises a number of other critical issues about the current CAFE

system that should be reexamined by Congress. For example, the NAS recommends

abolition of the import/domestic split or two fleet rule. Honda agrees with this recommendation. Regardless of what the original purpose of the rule may have been,

circumstances in the auto industry have markedly changed since the original statute was enacted more than 25 years ago. Significantly, a number of manufacturers

have begun production in the United States. Honda, for example, now produces

more than 75 percent of its cars for the U.S. market in North America. Just 2 days

ago, we dedicated a completely new engine and motor vehicle manufacturing facility

in Lincoln, Alabama where we will produce the Honda Odyssey—it is our 8th major

plant in America. Depending on the formula used—and there are many—these vehicles contain between 70 and 90 percent domestic content. Over 90 percent of the

steel used in these vehicles is domestic. Equally important, over 20,000 Americans

are employed directly by Honda to design, develop, assemble, and sell these vehicles

56

(This employment figure does not include the many tens of thousands employed by

our U.S. suppliers and dealer network.)

The NAS believes the two fleet rule may act as a disincentive for manufacturers

to increase the domestic content of their U.S.-built vehicles. Depending upon a manufacturers’ global production plan, their more efficient vehicles may be made in the

U.S. and thus are needed to be averaged with import vehicles to meet their CAFE

obligations. Further, under CAFE, Canadian vehicles are treated as domestic, and

soon as a result of the North American Free Trade Agreement, Mexican vehicles

will be counted as domestic as well. The two fleet distinction already has been eliminated for trucks. It has outlived whatever usefulness it may ever have had.

The Distinction Between Cars and Light Trucks

Another question inherent to the discussion of fuel economy policy is the viability

of the current distinction between passenger cars and light duty trucks. When the

CAFE statute was originally drafted, minivans were virtually nonexistent and SUVs

were bought only by a small group of people who intended to use them off-road or

for commercial uses. At that time, a distinction was needed for vehicles used for

commercial and consumer purposes. Today, most light duty trucks are used as passenger vehicles and companies are building crossover vehicles that may fall in either

a manufacturer’s car or truck fleet. Thus, we caution that if cars and trucks are

combined into a single fleet with a single standard, or if the same standard is adopted for both cars and light trucks, then there must be sufficient lead-time. Technology will help, but the lead-time must be sufficient. Timeframes reflected in the

NAS report appear to be more reasonable. But we know of no technology or imminent breakthroughs that can take CAFE to 39 or 40 miles per gallon as some have

proposed in a decade or so without severe marketplace disruptions.

UNIFORM PERCENTAGE INCREASE (UPI)

Before concluding, we wish to highlight another important conclusion of the NAS

report. The report unambiguously denounced an approach to CAFE that would require each manufacturer to improve its own CAFE by a specific target percentage.

This is known as uniform percentage increases, or UPI. The NAS observes that such

an approach would impose a higher burden on those manufacturers that have already done the most to help reduce energy consumption. Among its negative consequences, the NAS noted that UPI is generally the most costly way to meet an environmental standard, it locks manufacturers into their relative positions, thus reducing competition, and rewards those who have met only the minimum requirement. Most significantly, the NAS found that it punishes those who have done the

most to help the environment and ‘‘seems to convey a moral lesson that it is better

to lag than to lead.’’ In short, the NAS found that such a system provides a strong

incentive for a manufacturer not to exceed regulatory standards for fear this will

lead to tighter regulations. As one company that would be particularly aggrieved by

an UPI approach precisely because we have worked proactively and tirelessly to

meet or exceed all requirements, Honda strongly endorses the NAS’s position in condemning UPI. Similarly, an approach that allocates to each manufacturer total gallons to be saved would have many of the same negative implications as UPI. And,

like UPI, it would freeze market share of each manufacturer at current levels. How

ironic it would be to effectively exclude from a new market a manufacturer like

Honda that sells some of the most fuel-efficient cars in America.

CONCLUSION

There are several basic rules that should apply to any approach to address fuel

economy that Congress ultimately adopts:

• Any future fuel economy mandates must be equitable to all manufacturers;

• Those mandates must provide adequate lead time;

• They should reflect a basic understanding that technology is ever evolving;

• They must be applied fairly to all automakers; and

• They must ensure that manufacturers will be able to offer consumers the vehicles with the attributes they demand.

In short, this is a major challenge that will require all of us to work together.

But for those of us at Honda, it is a challenge we will embrace with our can-do spirit—for the benefit of our customers and society.

Thank you.

Senator KERRY. Thank you very much, Mr. Cohen. We appreciate

it.

Ms. Mesnikoff.

57

STATEMENT OF ANN R. MESNIKOFF, WASHINGTON

REPRESENTATIVE, SIERRA CLUB GLOBAL WARMING AND

ENERGY PROGRAM

Ms. MESNIKOFF. Thank you, Mr. Chairman.

My name is Ann Mesnikoff. And I thank you and the Members

for the opportunity to testify today on behalf of Sierra Club’s more

than 700,000 members nationwide on the issue of automobile fuel

economy standards. I would similarly request my full written testimony be submitted for the record.

Senator KERRY. Without objection, so ordered. Let me just alert

you. I am not sure if we could get the two testimonies in. There

is a vote on, and then I could go and vote and come back and engage in the questioning. It would be helpful.

Ms. MESNIKOFF. I will try to be brief. It has been a little more

than a year since I last represented Sierra Club before this Committee on solutions to global warming and much has changed since

that last testimony in support of raising CAFE. The national debate on energy policy is now focused on energy security and the

issue of oil dependence is central to that debate. The tragedy of

September 11th heightens the need to act now to raise fuel economy and reduce our dependence on oil.

The biggest single step the U.S. can take to save oil is to raise

CAFE standards. New standards will save millions of barrels of oil

every day, will keep billions of dollars in our economy that consumers can reinvest rather than sending them overseas. And more

importantly, they will also slash carbon dioxide emissions. As this

Committee develops new standards to be included in balanced and

responsible energy legislation, it has the opportunity to ensure real

oil savings for the Nation.

Cars and light trucks guzzle 8 million barrels of oil every single

day in this country and emit 20 percent of our CO2. The Sierra

Club urges this Committee to call for a 40-mile-per-gallon CAFE

standard to be phased in over the next 10 years for a combined

fleet of cars and light trucks. This should include closing the light

truck loophole. This will put the Nation on the path to saving nearly 2 million barrels a day by 2012 and nearly 4 million barrels a

day by 2020.

When you contrast that to the 8 million barrels of oil we are

using a day in cars and light trucks, those are real savings that

will have an impact on our oil imports. The U.S., as pointed out

by previous testimony, just 3 percent of the world’s oil reserves, yet

we use 25 percent of the world’s oil, so we cannot really drill our

way out of this situation.

The new standards will save far more than we import from the

Persian Gulf and they will save far more than the 6 months worth

of oil expected to come from the National Arctic Wildlife Refuge—

oil that won’t add to supplies for about 10 years. In contrast, a cumulative savings from raising CAFE standards to 40 miles per gallon over the next 10 years will be nearly 3 billion barrels of oil.

Consumer savings in the billions of dollars a year will be a helpful to our economy. They will generate jobs as consumers invest the

dollars they save at the gas pump into this economy rather than

sending them overseas to pay for oil. In 1990, this Committee

adopted and sent to the floor a bill to update CAFE standards. Had

58

that bill passed, we would be saving more than a million barrels

of oil a day now, well on the way to saving 3 million barrels a day.

I would like to make a few points about the NAS report issued

in July.

I think importantly, the report concludes that CAFE standards

have worked to save nearly 3 million barrels of oil every day and

that auto manufacturers can use technology to significantly improve fuel economy over the next 10 to 15 years to generate greater

savings and further pollution reductions.

The key issues to consider in setting new standards are the technologies available and the timeframe for moving forward. The July

report provided there is some guidance on these issues, we certainly urge this Committee to look at other reports; for example,

one issued by the Union of Concerned Scientists ‘‘Drilling in Detroit,’’ as well as reports by the American Council for an Energy Efficient Economy, and by MIT.

All of these studies look at a broader range of technologies beyond the primarily drive-train-related technologies looked at in the

NAS report. Better engines, better transmissions, integrated starter generators, better tires, better aerodynamics and appropriate

weight reductions all combined can improve fuel economy. And

again, I would refer, as Representative Boehlert did, to the Automotive News image right up there which lists all of these technologies that can be used over the next 5 years to improve fuel

economy, and these technologies are cost-effective.

Consumers will save far more than the cost of these technologies

at the gas pump. As for timeframe, we need to ensure that fuel

economy standards ramp up over the next 10 years. We cannot

wait for another 10 or 15 years to see further backsliding.

I think the NAS report identifies the ranges of fuel economies

but does not say what can happen in the short term. And I would

refer to Ford’s pledge to improve the fuel economy of their SUVs

by 25 percent and other auto manufacturers following suit as an

example that the auto manufacturers can move forward in the

short term with technology. Further, I think history does show that

when the industry is given a target, they can meet that target with

technology. Eighty-five percent of the fuel economy improvements

we saw from the existing CAFE standards came from technology.

We would agree that the CAFE system is not perfect, but before

looking at reforming it, again it is important to recognize that the

NAS says it worked. The two major reforms the Sierra Club would

support are closing the light truck loophole that has been discussed

by both Senators Feinstein, Snowe, and Representative Boehlert.

And again, we would also support, strongly support, phasing out

the dual fuel vehicle program. Each of these programs substantially increases gasoline consumption. I would be happy to discuss

those further when time permits.

The Sierra Club strongly agrees with the National Academy of

Sciences that we can move forward to improve fuel economy safely

using technology and putting technology to work. We would also

agree to the point you raised earlier that we need to deal with the

testing system now in place that does not accurately reflect what

is going on in the real world when it comes to fuel economy. So we

would like to see reforms in that program as well.

59

Last, I would like to make a quick point about global warming.

As you pointed out, this is a very serious issue that we need to address. One of the important benefits we can get from raising fuel

economy standards is reducing global warming pollution. It is the

biggest single step we can take to curb global warming. As I have

mentioned, American cars and light trucks spew out 20 percent of

our carbon dioxide pollution. That is more than only four other

countries in the world emit. The U.S. has failed to act domestically

to substantially reduce our emissions and we have abandoned our

role in the international process, but that does not mean we should

abandon our obligation to reduce our emissions domestically. We

have 4 percent of the world’s population. We emit 25 percent of the

world’s CO2.

In conclusion, the Sierra Club would urge this Committee to

raise CAFE standards to 40 miles per gallon over the next 10

years. This new standard would ensure substantial oil savings for

the Nation. It will help reduce our dependence on oil. It will slash

CO2 pollution and it will save consumers billions of dollars at the

gas pump. National energy legislation must include oil savings and

there are no other policy option that will do what new CAFE standards can. Thank you very much.

[The prepared statement of Ms. Mesnikoff follows:]

PREPARED STATEMENT OF ANN R. MESNIKOFF, WASHINGTON REPRESENTATIVE, SIERRA CLUB GLOBAL WARMING AND ENERGY PROGRAM

Introduction

Thank you Mr. Chairman and members of the Committee for the opportunity to

testify today on behalf of Sierra Club’s more than 700,000 members nationwide on

the issue of automobile fuel economy standards.

It has been a little more than one year since I represented the Sierra Club at a

hearing on solutions to global warming. Much has changed since this last testimony

in support of raising Corporate Average Fuel Economy (CAFE) standards. The national debate on energy policy is now focused on energy security, and the issue of

oil dependence is central to that debate. The tragedy of September 11 heightens the

need to act now to raise fuel economy standards for cars, SUVs and other light

trucks. The biggest single step the U.S. can take to save oil is to raise CAFE standards. Strong new standards will save millions of barrels of oil every day—more than

we import from the Persian Gulf—and will keep billions of dollars in the economy

as consumers save money at the pump. In addition, they will slash CO2 emissions

that cause global warming.

As this Committee develops new CAFE standards to be included in comprehensive

energy legislation, it has the opportunity to ensure real oil savings for the nation.

In determining appropriate new standards and possible reforms to the CAFE system, the Sierra Club urges the Senate to review the National Academy of Sciences

CAFE Report issued on July 31, 2001. This Report says we can move forward to

raise fuel economy and that the technologies already exist to meet new standards

safely. In addition, the Committee should consider other studies on the issue, including the Union of Concerned Scientists’ (UCS) report, ‘‘Drilling in Detroit,’’ that

look at a broader range of technologies for improving fuel economy. We can and

must have new standards. The Sierra Club urges the Senate to ensure that new

standards take full advantage of fuel-saving technologies in an appropriate timeframe.

Energy Security: Raising Cafe Standards to 40 Miles Per Gallon

The Sierra Club believes that raising CAFE standards is an essential part of a

balanced and responsible energy plan. Cars and light trucks guzzle 8 million barrels

of oil every day—40 percent of the oil used in the U.S. every day—and emit 20 percent of U.S. CO2 that causes global warming. The U.S. now imports 55 percent of

the oil we use, a level projected to rise steeply.

The Sierra Club supports raising CAFE standards to 40 miles per gallon (mpg)

over the next 10 years for a unified fleet of cars and light trucks. This new standard

is achievable with existing conventional technologies and will lead us toward oil savVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00063 Fmt 6601 Sfmt 6621 D:\DOCS\89683.TXT SSC1 PsN: SSC1
60

ings that approach 4 million barrels of oil every day and reduce CO2 by 600 million

tons every year. The Union of Concerned Scientists’ ‘‘Drilling in Detroit’’ report provides a blueprint for achieving a 40 mpg standard.

The fuel economy of cars and light trucks peaked in 1987 at 22.1 miles per gallon

(mpg) but has dropped to 24 mpg—a 20-year low. Congress set the current 27.5 mpg

standard, still in place for cars, in 1975 based on the technology outlook of the

1970s. Automakers met the 27.5 mpg standard in the mid-1980s. The fuel economy

standard for light trucks, 20.7 mpg, has stagnated for nearly 20 years. Light trucks,

now 50 percent of the new vehicle market (up from 20 percent in 1975), are largely

to blame for the decline in overall fuel economy. With the slide in fuel economy

comes an increased demand for oil, more global warming pollution, and increased

pressure to drill for oil in special places like the Arctic National Wildlife Refuge.

The U.S. has just 3 percent of the world’s oil reserves yet consumes 25 percent

of the world’s oil. We cannot drill our way out of oil dependence, but we can go a

long way toward oil independence by making cars and light trucks go further on

a gallon of gas. Raising CAFE standards to 40 miles per gallon for cars and light

trucks would save far more than the 2.5 million barrels of oil per day we now import

from the Persian Gulf. It will also save far more than the estimated 6 months of

oil in the Arctic National Wildlife Refuge—oil that would not add to U.S. supplies

for 10 years. In contrast, the cumulative oil savings from phasing in a 40 mpg

standard over the next 10 years would be nearly 3 billion barrels of oil. By 2012,

the daily savings would near 2 million barrels per day, and approach 4 million barrels per day in 2020. If new cars and light trucks averaged 40 miles per gallon, we

would save 1,507 gallons of gasoline per second.

Annual consumer savings from a 40 mpg standard would hit $16 billion in 2012

and continue to rise as the efficiency of the fleet continued to improve. The cumulative savings over 10 years would be $45 billion. Each dollar saved at the pump

can be invested in the U.S. economy instead of spent on foreign oil. In 2000, Americans spent $186 billion at the gas pump for 121 billion gallons of gasoline. Overall,

the U.S. sends $200,000 overseas every minute to pay for oil products. Studies have

consistently shown that re-investing the billions of dollars from oil savings will generate jobs economy-wide, including 40,000 new jobs in the auto industry alone.

As outlined in ‘‘Drilling Under Detroit,’’ conventional technologies now exist to

achieve a 40 mpg standard over 10 years. A combination of better engines, transmissions, aerodynamics, appropriate weight reductions and other technologies can

be used to improve the fuel economy of all vehicles, from cars to the largest SUVs.

This is the first time since 1990 that this Committee and the Senate have looked

at raising CAFE standards. In 1990 the Senate Commerce Committee adopted and

sent to the floor a bill that would have raised the CAFE standard for cars to 40

mpg and for light trucks to 34 by last year. This bill gained the support of 57 Senators. Had these standards passed we would be saving more than a million barrels

every day on the way to saving 3 million barrels a day and the cumulative savings

over the past past 10 years would have been 1.2 billion barrels.

This Committee and the Senate should act now to raise fuel economy over the

next 10 years to 40 mpg—a level that reflects the technologies now available. The

country cannot afford another 10 years of backsliding on fuel economy.

The National Academy of Sciences Report on Fuel Economy Standards

On July 31, 2001, the National Academy of Sciences (NAS) released its report,

‘‘Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards’’

[Report]. According to the Report, CAFE standards save nearly 3 million barrels of

oil every day and automakers can use technologies to significantly improve fuel

economy over the next 10–15 years to generate greater savings.

The 2001 report is the second NAS report on fuel economy in less than 10 years.

The 1992 NAS report on CAFE standards, ‘‘Automotive Fuel Economy: How Far

Should we Go?’’ focused on identifying achievable levels of fuel economy over the

course of the 1990s while meeting existing and pending environmental and safety

standards. The 1992 report provided ranges of fuel economy improvements the auto

industry could achieve between 1996–2006 from a low range of 30–39 mpg for cars

to 26–29 mpg for light trucks and a high range of 33–44 mpg for cars and 29–32

mpg for light trucks. The 1992 Report was closely followed by a 6-year freeze on

new fuel economy standards imposed through the Transportation Appropriations

bills.

Instead of being well down the road to higher fuel economy for America’s cars and

light trucks, automakers produced a fleet of new vehicles in 2001 with an average

fuel economy of 24 mpg. This is a twenty-year low, according to the Light-Duty

Automotive Technology and Fuel Economy Trends Report from 2001.

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In light of the debate on national energy security and oil dependence, the 2001

Report must serve as a platform for action on fuel economy.

The 2001 NAS CAFE Report

The NAS Report concludes that CAFE standards save oil. While the auto industry

continues to argue that CAFE standards have not worked, the Report finds that the

standards save 2.8 million barrels per day, or 43 billion gallons, of oil every year.

The Report also identifies the direct connection between oil consumption in cars and

light trucks and global warming. The Report’s conclusion is clear: reducing both oil

consumption and pollution are key reasons to move forward with new standards.

The Sierra Club encourages the Committee to consider the NAS study, but also look

for guidance from other studies that look at a broader range of strategies and timeframe.

Technologies for Achieving Higher Fuel Economy

The debate about higher CAFE standards has always hinged on quantifying the

ability of automakers to redesign their vehicles with improved technology. The question is one of how much improvement can be made in what kind of timeframe. The

2001 NAS Committee’s approach to fuel economy was to identify ranges of fuel economy improvements for both cars and trucks while holding acceleration, performance,

size, in terms of functional capacity, accessories, amenities, the mix of vehicle types,

makes, and models sold constant. The Report focused on a limited set of primarily

drive train related technologies. The Report concludes that fuel economy can be

safely improved. The Path 2, or mid-range projection in the NAS report is consistent

with a 40 mpg standard.

The NAS Report, however, must be viewed in context of other recent studies on

the potential for fuel economy improvements that can be made in all classes of vehicles, affordably while improving safety, and retaining utility and performance. In

addition to the UCS study, the NAS Report refers to the DeCicco-An-Ross study,

prepared for the Energy Foundation and published by American Council for an Energy Efficient Economy, and the Massachusetts Institute of Technology study by

Weiss-Haywood-Drake et al. These deserve particular attention for assessing how

much car and light truck fuel economy can be improved by looking at a fuller range

of technologies. Even Automotive News has provided a view of the technologies automakers can employ to improve fuel economy over the next 5 years (Attachment).

Each of these studies comes to nearly identical conclusions on the ability of the

auto industry to redesign cars and light trucks using improved conventional technology to achieve a 40 mpg combined standard. For the $1000–$1500 investment—

the average cost across all vehicle types—in technology, consumers would save several times that at the gas pump. This level of fuel economy improvement does not

include the greater efficiency boost that will come from the use of hybrid gasolineelectric vehicles like the Toyota Prius and Honda Insight now selling in the U.S.

Similar to the NAS Report, the above studies looked at technologies that include:

high-efficiency, lightweight, low-friction, precision-controlled gasoline engines; improved transmissions, such as continuous variable timing, depending on vehicle

type; integrated starter-generator (ISG) with 42-volt system; and aerodynamic

streamlining, reduced tire rolling resistance, and accessory improvements.

These other studies, however, show the fuel economy benefits of mass reduction,

particularly from the heavier vehicles in the fleet. Using advanced high-strength

lightweight materials and other strategies these vehicles can safely shed weight.

Further, improvements in the design of SUVs and other light trucks to make them

more compatible with cars will improve overall traffic safety. The NAS Report recognized the benefits of reducing weight, particularly in SUVs, but did not incorporate

this strategy in setting fuel economy ranges.

Timeframe for Improving Fuel Economy

New fuel economy standards must be phased in over the next 10 years to ensure

progress and begin oil savings in the near-term. While the NAS Report identifies

ranges of fuel economy improvements that can be achieved in 10–15 years, it fails

to recognize that the automakers can improve fuel economy in the short term. The

auto industry itself has pledged to make short-term changes. Ford led the way with

its pledge to improve the fuel economy of their SUVs by 25 percent between 2000

and 2005. General Motors and Daimler/Chrysler have also pledged to make fuel

economy gains by 2005. While each company’s commitment is slightly different,

their pledges show that we do not need to wait 10–15 years to see fuel economy

rise.

A ramp up in fuel economy standards is essential to steering the auto industry

in the direction of incorporating fuel saving technologies into their vehicles. If the

automakers are not directed to move forward in the short term, they will continue

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to produce gas-guzzlers, locking in high oil demand, and fail to plan ahead for

changes.

What is too often lost in this debate is that automakers can and do make changes

to their vehicles in short timeframes. For competitive reasons automakers are continuously updating their designs. Every year automakers introduce a host of new

products and improvements. An automaker whose market share slips responds with

ambitious schedules of redesign and new product announcements. There is no question about the auto industry’s capacity and skill to make changes. New fuel economy

standards will determine how much of this capacity and skill are applied to reduce

oil consumption, save consumers money at the pump, and cut pollution.

Currently, automakers tout changes such as more horsepower, extra seating, and

extra comforts. Since CAFE standards for cars have not changed in more than a

decade and the light truck standards have stagnated for nearly 20 years, automakers have made substantial changes each year in vehicle attributes other than

fuel economy, or eat away possible fuel economy gains with more power. There is

no reason why we couldn’t see year-to-year improvements to fuel economy under

regulatory guidance, as under the original law.

After Congress passed the CAFE law in 1975, new passenger car fuel economy

nearly doubled and the combined car plus light truck fleet saw an 82 percent improvement overall. That corresponded to an average 7.5 percent annual rate of increase (from 1974–85). Department of Energy analysis shows that 85 percent of that

improvement was technology based. So taking 85 percent of the 7.5 percent annual

rate indicates that the industry achieved an average 6.4 percent rate of technical

efficiency improvement. During this same period the industry also improved safety

through better body structures and other measures and phased in tighter emissions

standards as well. Affordability was not compromised and sales started to rebound

as the country climbed out of the recession and stagflation that was caused in large

measure by the oil shocks.

A new fuel economy goal of 40 mpg over 10 years can be achieved within the industry’s normal product upgrade cycles. All that is needed is the guidance to begin

applying technology to make steady forward progress. Contrary to industry claims

that they cannot make any changes for years to come, minor modifications to existing product plans can be made with the 18 months of lead time required for rules

under existing CAFE law. The fuel economy improvements that the industry

achieved in the late 1970s when the CAFE law first came into play show that they

can act if they are required to do so. New standards will ensure that the industry

moves out of the 1980s and into the 21st century.

NAS Recommendations for Reforming the CAFE System

Before the Senate engages in a debate over changing the current CAFE system,

it is essential to recognize that CAFE standards have worked. They are the most

successful energy savings measure Congress has ever adopted, saving some 3 million barrels of oil every day. And, because CAFE standards save oil they are an essential element in a strategy to reduce U.S. global warming pollution. The current

standards keep approximately 600 million tons of carbon dioxide, the primary global

warming pollutant, out of the atmosphere.

As the NAS Report confirms, we can effectively raise standards under the current

system. According to the Report, the current system yields ‘‘much certainty’’ in the

magnitude of fuel economy increases and therefore the oil savings and pollution reductions that follow. The Sierra Club recognizes that the current system, however,

is not perfect. The NAS makes several recommendations on reforming CAFE. The

Sierra Club would support the following changes to the current system:

Closing the Light Truck Loophole: The Sierra Club strongly supports a reform to

the CAFE law that would close the light truck loophole. SUVs, minivans and pickup

trucks are all considered light trucks. The NAS Report finds that closing the light

truck loophole would provide more certainty of the magnitude of oil savings from

the fuel economy increase than even the current system provides. The NAS found

that ‘‘the car/truck distinction has been stretched well beyond the original purpose.’’

The ‘‘poster’’ vehicle to make this case is the PT Cruiser. For fuel economy purposes

this 4-passenger vehicle that cannot tow a trailer is a light truck (EPA considers

it a car for emissions purposes). Automakers are producing vehicles that are used

as passenger cars, but escape the more stringent car standard. Cars and light trucks

should be combined into a single fleet of passenger vehicles.

The fuel economy standard for light trucks, 20.7 mpg, has stagnated for nearly

20 years. The market share of these vehicles, however, has jumped from 20 percent

in the 1970s to nearly 50 percent of new vehicle sales in 2000. As a result, these

vehicles are driving demand for oil to an all time high, and driving up emissions

of global warming pollution. As of last year, the explosive growth in light truck sales

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had already brought the average fuel economy of all the nation’s new vehicles to

its lowest point since 1980, according to EPA’s 1999 Fuel Economy Trends Report.

Light trucks alone spew more than half a billion tons of CO2 into the atmosphere

each year.

The Sierra Club has documented the importance of addressing the issue of SUV

fuel economy in a report entitled ‘‘Driving up the Heat: SUVs and Global Warming.’’

(Attachment 2) In this report, we educate the public about how much energy is

being wasted by today’s SUVs. For example, switching from an average new car to

a 13 mpg SUV wastes more energy than leaving a refrigerator door open for 6 years.

Further, while a 13-mile-per-gallon SUV emits more than 130 tons of carbon dioxide

over its lifetime, the average new car emits 74 tons. A new Honda Insight will emit

only 27 tons.

The technology is available to ensure that tomorrow’s SUVs are more efficient,

and therefore pollute less. According to the Union of Concerned Scientists, the bestselling Ford Explorer, which gets only 19 mpg, could be a 34 mpg vehicle by putting

today’s technology to work. The cost of the technology is made back by the consumer

in just a few years from savings at the gas pump.

The Sierra Club applauds Senators Feinstein and Snowe for taking their leadership in introducing S. 804, The Automobile Fuel Economy Act of 2001. This bill

would close the light truck loophole by requiring light trucks to meet the 27.5 mpg

current passenger car standard by 2007 and then combine the passenger car and

light truck fleets. S. 804 also takes the additional step of bringing the heaviest

SUVs, those weighing between 8,500 and 10,000 pounds, into the CAFE program.

As the program is now administered, CAFE standards only apply to vehicles up to

8,500 pounds. This weight cutoff has encouraged manufacturers to increase the

weight of their largest SUVs in order to remove them from the CAFE system. Some

Chevy Suburbans and the Ford Excursion are examples of vehicles sold as passenger cars that are exempt from CAFE standards. S. 804 is a critical first step in

moving forward with new fuel economy standards.

Reforming the Gas Guzzler Tax: The Sierra Club agrees with the NAS Report’s

criticism of the Gas Guzzler Tax that it does not include light trucks. The Sierra

Club does not, however, agree with the remedy in the Report of reducing or eliminating the Tax. The Gas Guzzler Tax applies to cars with a fuel economy below 22.5

mpg. The Tax appears on the stickers of new cars and serves to highlight that a

vehicle’s fuel economy is substantially lower than the 27.5 mpg average. Because

the Tax does not apply to light trucks, the Report concludes that this creates an

incentive to classify vehicles as light trucks that might otherwise be subject to the

tax as cars. To remedy this problem, the Gas Guzzler Tax should be applied to light

trucks. A similar structure for light trucks would add a cost to light trucks associated with poor fuel economy and create an incentive for manufacturers to improve

light truck fuel economy. The Tax could also be applied to a combined fleet of cars

and light trucks.

Ending the Dual Fuel Vehicle Program: The Sierra Club strongly supports ending

the dual fuel vehicle program. This program rewards automakers with credits toward meeting CAFE standards for producing vehicles that can, but in fact rarely

do, run on alternative fuel. While this program was intended to increase use of alternative fuels by cars and light trucks, the auto industry has turned this program

into an enormous loophole, exploiting it to help them meet CAFE standards. Under

the existing law, automakers can now use a 1.2 mpg credit toward meeting CAFE

standards and the program can be extended at a lower 0.9 mpg level after 2004.

The NAS Report recognizes that this program does not generate benefits and should

be eliminated.

The NAS points to the Energy Information Administration analysis, which shows

that less than 1 percent of the fuel used in these vehicles is ethanol. Out of the

176,000 gas stations across the nation, only 101 offer the alternative fuel. Despite

this fact, manufacturers are getting much needed help in meeting the standards.

Currently, Ford Motor Company applies a 0.7 mpg credit toward meeting the 20.7

mpg standard for light trucks and Daimler/Chyrsler uses a .95 mpg credit. General

Motors now uses the least amount of credits, .35 mpg, but is ramping up production

of dual-fuel Yukons, Tahoes and Suburbans—vehicles that will drive up demand for

gasoline.

A Department of Transportation (DOT) analysis, as reported in The New York

Times on June 21, 2001, shows that the dual-fuel vehicle program actually increases

gasoline consumption. According to the DOT report, the program increased gasoline

consumption by 473 million gallons in 2000 because manufacturers can sell more

gas-guzzlers. The Report is currently at DOT awaiting final decision on extending

the program. Continuing the program will further increase consumption and pollution. This program should be phased-out.

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Feebates: The Sierra Club would support a feebate system implemented as a compliment to the current CAFE system. Structured properly, a feebate system would

provide consumers with incentives to buy more efficient vehicles while costing consumers for buying less efficient vehicles. This would be a revenue neutral program.

Truth in Testing: The Report does not recommend reforming the system now in

place for testing vehicles to determine each vehicle’s fuel economy for CAFE purposes. The Sierra Club would strongly support this step.

Under the current testing program, vehicles are given a fuel economy value that

is 15–20 percent above their real world performance. These inflated values are what

the Department of Transportation uses to determine the average fuel economy of

each manufacturer’s fleet and whether that manufacturer is meeting, exceeding or

below the 27.5 mpg standard for cars or the 20.7 mpg standard for light trucks. According to the DOT, the average fuel economy of new cars and light trucks sold in

2000 was 24 mpg, but in fact it is about 15–20 percent below that. Testing reform

would require manufacturers to actually meet the standards now in place. Even this

modest step would yield oil savings and pollution reductions.

The Sierra Club opposes the following changes to the fuel economy system:

Tradable Fuel Economy Credits: The Sierra Club would strongly oppose a system

that would allow manufacturers to trade fuel economy credits. Even the NAS Report

finds that this system would provide less certainty of fuel economy increases than

the current system. The trading program suggested in the Report recommends a

‘‘safety valve’’ if the cost of fuel economy credits were to rise above a pre-determined

level. This type of system would ensure manufacturers that the costs of non-compliance would be limited by the availability of credits from the government. This would

weaken the system.

The automakers have proven adept at gaming the current credit program under

which a manufacturer essentially trades credits with itself to meet the current

standards. Automakers can apply credits from future years to meet the standard in

any given year, or borrow from a past year if they exceeded the standard. Despite

years of not meeting the standards, as reported in both BusinessWeek and The Detroit News (4), automakers have not been fined under the CAFE law. The credit system has become a smokescreen which the industry successfully exploits and hides

behind. Expanding it will provide more opportunities for gaming and deception.

Under a trading regime the benefits of oil savings and pollution reductions afforded by the fuel economy leader (i.e. Honda) would be lost because those credits

would be sold to a fuel economy laggard.

The Report’s support for a CAFE trading scheme is in part based on the panel’s

belief that the trading program now in place to reduce sulfur emissions from power

plants has been ‘‘highly successful.’’ Under the sulfur trading scheme, however, little

of the reductions are attributable to trading but rather resulted from falling rail

prices to bring low-sulfur coal to power plants. With the technologies now available

to all manufacturers to cost-effectively meet higher standards, a trading system

would not provide the certainty the current system provides.

Attribute-Based Targets: The Sierra Club would oppose a reform that would base

fuel economy standards on vehicle weight or other attributes. The Report describes

a system in which vehicles less than a selected weight, such as 4,000 pounds, would

be subject to a fuel economy target determined for by weight. Vehicles above that

weight would be required to meet a set standard similar to the current program.

Under a weight-based program, manufacturers would be given an incentive to add

enough weight to a vehicle to move it into the heavier class where it might meet

or exceed the standard set for that weight without having to apply fuel saving technologies.

The Dingell-Tauzin Provision in H.R. 4

The House of Representatives took up the issue of fuel economy as part of their

energy bill. The House approach to updating fuel economy standards is severely

flawed. The bill the House passed on August 2, 2001, H.R. 4, contains a provision

which Representatives Dingell and Tauzin crafted. The Dingell-Tauzin provision directs the Department of Transportation to set new standards for light trucks—

SUVs, minivans and pickup trucks—at a level that will save at least 5 billion gallons of gasoline between model years 2004 and 2010. Five billion gallons of oil

amounts to a savings of less than one day’s worth of oil per year and can be

achieved by increasing light truck fuel economy by less than 1 mpg. The Automotive

News described the Dingell-Tauzin provision as a ‘‘smokescreen.’’ The Dingell-Tauzin provision in H.R. 4 also extends the dual-fuel vehicle credit program at the 1.2

mpg level, instead of the 0.9 mpg level that the program could be extended at under

existing law. Because of the impact of the extended dual-fuel vehicle program in

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H.R. 4 it is questionable whether the House provision would actually yield any oil

savings.

The Dingell-Tauzin provision could also be construed to weaken the current CAFE

law by focusing on achieving a minimal oil savings rather than meeting the four

requirements for new standards contained in the law: technological feasibility, cost

effectiveness, other standards, and the need of the Nation to conserve oil.

The Senate should reject the House approach. But, the Senate must factor it into

the Senate’s approach to updating fuel economy standards. Any Senate action on

fuel economy must take into account the weakness of the House provision as well

as the fact that a Senate provision will be conferenced with the House and runs the

risk of being weakened.

Fuel Economy and Safety

Fuel economy can be increased safely while continuing to provide consumers with

a full range of vehicles. The auto industry met existing CAFE requirements while

providing consumers with a full range of cars and light trucks. In fact, when Congress passed the CAFE law, America had the industrialized world’s least efficient

fleet of vehicles. The CAFE law spurred the development of technology and improved the competitiveness of our auto industry. Eighty-five percent of efficiency improvements came from technologies such as more efficient engines and transmissions, and better aerodynamics.

History shows that the rate of traffic fatalities decreased by 50 percent over the

same time that fuel economy doubled under the existing standards. Yet, the auto

industry has consistently opposed the CAFE law using a flawed size/safety argument. In 1974, Helen Petrauskas, a Ford representative, argued before Congress

that CAFE would result in a ‘‘product line consisting of either all sub-Pinto-sized

vehicles or some mix of vehicles ranging from a sub-sub-compact to perhaps a Maverick.’’ Of course, this dire prediction proved to be untrue. The NAS report concludes

that ‘‘CAFE regulations have not impeded the implementation of safety regulations,

and safety regulations have not prevented manufacturers from achieving their

CAFE requirements.’’ (p. 2–16).

The Sierra Club agrees with the recent NAS Report that we can move forward

to safely achieve fuel economy improvements, however, the Sierra Club strongly disagrees with the Report’s conclusions about the safety impact of the current standards. The August 2000 Government Accounting Office report, ‘‘Automobile Fuel

Economy: Potential Effects of Increasing Corporate Average Fuel Economy Standards,’’ came to a similar conclusion about moving forward safely. The Government

Accounting Office report notes that safety experts and automakers agree that ‘‘as

long as there is sufficient lead time to meet higher CAFE standards, auto manufacturers could use fuel-saving technologies (such as continuously variable transmissions or lean burn engines) instead of simply building smaller, lighter cars.’’

David Greene and Maryann Keller’s analysis (included as the dissent to the NAS

Report) of the safety issue reveals that conclusions regarding the relationship of fuel

economy and highway safety looking back over time are flawed.

In the safety debate, it is important to understand that design, not size alone determines safety. Many smaller vehicles outperform many larger cars and SUVs,

proving that automakers make safe and unsafe cars of all sizes. Small cars are excelling in crash tests. The 2-door Honda Civic scores five stars on each element of

the government’s crash tests. The car weighs 2,502 pounds. The Volkswagen Beetle

also performed extremely well in government and Insurance Institute of Highway

Safety tests. In a standard head-on barrier crash test, the driver of a 1997 Saturn

subcompact will fare better than the driver in a 1997 Ford Expedition. In addition,

SUVs perform poorly in rollover tests, many scoring only two stars.

The fact that each of the Big 3 has pledged to make fuel economy improvements

in the light truck sector between 2000 and 2005, and that GM have pledged to improve SUV fuel economy by 25 percent over 5 years, is evidence that they can move

forward safely. These pledges were not simply to downweight their SUVs to achieve

fuel economy gains, although in the case of SUVs, lighter vehicles would help to restore some balance to the fleet.

Research by both the Center for Auto Safety on cars, and by the Union of Concerned Scientists on SUVs, demonstrates that higher fuel economy standards can

be achieved using existing technologies, while also reducing occupant deaths and injuries without altering the vehicle mix. The Union of Concerned Scientists’ ‘‘Drilling

in Detroit,’’ fully analyzes the fuel economy and safety connection and concludes

that the standards have not and do not impinge on safety. Cost-effective technologies such as improved engines and transmissions and new materials are the

keys to achieving higher fuel economy in both cars and light trucks. Appropriate

weight-reductions, focused on the heaviest light trucks, will further improve vehicle

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safety. These technologies will also help the American automotive industry face an

increasingly competitive future. Further, roof crush and rollover standards and improving car/truck crash compatibility will improve vehicle safety.

The current system of separate standards for cars and trucks, which has allowed

manufacturers to move heavily into SUV production, compromises traffic safety.

Light trucks pose safety dangers to their owners and occupants. SUVs are four

times more likely to roll over in an accident. Rollovers account for 62 percent of SUV

deaths, but only 22 percent in cars. Yet automakers fought new standards protecting occupants in rollover accidents. According to a study by the National Crash

Analysis Center, an organization funded by both the government and the auto industry, occupants of an SUV are just as likely as occupants of a car to die once the

vehicle is involved in an accident. This is in part because of their higher rollover

rates. National Highway Traffic Safety Administration (NHTSA) tests announced in

July 1999, as reported in the New York Times (July 15, 1999) showed that the rollover issue is a major problem for light trucks:

‘‘Because it is taller, heavier and more rigid, an SUV or a pickup is more than

twice as likely as a car to kill the driver of the other vehicle in a collision. Yet partly

because these so-called light trucks roll over so often, their occupants have roughly

the same chance as car occupants of dying in a crash.’’ Keith Bradsher, The New

York Times, ‘‘Light Trucks Prone to Tip, Safety Tests Find,’’ July 15, 1999.

Light trucks, particularly heavy SUVs and pickups, are fundamentally incompatible with cars on the road. According to the NHTSA, collisions between cars and

light trucks account for more than half of all fatalities in crashes between light duty

vehicles. Nearly 60 percent of all fatalities in light vehicle side impacts occur when

the striking vehicle is a light truck. SUVs are nearly three times as likely to kill

drivers of other vehicles during collisions than are cars. Finally, these vehicles pose

excessive risks to pedestrians because of their design, weight and historically weaker brake standards. The same technologies that will help to improve light truck fuel

economy can help to improve their safety.

Even Ford has identified these problems. In its ‘‘Connecting with Society’’ report,

Ford noted that ‘‘SUVs can raise safety concerns for drivers and passengers in other

vehicles because of the height, weight and design differences between cars and

SUVs, as well as the reduced visibility for cars in traffic with trucks of any sort.’’

The NAS Report recognizes that weight reductions in the heaviest vehicles can

improve overall vehicle safety by creating greater compatibility between vehicles on

the road. According the K.G. Duleep, who served as a consultant to the NAS Committee, had the NAS incorporated appropriate weight reductions into the ranges of

possible fuel economy improvements, these would have been greater by 20 percent

than the mostly drivetrain related fuel economy improvements. Further safety improvements such as reducing differences in bumper height, stiffness and weight

would save thousands of lives each year. Finally, instead of resisting fuel economy

standards, automakers should be implementing safety improvements such as better

seat belts, stronger roofs and crash avoidance.

Global Warming

The biggest single step the U.S. could take to curb global warming is to raise fuel

economy standards for cars and light trucks. America’s cars and light trucks alone

spew out 20 percent of U.S. global warming pollution. As the NAS Report points

out this amounts to 5 percent of global carbon dioxide pollution. This is true despite

the fact the U.S. has less than 4 percent of world population. The impact of cars

and light trucks on global warming is enormous. Ford Motor Company alone—production and vehicles—would be the 10th largest emitter in the world. As the world’s

leading polluter, the need for the U.S. to take action to reduce global warming pollution is pressing. By saving oil as part of national energy goals, a 40 mpg standard

would yield significant cuts in CO2.

The most recent projections of the United Nations-sponsored Intergovernmental

Panel on Climate Change (IPCC) are that the Earth’s temperature will rise as much

as 10.4 degrees F by 2100 and concluded that man-made global warming pollution

has ‘‘contributed substantially to the observed warming over the last 50 years.’’ By

comparison, the Earth is only 5 to 9 degrees Fahrenheit warmer today than it was

10,000 years ago, during the last ice age. Throughout history, major shifts in temperature have occurred at a rate of a few degrees over thousands of years. They

were accompanied by radical changes, including the extinction of many species.

Human-induced global warming is occurring much faster; faster in fact than at any

other time in human history. Unless we slow and ultimately reverse the buildup of

greenhouse gases, we will have only decades, not millennia, to confront major

changes in weather patterns, sea levels, and serious threats to human health.

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The U.S. has failed to act domestically to reduce global warming pollution and

abandoned the international process. The Senate should consider raising fuel economy standards for cars and light trucks as a key part of a strategy to reduce U.S.

global warming pollution. Taking this step will show the world that the U.S. is taking action and will be a leader in curbing this enormous environmental threat.

Public Support for Raising Fuel Economy Standards

Historically, overwhelming majorities of Americans support raising CAFE standards for automobiles. A recent poll of labor union households showed that 61 percent

of these voters endorsed a statement that ‘‘increasing fuel efficiency is the single

most effective action that could reduce national dependence on foreign oil. A Gallup

poll conducted in November had 77 percent of Americans supporting raising vehicle

efficiency.

Polling conducted during the spring, at the height of the debate over whether the

Nation was experiencing an energy ‘‘crisis’’ showed strong support for CAFE. A

CBS/New York Times poll released in June revealed that 81 percent of Americans

‘‘Approve of the government requiring car manufacturers to meet higher fuel efficiency standards than they do now?’’ And 66 percent supported higher standards if

it would increase the cost of the car (66 percent GOP and 70 percent Dem). Similarly, an ABC/Washington Post poll also released in June showed that 81 percent

of Americans strongly support more fuel efficient vehicles.

An August 1999 World Wildlife Fund poll of light truck owners showed that 73

percent believed light trucks should be cleaner, and two-thirds would pay significantly more for their next truck if it polluted less. Significantly, 70 percent believed

automakers will not clean up their trucks if they are not required to do so. Another

August 1999 poll, by Zogby International, of predominately Independent and Republican voters in New Hampshire revealed that 75 percent favor increasing fuel economy to address global warming, even at an extra cost of $300.

The results of these polls are consistent with polls dating back to the early 1990s.

A 1991 poll conducted for the Union of Concerned Scientists demonstrated overwhelming public support, exceeding 80 percent, for requiring 40 to 45 miles per gallon fuel economy standards.

Conclusion

A 40 mile per gallon fuel economy standard for cars and trucks is a critical component of energy legislation. New standards are the key to delivering the oil savings

necessary to reducing our dependence on oil. Given a 10-year timeframe with appropriate interim goals, automakers could achieve a 40 mpg standard with technologies

now available. Hybrid gasoline-electric systems, now in use in Toyota’s Prius and

Honda’s Insight, could also be used to move fuel economy forward.

As this Committee crafts an approach to updating fuel economy standards and

possible reforms to the current CAFE system, the Sierra Club urges this Committee

to consider the fact that CAFE standards have been enormously successful at saving

oil and reducing global warming pollution. Further, the current system affords certainty in the amount of oil savings new standards could achieve. The Sierra Club

would support appropriate reforms to the CAFE system, such as closing the light

truck loophole, ending the dual-fuel vehicle program, and truth-in-testing.

There is no other policy option that will lock in the oil savings that new CAFE

standards can. Savings that near 2 million barrels of oil per day in 2012 and ramp

up to 4 million barrels will put the U.S. on the road toward oil independence. While

the CAFE system could use some reforms, such as closing the light truck loophole

and ending the dual-fuel vehicle program and truth-in-testing, new standards would

work. The auto industry will strongly oppose new standards. For example, General

Motors claims that even a 3 mpg increase in light truck fuel economy could force

them to eliminate their larger and most profitable SUVs—assuming the company

chose this course of action to meet the higher standard. Yet, GM has announced

that its new engine for these vehicles will improve their fuel economy by 2 mpg.

The industry has better engines and other technologies, but without new fuel economy goals we will not see progress. No one is asking that the industry make 34 mpg

SUVs tomorrow or next week, but we cannot afford to let the auto industry continue

to drag fuel economy down. The consequences of oil dependence on our national security, economy and environment are too great.

The Sierra Club urges this Committee to support a 40 mile per gallon CAFE

standard as a key part of responsible national energy legislation.

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[From Automotive News, Oct. 8, 2001]

EXCERPTS ON NEW TECHNOLOGIES

SUPPLY AND DEMAND: PARTS BUILDERS ONCE SERVED AS ORDER TAKERS.

NOW, CAR COMPANIES ARE SPURRING SUPPLIERS TO CREATE FULL MENUS OF NEW

TECHNOLOGY

(By Richard Truett)

• Drive-by-wire: The Chevrolet Corvette and Lexus LS 430 are two of a growing

number of cars with electronically controlled throttles that rely on sensors and computers, not cables, to change engine speed. Drive-by-wire technology will help enable

such advances as cylinder deactivation, variable compression and electronically controlled valves.

• Steer-by-wire: Automakers and suppliers have started down the road toward replacing the mechanical connection between the driver and the front wheels. Electronic power steering increases fuel economy by as much as 5 percent.

• Brake-by-wire: Today virtually all automobile brakes are hydraulic, using a

master cylinder and a series of pipes to deliver hydraulic pressure to each wheel.

But a number of technical hurdles have to be overcome before brakes go fully electronic. Engineers must first perfect the 42-volt electric systems that are needed to

power the energy-intensive electric brakes. Then they have to design an

electromechanical brake caliper that fits into the small area inside the wheel.

In the meantime electrohydraulic brakes, scheduled to appear next spring for the

first time on the 2003 Mercedes-Benz SL roadster, use an electronically powered

master cylinder that determines the correct braking pressure for each wheel. Fully

electronic brakes could be on the road by 2005.

• Diesel technology: Big advances have been made in diesel technology in the last

5 years. The diesel is no longer the smelly, smoky, chattering engine most Americans remember from the 1970s, when GM rushed hastily designed versions onto the

market in response to a sharp drop in the supply of imported oil.

• Common-rail injection: In which diesel fuel is injected into the cylinders under

very high pressure, combined with advanced turbocharging and more efficient combustion chamber design has enabled lean-burning diesels to run smoother, quieter

and cleaner. Fuel economy on some cars, such as the subcompact Volkswagen Lupo

and Audi A2 sold in Europe, deliver highway fuel economy of around 90 mpg.

Another promising technology is direct injection, in which diesel fuel is blasted

straight into the cylinders under high pressure and in a target area for more complete combustion.

• Starter-generators: The integrated starter-generator, first used on hybrids such

as the Honda Insight and Toyota Prius, is a fuel-saving and pollution-cutting device

that combines the starter and alternator in one unit.

• 42-volt systems: It’s going to take a lot of juice to power the cornucopia of electronic gizmos, such us integrated starter-generators and by-wire technology, and today’s 12-volt systems—in use since the mid-1950s—can’t keep up. Starting in the

2004 model year, 42-volt batteries and alternators will provide the power.

• Cylinder deactivation: Cadillac had a good idea back in the early 1980s for variable-cylinder operation, but lacked the technology to make it work. The technical

problems with Cadillac’s V–8–6–4 engine sullied the image of the concept.

• Continuously variable transmissions: The no-shift transmission, used by Subaru

in the early 1990s, is returning. Honda offers it on the Civic and has added it to

the Insight. Audi and Saturn will use the gearbox on the A4 sedan and Vue sportutility. The chief advantage of a continuously variable transmission is that it enables the engine to run at peak efficiency during acceleration, which results in fuel

economy gains of between 5 percent and 10 percent. The limitation is the transmissions are unreliable when engine torque is greater than 200 pounds-feet, which

makes it ideal for small- and medium-sized cars, but not light trucks.

• Clutchless manual transmissions: Instead of the driver engaging the clutch, it’s

done either electronically or hydraulically while the driver changes gears by pressing a button or moving a shift lever.

• Fuel cells: This technology has the potential to change everything. If engineers

and scientists can adapt the clean energy-creating system to the automobile, the internal combustion engine will be history in most vehicles; automotive pollution will

be practically nonexistent; and the country’s dependence of imported oil will be diminished.

• Active suspension: By continually adjusting the firmness of the shock absorbers,

through a process called variable damping, drivers can better manage a car as it

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rounds a corner or curve. This is accomplished in a number of ways. A less complex

system debuting on the 2002 Cadillac Seville STS uses shocks filled with silicon

fluid that contains minute metal filings. When a magnetic field is applied to the

shock, the fluid becomes much thicker, which increases the firmness of the shock.

• Tire pressure monitoring devices: A 2000 law, passed in response to the massive

Ford-Firestone tire controversy, requires that all 2004 model-year vehicles must

have systems to monitor tire pressure. General Motors will introduce rear-wheel

steering on its full-sized pickups in 2002. The system, created by Delphi, reduces

the turning radius from the current 44 feet to about 37 feet—about the same as that

of a mid-sized sedan.

Chevrolet’s Duramax V–8 diesel is the first U.S. truck engine that uses commonrail direct fuel injection, which makes it run smoother and quieter than previous

diesels.

Electric power steering from Delphi eliminates the power steering pump and all

hydraulic lines. It’s the first step toward steer-by-wire.

Continuously variable transmissions keep engines running at peak efficiency and

improve fuel economy 5 percent to 10 percent.

Electronically controlled valve lifters, shown at left detached from the valve cover,

turn off unneeded cylinders to save fuel in Delphi’s cylinder deactivation system.

Lord Corp.’s electronic shock absorbers, part of an active suspension system, will

make vehicles handle more predictably on curves and rough roads.

GM PLUGS INTO ELECTRIC STEERING

(By Richard Truett)

DETROIT.—General Motors is set to begin high-volume production later this year

of vehicles equipped with electric power steering systems, the largest commitment

so far to a new technology that eventually will become commonplace.

GM plans to install the new 12-volt steering system in several high-volume vehicle lines in the next few years, starting this fall with the 2002 Saturn Vue sportutility. Electric power steering also is slated for the replacements for the Chevrolet

Malibu and Pontiac Grand Am, due in the 2004 model year.

THE LATEST COOL THING: CARBON DIOXIDE

(By Amy Wilson)

Carbon dioxide, long considered a culprit in the global warming debate, is being

touted as a remedy for the ozone-depleting flaws of current auto air conditioning

systems.

A decade ago, automakers and suppliers redesigned air conditioning systems to

switch from chlorofluorocarbon-laded R12 refrigerant, which damaged the ozone

layer, to the more environmentally friendly R134a refrigerant.

But while the new refrigerant did not do as much damage as R12, commonly

known by the trade name Freon, it, too, could damage the atmosphere if released.

This forced auto suppliers to redesign air conditioning sytems with new hoses and

couplings to reduce leakage. Now suppliers are promoting a refrigerant that drastically lowers greenhouse gas emissions, improves system performance and could

boost fuel economy.

What promises to deliver such benefits? Ironically, a substance closely associated

with global warming and the greenhouse gas effect: carbon dioxide.

Compressing the naturally occurring gas into a refrigerant to replace today’s

R134a will not put additional CO2 back into the atmosphere, backers of the new

technology say. But suppliers still have to prove its cooling power and affordability

to customers.

ADDITIVE MAY CLEAN DIESEL; GROUP STUDIES WHETHER AMMONIA CUTS EMISSIONS;

DISTRIBUTION COULD PROVE PROBLEMATIC

(By Richard Truett)

ONTARIO, CALIF.—The Big 3 and diesel engine makers Caterpillar, Detroit Diesel and Cummins have formed a team to explore the use of urea, an ammonia-water

solution, to reduce diesel engine emissions.

The technology, if made production-ready, would give automakers another fuel-efficient powertrain option for the U.S. market. Strict limits on particulates and oxides of nitrogen, or NOx, set by California for 2007 are cited by automakers as one

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of the primary obstacles to using diesels in cars and light trucks. Diesels can improve fuel economy by up to 30 percent compared with gasoline engines. They also

offer a quicker and less expensive alternative to gasoline-electric hybrids.

[March 26, 2001]

CHEAPER CATALYST DEBUTS WITH HONDA VAN

(By Richard Truett)

A new technology for catalytic converters enables automakers to save up to $200

per converter and helps insulate them from the volatile price swings of precious

metals such as platinum.

Honda Motor Co. Ltd. will be the first to use the less-expensive catalytic converter, on a small Japan-market van named the StepWGN, in April.

Delphi Automotive Systems Corp., the world’s largest auto supplier, says it will

produce a similar converter in 2002 for a U.S. vehicle. The catalytic converter is one

of the most expensive parts of a vehicle. The high-temperature device cleans the exhaust of carbon monoxide and other gases through chemical reactions.

At the heart of catalytic converters are expensive platinum group metals—platinum, palladium or rhodium. The metals are expensive because supplies are found

in remote areas of the world or in politically unstable countries, such as Russia,

which makes it hard to guarantee a steady supply.

Honda worked with Catalytic Solutions Inc., a small company in Oxnard, Calif.,

to develop an internal coating for the converter that cuts the use of precious metals

by as much as 70 percent. Honda owns 10 percent of Catalytic Solutions.

[March 12, 2001]

SAE GIZMO GURUS SHOW OFF SMART PARTS

(By Richard Truett)

The exposition at the SAE World Congress is a cornucopia of automotive engineering. Products run the gamut from plastic connectors and grommets to integrated

starter alternators.

The annual trade show, held last week in Detroit, also is a place for companies

to entice auto engineers with technologies and devices that push the envelope in

performance or convenience. Here are things that caught our eye this year while

prowling the exposition:

1. Built-in beverage heating and cooling systems should be optional on some domestic and imported sport-utilities starting in 2002, said Charles Cauchy, president

of Tellurex Corp. of Traverse City, Mich. The company uses a thermoelectric semiconductor to generate temperatures ranging from 38 degrees to 120 degrees. The

low-voltage semiconductor is mounted underneath the vehicle’s console and conducts

heat or cold by transfer to a metal plate or by a small electric fan. A center console

for a Lincoln Navigator, for instance, could hold a six-pack of soda and keep it as

cold as a refrigerator. The price to consumers is expected to be between $120 and

$150.

2. NGK aims to outdistance its competitors with a line of Iridium IX spark plugs.

The gold-colored spark plug, which retails for $15, is designed to reduce emissions,

increase fuel economy and last longer than 100,000-mile platinum-tipped spark

plugs. NGK officials say iridium is harder than platinum and provides a better

spark for more thorough fuel burning in the combustion chamber.

3. The SmartBar from American Axle and Manufacturing Holdings Inc. enhances

the handling performance of sport-utilities and off-road trucks by electronically sliding a metal collar that breaks the connection between the left and right sides of the

sway bar. The system can be used on both front and rear sway bars. Uncoupling

the sway bar lets each wheel move over bumps independently without causing a

rocking motion in the vehicle body. The SmartBar debuts on the Hummer H2, which

will be built on General Motors’ full-sized truck platform. It is expected in late 2002.

4. Even the least expensive Hyundai and Kia models have highly polished and

classy looking taillight lenses. They are not so much for safety purposes as for styling. The designs molded into the plastic are called reflexes. They not only reflect

light but also make a design statement. Starting with the 2002 Ford Explorer, reflexes will get larger and more ornate, said Michael Beale of DBM Reflex in Tecumseh, Ontario.

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5. If diesel engines find their way back into light vehicles in the United States,

they likely will need to be equipped with a particulate matter filter, such as the

Metalit from German catalyst supplier Emitec. The Metalit uses layers of perforated

metal to trap the soot in the exhaust created by the combustion of diesel fuel. A

supply of nitrogen dioxide from an earlier catalyst sets up a chemical reaction in

the Metalit that heats it up, burning away the trapped soot. But for the Metalit system to meet durability requirements, the sulfur content of the diesel fuel must be

below 10 parts per million.

DRIVING UP THE HEAT: SUVS AND GLOBAL WARMING

Switching from driving an average car to a 13mpg SUV for one year would waste

more energy than if you... Left your refrigerator door open for 6 years

Left your bathroom light burning for 30 years or

Left your color television turned on for 28 years

Background

When it comes to wasting energy, SUVs are unrivaled. Built with outdated, gasguzzling technology, many SUVs get just 13 miles per gallon. And the higher gas

prices are, the more money they waste.

Auto-industry advertising portrays SUVs as the ticket to freedom and the great

outdoors. Commercials depict them climbing massive snow-capped mountains or

tearing through desert sand dunes, taking their owners into the wild. In reality, the

only off-road action many of these vehicles see is accidentally driving through a

flower bed next to the driveway.

Missing from these ads are other contributions from SUVs—the brown haze of air

pollution hanging over many of our national parks, images of weather disasters

linked to global warming or the oil derricks and tankers needed to feed gas-guzzling

SUVs. In contrast to Detroit’s carefully crafted image, SUVs have a dark side. They

spew out 43 percent more global-warming pollution and 47 percent more air pollution than an average car. SUVs are four times more likely than cars to roll over

in an accident and three times more likely to kill the occupants in a rollover. They

also cost the owner thousands more on gasoline.

WORSENING THE THREAT OF GLOBAL WARMING

Because the government classifies SUVs as ‘‘light trucks’’ rather than cars, SUVs

have a license to guzzle more gas and pollute more than cars. In 1975, when fueleconomy standards were first adopted, ‘‘light truck’’ referred to a vehicle used to

haul hay on the farm or gravel at a construction site. At that time, light trucks comprised only 20 percent of the vehicle market. Today, SUVs, mini-vans and other

light trucks make up nearly half of new vehicles sold. They are far more likely to

haul lattes home from Starbucks than lumber from the yard. Even though Detroit

has technology that could make them both cleaner and safer, SUVs and other light

trucks are still held to low environmental standards, roll over more than cars and

pose greater danger to other vehicles than cars do.

The world’s leading climate scientists have warned that there is now 30 percent

more carbon dioxide—the primary global-warming gas—in the atmosphere than a

century ago. The burning of fossil fuels is the primary source of this CO2 pollution.

Over the same period of time, the average surface temperature of the earth has

risen more than 1 degree Fahrenheit.

Due to these changes, we are already seeing signs of global warming. The 1990s

was the hottest decade on record and the 11 hottest years on record have all occurred in the past 13 years.

Extreme drought conditions and changing rainfall patterns have occurred across

the country, setting the stage for wildfires, which decimated areas from Florida to

California. Record heat waves have killed hundreds in Chicago and infectious-disease outbreaks linked to global warming have sickened or killed hundreds from

Texas to New York, shut down Disney World and re-introduced Americans to dengue fever, malaria and encephalitis. Sea levels have risen between four and 10

inches and glacial ice is rapidly retreating on five continents.

The world’s leading scientists warn that over the 21st century, CO2 levels are expected to double, raising sea levels two feet or more, worsening smog and leaving

our children to cope with a more hostile climate.

America’s cars and light trucks alone produce nearly 20 percent of U.S. CO2 pollution. That’s more than all but four countries worldwide! And transportation is the

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fastest-growing sector of global-warming pollution in the nation. Popular light

trucks pump out 237 million tons of global-warming pollution into our atmosphere

each year. That’s because every gallon of gas burned emits 28 pounds of CO2 into

the atmosphere.

SUVS EMIT MORE AIR POLLUTION THAN CARS

Nearly 117 million Americans live in areas where the air is unhealthy to breathe,

according to the American Lung Association. Light trucks, which can spew up to

three times more smog-forming pollution than cars, magnify this growing health

threat. The increased air pollution can lead to more asthma, bronchitis and other

health problems.

U.S. autos emit more CO2 than all but four countries.

Top 5 Global-Warming Polluters:

1. U.S.

2. China

3. Russia

4. Japan

5. U.S. autos

Air pollution is not exclusively an urban problem. National parks from Maine’s

Acadia to Virginia’s Shenandoah and North Carolina’s Great Smokey Mountains all

have severe air-pollution problems that match major metropolitan areas. Pollution

monitors are now installed at some trailheads in Mt. Rainier National Park to warn

hikers when smog reaches unsafe levels.

The U.S. Environmental Protection Agency adopted new ‘‘Tier 2’’ tailpipe pollution

standards in 1999 to cut smog (but not CO2) from cars and SUVs. However, these

rules will not go into effect until 2004 and the auto industry has until 2009 to clean

up its largest SUVs.

THE MORE YOU GUZZLE, THE MORE YOU POLLUTE

Represented below is the total tonnage of CO2 produced by SUVs and other vehicles over a 124,000-mile lifetime.

Ford Excursion (13 mpg)

Jeep Grand Cherokee (18 mpg)

Ford Taurus (23 mpg)

Honda Civic HX (36 mpg)

Honda Insight (65 mpg)

SUVS INCREASE OUR OIL ADDICTION, THREATEN OUR WILDERNESS AND COASTS

A hidden cost of SUVs is the price we pay with our natural resources. To keep

these gas guzzlers running, oil companies seek to drill in new areas—including some

of our nation’s most sensitive wilderness habitats. As the number of gas guzzlers

on the road grows, so does the pressure to drill in Alaska’s Arctic National Wildlife

Refuge—one of the last remaining pristine ecosystems. Fragile coastlines in California and Florida, and lands surrounding Yellowstone National Park are also targets for drilling.

The Exxon Valdez disaster serves as a powerful reminder that transporting oil

also threatens our environment. Smaller spills and leaks occur daily, putting waterways and wildlife at risk.

Worsening Our Energy Security

Every day America consumes 18 million barrels of oil. We import nearly half of

this oil (the same amount guzzled by cars and light trucks) from politically volatile

regions. Our oil imports add $50 billion to the U.S. trade deficit annually. Due to

the increasing number of gas-guzzling vehicles, America is more dependent on foreign oil now than we were at the height of the 1973 energy crisis.

Congress passed the Corporate Average Fuel Economy (CAFE) standards in 1975

to reduce our dangerous oil dependence. This doubled the fuel economy of America’s

vehicle fleet, saving 3 million barrels of oil per day. However, the oil savings from

CAFE standards are being eroded by people driving farther and the rising proportion of inefficient SUVs and other light trucks. In fact, the average fuel economy

of new vehicles has sunk to the lowest level since 1980. Raising the CAFE standard

for light trucks to equal that of cars (27.5 mpg) would save 1 million barrels of oil

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per day. We can do even better. Raising the average for cars to 45 mpg and light

trucks to 34 mpg would save 3 million barrels of oil per day.

Lowest Fleet Fuel Economy Average Since 1980

The fuel economy average for both cars and trucks is at its lowest pint since 1980.

(U.S. EPA Light-Duty Automotive Tecnology and Fuel Economy Trends Through

1999, Spet. 1999)

Available technology and higher mileage standards could make the popular Ford

Explorer a 34.1 mpg vehicle, rather than a 19.3 mpg guzzler, without compromising

performance or safety. This ‘‘improved’’ Explorer could emit 43 percent less globalwarming pollution and 76 percent less smog-forming pollution and cost only $935

more. Consumers would save several times this at the gas pump over the life of the

vehicle.

Industry Foot-Dragging and Excuses

History shows that automakers won’t improve the environmental performance of

their products unless they are required to put technology to work. Raising CAFE

standards is the key to cleaning up SUVs and other light trucks.

In 1974, a Ford official testified before Congress that CAFE standards would ‘‘result in a Ford product line consisting of either all sub-Pinto-sized vehicles or some

mix of vehicles ranging from a sub-sub-compact to perhaps a Maverick.’’ Today,

automakers use similar arguments against improving CAFE standards for SUVs.

The claim wasn’t true then; it isn’t true today. Eighty-six percent of the fuel-economy improvements for cars have resulted from improved technologies such as more

efficient engines and transmissions and better aerodynamics.

In July 2000, Ford promised to use technology that will improve its SUVs’ fuel

economy by 25 percent over five years. General Motors pledged to exceed Ford’s

light-truck fuel economy. Keeping these promises will begin the process of cleaning

up SUVs.

But Detroit continues to fight higher CAFE standards for light trucks and cars,

which would guarantee these and other improvements. The auto industry has taken

its fight to Congress, getting its friends to fight legislation that would increase fuel

economy. Beginning in 1995, Congress froze CAFE standards at levels set decades

ago.

AMERICANS DESERVE VEHICLES THAT ARE BOTH SAFE AND CLEAN

Detroit opposes CAFE standards, claiming that they cannot make a safe, clean

SUV. Contrary to the auto industry’s arguments, CAFE standards don’t dictate

automobile size or safety. Design, not weight, is the key to both safety and fuel economy. Engineering and safety features like airbags and crush-resistant roofs can ensure that vehicles absorb crash forces so occupants don’t. Crash-test results show

that automakers are making safe and unsafe cars of all sizes. In a standard headon crash test into a wall, occupants of a 1997 Ford Expedition faced greater risk

of injury or death than occupants of a 1997 Saturn subcompact. This is because the

Saturn has crashworthiness designed into it and the Expedition does not.

‘‘Ford Motor Company, which depends on sport utility vehicles for much of its

profit... sad that the vehicles contribute more than cars to global warming, emitted more smog-causing pollution and endangered other motorists.’’—New York

Times, May 12, 2000.

The same industry claimed the original CAFE law was a threat to highway safety,

battled automotive safety improvements from seatbelts to airbags and continues to

fight a rollover standard. The fact is that since 1975 CAFE standards doubled fuel

economy and the rate of highway fatalities fell by 50 percent.

The SUV Safety Story: Rollovers and Dangers to Others on the Road

Here’s what the New York Times said about SUV safety (July 15, 1999): ‘‘Because

it is taller, heavier and more rigid, an SUV or a pickup is more than twice as likely

as a car to kill the driver of the other vehicle in a collision. Yet partly because these

so-called light trucks roll over so often, their occupants have roughly the same

chance as car occupants of dying in a crash.’’

SUVs give a false impression of safety. With their height and comparatively narrow tire-track width, SUVs handle and maneuver much less effectively than cars.

Emergency swerves to avoid a crash can themselves lead to rollover accidents in

SUVs, which are four times more likely to roll over in an accident. Rollovers account

for 62 percent of SUV deaths but only 22 percent in cars. Yet automakers continue

to fight new standards that would protect occupants in rollover accidents.

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Because SUVs are built on high, stiff frames, their bumpers ride above the occupant-protecting frame of cars. When an SUV and a car collide, this height difference, combined with the stiff battering-ram frame and greater mass, create a lethal weapon.

According to a government study, in 1996 ‘‘at least 2,000 car occupants would not

have been killed, had their cars collided with other cars instead of trucks of the

same weight.’’ And SUVs are also more deadly to pedestrians, bicyclists and motorcyclists than cars, in part because existing braking standards for SUVs are weaker

than for cars.

TAKE ACTION! THE BIGGEST SINGLE STEP TO CURB GLOBAL WARMING

Beginning in 1995, friends of the auto industry in Congress attacked CAFE standards with an anti-environmental ‘‘rider’’ in the Department of Transportation’s funding bill. The rider forbids the administration from setting new CAFE standards.

While technology exists to safely improve fuel economy and protect our environment, the CAFE-freeze rider allows the auto industry to remain stuck in reverse.

It is time for action. Please urge your public officials to support cleaning up our

cars and light trucks. Ask them to help take the first step of closing the loophole

that allows SUVs and other light trucks to guzzle more gas than cars. Tell them

our children have a right to a safe and healthy environment. It’s time to take the

biggest single step to curb global warming. See the Sierra Club Take Action page.

For more information please contact: Sierra Club, 408 C Street, N.E. Washington,

DC 20002 (202) 547–1141; 5 Second St., 2nd Floor, San Francisco, CA 94105 (415)

977–5500.

Senator KERRY. Thank you very much.

You know, because we are on the back end of the vote here, Mr.

Reuther, I do not want to shortchange your testimony. I think it

would be best to recess at this point in time and then we will pick

up with your testimony. So we will stand in recess.

[Recess.]

Senator KERRY. The hearing will come back to order, please.

Thank you all very much for bearing with us. I think we will be

able to proceed without further interruption, if we can get everybody quieted down.

Mr. Reuther, thank you for waiting and we look forward to your

testimony.

STATEMENT OF ALAN REUTHER, LEGISLATIVE DIRECTOR,

INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE

AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA

(UAW)

Mr. REUTHER. Thank you, Mr. Chairman. My name is Alan Reuther. I am Legislative Director for the UAW. The UAW welcomes

the opportunity to testify before this Committee on the subject of

reforming the CAFE program. The UAW is obviously very concerned about the impact of any changes in the CAFE program on

the jobs of our members. To avoid any adverse impact, we believe

increases in CAFE standards must be technologically and economically feasible for the auto companies. This means that the magnitude of any increases must not be excessive and there must be

sufficient lead time for the companies to make the necessary investments and changes in product plans.

Equally importantly, the UAW believes the structure of any

CAFE increases is crucial. In particular, any changes in the CAFE

standards must not place full-line domestic manufacturers at a

competitive disadvantage relative to the companies that historically

have specialized more in the production and sale of small vehicles.

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At the same time, we believe any changes in CAFE must not enable the full-line domestic manufacturers to shift production of

small cars to other countries. To achieve these structural objectives, the UAW strongly believes that any mandated increases in

CAFE standards should take the form of a uniform percentage improvement in average fuel economy for each company and for each

fleet, domestic and imports. Under this approach, all companies

must improve their fuel economy regardless of their current status.

That should reduce any CAFE-related competitive disadvantage

that may exist for full-line producers. Companies that have been

able to exceed the standard based on vehicle mix alone would now

be forced to adopt widely used technologies.

Moreover, companies would risk falling short of the new standard if they move increasingly into high-performance niches. Opponents of the uniform percentage increase approach as has occurred

today have incorrectly argued that this would unfairly penalize

technology leaders. The truth is the current differences in average

fuel economy of the fleets sold by the domestic full line manufacturers and some foreign companies are due mostly to the product

mix, not due to differences in technology. The addition of ceilings

and floors to the uniform percentage increase approach would ensure that all companies fairly contribute to improvements in fuel

economy.

A number of alternative proposals for reforming CAFE standards

have been offered. We are deeply concerned that these alternative

proposals could cause substantial dislocation in the automotive industry. Alternatives such as the Feinstein-Snowe bill or the Markey-Boehlert amendment propose that the standard for light trucks

be harmonized upwards to the substantially higher level established for passenger cars.

In our judgment, the implementation of such proposals would impose severely disparate impacts on domestic full-line manufacturers with serious adverse effects on the jobs of our members. Domestic full-line manufacturers have responded to strong consumer preferences for light trucks by dramatically shifting their U.S. capacity

to meet that demand. As a result, today the U.S. production and

sales of domestic full-line automakers are much more oriented to

light trucks, compared to foreign companies that have historically

focused on the passenger car segments of the market. Upward harmonization of the light truck CAFE standard to meet the car

standard would thus place domestic full-line manufacturers at a

strong competitive disadvantage relative to foreign companies. This

would put at risk the jobs of our members who work in light truck

assembly plants and associated supplier operations.

Another alternative that has been advanced would simply apply

a flat MPG increase to the current standards. This approach also

has a discriminatory impact on domestic full-line producers due to

the nature of their product mix. This disparate impact would be exacerbated if the flat MPG increase approach were combined with

the upward harmonization approach for light trucks.

A third alternative that has been advanced would allow the

CAFE structure to be changed to an unspecified weight-based

structure through rulemaking. UAW’s concern is that such openended authority would permit a shift from the fleetwide average

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approach that the auto industry has used for a quarter of a century, an alternative that could further jeopardize U.S. small car

production and possibly have a disparate impact on full-line producers.

In conclusion, the UAW appreciates the opportunity to present

our views on the subject of reforming the CAFE standards. We look

forward to working with you, Mr. Chairman, and the other Members of this Committee on this important issue. Thank you.

[The prepared statement of Mr. Reuther follows:]

PREPARED STATEMENT OF ALAN REUTHER, LEGISLATIVE DIRECTOR, INTERNATIONAL

UNION, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT

WORKERS OF AMERICA (UAW)

Mr. Chairman, my name is Alan Reuther. I am the Legislative Director for the

International Union, UAW. The UAW welcomes the opportunity to testify before the

Commerce Committee to provide our union’s views on reforming the Corporate Average Fuel Economy (CAFE) program.

The UAW represents more than 1.3 million active and retired workers in several

major U.S. manufacturing industries, as well as in technical, office and professional

sectors. The largest portion of UAW membership is involved in the manufacture of

transportation equipment. This includes motor vehicles that cover the complete

range of vehicle types and uses from passenger cars to light, medium and heavyduty trucks, as well as motor vehicle parts covering all vehicle component systems.

UAW members therefore have a strong interest in the CAFE program.

Of course, the UAW is particularly concerned about the impact of any changes in

the CAFE program on the jobs of our members. Sales in the U.S. automotive industry are down this year, and are forecasted to drop again next year. The recession

in the overall economy is likely to have a continuing negative impact on automotive

sales and production. We have already seen substantial layoffs in the automotive

industry, and are concerned about additional dislocation in the coming year. Against

this backdrop, the UAW strongly believes that any changes in the CAFE program

must not aggravate the difficult economic circumstances of the auto companies and

their suppliers and result in additional job loss for American workers.

The UAW supported the fuel efficiency measure enacted into law as part of the

Environmental Policy and Conservation Act of 1975 because we viewed it as wise

public policy. CAFE standards have helped to make our nation’s light vehicle fleet

more fuel-efficient, thereby generating real benefits to the nation. As a trade union

we are concerned about our members’ jobs; but a clean environment and energy conservation are also workers’ concerns. In the past, we have supported policies that

achieved environmental goals without undue dislocation. Today, I want to share

with you our views on reforming CAFE in ways that offer environmental benefits

to society without jeopardizing the jobs of our members, disrupting communities or

causing unnecessary dislocation in the domestic automotive industry—an industry

vital to our nation’s economic health.

The UAW has supported the principle of mandatory fuel economy standards for

motor vehicles to help achieve the goals of energy conservation and reduced dependence on imported oil. We continue to support that principle today. The CAFE program has provided environmental benefits to society, without causing excessive dislocation in the domestic auto industry or reductions in the array of domestically

built vehicles. We are committed to the U.S. remaining the production site for all

types and sizes of vehicles for this market. The requirement for separate averaging

of domestic and foreign fleets contributes to maintaining such full-line domestic production and is an important part of the current structure of the program. If increases in CAFE standards are technically feasible and economically practicable,

and applied as a uniform percentage increase to each fleet average, we believe further progress on fuel economy could be achieved without job dislocation or disparate

impacts on manufacturers.

We also know that vehicle fuel economy standards alone cannot satisfy the nation’s energy conservation and environmental protection needs. Measures to improve

energy conservation, provide clean fuels and reduce emissions are required throughout the U.S. economy. The Federal Government’s continued commitment to fund

R&D on advanced vehicle technologies is also needed, as are tax credits for advanced, highly fuel-saving vehicles. The Nation needs a comprehensive and balanced

strategy to achieve energy conservation, environmental and public health protection,

and economic growth.

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U.S. energy conservation needs are even more critical now than they were in

1975. Scientists have concluded that gasses emitted when fossil fuels are burned accumulate in the stratosphere creating a greenhouse effect, which causes a long-term,

gradual global warming trend. While there is no consensus about the timing and

degree of the warming trend, there is little disagreement that it will occur. As an

imperative for fuel conservation, we now add the problem of global warming to the

problems of finite fossil fuel reserves and growing dependence on foreign oil. We also

recognize the nation’s interest in improving the fuel economy of vehicles sold and

operated in the U.S. without sacrificing other important objectives, such as high levels of employment, safety and environmental standards, the financial viability of the

automotive industry and the affordability of vehicles for consumers.

FLEETWIDE AVERAGES

The UAW has supported the approach that requires the fuel economy of each company to be averaged across the entire fleet and to be at or above a minimum standard. This approach guarantees that progress in fuel economy will be made, but allows manufacturers sufficient flexibility to meet standards efficiently and without

dislocation. Since it is not always possible to raise the fuel efficiency of all models

simultaneously, continued use of a fleetwide average for calculating compliance provides manufacturers the flexibility they need to introduce fuel-saving technologies

for a specific range of vehicles at any given time.

Our view is that a fleetwide average allows companies to build an adequate range

of vehicles to satisfy consumer tastes and the needs of the market. As long as vehicles in most size classes are making steady progress toward improved fuel economy,

the requirement of energy conservation can be met. At the same time, manufacturers require the flexibility to focus technological improvements and redesign efforts

on a limited range of vehicles at any given time in each design cycle rather than

instituting sweeping changes across the entire fleet. The fleet average approach

thus tends to be less costly for American consumers who have to absorb the cost

of new technology in higher vehicle prices—a cost recouped over time in lower fuel

costs per mile.

We believe that fleetwide averaging offers an incentive to manufacturers to focus

production, engineering and sales efforts on small vehicles, which can be used to offset the lower fuel economy of more profitable, larger vehicles. In our judgment, it

is important that domestic manufacturers be encouraged to continue putting effort

into the design and development of domestically produced smaller vehicles in order

to be competitive with manufacturers focused more on the low end of the market.

It is our hope that maintaining the fleetwide averaging in the CAFE program can

slow or reverse the loss of jobs in small car production and provide an incentive to

shift the sales mix toward more fuel-efficient vehicles.

Finally, we note that in the past decade, as the inflation-adjusted price of gasoline

fell, demand for higher performance vehicles increased. Companies already having

difficulty meeting fuel economy standards because of the number of large vehicles

in their sales mix could not meet the increased demand for high performance models

as readily as manufacturers exceeding the standards due to their historical focus on

small vehicles. Thus, the UAW believes it is particularly important that any future

changes in the CAFE standards should ensure that full-line manufacturers are not

placed at a competitive disadvantage relative to companies that historically have

specialized more in the production and sale of small vehicles.

SEPARATE DOMESTIC AND IMPORT FLEET AVERAGES

In 1975, we supported the approach to CAFE standards that required the fuel

economy of each company to be averaged across separate domestic and foreign

fleets. We endorsed this provision because we were concerned that domestic manufacturers, comparatively inexperienced in small vehicle production, would try to

meet the fuel economy standards by importing small vehicles. Since U.S. firms

would need small vehicles in their domestic CAFE fleet to offset the low fuel economy of larger vehicles, we viewed separate averaging as discouraging the sourcing

of small vehicles abroad and encouraging production of such models in this country.

The UAW is aware that the positive impact of separate fleet averaging has narrowed over time. The two-fleet requirement has applied only to passenger cars since

model year 1996, after the Department of Transportation eliminated the requirement for light trucks, a change the UAW opposed. Even with the growing popularity

of trucks, passenger cars still account for half of total U.S. light vehicle sales. In

addition, NAFTA has expanded the definition of ‘‘domestic content’’ to include Mexican value-added. This makes it easier for a company to concentrate more small car

production in Mexico, while retaining such models in the calculation of its domestic

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fleet average to offset larger U.S.-built car models. Finally, companies have been

able to game the two-fleet requirement by shifting car models from their domestic

to import fleets by adjusting domestic content.

Nevertheless, the UAW opposes elimination of the requirement that each firm

comply with the fuel economy standards separately for its domestic and foreign

sales. The UAW is very strongly committed to the U.S. remaining the production

site for all types and sizes of vehicles for this market. The two-fleet requirement

contributes to maintaining this full-line production. We would welcome proposals to

strengthen its role if they ensure enhanced domestic production and jobs, maintenance of full-line U.S. manufacturing and an increased amount of U.S. content. On

the other hand, the UAW will oppose attempts to weaken the impact of the twofleet requirement.

The UAW continues to be deeply concerned about the outsourcing of small car

production. While our main concern is the thousands of jobs this trend has cost our

country, small car outsourcing is more than a jobs issue. It also threatens our automotive base in the long run. U.S. firms have taken a shortsighted approach to the

challenge of foreign competition in the subcompact market, and we fear they will

take a similar shortsighted approach in the compact market. If the compact market

goes as the subcompact market has gone, before too long there will be no U.S. designed and built subcompact or compact vehicles. If the trend toward fuel conservation and self-reliance continues, as it should, small cars may again be the vehicle

of choice for many consumers. Unless we retain domestic sourcing of small car production, consumers would be forced to purchase foreign-made vehicles.

Some foreign companies have claimed the two-fleet requirement constrains their

ability to increase the domestic content of their vehicles, thereby restricting job

growth in the U.S. The UAW has long observed the relatively lower domestic content of vehicles that foreign companies have sold in the U.S., which is the result

of structural trade-related imbalances, not the two-fleet requirement. The UAW continues to urge the U.S. Government to effectively address our nation’s structural

trade problems. We also have long urged foreign companies to increase domestic

sourcing of automotive components from long established, high-quality U.S. suppliers. Such actions would lower the excessive U.S. auto parts trade deficit, create

jobs in the domestic industry and increase the U.S. content of both imports and

those vehicles produced in the U.S. plants of foreign companies.

TECHNOLOGICAL FEASIBILITY AND ECONOMIC PRACTICABILITY

The UAW does not oppose an increase in the fuel economy requirements for motor

vehicles, but we do oppose increases that would place the jobs of our members and

other workers in serious jeopardy. We believe the manufacturers will be making fuel

economy improvements in the future. But it is essential that any increases that may

be required by Federal law be technologically feasible. Increases that are not technologically feasible would force significant changes in the kinds of automobiles and

light trucks the manufacturers produce. If, for example, the product mix had to

change in a way that would cause production of family sized, larger and less fuelefficient vehicles to be phased out, plant closings and permanent job loss for workers

in those plants and in related industries would inevitably result.

Motor vehicles produced in this country and those imported into this country

should be more fuel-efficient. We need improvement—especially now, given our need

to develop more effective energy conservation programs, our need to confront the uncertainties of future energy supplies, our need to become more energy-independent

and our need to address environmental concerns. At the same time, Federal mandates in the areas of safety and emissions must be given full weight in setting fuel

economy standards. These areas of public policy are no less important than fuel conservation, and advances must be made together, recognizing how each impacts the

others.

How fuel-saving technologies are implemented is an important element in determining what is technologically feasible. It is important to recognize that the rate

of market penetration of different technologies varies. There may be technical, financial, regulatory, organizational, and marketing limitations to deploying them.

Moreover, the existence of new technologies does not mean that their full potential

to raise fuel economy will necessarily be realized. The setting of standards cannot,

therefore, assume full implementation of all technologies capable of being commercialized without qualifications. Lead-times needed to design, engineer, test and build

new models in the automotive industry are often underestimated. It is important

that lead times and other practical limitations on deployment of technologies be

taken into consideration when setting standards.

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Economic practicability is another factor that needs careful consideration in determining feasible standards. We strongly believe that the potential impact of fuel

economy standards on industry employment must be considered. The Nation would

be poorly served if fuel economy gains were achieved at the cost of the loss of thousands of high productivity, high wage jobs that cannot be replaced. The current U.S.

recession has contributed to sizable losses in the domestic automotive industry,

thereby lessening the near-term ability of the corporations to undertake the necessary investments to raise fuel economy. The financial condition of the auto companies must be taken into account in the standard-setting process. Economic practicability must also include consideration of the cost effectiveness of the various means

available to raise fuel economy. Achieving mandated higher fuel economy standards

for new vehicles relies on consumers buying the new vehicles. If the cost of the vehicles is beyond the means of consumers, or puts new cars at a disadvantage relative

to used cars, little will have been accomplished. The standards must also not assume the implementation of technologies that have excessive payback periods.

Finally, we also believe it is important to retain the existing administrative discretion to relax or strengthen standards. It is impossible to anticipate all events in

the short- and long-term that may prevent manufacturers acting in good faith from

complying with the law.

UNIFORM PERCENTAGE INCREASE APPROACH

The UAW strongly believes that any future mandated increase in standards

should take the form of a uniform percentage improvement in average fuel economy,

for each company and for each fleet, domestic and import, from a designated base

period. This reform of the CAFE program directly addresses some of the problems

in the existing standards.

First, if compliance is measured by a percentage improvement in fuel economy

averages, all companies must improve their fuel economy regardless of their current

status. That should reduce any CAFE-related competitive disadvantage that may

exist for full line producers. Companies that have been able to exceed the standard

based on vehicle mix alone would now be forced to adopt widely used technologies.

Moreover, companies would risk falling short of the standard if they move into high

performance niches. It is our hope that if all firms face a common risk in moving

upscale that all will be reluctant to do so. At the very least, it will be more difficult

for the Department of Transportation to accept the argument that the standard

should be relaxed because it puts some firms at a competitive disadvantage. In contrast to the current statute, we are more likely to see fleetwide improvements in

fuel economy since all companies would be discouraged from moving into higher performance vehicles.

Second, in contrast to the current approach, the percentage improvement requirements would make it difficult to raise the fuel economy average of the domestic fleet

by shifting low fuel economy vehicles into the import fleet, since the company would

be required to achieve improvements in both fleets. Because the principle of

fleetwide averaging is preserved, the companies would still have the flexibility to

develop new technologies for a limited range of vehicles at any one time.

For these reasons, the UAW believes that requiring separate import and domestic

fleetwide average uniform percentage increases in fuel economy would be an effective improvement over the existing standards.

Opponents of the uniform percentage increase approach have incorrectly argued

that it would unfairly penalize ‘‘technology leaders.’’ But the truth is the current differences in the average fuel economy of the fleets sold by the domestic full-line manufacturers and some foreign companies are due mostly to differences in their product mix, not to differences in technology. The addition of ceilings and floors to the

uniform percentage increase approach would ensure that all companies fairly contribute to improvements in fuel economy.

FAIR AND BALANCED ENERGY AND ENVIRONMENTAL POLICIES

We recognize that automotive fuel economy standards alone are not an adequate

solution to the need for energy conservation and environmental protection, and that

more needs to be done. Promising technologies with the potential to improve fuel

economy and reduce auto emissions require ultra-clean fuels. The UAW strongly

supports national controls that would reduce sulfur content in gasoline and diesel

fuels to nearly zero. Clean fuels will not only increase the effectiveness of current

vehicle technologies, but also enable advanced vehicle technologies under development that offer significant future environmental benefits. Gasoline direct injection

(GDI) engines and fuel cell propulsion systems, for example, promise such benefits,

but both are highly sensitive to sulfur. For the American automotive industry to

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stay technologically competitive, and for our country to gain the environmental and

economic benefits associated with new technologies, it is vitally important that they

be developed, manufactured and sold in the United States.

The Federal Government has played a crucial role in funding research and development of advanced vehicle technologies for more than 25 years. The UAW supports

a continuation and strengthening of this Federal commitment. To achieve such goals

and thereby gain broad benefits, a sustained, well-funded and coordinated Federal

involvement is necessary, including collaborative efforts with domestic auto manufacturers and suppliers. Such efforts not only will help promote the development of

advanced conventional technologies that offer improved fuel savings of vehicles powered by today’s internal combustion engines. In addition, sustained federally funded

R&D efforts centered on leapfrog technologies, such as fuel cell and electric-powered

vehicles, present opportunities to make dramatic improvements in the environmental performance of future automobiles. Whether for advanced conventional or

leapfrog technologies, such development efforts are needed to keep the domestic

auto industry at the forefront of global vehicle manufacturing.

If the United States takes the lead in developing energy-efficient products and

new energy-saving technologies that are domestically produced and used here and

around the world, we will create more jobs for American workers, while bettering

public health and environmental protections. To accelerate the introduction and

penetration of advanced vehicles into the U.S. light vehicle market, the UAW supports Federal tax credits for the sale of fuel-efficient, advanced vehicles. These include electric, fuel cell and qualified hybrid vehicles. Our view is that the sale of

vehicles qualifying for Federal tax credits should not only possess specified advanced vehicle technologies, but that such vehicles should also provide environmental benefits through substantial fuel economy improvements.

Another enhancement of domestic employment opportunities would flow from expanded investment in our nation’s transportation infrastructure to reduce congestion and improve efficiency. A broad national transportation plan should embrace

creative, community-based approaches. This avenue recognizes the important role of

affordable public transit systems and other energy-saving alternatives to private

motorized modes of transportation.

The UAW also has advocated the establishment of a Federal agency to coordinate

research on fuel economy and emissions technology and we have called for a comprehensive energy and transportation policy to promote other approaches to fuel

conservation. To ensure that workers adversely affected by fuel-economy related actions do not suffer unduly from these policies, we also support a full range of job

retraining, job search and income support programs for any dislocated workers. Unfortunately, these proposals were not included in the law enacted in 1975 and have

not been added since.

STANDARD HARMONIZATION, FLAT MPG APPROACH, WEIGHT-BASED STRUCTURE AND

CREDIT TRADING

Several alternative proposals on reforming or changing CAFE standards have

been offered. These include an upward harmonization of the light truck standard

to that for passenger cars; applying a flat mpg increase to the current standards;

a shift from fleetwide averaging to an unspecified weight-based structure; and a system of credit trading. The UAW is deeply concerned that these proposals could

cause substantial dislocation in the domestic automotive industry and result in the

loss of thousands of jobs for American workers.

One approach to reforming CAFE (such as the Feinstein-Snowe bill or the Markey-Boehlert amendment) proposes that the standard for light trucks be harmonized

upward to the substantially higher level established for passenger cars. The implementation of such proposals would impose severely disparate impacts on domestic

full-line manufacturers with serious adverse effects on the jobs of our members. The

UAW therefore strongly opposes such proposals. Domestic full-line manufacturers

have responded to strong consumer preferences for light trucks by dramatically

shifting their U.S. capacity to meet that demand. As a result, today the U.S. production and sales mix of domestic full-line automakers are much more oriented to light

trucks compared to foreign companies that have historically focused on the passenger car segments of the market. Upward harmonization of the light truck CAFE

standard to meet the car standard would thus place domestic full-line manufacturers at a strong competitive disadvantage relative to foreign companies that are more

specialized in cars. This would put at risk the jobs of our members who work in

light truck assembly plants and at associated supplier operations.

Another approach to changing CAFE would be to simply apply a flat mpg increase

to the current standards. This approach also has a discriminatory impact on domesVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00084 Fmt 6601 Sfmt 6621 D:\DOCS\89683.TXT SSC1 PsN: SSC1
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tic full-line producers due the nature of their product mix relative to the other producers that have historically focused on smaller automobiles. This disparate impact

would be exacerbated if the flat mpg increase approach were combined with the upward harmonization approach for light trucks. The UAW strongly opposes such proposals because they could cause serious dislocation among our members.

A third approach to reforming CAFE would allow the CAFE structure to be

changed to an unspecified weight-based structure through rulemaking. The UAW is

concerned that this approach would give regulatory authorities excessive latitude

over how the fuel economy standards would be structured in the future. Such openended authority would permit a shift from the fleetwide average approach that the

auto industry has used for a quarter century—an approach that balances effectiveness and flexibility, and helps ensure continued domestic full-line production—to an

unknown alternative that could further jeopardize U.S. small car production and

possibly have a disparate impact on full line producers. The UAW therefore opposes

open-ended regulatory authority to change CAFE to an unspecified weight-based

structure.

Finally, proposals have also been advanced that would allow companies to trade

credits earned by exceeding the fuel economy standards between classes of vehicles

and between firms. We cannot be certain how this trading would work, as there has

been no similar experience to demonstrate its effect. We can easily foresee circumstances, however, in which domestic full-line producers would end their U.S.

production of small cars, fail to reach the fuel economy standards for their domestic

fleet and purchase credits from their own foreign fleet or from other producers to

achieve compliance. In this case, the U.S. industry would lose much of its small car

production capability, with potentially serious consequences for domestic output and

employment, and with no overall improvement in fuel economy. As previously indicated, the UAW is deeply concerned about the long term threat this would pose to

our automotive base.

In conclusion, the UAW appreciates the opportunity to present our views on the

subject of reform the CAFE program. We look forward to working with you, Mr.

Chairman, and the other Members of this Committee on this important issue.

Thank you.

Senator KERRY. Thank you very much, Mr. Reuther. Thank you.

I was looking for your prepared testimony, and I appreciate the indepth detailed discussion of a number of different issues. Let me

try to deal for a moment, if I can quickly, while it is fresh, with

this question of the uniformity.

And Mr. Cohen, let me get you involved in this, obviously.

In principle, I would agree with your comment that you do not

want to penalize people for having taken positive steps, and if they

are industry leaders in a particular sector, you would be rewarding

lag. You would be encouraging people in the future not to do something. But what Mr. Reuther is suggesting is that if you look at,

say, SUVs across the panoply of those offerings in each industry—

not each industry, excuse me, in each manufacturer, you will find

a really close approximation between them in terms of size, engine

and fuel efficiency. There is not that great a sort of technological

gain by one or the other. But in effect, the overall CAFE advantage

that one manufacturer may have over another, particularly say,

you, versus one of the Big Three here, is that you have a different

whole product mix, and since the CAFE standard reflects the overall product mix, you sort of could claim a pass, if you will, on what

is required with respect to your SUV, while one of the domestic

manufacturers would have to make advances that could disadvantage them economically. Now, what do you say to that?

Mr. COHEN. Well, I think there are several points. First of all,

I have not seen the data that show manufacturers being so close

in the technology they employ. I would note that we are the leader,

or close to the leader in almost every class of vehicle in which we

compete. This data does not make sense to me because the sum of

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the parts should equal the whole. So I would be surprised—if you

were to compare our cars on a segment-by-segment basis, I think

you would find ours have higher fuel economy, and that is because

we have already integrated into a lot of those vehicles advanced

technology such as variable valve timing; lightweight materials,

and the like. The point is that with a UPI approach, we would have

to go out and invent new technology, because a lot of today’s advanced technology already is in our vehicles.

I think as far as the point that Mr. Reuther makes, however,

there is one way to ameliorate the bad effect, if you think that effect is there, and that is by having an attribute-based standard. In

other words, you would have different standards based either upon

size or weight. We prefer size over weight. For example, there

would be a separate standard for the very large cars, a different

standard for the next size down, and so forth. That way, manufacturers would be competing directly against each other within the

attribute class, be it size or weight.

With UPI, if a company like Honda, which currently is not in the

large SUV market, wanted to enter that market, it probably could

not do so. With an attribute-based approach, however, we could

enter into that segment as long as we met the target for that segment.

Senator KERRY. What do you say to that, Mr. Reuther?

Mr. REUTHER. Well, I think there was an important admission

there, that they do not compete in all segments. So the fact that

they may be at or near the top in the segments where they do compete, that does not mean that they have superior technology. The

bottom line is if you compare apples to apples, the same size,

weight class of cars——

Senator KERRY. Let me just interrupt you for a minute. I think

this is a component of the Ford testimony and I am not sure that

it is complete. But within the context that we have here in the

SUV categories, in the manual transmissions, you have the Ford

and Toyota. I am not sure that that is all-inclusive, so I do not

know why others were left out. But let us come down to, you have

the Ford Explorer, the Jeep Grand Cherokee, the GM Blazer, the

Honda Passport, the Toyota Forerunner and they are all at 15 and

16 in the city. They are all at 20 and 19 on the highway. With the

combined, 17, one of them is at 18, and they are all at about the

same engine size. Actually, the Honda and Toyota, no surprise, are

slightly smaller, but no 6-cylinders.

So if we were to wind up creating a size-based category standard,

how does that fit? How does that work out in the context of what

Mr. Reuther has been saying?

They do seem fairly similar. The point being made here is that

the gain you are talking about, the advantage, really comes from

the overall smaller cars. This raises another issue. I am not going

to let this issue slide by, but it does suggest that you cannot necessarily approach it that way because there is not an evenness in

measuring what is to be gained in either fleet.

Mr. COHEN. Well, if the goal here is fuel economy, again, I question the data. That data did not, for example, talk about our Honda

CR–V small SUV, and I am not sure which class you are reading,

but our CR–V——

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Senator KERRY. It is incomplete. I have acknowledged that, and

I have asked my staff to put together a complete list of everything

in the marketplace.

Mr. COHEN. And our Acura MDX, which is a mid-size SUV. We

do make a SUV, we make a mid-size SUV, it is a VLAV on emissions and it is best in class for its fuel economy. So I go back to

the question about whether we are all at the same place. The point

is we are already putting a lot of this technology in cars.

If Honda already meets a future standard, then I think that

achieves Congress’ purpose. We should not be penalized for doing

that early. But to go back to the issue, if this disparity is one that

is of great concern to the Committee, an attribute-based system

will negate that.

Senator KERRY. Let me ask the other side of that question, Mr.

Reuther. Most of the American cars do tend to be bigger, with bigger engines, more muscle-oriented, more amenities, etcetera in different ways that do appeal to Americans. I am not going to suggest

to you the market does not ask for it. The question is whether or

not, following up on what Senator Bingaman and Senator Snowe

talked about, whether we have a responsibility to try to set as a

matter of policy, the framework within which your competition is

going to take place.

In other words, we are not going to tell you what kind of car to

make specifically, but we are going to create a framework as a matter of public policy about emissions and about fuel usage that then

forces you to respond before the market demands it, in effect. Particularly given the price issues that Senator Ensign and Senator

Breaux raised, if fuel prices continue to go down. Although that is

questionable, since some geologists predict that world production is

going to go down by about 2004, and if demand increases, we do

not know what will happen to price, but that all depends on the

rate at which you really begin to supplant your current dependency.

Mr. REUTHER. We believe the uniform percentage increase approach directly addresses that point. It would require the Big

Three to improve the fuel economy of their entire fleets, the truck

fleet as well as the car fleet. If they try to keep moving more and

more upscale, it would be very difficult for them to meet the higher

percentage increase standards. So there is an incentive, if you have

fleet wide averaging, but you have a uniform percentage increase

approach, there is an incentive not to keep going upscale.

In contrast, if you went to the weight-based system that Honda

has suggested, then it would be wide open to gaming the system,

and keep saying ‘‘oh, you are really are in a higher classification,’’

and you would wind up with no improvement in fuel economy.

Mr. COHEN. Mr. Chairman, if I may, I think there are ways to

structure attribute-based systems, whether it is weight or size, to

structure those attribute-based systems so that there is not an incentive to game the system.

Senator KERRY. That might well be. I am not particularly excited

about weight, but I think there might well be.

Mr. COHEN. Those are obviously very sophisticated and——

Senator KERRY. What about the concept of the floor and ceiling

that we had discussed?

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Mr. REUTHER. If people are concerned that a uniform percentage

increase approach would produce too great extremes at either end,

we could support establishing a minimum floor. In other words, you

would say everyone has to increase by a certain percentage, but in

no event less than a certain MPG and in no event more than a certain MPG. That would cushion the extremes on either end, but it

would require all the companies to start using the technology that

is available. It would put the same pressure on all the companies

not to keep moving continually upward into more high performance, bigger vehicles.

Senator KERRY. What is your reaction to that, Mr. Cohen?

Mr. COHEN. I think it has all the negatives of UPI, only slightly

reduced, depending upon the devil in the details. It still punishes

the leaders. It still sends a terrible regulatory message from the

Congress to companies, that you exceed standards at your peril.

Senator KERRY. Mr. Reuther, what if you accept the National

Academy of Sciences judgments? Do you?

Mr. REUTHER. Not all of their judgments.

Senator KERRY. Do you accept their judgment when they find

that: ‘‘Technologies exist to significantly reduce fuel consumption of

passenger cars and light duty trucks within 15 years without affecting vehicle weight?’’

Mr. REUTHER. We definitely accept the judgment that the technologies can be brought in to increase fuel economy substantially.

Senator KERRY. So if we were to look at something different from

the current Feinstein-Snowe proposal in its timeframe, which some

may find difficult to meet, and created a system in which you have

the SUV component tied to the overall average, and we sort of

work through what kind of average structure we are going to

strike, maybe with some targeting in the way that has just been

discussed, is it then more important to have a timeframe that is

realistic?

I think in your testimony, Mr. Cohen, you talk about that; you

say very specifically that the timeframe is critical. If you are looking at 15 years, is that a more reasonable framework within which

we could work and perhaps demand a little more?

Mr. REUTHER. Certainly, the longer the lead time, the easier it

is for the companies to make the changes, and we support longer

lead times. We still have concerns about an approach that simply

says well, let us bring the trucks up to the car level because we

think that disproportionately has an impact on the Big Three auto

companies. We think there should be improvements in the light

truck segment. We think there should be improvements in the car

segment, but a simple harmonization or ‘‘close the SUV loophole’’

approach we think has a discriminatory impact. Our concern is

that our light truck plants will be forced to close or curtail production, whereas the Japanese, because of their current position, will

be able to continue to move upscale.

Senator KERRY. What is different? That is a very important consideration. What is different in the current Japanese position as

you describe it, versus what Detroit and the Big Three are marketing?

Mr. REUTHER. Because of the product mix, it is easier for them

to move upscale.

85

Senator KERRY. OK. But when you say to move upscale, approximately 50 percent of the vehicles being sold in Detroit today are

SUVs. Correct?

Mr. DAVIS. No. It is not correct.

Senator KERRY. What is the correct——

Mr. DAVIS. Light trucks would be that category.

Senator KERRY. Light trucks. And SUVs proportion is what?

Mr. DAVIS. Slightly less than half.

Senator KERRY. Slightly less than half of that. OK. So, but 50

percent fit into the light truck category?

Mr. DAVIS. Right.

Senator KERRY. Within which category SUVs also fall. So light

trucks were always meant to be what they are, light trucks.

SUVs—and Congress in its wisdom created a lesser standard there,

understanding the impact on farmers, certain kinds of businesses,

etcetera. We used to make station wagons. We do not make them;

we make SUVs. By and large: we still have a few, but they are all

mid-size, I understand.

The question is, is there a way for Detroit to remain competitive,

and rethink both size of engine and perhaps some of the offerings

that have been made to create that market, if you will, in response

to the fact that it has been available as a loophole. Is there a way

to do that?

Mr. REUTHER. We think you can have improvements in the fuel

economy of the light truck segment, and we support a uniform percentage increase for that segment so they will be forced to bring

in the technologies to make the light trucks more efficient. But if

you simply say light trucks have to meet the same flat MPG as

cars, or a higher flat MPG, that is not treating all the companies

the same, that is hitting the Big Three much harder.

Senator KERRY. I understand that. I understand that. Let me

come back then to a couple of the manufacturers here if I can.

If we were to embrace—and I am not sure how to do this yet,

and I am partly thinking out loud. First of all, let me ask this

threshold question. How do you view the technology that was

talked about earlier, the hybrid, particularly something like Paice

Corporation’s Hyperdrive? Or some other. I know Ford particularly

is moving down its own road.

Ms. CISCHKE. Well, Ford is going to be introducing the hybrid Escape in 2003. And this will be the first hybrid SUV, and we believe

that the market acceptance of that will also depend upon how

many we will be able to sell, because obviously there is a lot of

componentry involved in differentiating a hybrid SUV from the

conventional gas engine, and we are exploring whenever that technology would make sense.

There were comments earlier and references to the chart here,

and this happens to be a Ford Explorer, and one of the comments

here was an integrated starter generator, which is a mild hybrid,

another form of hybrid. We recently decided to drop the ISG on Explorer. It indicates here there was a fuel economy gain of 15 to 25

percent, when we found in our whole development process it was

significantly less than that, and at a pretty expensive cost between

$300 and $1,000 a vehicle.

86

So while we believe there is an area of market opportunity for

hybrids, you have to apply it to the right vehicle size, and we believe the Escape was probably much more effective, and we will

continue to look at ways of adding new technology. That is what

our SUV commitment is all about, is adding new technologies as

well as reducing weights and changing our model mix, too.

Senator KERRY. Well, I know that obviously corporations, particularly when they are innovative, in the innovation business and

are trying to gain a foothold, that sometimes there can be some exaggeration to what is offered. And I am not suggesting that these

are. I am just saying I know that sometimes that can occur.

On the other hand, here you have Paice, a company that has

former auto industry executives and others involved, saying we

cannot dictate customer choice, nor should we try to, and so, they

are going to try to produce a vehicle that does everything that the

customer really wants. It gives consumers the power. It gives them

the comfort. It gives them the same safety, but does so with a hybrid power train.

Now, according to the indications that I have read about, Paice

has the ability, on a standard SUV, to gain fuel efficiency improvements of roughly 50 percent, depending upon the size of the vehicle. The smaller, I suppose, the better. In their modeling of various

vehicles, they come up with a compact car exhibiting an increase

of 31 to 45 miles per gallon, which is a 45 percent improvement;

a full size car, an increase from 27 to 39 miles per gallon, which

is a 44 percent improvement; and the large SUV exhibits an increase from 16 to 26 miles per gallon, which is the 62 percent improvement.

Now, why is that power train not exciting the industry? Or is it

not something that you all find similar modeling capacity?

Mr. DAVIS. Well, let me try and address this, Senator.

We have had some interaction with the company that you are

talking about over time, and we continue to talk to them, and will

continue to talk to them. We have not substantiated those numbers

with the work we have done.

Candidly, we have not done any work for a couple of years on

that subject. But we have had a number of applications that we are

making that do apply the hybrid technology; in fact, we have announced we are putting the hybrid technology in production in our

full size trucks in 2003, with every intention of getting that done

on time and in a significant volume.

Senator KERRY. But if this hybrid goes into production, and you

do well at the hybrid and the marketing of the hybrid is adequate,

why should we not believe, building upon what Senator Feinstein

was saying, that it would be reasonable for us within 10 years to

15 years to establish a standard? Where we already know that if

you did the hybrid now, you would be achieving what that standard

sets out to do?

Mr. DAVIS. Well, as we said in our testimony, there is a number

of things that we are applying that provide particular benefits. In

fact, it is not just a future application of technology. If you look at

our mid-sized utilities we brought out this year, variable valve timing, line six engine, hundreds of millions of dollars in investment

to bring our mid-size SUV up and improve the fuel efficiency assoVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00090 Fmt 6601 Sfmt 6601 D:\DOCS\89683.TXT SSC1 PsN: SSC1
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ciated with that. As I said, variable valve timing, aluminum line

six. Hundreds of millions of dollars of investment. The same thing

with the hybrid on the full size pickups targeted at improving.

Now, when you look at the hybrid on a full size pickup, we will be

subsidizing that particular application of technology by the thousands of dollars per vehicle in terms of getting that done, and we

are prepared to go ahead and do that.

In addition, consistent with some of the comments made by the

National Academy of Sciences, we are taking the predominant volume of our full size engines, our V–8s and our V–6s and switching

to displacement on demand which, in fact, considerably improves

the pumping efficiency of the engine.

We are doing that; we have said we will do that; we are announcing it; we are moving forward on it. But in no way from a mix

standpoint does it drive the kind of numbers that we are talking

about here from a CAFE standpoint.

We are more than willing to look at the work that has been done

by Paice and others and have continued to do that over time, but

have not seen cost-effective solutions that drive those kind of numbers.

Senator KERRY. Why would you not have looked at it for 2 years?

Mr. DAVIS. I have not been contacted, nor am I aware of people

at our company. I am not saying we have not been, but I am not

aware of a contact that has taken place within the last 2 years.

Senator KERRY. Let me ask you, and I do not mean to do this,

I do not do this pejoratively at all. But I want to try to understand.

When we sit here, we policymakers, and try to wade through this,

we obviously have to look at the science. We make some judgments;

we look at the public policy issues, we make some judgments; we

look at the track record and make some judgments.

And one of the difficulties is that back in the original go-around

in 1975 when we did this, the auto industry came to us and said,

quote, and this was the original proposal: ‘‘This proposal would require a Ford product line consisting of either all sub-Pinto sized vehicles or some mix of vehicles ranging from a sub-subcompact to

perhaps a Maverick.’’ At the same time General Motors was saying:

‘‘This legislation would have the effect of placing restrictions on the

availability of 5 and 6 passenger cars, regardless of consumer

needs or intended use of vehicles. It is not only an unjustified interference with individual freedom, but an extreme and unusual

way for a free society to achieve its goals.’’

Yet obviously, neither Ford nor GM eliminated either of those

lines. We are doing wonderfully. We are producing significantly different vehicles. How do we sit here and listen to the Sierra Club

come in, and scientists come in, and the National Academy of

Sciences say, this technology is available in 10 to 15 years; that we

know if we create a framework where we push the technology

curve, we always accelerate in this country?

We heard the same arguments on sulfur dioxide and the Clean

Air Act. The industry said ‘‘This is going to cost us $8 billion. Do

not do it.’’ The government sources said: ‘‘It is going to cost $4 billion and we can do it.’’ And it wound up costing $2 billion because

nobody factored in the impact of the push of technology and the rapidity with which, once you had to do something, technology met

88

the curve faster than we thought. How do we weigh all of that

against what you are saying today and against the other testimony

we are hearing?

Mr. DAVIS. Two points I would make. In our testimony we are

very clear on the technologies that we not only think should be

brought on near-term, but we are bringing on near-term. And those

include variable ratio transmissions, they include hybrids and they

include displacement on demand, which basically makes a gasoline

engine act more like a diesel. We think there are a number of alternatives that improve from a consumption standpoint where we

want to be.

Certainly, when we look at what we are doing with urban buses,

you know, if you look at urban buses, 13,000 hybrid urban buses

is the equivalent of 500,000 hybrid small cars, 13,000; and most of

those are subsidized by the U.S. Government. We mentioned the

fleet that is currently in place in the marketplace today, and that

has to be addressed as well. But the overriding issue that we think

is important is that we believe fuel cell technology is the technology

that is going to take us where we want to go, and it does not make

sense to orchestrate or legislate marginal improvement. It makes

much more sense to put our resources in bringing that fuel technology on quicker.

Senator KERRY. Well, what if we set a pretty strict goal and gave

you some fairly generous incentives for developing the hydrogen

fuel cell technology? That would make it easier to do that.

Mr. DAVIS. I think that would be a well-focused and wellthought-out viewpoint.

Senator KERRY. But I am saying set a fairly strict goal simultaneously.

Mr. DAVIS. We have to have more discussion on what is a fairly

strict goal, certainly. But I think the marginal, what we are talking

about——

Senator KERRY. So you will take the candy but you will give back

the rest of the meal, right?

Mr. DAVIS. Well, you know, the progress that has been made in

fuel cells in the last 5 years, I think has changed the position of

many in the industry, based upon the technology improvements we

have made. And I also think that we can bring that on at a very

measured and intelligent way, for instance, stationary devices in

terms of developing the capability of the system makes sense before

mobile devices. But clearly, we would welcome engagement in that

kind of discussion.

Senator KERRY. Let me ask you this. Is there a way to embrace

clean diesel technology and meet the standards? Could you bring

in some of the advances that have been made in Europe with respect to that diesel and perhaps move more rapidly?

Mr. DAVIS. Well, both ourselves and other people in the industry

are very familiar with that because we do it on a day-to-day basis

and our colleagues in Europe are in continuous discussion with

them. We would have to address the same issues that they address

in Europe on fuel standards, and on emission control systems in

order to bring on clean diesels. But certainly, clean diesels offer us

another alternative to talk about and an alternative that most of

the rest of the world is using to address CO2.

89

Senator KERRY. Ms. Mesnikoff, you make the statement in your

testimony quite declaratively: ‘‘As outlined in Drilling Under Detroit, conventional technologies now exist to achieve a 40 mile per

gallon standard over 10 years. A combination of better engines,

transmissions, aerodynamics, appropriate weight reductions and

other technologies can be used to improve the fuel economy of all

vehicles and cars and the largest SUVs.’’ You have heard these

folks sort of contest that. They do not think they can do that in 10

years. What gives you the certainty of the declaration in that statement?

Ms. MESNIKOFF. Well, you certainly read one of my favorite lines

or several lines from the 1970s. The manufacturers will say they

do not have the technology. If you set the goal, they will put the

technologies that I have identified, and that my colleague David

Friedman from the Union of Concerned Scientists can discuss further. They will put those technologies to work in the near term to

get us moving in the right direction.

I think in terms of testimony about fuel cells or otherwise, I

think the manufacturers have had a free ride on fuel economy

standards. For light trucks the standard has stagnated for essentially 20 years, and the standard for cars in place now was set in

1975 based upon a technology outlook then. And they have not

done better when it comes to fuel economy.

So I think that if we sit around and wait for some great technologies to come forward, and fuel cells may come in the next 10

years or so, but in the near term, let us put the technologies identified there, that they have talked about, but let us make sure we

are seeing fuel economy gains when they put those technologies to

work.

You know, I hate to point it out, but I understand in the Toyota

testimony, they essentially make the point that there is a big difference between fuel efficiency and fuel economy. You can put technologies to work and not necessarily improve the fuel economy of

that vehicle. What we need to do is see these technologies actually

improve the fuel economy of the vehicles sold to consumers so that

we can save oil. If we do not put the new standards out there, we

may not see the fuel economy gains that we actually need to see

to reduce our dependence on oil and to reduce the emissions of CO2.

Senator KERRY. Is there something in your production structure

that makes it harder to achieve what Ms. Mesnikoff just said, in

the sense that there will be, there is something in the American

manufacturing process that adds cost to the consumer that makes

it an undesirable choice for you in terms of the marketplace?

Ms. CISCHKE. No, I would just like to comment that we have improved the fuel efficiency of all of our vehicles over the last 20

years or so, and we have done that in light of ever-increasing safety improvements, as well as emissions improvements, so it is not

a one-horse race here. There are a couple of different things that

we are trying to balance, and I think technology has been the enabler to do that and certainly tax incentives to encourage advanced

technology would help even more. But as far as anything different,

we have the technologies that the other manufacturers are offering.

It comes to a matter of choice in terms of cost issues and that if

you have a hybrid engine, for instance, you have two power trains

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versus one power train so you have got to figure out if volume can

eventually reduce those costs, the same as the fuel cells.

But there is nothing in our structure that inherently drives the

cost up.

Mr. DAVIS. There is still an overriding issue, too, that we have

talked about a lot, but I think we need to come back to on this.

And that is that there are 50 offerings in the market today that

have a fuel economy number of over 35 miles per gallon and they

account for 1 percent of the sales of vehicles in the United States.

Nine of those happen to be GM vehicles, but the market speaks

very clearly on the issue.

Senator KERRY. I understand, but the market is distorted to

some degree. I have talked to countless parents and countless people, just trying to get the person on the street opinion about this.

And a lot of people have been bullied into a position of feeling that

they are just not safe if they are not driving an equally combative,

large vehicle on the road. That is the way they feel. Now, a lot of

families also want to be able to get the dog and the three kids and

do the car pool and put people in it and I understand that. That

is a very legitimate need. The question is, do they need a vehicle

that does 140 miles an hour to do it? And do they have to be sold

the upper level of things that are not really offered in some other

places, in other markets?

And so we have conditioned our own market to a degree, you

have conditioned our own market, and now to a degree you are a

victim of the market. It is not unlike the 1960s and 1970s when

Volkswagen came along and introduced the Beetle and everybody

in Detroit laughed at them. And we wound up learning that there

could indeed be a market for a different kind of vehicle. Now we

have manufacturers sort of appealing to both. But there are a lot

of ingredients in the marketplace right now which are dictating

consumer behavior, some of which I think need to be changed, and

you all are not going to take the lead in changing them in a way

that adversely impacts you, and I understand that. I completely

understand that.

At Ford you are doing a good job of trying to bring in this hybrid

piece. You are going to kind of sneak in under the wire there. But

you are going to sell the others for as long as people are going to

buy them, and take the cushion that comes with that. What we

have to make a decision about is whether we want to affect that

marketplace over all, and affect all of you simultaneously, so that

there are a different set of choices available to consumers that gas

prices are not creating in and of themselves.

This goes back to what other Senators have said about what

moves the market in the interest of public policy. Now, I am for

as much choice as possible. I am for the freedom of the marketplace. I am for competition. I do not want to adopt something that

runs against the grain in those things, but we have got a couple

of big things looming at us here. The biggest of all is global warming, the impact on the environment, the quality of the air that we

are breathing and the combination of oil use, oil dependency and

where it is going to come from in the long haul. It is in our interest

from the public policy point of view to push the curve on the development of hydrogen, of hybrid, of alternatives that significantly

91

alter this marketplace. And of course, and I say this to Mr. Reuther

and others, we do not want to do it in a way that puts people out

of work. Obviously we do not.

So we have a difficult needle to thread here and we are trying

to find a way to do it that is reasonable.

Mr. COHEN. Mr. Chairman, I think you make very good points.

It is important, as you deliberate, to keep in mind what the NAS

said about lead time and about cost. Honda, too, is in the hybrid

business. In fact, we brought the first hybrid to the United States,

and in just 6 months we will be offering the Civic as a hybrid. We

will have three types of motors in the Civic. Come April we will

have a compressed natural gas, an internal combustion engine and

a hybrid.

The key point to remember, however, is that hybrid technology

is expensive, and I do not know exactly how we are going to price

it, but hypothetically, say in the $3- to $4,000-dollar range price

differential. It is expensive technology. When gasoline is 95 cents

a gallon, consumers are going to look at the gasoline Civic and they

are going to look at the hybrid Civic and they are going to ask can

they make up that differential in price over the life of their car?

So in addition to lead time, the price of these technologies is very

important in terms of achieving consumer acceptance.

Senator KERRY. That is why Senator Rockefeller and I and others

have a bill that tries to mitigate against that differential by creating an incentive for people to buy it with a tax credit.

Mr. COHEN. And we are an original and enthusiastic supporter

of the CLEAR Act.

Senator KERRY. I hope that those policies can also be a part of

the mix, in how we try to deal with this transition with the least

negative impact, and I emphasize that. We want the least negative

impact we can create. But the mix of cars remains, and means this

is not going to be resolved by CAFE standards, but it is an interesting discussion to talk about, America’s mix of offerings versus

other people’s mix of offerings. And it needs to be noted, it needs

to be part of the overall fabric.

It is one of the reasons why I think there is such a reliance

among our domestic manufacturers, particularly of SUVs, on not

changing the current dynamic because uncertainty is always scary

in the marketplace, and nobody quite knows how they come out

with respect to that competition. And right now there is a very nice

niche there for these larger, more consumer-appealing, vehicles

that do things that nobody needs to do, in some respects. I mean,

people are driving around cities with cars that are advertised for

climbing over mountain chasms. And to the best of my knowledge,

most of the people never take them off-road. There is a mindlessness in what’s going on. I know it is great marketing. But we have

to measure how we begin to address some of that in the long term,

and we have to find a thoughtful way to do it.

Let me ask a couple of other things with respect to that. In the

National Academy of Sciences report, I ask this of you, Mr. Davis

and Ms. Cischke, they point out as of a few months ago. That it

is their judgment that fuel economy can be improved by 8 to 11

miles per gallon, just using existing technologies at a net savings

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to consumers over the life of the vehicle. Do you accept that finding?

Mr. DAVIS. Not that particular finding. No. And the issue there

from our perspective is that although——

Senator KERRY. That is without taking into account hybrid.

Mr. DAVIS. Right. What they talked about there was a lot of different technologies that potentially can improve the fuel economy

and will improve the fuel economy. Where we take issue with is

having all of those to be additive. Now, I do think there are some

issues that they talk about in there.

Senator KERRY. What are they missing there? Why do they come

up with 8 to 11 and you say no? What are the scientists missing?

What is their misjudgment?

Mr. DAVIS. Incrementally, in our position, incrementally as they

went through and did the work associated with the incremental improvements, we would support their conclusions. The issue comes

up to when you add all those together, what is the additive? And

we have been continuing to dialog with NAS on that particular

issue. The vast majority of the NAS report we clearly agree with

and we think it makes a lot of sense and are moving forward in

a number of those areas. And when they talk about pumping

losses, we fully support the displacement on demand as I mentioned, and investigating the issue of clean diesels as well, so there

is a lot of excellent work in the report. That particular area we are

concerned about.

Senator KERRY. Do you agree with that, Ms. Cischke?

Ms. CISCHKE. Yes. I think it is difficult, just like this board

shows here, and not all these things can be added together. And

there are ranges in terms of the overall fuel economy improvement.

And so it is easy to—it is a very complex set of calculations, and

we met with the NAS panel and shared our concerns in certain

issues.

Senator KERRY. And what did they say? Did they accept your dissent or did they say we disagree with you?

Ms. CISCHKE. I think that there has been an agreement to disagree, that there is not maybe the same view, that there certainly

are different ways to look at it, but we have not reached consensus

on that.

Senator KERRY. Is there a level of fuel economy increase the industry would support?

Ms. CISCHKE. Certainly, we are looking at ways to reduce fuel

consumption and looking at all these new technologies, and because

the system we have today has so many problems, CAFE had so

many problems and it is so complex, that we really believe it is

NHTSA that should take a look at that with help from industry

and others, to really come up with something that could be effective.

Senator KERRY. Do I interpret that to mean no, there is no figure?

Ms. CISCHKE. There is no figure that I could——

Senator KERRY. There is no figure you would accept? Well, I

mean, are you operating under the notion that the CAFE standard

is going to be abolished?

Ms. CISCHKE. No. I know that we need to improve fuel efficiency.

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Senator KERRY. So you are accepting the notion that even

NHTSA is probably going to come up with some increase?

Ms. CISCHKE. Well, NHTSA will either come up with an increase

or an alternative method as we talked about, maybe an attributebased system. The devil really is in the detail of all of that, and

so we need to really explore what it means. The overall goal is to

reduce fuel usage and we need to make sure that whatever we do

does that.

Senator KERRY. I assume you are not going to sit here and tell

this Committee that the industry cannot, that the industry believes

that zero increase is the number that CAFE ought to be imposed.

Is that, am I——

Ms. CISCHKE. We have indicated that we believe that there

would be an appropriate increase in CAFE. Just what that number

is, is what is going to be difficult to come to.

Senator KERRY. And you are not prepared as an industry to suggest in the next weeks a level that you think would be reasonable

and acceptable?

Ms. CISCHKE. I think it will take a lot of work to make that happen.

Senator KERRY. Well, we are going to do that work. Do you want

to do it with us?

Ms. CISCHKE. We certainly do.

Mr. COHEN. Mr. Chairman, our company, Honda, is not a member of the Alliance, and our perspective is that as we said, the NAS

report is in the ballpark. I do agree with the testimony from Ford

that the devil is in the details. Some of the reticence you probably

are seeing comes from not knowing the details. What is the timeframe? Are we talking about an attribute-based system? What is

the test methodology? We have heard some discussion about that.

From Honda’s perspective, the key elements are the standards

should be equal for all manufacturers and the lead time should be

reasonable.

Senator KERRY. Honda wouldn’t be driven by any notions that

that might advantage them competitively with any of the other industry, would it?

Mr. COHEN. Mr. Chairman, it is a very tough industry. We intend to compete in every sector. We do it reasonably well.

Senator KERRY. Including at the witness table.

[Laughter.]

Mr. COHEN. I try.

Senator KERRY. I accept that. Good try.

Each of the Big Three has already made a pledge to improve fuel

economy by 2005, particularly in the SUV fleet. You have already

discussed, Ms. Cischke, what you are doing. And Mr. Davis, I think

you did, too. What is the prime motivation for moving voluntarily

to do that, or spontaneously within the market? Is it because you

think the market is demanding it or you see us coming down the

road?

Mr. DAVIS. Well, as you are very well aware, when we make

these decisions, we make these decisions on large amounts of

money and capital. And so for instance, I will use a number of examples that are already in production rather than talk about the

future. I mentioned the mid-sized SUV in which we completely

94

changed over our engine technology to a line six with variable

valve timing. That is in production in high volume.

We are in production today with CVT transmissions in SUVs in

high volume, or will be in high volume within the next year. And

in my testimony, there is a number of things that are coming. I

think as was indicated by Honda, this is a very competitive industry and we vote with our capital and we vote—all of us vote to have

the most competitive product. Those decisions and others were

driven by those types of considerations and we will continue to do

that as time goes by.

Ms. CISCHKE. I would just like to comment, too, that it is customer-desired. We decided to focus on SUVs because they had indicated that was an area there that they would like to see improvement. And for instance, the SUV Escape will get 40 miles per gallon. That is a pretty significant improvement for that type of vehicle.

Senator KERRY. I must say to you that I think if you can—I am

not in the business, but if I were, boy, I would be moving as fast

as I could to an SUV that compromised a little bit. In certain

places.

I think the compromises are fairly obvious, but still providing

people with space and ability to get from here to there and do so

with much better mileage. I drove—well, it does not have to be

named, but I drove one of them until recently, and I loved it. It is

a terrific car. But the mileage was just horrendous, and I gave it

up because I just could not excuse driving a car with that low a

mileage.

And I think if you could provide any option—I wanted to buy a

hybrid. I would have bought a hybrid, if it had been manufactured

in that car, because of the comfort and the basic design of the car.

But there is no hybrid. So I think you are missing something. I

really do. I think the faster people move into that market, boy, the

American consumer would love to save that money and put it into

other things. Disposable income is cherished these days. And so I

encourage you to do it and I hope we can come up with a reasonable way to help encourage you without doing more harm than

good.

Does anybody feel compelled to add anything before we liberate

this panel?

Ms. MESNIKOFF. I would actually like to make a quick point. The

attribute-base system has come up numerous times. The Sierra

Club feels very strongly against that kind of a proposal, because it

could potentially encourage manufacturers, or would encourage

manufacturers to essentially focus their attention on perhaps the

heaviest SUVs. And as long as they improved the fuel economy of

those vehicles, they could perhaps dump production of much more

efficient cars or other vehicles in their lines, so that the goal of

achieving overall oil savings or over pollution reductions would not

be achieved because of the amount of gaming that could go on.

Manufacturers could, you know, again improve the fuel economy

of a Suburban or an Expedition by 2 or 3 miles per gallon, whatever the new standard was—we think it should be higher. But unless you keep an overall average and ensure forward progress, you

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mental improvement there, but not get the overall gains we need

to see.

And again, one more point on consumer choice. The manufacturers point to the 30 or so models that might be over 30 miles per

gallon, but again, as you have pointed out, when you go to the marketplace and the consumers have decided that they are going to

buy an SUV, for whatever needs that they have, their choice is

very limited. The EPA trends report points out that the majority

of light trucks, and I do not remember the exact percentage, are

all within 4 miles per gallon of the average. Similarly for cars, 50

percent or more of cars are all within 4 miles per gallon of each

other.

And so the actual choice is not in the marketplace. And in fact,

yesterday a marketing representative from a national company

called me and said ‘‘we are trying to come up with the sustainability program for our company to address environmental issues,

and one of the big issues is vehicles that we drive to bring our

products to trade fairs, et cetera. Where we have a big load, we are

using minivans right now, but we are overloading them, and we

have done all this research, but there is no choice for us. If we need

an SUV, there is no fuel economy that actually achieves our environmental goals. What is your advice?’’

And there was not much I could give, because the manufacturers

really are not giving consumers choice within vehicle categories.

And I think that is what we really need to see. New standards

phased in over the next 10 years will give consumers that choice.

Senator KERRY. Well, that is a very good point. Half, that is 50

percent of the new trucks built since 1999, are all within 4 miles

per gallon of each other. So that is not an enormous selection, obviously.

Well, this has been helpful. I think it certainly has helped outline some of the parameters of what we need to slog through. And

we are going to try to do it. We have another panel coming up to

test some of what has been said here. I really thank you very, very

much. I look forward to working with all of you within the next

weeks.

Thank you very much.

Could we bring the next panel up if we could right away? Thank

you. We expect brilliance because of what has gone before. You can

just tear it all apart and add it and build it back up.

Mr. Ditlow, we are going to begin with you and we will run down

the table if we can from there. If you are ready to roll, thank you

for being with us.

STATEMENT OF CLARENCE M. DITLOW, DIRECTOR, CENTER

FOR AUTO SAFETY

Mr. DITLOW. Thank you, Mr. Chairman. I will summarize my

testimony and ask the full testimony be included in the record.

Senator KERRY. It will be, without objection.

Mr. DITLOW. The Center for Auto Safety’s position on safety and

fuel economy has been consistent over time. Technology exists to

improve both safety and fuel economy.

When CAFE standards were enacted in 1975, the vehicle fleet

had dismal safety and fuel economy. Government regulations

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changed all that. Overall, the inherent safety of passenger cars

built to meet the 271⁄2-mile-per-gallon CAFE standard is twice that

of the older, heavier more gas guzzling cars of the 1970s.

The government regulations forced the auto companies to redesign their fleet and the public benefited in both increased safety

and fuel economy. There were a large number of small unsafe vehicles on the road in 1975. They are gone. Replaced by larger, safer

and more fuel efficient vehicles.

Prior to CAFE, there were many models that weighed less than

2,000 pounds. The 1,800 pound Honda Civic of the mid-1970s now

weighs 2,600 pounds and gets 40 miles per gallon versus 32. That

Civic went from failing NHTSA’s crash test to passing with flying

colors and in both front and side crash tests at 35 and 38 miles per

hour, the chance of serious injury in the Civic is less than 10 percent, but the disparity of weights and vehicles is much more important to occupant safety than the average weight of all vehicles

sharing the road.

Specific design features that affect the inherent safety of individual vehicles and their compatibility when they collide can play

a more important role than the weights of the individual vehicles.

By that I mean things like the stiffness and the height of the vehicle.

Since adoption of CAFE, small passenger cars got heavier while

large passenger cars got lighter with the biggest growth in new car

fleet coming in the middle with 3,500-pound cars going from 12

percent to 15 percent. Cars with inertia weights less than 2,500

pounds made up 11 percent of the 1975 fleet, but only 2.6 percent

of the 2000 fleet. In contrast, passenger cars over 4,500 pounds

made up 50 percent of the fleet, and now they are only 1 percent.

What has happened is we have homogenized the fleet and the

fleet has gotten safer. As the General Accounting Office pointed out

in 1991, every car in the fleet got safer, even the biggest cars that

got downgraded by 1,400 pounds. That car, the down-weighted car,

was safer than its gas guzzling predecessor.

It is simply a myth to suggest that the vehicle fleet itself got less

safe because of CAFE standards. Even more aggressive SUVs have

been introduced. Passenger car safety and fatalities continue to improve. For example, in 1979 to 1999, when passenger cars increased by 24 percent to 124 million vehicles on the road, their fatalities went down by 7,600, while at the same time, the number

of light trucks and vans on the road including SUVs had a threefold increase. So if this disparity had a tremendous effect on safety,

we would have seen it. Instead, we have fewer fatalities.

The major increase in light trucks and vans, though, used to substitute for passenger cars in the vehicle fleet has kept the number

of light vehicle occupant fatalities from falling as much as other

crash statistics. We have 2,000 additional fatalities each year due

to rollovers of light trucks and vans.

What we need to do when we look at the vehicle fleet today is

do the same thing in the truck fleet that we did in the passenger

car fleet. We dropped the weight of the heaviest vehicle. We need

to drop the weight of the heaviest SUV. Today, an SUV, the average SUV weighs, large SUV weighs 5,400 pounds. In 1975, the average large car weighed about 5,200 pounds. It lost 1,400 pounds.

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The SUV could lose weight and maintain its size and its horsepower and by the example of a Suburban which went down 500

pounds in weight. An example of the Suburban that went down in

engine size went up in transmission efficiency and got about a 4-

mile-per-gallon increase in fuel economy.

We can use technology to improve both vehicle safety and fuel

economy and the other aspect, though, is the introduction of SUVs

because they are stiff, heavy and high, has increased the adverse

effect on lighter cars. In a collision, we have about 1,000 additional

lives lost each year that we could save if these vehicles were made

lighter, lower and softer.

The answer to the SUV is not to take the SUV to take the SUV

away from anyone, it is to make it a better SUV that is safer for

its own occupants because it’s lower, less rollover prone and because it will, in fact, be more crashworthy and absorb energy in a

crash with a fixed object.

Now, given the extent that the auto companies have concerns

over auto safety, there are a number of real simple measures we

could adopt in the future that would save 10- to 18,000 lives per

year. They are stronger roofs for rollover protection, improved safety belt design, advanced crash avoidance technology, reduced

aggressivity of light trucks and vans and more effective seatbelt

use in distance.

If we do this, we can do exactly the same thing in the future that

we did in 1975. We can use technology to make the cars safer and

more fuel efficient and that is the challenge for the auto industry

and the government and absent government regulation, if we do

not see cars of tomorrow being safer and more fuel efficient in the

light truck market, which is where we need the improvements.

Thank you.

[The prepared statement of Mr. Ditlow follows:]

PREPARED STATEMENT OF CLARENCE M. DITLOW, DIRECTOR,

CENTER FOR AUTO SAFETY

Mr. Chairman and members of the Committee, thank you for the opportunity to

testify on the safety aspects of Corporate Average Fuel Economy (CAFE) standards

for passenger cars and light trucks. The Center for Auto Safety (CAS) is a consumer

group founded in 1970 that works to improve motor vehicle safety, fuel economy and

quality.

CAS has supported and testified in favor of stringent motor vehicle fuel economy

standards since the first hearings held by Congress in 1974 on what became the Energy Policy and Conservation Act (EPCA). Our position on safety and fuel economy

has been constant over time: the technology exists to improve both the safety and

fuel economy of motor vehicles.

In 1971, CAS criticized the original VW Beetle as one of the most unsafe vehicles

ever built and pointed out that it didn’t have to be that way. It no longer is. The

2001 new Beetle is about 25 percent more fuel efficient than the old Beetle and is

dramatically safer in both NHTSA frontal and IIHS offset crash tests.

The Beetle is not alone. Prior to CAFE, there were many models that weighed

less than 2,000 pounds. The only vehicle under 2,000 pounds today is the Suzuki

Vitara, which is an SUV. The 1,800 pound Civic of the mid-1970s now weighs 2,600

pounds and gets 40-mpg versus 32-mpg. The Civic went from failing NHTSA 35-

mph crash tests to getting 5 stars. The Pinto got replaced by the Escort; the Chevette by the Nova. All get better fuel economy and all are safer.

Overall, except for rollover performance, the inherent safety of passenger cars

built to meet the 27.5 mpg CAFE standard is twice that of the older, heavier, more

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1The fatality rate of passenger cars in crashes with other cars or in single vehicle, non-rollover crashes in 1999, per registered vehicle, is half that of passenger cars in 1979. Rollover safety is a function of a vehicle’s handling and stability, its roof strength, and its restraint performance, not its weight.

guzzling cars of the 1970s.1 Yet, despite the talk about the possibility that fuel economy might compromise safety, neither the auto industry nor the government has

made safety a real priority then or now. We were not pushing the safety technology

envelope in the mid-1970s and we are not pushing it now.

When one considers road transportation generally, the disparity in the weights of

vehicles is much more important to occupant safety than the average weight of all

vehicles sharing the road. Furthermore, specific design features that affect the inherent safety of individual vehicles and their compatibility when they collide, often

play a more important role than the weights of the individual vehicles. In the passenger car fleet, the disparity in vehicle weight has decreased dramatically.

Cars with inertia weights less than 2,500 pounds made up 10.8 percent of the

1975 new car fleet but only 2.6 percent of the model year 2000 cars. In contrast,

passenger cars over in the 4,500 pound weight class and above made up 50 percent

of the 1975 new car fleet but only 0.9 percent of the 2000 model new cars.

The decline in full-size car weight is not due to introduction of SUV’s since the

market share of 4,500 pound and heavier passenger cars had dropped below 1 percent by 1985. Since adoption of CAFE, small passenger cars got heavier while large

passenger cars got lighter with the biggest growth in the new car fleet coming in

the middle with 3,500 pound cars going from 12.5 percent of the new car fleet in

1975 to 51.9 percent in 2000. The net effect has been a safer passenger car fleet,

particularly when one considers improved safety technology built into passenger

cars.

Advances in fuel economy technology have lead to a gain in overall fleet from

1980–2000 from 22.5 to 24.0 even though the average weight of the fleet went up

from 3,227 pounds to 3,868 pounds during that timeframe. Improvements since 1980

are particularly significant since the easy technology gains of going from carburetors

to fuel injection, from engine modifications to catalysts for emissions control, from

3-speed to 4-speed transmissions, and the down weighting of the large cars had already occurred. Attached to my testimony are examples of particular vehicles since

1980 that have used more technology to improve fuel economy or maintain fuel

economy while upsizing. For example, the Toyota Corolla had a 25 percent improvement despite a 10 percent gain in weight despite going from 5,000 to 5,500 pounds,

the GMC Suburban increased its CAFE by 27 percent from 14.3 to 18.1 mpg

through modest drivetrain improvements including going from a 3-speed automatic

to a 4-speed lockup. Despite going from a 5.7L to a 5.3L engine, the Suburban’s

horsepower went from 165 to 265.

Over the last two decades, highway fatalities have gone down nearly 20 percent

while travel has increased by more than 40 percent. This is a reduction of more

than 50 percent in fatalities per mile traveled over 20 years. During the same period, pedestrian fatalities went down by one-third, and motorcycle fatalities went

down by half. There were no particular safety innovations or design changes that

would have affected these fatalities, but motorcycle registrations decreased from 5.4

million in 1979 to 3.8 million in 1999. Increased helmet use accounts for some of

the reduction in motorcycle fatalities. Passenger car and LTV occupant fatalities

were down about 10 percent. That reduction was mostly in single-vehicle, non-rollover crashes and in crashes between two passenger cars. The following Table shows

some basic motor vehicle fleet and crash statistics.

Table—A Comparison of Selected U.S. Motor Vehicle Statistics Over the Last 20 Years

Some Basic U.S. Motor Vehicle Statistics 1979 1999

Registered Motor Vehicles ...................................................................................................... 144M 212M

(Percent Passenger Cars/Percent LTVs) ........................................................................ (72%/20%) (59%/35%)

(No. Passenger Cars/No. LTVs) ...................................................................................... 104M/28M 125M/74M

Vehicle Miles Traveled ............................................................................................................ 1.5B 2.7B

People Killed as Passenger Car Occupants ........................................................................... 27,788 21,164

People Killed as Light Truck and Van Occupants ................................................................. 7,119 10,647

Pedestrians and Pedalcyclists Killed ...................................................................................... 9,021 5,981

Heavy Truck (> 10,000 lbs.) Occupants Killed ...................................................................... 1,087 936

Motorcycle Riders Killed .......................................................................................................... 4,679 2,284

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The reduction in light vehicle occupant fatalities is a result of a number of factors

including a substantial increase in safety belt use, the almost universal installation

of airbags in recent model light motor vehicles, and the implementation of the dynamic side impact standard. Rollover fatalities have decreased modestly in passenger cars. Rollover fatalities have increased dramatically in pickup trucks and

SUVs, consistent with the comparative growth in the number of these vehicles in

the fleet. Overall, fatalities in rollovers of pickups and SUVs have more than doubled.

These data suggest several conclusions that will help in considering the potential

impact of future changes in vehicle fuel economy on safety. The major increase in

LTVs used as substitutes for passenger cars in the vehicle fleet has kept the number of light vehicle occupant fatalities from falling as much as other crash statistics.

The increased use of LTVs as substitutes for private passenger vehicles has produced at least 2,000 additional rollover fatalities annually.

The greater number of LTVs in the U.S. fleet has increased passenger car occupant fatalities in crashes with LTVs by more than 50 percent while passenger car

occupant fatalities in crashes with other passenger cars decreased by nearly 50 percent. The consequence is that light vehicle occupant fatalities in two-vehicle crashes

went down only about 10 percent while fatalities in single-vehicle crashes went

down more than 25 percent from 1979 to 1999. This reduction was driven by a 45

percent reduction in passenger car single-vehicle crash fatalities. Two-vehicle crashes would have killed nearly 1,000 fewer people without the major increase in LTVs

as passenger car substitutes.

More even-handed regulation of LTVs used as passenger vehicles, in relation to

passenger cars, should slow or even reverse these trends in increased occupant fatalities.

If the disparity in weights between passenger cars and light trucks becomes

wider, either because of the design and marketing practices of the auto makers or

because of continuing regulatory policies that differentially affect cars and light

trucks, fatalities in these types of two-vehicle crashes will continue to increase relative to other types of automotive casualties. Reducing this weight disparity will

have a salutary impact on casualties in two-vehicle crashes.

No more than one out of four light vehicle occupant fatalities would be influenced

by changes in vehicle weight to improve fuel economy. Furthermore, the effect on

weight disparity on these fatalities is marginal—almost certainly less than the effect

on fatalities of the major increase in LTVs in the fleet. Had light vehicle occupant

fatalities in two-vehicle crashes decreased to the same degree as single vehicle crash

occupant fatalities (other than from rollovers), the effect would have been roughly

2,000 fewer fatalities (less than 5 percent of the total in 1999).

Some crash losses are fundamentally dependent on the weights of the vehicles involved while others are not. Clearly, in two-vehicle crashes, occupants of the lighter

vehicle are at a disadvantage. This effect has been seriously exacerbated with the

introduction of large numbers of LTVs into the U.S. vehicle fleet, not only because

of the LTVs’ greater average weight, but because of their stiffer structure that is

higher off the ground than passenger car structures. Just like large cars posed more

of a hazard to small cars until they were down sized, so do large SUV’s pose a hazard to small SUV’s and pickups as well as small cars. In the 2000 model year, large

SUV’s weighing an average 5,439 pounds comprised 5.5 percent of the new passenger vehicle (cars, trucks and vans) while small SUV’s were nearly 1,800 pounds

lighter at 3,670 pounds with 2.3 percent of the new passenger vehicle fleet. Just as

large cars lost nearly 1,400 pounds in weight from 5,142 pounds to 3,792 pounds

between 1975 and 2000, large SUVs should go on a diet to lose a similar amount

of weight with a net resultant gain in fleet safety.

Light trucks, vans and SUVs pose a significant safety hazard to their own occupants, to passenger car occupants and to pedestrians.

• In crashes between cars and all types of LTVs, the fatality rate for car occupants is four times higher than for LTV occupants.

• On the other hand, LTVs have up to a four times higher rate of involvement

in fatal rollover crashes.

• The stiffness of LTVs results in more intrusion into their occupant compartment

in crashes into fixed objects as shown by IIHS offset crash tests.

• For vehicles of the same weight, LTVs have a higher fatality rate than passenger cars.

• Because of their height and broad front ends, LTVs are more likely to kill or

seriously injure pedestrians than are passenger cars.

• NHTSA has not even begun to seriously address the two primary safety consequences of using LTVs as passenger vehicles: their propensity to rollover and their

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aggressivity in collisions with cars and people. A few crash tests and some colored

stickers are not in any way adequate responses.

• Introduction of LTVs has degraded safety overall because of their excess weight,

stiffness and height that makes them very aggressive in collisions and because of

their propensity to rollover and seriously injure their own occupants. Making LTVs

‘‘lighter, lower and softer’’ would increase the safety of their own occupants while

making them safer for others on the road.

• LTVs will pose an increase threat to passenger cars as they get older and are

passed on to younger and more accident prone drivers.

Given the extent auto makers profess concern about auto safety in the debate over

CAFE, they should take safety more seriously independent of fuel economy requirements. Until they do, arguments about the nexus between safety and fuel economy

have a hollow ring. A number of simple, inexpensive designs and technologies that

could have a major impact on safety, independent of fuel economy, remain to be

broadly implemented. These include:

• Effective safety belt use inducements. Currently, 18,000 people die who were not

wearing safety belts: 6,000 to 10,000 could be saved by effective belt use inducements.

• Stronger roofs for rollover protection. Although a majority of casualties of rollovers are still unbelted and ejected, 2,000 belted occupants die annually, mostly because of roof crush. With increased belt use, the number of casualties from roof collapse and buckling will increase. SUVs that have a GVWR over 6,000 pounds need

not even meet the inadequate roof strength standard for passenger cars. A GMC

Suburban will not support its own weight if gently lowered onto it’s a-pillar without

its windshield.

• Improved safety belt design and performance. This includes belt pre-tensioners

that trigger on rollover as well as on frontal and side crashes. An additional 3,000

to 5,000 could be saved by an effective rollover protection system: a strong roof, belt

pre-tensioners that trigger on rollover, the interior padding required by a new Federal standard, and window curtain airbags.

• Advanced crash avoidance technologies. This includes smart cruise controls, yaw

control systems, non-pulsing anti-lock brakes, and drowsy driver warnings. New

computer and communications technologies should provide major opportunities to

reduce the probability of crashes.

• Reduced aggressivity of light trucks and vans. More energy absorbing and less

rigid front ends, lower heights and reduced weight would save 2,000 lives per year.

• Reduced rollover propensity. Light trucks and vans can be made safer by lowering their center of gravity, increasing track width and using yaw control systems.

The numbers of actual lives that could be saved by auto manufacturers adopting

these technologies and counter measures range from 10,000 to 18,000 per year or

far in excess in the number of hypothetical lives lost through adoption of stronger

CAFE standards.

Policy makers must recognize that the desirability of increased fuel economy—

lower vehicle operating costs, reduced pressure for oil imports and drilling in inappropriate places, and a lesser global warming threat—should not be considered as

antithetical to safety. The automobile companies have the capability, if not the will

to improve both as they did with automobiles after the first gas crisis. Just as Congress changed the auto industry in 1975 from a can’t do industry to a can do industry with the fuel economy standards of the Energy Policy and Conservation Act,

Congressional action is once again needed to force fuel economy improvements from

an industry that has reverted to can’t do. A 40 mpg fleet corporate average fuel

economy standard for all passenger vehicles under 10,000 pounds will save fuel and

lives by forcing the auto companies to put new technology for safety and fuel efficiency into the vehicles of tomorrow.

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Senator KERRY. Thank you very much.

Mr. Olson.

STATEMENT OF JAMES OLSON, SENIOR VICE PRESIDENT,

TOYOTA MOTOR NORTH AMERICA, INC.

Mr. OLSON. Good afternoon. One of Toyota’s founding principles

was the avoidance or elimination of waste, a principle that still

permeates our products. In the 1980s, Toyota began to use engines

with 4 valves per cylinder, overhead cam shafts and multiport fuel

injection.

Today all of our engines incorporate these fuel saving technologies and most also now have lightweight aluminum blocks and

heads, variable valve timing—62 percent have variable valve timing—and increased compression ratios.

As a result, in 2001, the EPA rated 6 Toyota vehicles—more than

any other brand—as most fuel-efficient. They range from small to

large and from SUV to passenger car to pickup.

Our new models usually are more fuel efficient than their predecessors. For instance, the 1990 Corolla achieved 28.6 miles per gallon, while the 2000 Corolla improved to 32.6. The world’s first hybrid electric gasoline vehicle, the Toyota Prius, is even more fuelefficient, boasting EPA fuel economy ratings of 52 city, 45 highway

and 48 combined. Furthermore, it is certified to California’s super

ultra low emissions standard. Toyota will continue to increase fuel

efficiency while striving to give customers the performance and

utility they demand. Fuel cells, for example, show great promise

but we do not expect this technology to be available in any significant quantity for at least a decade.

All of our sales and marketing data indicate that fuel economy

ranks low with most American vehicle buyers. This is no surprise.

Despite this, because of our corporate culture, we always have exceeded the car and truck CAFE standards. And we have done so

without using credits accumulated under the existing CAFE program and while becoming a full-line manufacturer. For example, 45

percent of our sales year to date fall into the light duty truck category.

Camry is a good example of our philosophy. 75 percent of Camrys

sold have fuel-efficient 4-cylinder engines that provide performance

matching competitor’s 6-cylinder engines and Camry is America’s

best-selling car. Its combination of high volume sales and fuel efficiency is the gold standard of how to improve fuel economy.

Although automakers improve product-by-product fuel efficiency,

consumers determine the aggregate fuel economy of the 16 million

new vehicles sold here each year by what they choose to buy.

Therefore, in shaping future energy policy, the challenge of addressing fuel economy should not be placed solely on manufacturers. We have a very large role to play, but Congress can help by

passing legislation to send consumers a signal that buying a fuelefficient vehicle is the right thing to do.

For example, if Americans are rapidly to embrace fuel efficient

but expensive hybrid technology in high volume, incentives such as

tax credits and single occupancy access to HOV lanes will be required. Fortunately, the CLEAR Act already incorporated an H.R.

4 would provide consumer tax credits.

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Toyota looks forward to working with this Committee, the Administration and others to develop a sound approach in this process. I emphasize the need for fairness, effectiveness and engineering lead time. The NAS report says that ‘‘any changes to the current CAFE system should not,’’ and I quote, and this also was

noted by Honda’s Ed Cohen, ‘‘impose higher burdens on those manufacturers who had already done the most to reduce energy consumption.’’

Specifically, NAS said that to require each manufacturer to improve its own CAFE by a defined percentage, the so-called uniform

percentage increase approach, quote, ‘‘punishes those who have

done the most.’’ In my presence, at our meeting with them one

NAS panel member even called UPI unwarranted punishment of

innovation.

More importantly, the discrimination inherent in UPI would

frustrate effective energy conservation and environmental gains by

causing higher fuel economy vehicles to be replaced by lower mileage vehicles from producers with lower fuel economy targets. This

would create an environmental loophole that would dwarf the socalled SUV loophole by allowing some manufacturers to meet a

lower standard with their entire product line.

If you support the progress clearly delivered over the last 20

years by competition, you must be against UPI.

In addition to fairness and effectiveness, any future program

must recognize the many years required to develop new technology

and incorporate it into vehicles and bring them to market. A process cannot be turned on a dime without severe consequences from

both consumers and industry.

Thank you for the opportunity to testify. We at Toyota look forward to working constructively toward even more fuel-efficient vehicles.

[The prepared statement of Mr. Olson follows:]

PREPARED STATEMENT OF JAMES OLSON, SENIOR VICE PRESIDENT, TOYOTA MOTOR NORTH AMERICA, INC.

Toyota appreciates the opportunity to submit its views on Corporate Average Fuel

Economy.

One of Toyota’s founding principles was the elimination of waste. This principle

still permeates our corporate philosophy and is, therefore, quite evident in our processes and products.

Toyota always has recognized and pursued our responsibility to improve the fuel

efficiency of our products. Most importantly, we believe that achieving real environmental gains and fuel use reductions requires wide consumer acceptance of our vehicles. For this to happen, vehicles must offer expected performance, be convenient,

affordable and use a readily available fuel so that their utility is not hobbled by insufficient infrastructure. Toyota believes the next core powertrain technology that

meets these criteria is the hybrid electric, addressed in greater detail below.

This testimony will first address Toyota’s North American operations and then

will focus on the technology Toyota has used and will use to improve the fuel efficiency of our vehicles. Finally, it will describe some of the challenges associated with

increasing fuel efficiency while meeting the demands of a market, which—unfortunately—does not value it highly.

TOYOTA’S NORTH AMERICAN OPERATIONS

With total North American investment of $12 billion and sales last year of more

than 1.7 million new vehicles, Toyota is the fourth largest motor vehicle manufacturer in North America. We directly employ over 31,000 associates. We produce

more than one million cars and trucks a year at our plants in Kentucky, Indiana,

California and Ontario, Canada. We manufacture 4- and 6-cylinder engines in both

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West Virginia and Kentucky. The West Virginia facility also produces automatic

transmissions.

In addition, Toyota has parts manufacturing facilities in Missouri, California and

British Columbia and has begun construction of a $220-million V–8 engine plant in

Huntsville, Alabama, to supply our Indiana truck plant.

These and other Toyota facilities in the U.S., Canada and Japan purchased nearly

$15 billion in U.S. parts and materials last year. Toyota’s U.S. retail sales force is

comprised of more than 1400 Toyota and Lexus dealers, who employ 95,000 Americans and have a total U.S. investment of nearly $9 billion dollars.

TOYOTA’S USE OF ADVANCED TECHNOLOGY TO IMPROVE FUEL EFFICIENCY

Toyota will continue to be a leader in automotive technology. In the 1980s and

early 1990s, Toyota began widespread use of engines with 4 valves per cylinder,

overhead cam and multi-port fuel injection to improve fuel efficiency. Today, 100

percent of our fleet is equipped with multi-port fuel injection and 4 valves per cylinder. In addition, much of our engine line-up has been reengineered since 1990 in

our efforts to improve fuel efficiency and reduce emissions. Most of our engines also

now have lightweight aluminum blocks and heads, variable valve timing and increased compression ratios.

Likewise, Toyota has developed and is now introducing a new generation of lightweight, compact and highly efficient automatic transmissions. In the future, Toyota

also plans to offer energy-saving technologies such as electric power steering.

All these technologies boost fuel efficiency while simultaneously providing our customers the performance and utility they demand.

As a result of our investment in this technology, in 2001, EPA rated six Toyota

vehicles as ‘‘most fuel-efficient’’ in their class—the Prius, ECHO, Avalon, RAV4, Tacoma and Sienna. This is more than any other automotive brand. These vehicles

range from small to large, from SUV to passenger car to pickup to minivan. They

all incorporate most of the best available fuel economy technology.

Even Toyota’s Lexus division, which competes in the high-end performance market—and in 2000 was the luxury market’s sales leader—has never produced a car

subject to the gas-guzzler tax. In large part, this is because of our aggressive application of fuel-efficient technology, even in a market segment where it ranks very low

as a purchase reason.

Consistent with Toyota’s philosophy of continuous improvement, each new generation of vehicle generally is more fuel-efficient than its predecessor. In 1990, for instance, the fuel economy of our Corolla was 28.6 mpg. In 2000, with the application

of variable valve timing, sequential fuel injection, weight reduction and other technologies, Corolla’s fuel economy improved to 32.6 mpg. But make no mistake,

squeezing ever-greater fuel efficiency out of each succeeding generation of vehicle is

extremely difficult, when married with the marketplace demands for performance,

utility, safety and affordability.

Some of the most promising engine technologies from a fuel efficiency perspective

are lean-burn gasoline and diesel engines. Toyota currently offers these engines in

Japan and Europe. However, Federal Tier II and California LEV II emission standards make their future use in the U.S. questionable.

For example, Toyota has developed a lean-burn catalyst system for gasoline vehicles and a diesel particulate and NOx reduction system to control emissions from

these engines. Although we are continuing to work on them, they will need to be

further improved before they can be certified for use in the United States. The availability of low-sulfur gasoline and diesel fuel will be critical to any possible U.S. future for these technologies.

In 1997, Toyota introduced the world’s first mass-market hybrid gasoline-electric

vehicle—the Prius—in Japan. The second-generation Prius introduced in the United

States and Europe in 2000 incorporates a number of improvements in an effort to

accommodate customer demands—including improved performance, fuel efficiency

and reduced emissions. The U.S. version, for example, has an EPA fuel economy rating of 52 mpg city, 45 mpg highway and 48 mpg combined. In addition, Prius is

certified to California’s Super Ultra Low Emission Vehicle (SULEV) standard.

The improvements made to the second-generation Prius also have enabled it to

have greater driving distance on electricity, and a much smaller battery pack, which

reduces weight and increases cargo capacity.

Looking to the future, Toyota will continue to develop and apply technology that

increases fuel efficiency while giving customers the performance and utility they demand.

New conventional technologies like those previously mentioned will be developed,

refined and utilized. We also will continue to improve the Toyota Hybrid System

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(THS) and incorporate it into a wider range of vehicles as rapidly as possible. For

example, Toyota just introduced a limited-volume four-wheel-drive hybrid minivan

in Japan called the Estima. Initial sales have met expectations and we are hopeful

they will continue at an acceptable rate.

Finally, Toyota has recently introduced two fuel cell concept vehicles—the FCHV4

and FCHV5. The base body for both vehicles is the mid-sized Highlander SUV we

sell here in the U.S. The FCHV4 runs on pure hydrogen, while the FCHV5 runs

on a clean hydrocarbon fuel reformed on-board into hydrogen. Both vehicles are

called fuel cell hybrid vehicles because they use a fuel cell in place of a conventional

engine in conjunction with the Toyota Hybrid System. But we do not expect fuelcell hybrids to be available in any significant quantity before 2010 at the earliest.

INCREASING FUEL ECONOMY WHILE MEETING CONSUMER DEMAND

As the Committee can see, Toyota has aggressively developed and applied technologies that increase fuel efficiency while providing the types of vehicles consumers

demand. The element of consumer demand is critical to the marketplace success, in

fact, the existence, of any manufacturer. All of us must meet demand or suffer the

consequences.

Through the application of technology, we believe we have been able to successfully balance these two competing demands. The key question is whether, even with

our planned technology, we can continue to meet this challenge in the future without losing some of our customers because of high prices.

Although it varies by segment, all our sales and marketing data indicate that fuel

economy is low on the shopping list of the typical American vehicle purchaser. Despite this, because of our corporate culture, over the years Toyota has always exceeded the car and truck CAFE standards. We have done so without using any of

the credits we have accumulated under the existing CAFE program and while becoming a full-line manufacturer.

Looking to future energy policy, Toyota believes that any program designed to improve vehicle fleet fuel economy cannot focus solely on the vehicle manufacturer.

The demand side of the equation also must be addressed—as it is in countries such

as Japan—if policymakers are going to send consumers the proper signal that fuel

economy is an important attribute to consider when purchasing a vehicle.

There is a crucial distinction among fuel efficiency, fuel economy, and fuel usage.

The automaker is the primary driver of product-by-product fuel efficiency. In this

effort, automakers face a complex combination of product tradeoffs including vehicle

size, cargo and/or towing capacity, the technical challenges inherent in new technology, desired price-positioning, the often conflicting demands of safety, emissions

and fuel regulations, and the how-much/how-soon calculation imposed on us by the

limited capacity of our product-development workforce.

In contrast, the aggregate fuel economy of the approximately 16 million new vehicles sold each year in the United States is determined by the mix of vehicles consumers choose to buy.

And finally, the total amount of fuel usage each year is determined by the first

two factors plus how much and in what way customers choose to use their vehicles.

In our efforts to continue to improve fuel efficiency, Toyota is looking to a new

generation of advanced technologies, such as gasoline/electric hybrids and fuel cells.

Looking at the customers purchasing our Prius and Honda’s Insight, tells us that

it will be a big challenge to move these advanced technologies from niche to mass

market.

The primary difficulty in moving from conventional to hybrid powertrain technology is increased cost. The Toyota Hybrid System has the highest degree of hybridization and benefit of any system now available or proposed. If we are to spread

this fuelefficient technology to other body styles and reach high-volume segments as

rapidly as possible, some form of incentives will be required to reduce its price premium.

Ongoing development may further improve the benefits of the Toyota Hybrid System and reduce its cost. And we can expect some level of savings if higher levels

of mass production can be achieved. However, incentives will be necessary to get us

past the early years and lower volumes. In Japan, for example, Prius buyers are

eligible for both national and local incentives, which can total over $2,800. Yet,

there is no such incentive at the Federal level in the U.S.

The CLEAR Act, presently pending before the Senate Finance Committee and

which also has been amended and passed by the House as part of H.R. 4, provides

consumer tax credits for advanced technology vehicles in an effort to narrow their

price premium. Indirect incentives, such as the provision in the House-passed bill,

which clarifies that states are allowed to grant single occupant hybrids the use of

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HOV lanes, are another way to help enhance the attraction of these new-technology

vehicles to consumers.

Given the success of the Prius, the Committee may ask why incentives are necessary. The answer is that the typical Prius buyer is very different from the typical

compact buyer. Prius purchasers are older, wealthier, more educated and more interested in technology than typical compact buyers. Therefore, to reach the typical

buyer of a vehicle in the compact or any other high-volume market segment, something must be provided to encourage buyers to purchase an advancedtechnology vehicle or the most fuel-efficient vehicle in that segment. In shaping future energy policy, the challenge of addressing fuel economy should not be placed solely on manufacturers. Clearly, and inescapably, we have a large role to play and Toyota will do

its part. But Congress can help by passing incentive legislation to bring the consumer into the fuel-economy equation. A one-sided program is likely to lead to less

than optimum energy savings.

Toyota appreciates the opportunity to work with this Committee as well as others

and with the Administration to help develop a sound approach to fuel economy. We

believe this process should begin with a thorough examination of the NAS Report

by the agency with the greatest expertise on this issue, NHTSA, as it begins its

rulemaking to set future fuel-economy standards.

The NAS Report demonstrates the complex set of issues that must be addressed

in establishing a fuel economy program for the future. Product cycles, safety tradeoffs, the time needed for technological advances, and issues related to the structure

of any program (e.g. credit trading across cars and trucks and among manufacturers, attribute or weight-based programs) make the task of developing the appropriate policy difficult.

With respect to the current CAFE system, the NAS Report and its predecessor

Report in 1992 make it clear that the existing import/domestic fleet distinction for

passenger cars is counter-productive in today’s industry and should be eliminated.

The NAS could find no analysis or research to justify the fleet distinction, but did

find that the requirement was increasing costs to consumers and perversely providing an incentive for manufacturers to use less domestic content in their vehicles.

Toyota supports the NAS findings.

The NAS panel also makes clear that any change in the structure of the existing

program should not ‘‘impose higher burdens on those manufacturers who had already done the most to help reduce energy consumption.’’ Specifically, NAS said that

to require each manufacturer to improve its own CAFE average by a defined percentage ‘‘punishes those who have done the most to improve the environment,’’ increases the cost of environmental compliance, reduces competition and ‘‘seems to

convey a moral lesson that it is better to lag than to lead.’’ Commonly referred to

as the Uniform Percentage Increase (UPI) approach, such a policy would be a huge

disincentive for future technological innovation and development and would provide

a strong incentive for manufacturers not to exceed regulatory standards. Some industry experts have summed up the UPI concept by saying that it stands for Unwarranted Punishment of Innovation.

Most importantly, to the extent that the discrimination inherent in the UPI approach causes higher fuel economy vehicles to be replaced by lower mileage vehicles

from producers with lower fuel economy targets, energy conservation and environmental goals would suffer as improvements in overall fleet fuel economy and CO2

reduction goals would not be met.

UPI or UPI-like approaches which seek to impose higher standards on one company compared with another based on an arbitrary base year or vehicle attribute

fail on both policy and environmental grounds. The UPI approach has been highly

discredited in the past and the NAS again heavily criticized and strongly cautioned

against such an approach. Toyota strongly agrees.

Another point that is crystal clear in the NAS Report is the need for adequate

lead time. It took years to develop many of the advanced technologies previously

mentioned. These technologies then had to be applied in conjunction with new product and capital investment cycles. The new Toyota Camry recently introduced will

be sold for several years, yet work on its replacement already has begun. The product cycle typically is longer for trucks and even longer for powertrains. Thus, any

future program involving manufacturers must take into account the time required

to develop new technology, incorporate it into vehicles, and bring them to market

at a competitive price. This process cannot be turned on a dime without severe consequences.

Toyota again thanks the Committee for the opportunity to submit this testimony

for the hearing record.

Senator KERRY. Thank you, Mr. Olson.

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Mr. Robertson.

STATEMENT OF BERNARD ROBERTSON, SENIOR VICE

PRESIDENT, ENGINEERING TECHNOLOGIES AND

REGULATORY AFFAIRS, DAIMLER/CHRYSLER CORPORATION

Mr. ROBERTSON. Good afternoon, thank you, Mr. Chairman.

I am Bernard Robertson, Senior Vice President of the Daimler/

Chrysler Corporation with responsibility for technology and regulatory affairs. I also appreciate the opportunity to provide comments to the Committee about improving fuel economy of light

duty vehicles, CAFE and the recent study of the program by the

National Academy, but I will be as brief as I can. I have deleted

a number of comments.

Daimler/Chrysler manufactures a full line of vehicles, including

passenger cars, minivans, sports utility vehicles and pickup trucks.

We also made Senator Nelson’s Jeep Grand Cherokee and Senator

Dorgan’s 25-year-old Dodge and the big black Mercedes that he ran

into.

[Laughter.]

Mr. ROBERTSON. We are leaders in developing new fuel economy

technology such as internal combustion engines, hybrid drive trains

and fuel cells and we are ready to do our part in helping the Nation achieve its energy goals. At the risk of sounding like an echo,

let me begin by saying that a government-mandated fuel conservation program, whether it is the current CAFE program or a substitute for CAFE will be most effective when the preference of customers is considered along with the availability of new fuel efficiency technology.

If customers are convinced of the value of high fuel economy,

then they will choose to purchase new vehicles that deliver high

fuel economy. In today’s market, however, customers base their

purchase decisions largely on other vehicle attributes as you have

heard from many other witnesses. Consequently, while we and

other manufacturers currently offer products with a wide range of

fuel economy, it’s ultimately the consumers, through their actions

in a free market, not the automaker, that determine which of these

vehicles will be purchased.

The NAS report correctly concludes that the application of advanced technology can lead to improvements in fuel efficiency and

I want to stress that point. I don’t think anyone argues that technology either is there or is coming. Indeed, some of the technologies

described in the report such as cylinder deactivation, or displacement on demand as Tom Davis was calling it, and advanced automatic lockup torque converters are already in our production vehicles today, while others are ongoing development work to establish

their performance, reliability, cost and consumer acceptance.

We plan to introduce them as rapidly as the development status

and business case permit, and I would add that our plans to introduce hybrid electric vehicles in 2003 and 2004 and our initial fuel

cell vehicles in 2004 are very well documented. They remain in

place. I would note that we would be subsidizing those vehicles

very heavily.

We will make another fuel cell announcement next week at the

environmental vehicle conference. We are the largest producer

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today of electric vehicles. By next spring, we will have built over

a million alternate fuel vehicles of one form of another, electric,

ethanol, methanol, or compressed natural gas. And I might add

there, every one of those vehicles except the CNG vehicles were

subsidized in the marketplace.

The NAS report recognized the need for providing adequate lead

time to develop and bring new fuel savings technology to market.

The report also acknowledges the adverse financial, employment,

competitive, and safety effects if the lead time was not adequate

and there have been a number of comments here about lead time

so I will skip my other comments on lead time.

With regard to the Committee’s request to address possible alternative means to reduce petroleum consumption, I would note that

the CAFE program is only partially successful in accomplishing

that. As an earlier NAS study, the 1992 study makes clear, the

CAFE program has, and I quote, ‘‘Defects that warrant careful examination and chief among these is the fact that the CAFE system

has been increasingly at odds with market signals and thus manufacturers are required to sell vehicles with higher fuel economy regardless of consumer interest in purchasing such vehicles.’’

The NAS report correctly described the many, often conflicting,

factors that need to be addressed in determining a responsible energy conservation policy. Not only fuel consumption, but also occupant safety, emissions, consumer acceptance and demand, industry

employment and the health of the auto industry are all potentially

affected by CAFE standards. While we do have concerns over the

effectiveness of the current program, it is nevertheless a program

that the industry understands and we at Daimler/Chrysler have

made long-term product decisions that comply with the program’s

requirements.

While we and others have examined alternatives to CAFE, they

all tend to be either politically unacceptable or as the NAS said

about a weight based approach, require additional analysis, which

we are very happy to participate in, I might add.

To best accomplish reductions in light duty automotive consumption, we believe the best venue is to review and act on these complex issues within the regulatory structure of NHTSA. The process

has already been established in Congress through the Energy Policy and Conservation Act which set up CAFE in the first place to

do that.

We expect NHTSA to soon propose new light truck CAFE standards as Dr. Runge indicated this morning, and we pledge to both

provide the agency with the necessary information for it to perform

its work and to work with the agency to develop multiyear objectives. Again, as Dr. Runge noted, the agency must set new standards at the maximum feasible levels.

We believe that the agency has a historical perspective and expertise to deal with those complex issues and as you noted, they

have 6 years of thinking about it to draw on.

In closing, I would like to emphasize that it is not within the capability of just the manufacturer to achieve future CAFE levels. It

is ultimately the customer who will decide through the marketplace

and based on individual needs whether any fuel economy program

is successful.

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Thank you for your attention.

[The prepared statement of Mr. Robertson follows:]

PREPARED STATEMENT OF BERNARD ROBERTSON, SENIOR VICE PRESIDENT, ENGINEERING TECHNOLOGIES AND REGULATORY AFFAIRS, DAIMLER/CHRYSLER CORP.

Good morning, Mr. Chairman, and distinguished Senators. I am Bernard Robertson, Senior Vice President of Daimler/Chrysler with responsibility for Technology

and Regulatory Affairs. I appreciate the opportunity to provide comments to the

Committee about improving the fuel economy of light duty vehicles, the Corporate

Average Fuel Economy program and the recent study of the program by the National Academy of Sciences (NAS).

The tragic events of September 11th have again raised debate on the need for the

Nation to have a sound energy policy, one that provides for energy security and

independence and that contains elements of energy production as well as conservation. The congressional debate over the balance between increased production and

conservation of energy, and the most effective means to achieve each, has often been

heated. At Daimler/Chrysler, we recognize our responsibility to minimize any potential adverse effects of our products, whether they be in the area of safety, air quality, or fuel consumption. In the latter area, we believe the best way to reduce petroleum consumption in the automotive sector is to focus on technological advances in

energy efficiency and for government and industry to send the correct signals to the

market to value that increased efficiency. Our billions of dollars of investment in

advanced technology vehicles is evidence of our strong and continued commitment

in this area. Daimler/Chrysler is a technology leader, with research and development that encompasses fuel cells, hybrid drivetrains, cylinder de-activation, lightweight materials and advanced, clean diesels.

Daimler/Chrysler manufactures a full line of products, including passenger cars,

minivans, sport utility vehicles, and pick-up trucks. One hundred years of experience in the auto industry have taught us that America is a mobile society, that vehicle ownership is associated with personal freedom, that industry competes fiercely

for customers, and that only those companies that satisfy market demands, while

simultaneously supporting shareholder value, will succeed in the long term. Customers want vehicles that have an exciting design, high quality, durability, an affordable price that translates to good value for the money spent, and the utility to

meet all the consumer’s transportation needs—be they transporting the family,

hauling materials for home improvement, or moving one’s child into a college dormitory. Our customers want safe vehicles, a certain level of performance and handling, and somewhere on the list of desirable attributes is fuel economy.

The NAS study specifically refers to the importance of market demand. However,

while Americans clearly desire to reduce their gasoline expenditures, fuel economy,

as a new vehicle attribute, even with recent spikes in fuel prices and the subsequent

events to the September 11th tragedy, tends to rank low compared to the vehicle

characteristics just mentioned. Thus, while we offer a range of fuel economy in our

vehicles, consumers tend to select other options/vehicles at the expense of fuel economy. Indeed, they often spend more money—in terms of choices of engines, transmissions, and other features—that result in lower fuel economy than provided by

the base vehicles. In a competitive free market, we can not dictate how the customer

sets his or her priorities and selects a specific vehicle with unique attributes. All

we can do is offer vehicle choices that hopefully will draw a new vehicle buyer to

our product rather than those of a competitor. Therefore, any government mandated

fuel economy program must recognize that manufacturers by themselves can not

achieve a specific level of fleet fuel economy and must consider these aspects of the

customer purchase decision in order to be successful.

Similarly, how people actually use their vehicle will have a role in determining

the fuel consumption of the vehicle. Excessive speeds, jack-rabbit starts, poor vehicle

maintenance, unnecessary cargo, and the number of miles traveled, all influence the

amount of gasoline consumed. Consumers are not irrational when it comes to fuel

consumption. When gasoline prices rose last year, consumers traveled less, the first

time in 20 years that total vehicle-miles of travel decreased. But while the use of

gasoline in existing vehicles declines when prices rise, the price of gasoline has not

reached levels that dramatically affect the purchase decisions of new vehicle consumers. Indeed, today’s low prices signal to the consumer that gasoline is a commodity that can be consumed in quantity and has relatively little national value.

The consumer must play a more prominent role if reduced fuel consumption is to

become a national priority.

One aspect of fuel economy within the auto manufacturers’ control is the technology we incorporate in our vehicles. This is where we compete vigorously, and you

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see evidence of such a contest today for advanced technology vehicles, specifically

hybrid power trains and fuel cell vehicles. We are all working hard to bring these

revolutionary advances to market at an affordable price as we’re enticed by their

20-100 percent better fuel efficiency, but evolutionary changes to conventional internal combustion engines and transmissions also hold great and more near-term

promise. There is no question that the fuel efficiency of individual new cars and

trucks will increase. The industry achieved significant gains during the past 25

years, increasing both passenger car and light truck fuel efficiency—the amount of

gasoline needed to move a given weight of vehicle a specified distance—by 2 percent

per year on average. This trend will continue in the future. The challenge being discussed today is whether the customer will decide to apply the efficiency gains to fuel

economy or to attributes such as safety or other features.

The National Academy of Sciences report highlighted the need for providing industry adequate leadtime. The NAS recognized the complexities in bringing new

technologies to market, and portrayed the adverse financial, employment, competitive, and safety effects, if sufficient leadtime is not provided. I would like to concentrate today on this point, explaining how new fuel-efficient technology is developed, demonstrated, brought to production, and spread across the fleet. In addition,

my testimony will address the NAS report’s discussion of the capital constraints on

the simultaneous adaptation of numerous technologies.

The mantra of ‘‘speed to market’’ is heard loud and clear within the walls of the

Daimler/Chrysler Technology Center. Unfortunately, sometimes the way this is portrayed in the media is not aligned with the business and engineering world. A 12–

18 month new product cycle time and a customer order filled within 2 days of placement on the internet are exciting possibilities, but far from the world that exists

today. Starting with an ‘‘off-the-shelf’’ powertrain, the development cycle for a new

vehicle will likely start several years before launch. If the vehicle is to include a

new engine and transmission, for instance the all-new 4.7L V–8 engine and multispeed automatic transmission in our new Jeep Grand Cherokee, the development of

these powertrain components begins 2 years earlier, stretching the full system development time even longer.

Finally, the product, for example, the Jeep Grand Cherokee, is launched with this

new fuel efficient powertrain combination that achieves 10 percent better fuel economy than the vehicle it replaced, even though significant emissions, safety and product content features were added which increased the weight of the vehicle. We invested more than $2.5 billion to develop this new powertrain and to build the plant

in Detroit, Michigan to manufacture it. Not only was significant capital required for

this venture, but also tremendous human resources had to be devoted to the effort.

To get the best return on this investment, the same family of engine/transmission

combinations will be adapted to other products consistent with their renewal cycles,

everything from the new Jeep Liberty, to the Dodge Durango sport utility and the

Dodge Ram pickup truck. This rollout to the other products can easily take another

4-5 years. And, the financial capability and the staffing limitations of the manufacturer can limit this rate of technology diffusion. Hence, the best case timeline requires about 10 years of development for new technology to reach all the products

of a full line manufacturer.

Two other issues immediately arise. What if the technology is not proven and still

must be invented and refined? And, is there commercial acceptance of the technology? A case in point is the fuel cell. Although the technology has been around

for decades in spaceship and satellite applications, its use in powering vehicles remains in development with significant challenges remaining for affordability, range,

fueling infrastructure, service, and repair, to name a few. Daimler/Chrysler has several demonstration fuel cell projects that serve to advance our knowledge on this

emerging vehicle technology and test the market acceptance, such as the California

Fuel Cell Partnership, and a multinational demonstration of fuel cell powered urban

buses.

In this case, where the invention of new technologies is needed, the timeframe is

stretched considerably. Inventing is not amenable to a specific timetable, but let’s

assume a system can be invented in 3 years. The next 2 years will involve adapting

the technology to a specific product. A year or two before production will be needed

for testing the product design. Spreading this technology across a product line will

take several more years. Several recent examples, including electronic fuel injection

and airbags, demonstrate that 10–15 years is required to introduce a feature that

customers demand.

Having adequate leadtime to develop new technologies and products is not our

only timing concern. Given the billions of dollars required to launch new products,

it is essential that a manufacturer be able to recoup those investments. We have

recently invested $3 billion in St. Louis, Missouri, to launch a new version of our

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popular Dodge Ram Pick-up. About $2 billion was invested to convert a plant in

Newark, Delaware, to build the Dodge Durango. The NAS report recognized that

fuel economy standards that required premature retirement of engines, drivetrains,

or entire vehicles, could have serious adverse effects on companies’ employment and

financial conditions. At Daimler/Chrysler, we have, over the past year, launched two

new versions of our most popular vehicles—the minivan and our Dodge Ram pickup

truck—both of which are manufactured in Missouri. We would expect these vehicle

programs to have a life of about 8 years, during which their essential design and

performance will not change significantly. New fuel economy standards that do not

consider such investments will have the severe adverse financial and employment

effects cited by the Academy.

The Committee’s invitation letter also asked that alternatives to the current

CAFE program be addressed. The CAFE program is not the most effective means

to reduce petroleum consumption. As an earlier NAS study (1992) makes clear: the

CAFE program has ‘‘defects that warrant careful examination, and [chief among

these] is the fact that the CAFE system. . .has been increasingly at odds with market signals. . .[and thus] manufacturers are required to sell vehicles with higher

fuel economy regardless of consumer interest in purchasing such vehicles.’’ This can

best be illustrated by the situation in Europe and Japan, where gasoline prices—

essentially due to government taxes—are nearly three times higher than in the U.S.

As a result, small cars have two to three times the market share that they have

in the U.S. and through more flexible policies regarding diesel engines (which have

20–40 percent higher fuel economy than an equivalent-sized gasoline engine), diesel

penetration has risen to 30 percent in Europe, and is expected to increase further,

compared to less than 1 percent here.

Nevertheless, with all its flaws, CAFE is a program that we understand and we

have made long-term product decisions to comply with the program’s standards.

While we and others have examined alternatives to the current CAFE system, they

turn out to be either politically unacceptable or have significant ‘‘unknowns’’ or

problems that prevent us from endorsing them at this time. While a weight-based

approach to fuel economy has been much discussed, we concur with the NAS report

which notes that ‘‘additional analysis will be required’’ before it can be seriously

viewed as a viable alternative to CAFE. It is premature to enact legislation in this

area given the uncertainties on how such a program would work and what the competitive and fuel savings effects might be.

Likewise, I wish to point out that because of the complexity of the fuel economy

issue and its tradeoffs of fuel savings with employment in the U.S. auto industry,

differential competitive effects, and possible serious safety consequences, the Academy refrained from advocating a ‘‘CAFE number.’’ While there are a wide range of

fuel economy numbers in the report, the Committee wisely, we believe, stated that

they ‘‘are NOT recommended fuel economy goals’’ and NAS Committee Chairman

Portney, in testimony at a joint hearing of this Committee and the Energy and Natural Resources Committee, stated that ‘‘the committee does not recommend whether, or by how much, government should raise standards.’’

Nevertheless, I also note some problems with the methodology and potential misapplication of information in certain sections of the NAS report. For example, on engine gas exchange efficiency losses, the report suggests that an efficiency improvement of up to 39 percent is available. Yet the total loss in efficiency through these

processes in a typical gasoline engine is less than half this value. These and other

issues lead to overestimates of improvements in fuel economy cited in the report and

we have discussed them with the Academy in a public meeting this past October.

In addition, several of the fuel economy bills and proposals we have seen in the

Congress cause us great concern. We have seen proposals that would require truck

CAFE to increase by 30 percent in the next 5 years and the combined car/truck fleet

to achieve a 39 mpg CAFE within 10 years. We can find no scientific basis for such

numbers; nor are they contained within the NAS report that the Congress commissioned.

The complexity of any fuel economy program was adequately highlighted in the

NAS report and leads to our belief that future CAFE standards can best be addressed by the legislation already enacted by the Congress—the Energy Policy and

Conservation Act—which created the CAFE program. This legislation, enacted in

1975, established a regulatory process to address the level and form of the standards. We believe that the National Highway Traffic Safety Administration is poised

to consider new light truck CAFE standards, once Congress lifts the prohibition on

such rulemaking. Those standards, by law, must be set at the ‘‘maximum feasible’’

level. We believe the regulatory process is the best venue to address fuel economy

issues. It is an open process in which everyone from manufacturers, to the environmental community, to Members of Congress, can make their views known. And, we

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believe NHTSA has the experience to best balance the conflicting tradeoffs addressed in the NAS report. Daimler/Chrysler looks forward to working with NHTSA

to establish the ‘‘maximum feasible’’ fuel economy levels for future trucks.

In closing, Daimler/Chrysler takes pride in being a leader in technological innovation and we are committed to introducing new technologies that minimize the environmental impact of our vehicles. We believe the best way to reduce petroleum consumption is to focus on technological advances—such as in the areas of hybrid and

fuel cell power sources—and through sending the correct signals to consumers on

the value of energy. If customers do not demand high fuel economy, then any technology developed by the auto industry and any CAFE standard and timing established by regulation will not be optimally effective in reducing fuel consumption.

Given all that we know about industry timelines, capital requirements, technology

development, and other considerations, no CAFE or other fuel consumption program

will work in 2001, 2011, or 2021 if the customer is not part of the equation, and

values the attribute of fuel economy.

Thank you for your attention and I would be pleased to answer any questions you

may have.

Senator KERRY. Thank you, Mr. Robertson.

Mr. Friedman.

STATEMENT OF DAVID FRIEDMAN, SENIOR ANALYST, CLEAN

VEHICLES PROGRAM, UNION OF CONCERNED SCIENTISTS

Mr. FRIEDMAN. Thank you, Mr. Chairman, and thank you for

this opportunity to speak to this Committee.

My name is David Friedman. I am a Senior Transportation Analyst with the Union of Concerned Scientists. For anyone not familiar, the Union of Concerned Scientists is a non-profit partnership

of scientists and citizens that has been working at the intersection

of science and policy for over 30 years. I myself am trained as an

engineer, so my testimony will basically be from the perspective as

an engineer looking at these issues.

Today I would like to summarize my testimony and request the

full testimony appear.

Senator KERRY. Without objection, everybody’s testimony will be

put in the record in full as if read.

Mr. FRIEDMAN. Thank you. I think we are all here because everyone recognizes how serious the problems are associated with our

dependence on oil. Whether those problems are associated with environmental problems or energy security problems or the financial

problems that price spikes in gasoline and oil prices produced in

our country.

I think that one of the most important things in a recent study

that we released this summer drilling in Detroit shows that raising

fuel economy standards to 40 miles per gallon over the next decade

is the fastest, least expensive and single most effective thing that

we can do to reduce our dependence on oil.

Every automaker here has the technology to do this. We have

heard conflicting views on automakers saying we have the technology. Other automakers say we do not have the technology.

Every day, whether in magazines like Automotive News or in research papers or in the newspapers, we see examples of how these

car companies have the technologies to improve fuel economy.

One of the dangers that we face if we do not increase fuel economy standards is that we will lose these technologies because fuel

economy standards are not increased, these technologies will instead go toward making vehicles larger, more powerful, higher top

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speeds and we will lose the opportunities that we have today. And

it is actually a very large opportunity.

If we could reach 40 miles per gallon over the next decade in

2012 alone, we would be saving more oil than we imported last

year from Saudi Arabia. We would be saving about 1.9 million barrels of oil per day. Over that 10-year period, we would have accumulated about 3 billion barrels of oil saved. That is about equal in

10 years to what we could get from the Arctic National Wildlife

Refuge in 50 years. I would say that is a pretty good bargain to

be able to get 50 years worth of oil in 10 years instead.

One of the things I would like to bring up is the chart that I prepared that compares some of the results from our work as well as

the National Academy of Sciences and what this is is the first set

of columns for the National Academy of Sciences, we can see their

path to technologies and the average vehicle and the average case

for the past two technologies, they showed that within 10 years,

you could reach 34 miles per gallon.

In our study, we showed that you could actually do a little bit

better: 36 miles per gallon if you shaved some weight off of the

heavy sport utility vehicles and pickup trucks and the heavier vehicles out there in the market. That is less than 10 years using existing technologies.

In 10 to 15 years, the average case in Path 3 from the National

Academy of Sciences study showed you could reach 39.8 miles per

gallon as a fleet average fuel economy, 40 miles per gallon is possible. It is technically achievable with existing and emerging technologies. We showed that again if you add on weight savings, you

could go even further. You could get close to 42 miles per gallon.

None of this was achieved using advanced technologies like hybrids or fuel cells. This was all done using technologies that again,

as I said, the car companies we have here have today, for example,

as was mentioned, General Motors showed the cutoff on displacement on demand systems or Honda’s advanced V tech engines or

lightweight aluminum parts that were developed in Ford’s aluminum intense vehicle program, or even high-strength low wage

steels that have been developed by the American steel industry.

The technology is out there and if we start off by closing the light

truck loophole by 2007 and then reaching 40 miles per gallon by

2012, we can be saving consumers $13 billion per year in 2012 and

that is a number that is only going to grow to about $30 billion by

2020, so raising fuel economy standards is possible and it is also

good for consumers.

Senator KERRY. When you give that figure, does it take into account the added cost of the vehicles for these technologies?

Mr. FRIEDMAN. Yes, it does. That is a net savings value so the

vehicle costs varying anywhere from $1,000 to $3,000, depending

on the vehicle, but they pay for themselves over 4 to 5 years, and

then consumers are saving money after that. So if you are financing a vehicle for 4–5 years, you are actually going to start saving

right away.

Our study also shows that we could see an increase in 40,000

jobs in the automotive industry alone due to increased fuel economy and vehicles.

This is due to two things.

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1 Based on EIA 2000a import values.

One, the automakers will have to make investments to achieve

these fuel economy standards, but investment is a good thing. I

think we all see that in our economy. Investing means creating

jobs. It means advancing technology which is also going to create

jobs. Also the savings that consumers are going to see on these

more fuel efficient vehicles means they are going to have more

money to spend in the economy, which means jobs are going to be

created everywhere.

I see my time is running low, so I would like to make one quick

final note on safety and this is a lot of people have made the

point—or tried to make the point—that the length between fuel

economy and safety is a simple relationship in physics and I would

contend that it is not a simple relationship in physics. It is a questioning of engineering. It is a question of design; making safe vehicles is a question of designing them to be safe vehicles.

We have the technologies to achieve 40 miles per gallon without

compromising safety, without compromising performance, without

compromising comfort of these vehicles and, in fact, if we focused

the weight savings on the heaviest vehicles, we can improve safety.

So again, I would like to thank you for this opportunity to testify

and also if you have any questions about issues of fuel cells versus

conventional vehicles, I did spend the last 4 to 5 years before joining UCS on fuel cells and where they can bring us, and I think I

can add some comments on that as well.

[The prepared statement of Mr. Friedman follows:]

PREPARED STATEMENT OF DAVID FRIEDMAN, SENIOR ANALYST, CLEAN VEHICLES

PROGRAM, UNION OF CONCERNED SCIENTISTS

Thank you, Mr. Chairman and members of the committee for the opportunity to

testify before you today. My name is David Friedman and I am a Senior Analyst

in the Clean Vehicles Program at the Union of Concerned Scientists. UCS is a nonprofit partnership of scientists and citizens that has been working at the intersection of science and policy for over 30 years.

I am the lead author of the report ‘‘Drilling in Detroit: Tapping Automaker Ingenuity to Build Safe and Efficient Automobiles,’’ in which we provide a comprehensive assessment of both the technical and economic potential of achieving a safe and

fuel-efficient fleet of passenger vehicles. Prior to my time at UCS I have been involved in several projects related to fuel economy, including modification of a Ford

Taurus to reach 65 mpg and various analysis and support in assessing fuel economy

potential in the early stages of the Partnership for a New Generation of Vehicles.

Today I would like to summarize some of the results from our fuel economy study

as well as comment on several parts of the recent National Research Council (National Academy of Sciences) report on the ‘‘Effectiveness and Impact of Corporate

Average Fuel Economy (CAFE) Standards.’’

THE IMPORTANCE OF FUEL ECONOMY

U.S. drivers consumed 121 billion gallons of gasoline in 2000 at a total cost of $186 billion. This level of consumption represents 40 percent of the oil products that

the nation consumes. This number places these vehicles at the heart of the growing

debate over oil supplies.

Today, U.S. oil dependence is greater than it has ever been as we import a record

10 million barrels of oil and petroleum products each day. These imports represent

over half of U.S. oil product consumption, and as demand increases the proportion

of imports will rise. About 25 percent of this imported oil comes form the politically

unstable Middle East 1—for example in the year 2000 we imported 1.7 million barrels of oil per day from Saudi Arabia and another 0.6 million barrels per day from

Iraq. The cost of imported oil exacts a toll on our international balance of trade, as

the United States currently sends about $200,000 overseas each minute to buy oil

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2Overseas payments is a UCS estimate is based on the EIA 2000a import cost figure of $106

billion in 2000. Oil defense expenditures from Delucchi and Murphy 1996. 3OPEC is composed of the following countries: Algeria, Gabon, Indonesia, Iran, Iraq, Kuwait,

Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. 4Only China, Russia, and Japan have higher total emissions (based on Marland et al. 1996).

5This UCS estimate is based on EIA 2000a. Each gallon of gasoline burned emits nearly 19

pounds of carbon dioxide, the primary pollutant responsible for global warming. The production

and delivery of gasoline are responsible for another five pounds per gallon of global warming

pollutants for a total of 24 pounds of carbon dioxide per gallon of gasoline used (Wang 1999). 6The production, refining, and delivery of each gallon of gasoline in the United States emit

an estimated 6.4 grams (0.014 pounds) of smog-forming pollution (Wang 1999). Upstream activities also release harmful toxic pollution into the air that poses a major health hazard near refineries, along distribution routes, and at gasoline stations. For every gallon of gasoline delivered,

2.9 grams (0.0065 pounds) of benzene-equivalent toxic emissions are produced (Winebrake, He,

and Wang et al. 2000; Wang 1999). 7 Heavenrich and Hellman. Light–Duty Automotive Technology and Fuel Economy Trends 1975

Through 2000. An Arbor, MI. U.S. Environmental Protection Agency. 2000 8 Energy Information Administration. Annual Energy Outlook 2001. Washington, DC: U.S. Department of Energy.

products and is estimated to spend $20 to $40 billion per year to defend oil resources in the Middle East.2

In recent years, the Organization of Petroleum Exporting Countries (OPEC) has

regained its ability to substantially influence the price of oil throughout the world.3

OPEC’s market power can be expected to grow as its production approaches half of

all world oil output in the next two decades. In the United States, our dependence

on imported oil from OPEC and other foreign sources is expected to grow to 64 percent, making us even more susceptible to supply shortages and rapid rises in world

oil prices. Historically oil price shocks and periods of inflation have coincided, resulting in significant harm to the U.S. economy and our balance of trade.

Transportation is also the source of roughly one-third of all the heat-trapping

gases (greenhouse gases) linked to global warming that are released in the United

States every year (EIA 2000a). Greenhouse-gas emissions from the U.S. transportation sector amount to more than most countries release from all sources combined.4 The production, transportation, and use of gasoline for cars and light trucks

resulted in the emission of 1,450 tons of greenhouse gases by the United States in

2000—over one-fifth of U.S. global warming emissions that year.5

Cars and trucks are the second largest single source of air pollution in the country, second only to electricity generation. As tailpipe standards are tightened, pollutants from passenger vehicles are falling to near the level of those produced in refining and distributing gasoline. As a result, transportation’s impact on air pollution

will soon approach an equal split between the tailpipe and the amount of fuel a vehicle uses. In the case of toxic emissions, pollutants that may be linked to cancer,

the upstream emissions from fuel refining and distribution are the dominant source.

The production and distribution of gasoline is also linked to many other negative

environmental impacts including oil spills and groundwater pollution

Assuming current fuel use, the production and distribution of gasoline alone results in the emission of 848,000 tons of smog-forming pollution and 392,000 tons of

benzene-equivalent toxic emissions in the United States each year.6 Reducing these

numbers significantly through improvements in fuel economy can mean great

strides in protecting human health.

The effect our cars and light trucks have on our economy, our oil use, and our

environment is only expected to get worse due to rising vehicle travel, a changing

vehicle fleet, the impacts of vehicle emissions and fuel use under actual driving conditions, and stagnant fuel economy standards. Together these factors have led to a

24 mpg fleet average fuel economy in 2000, the lowest level in over twenty years: 7

• Rising Travel. There are now more vehicles in the United States than people

licensed to drive them. Combined with increasing travel rates per vehicle, the number of miles that Americans are driving continues to rise. Vehicle travel is expected

to increase nearly 50 percent over the next 20 years,8 a trend that will help drive

up passenger vehicle fuel use. • Shifting Markets. SUVs and other light trucks are allowed to use one third

more fuel than cars under current CAFE requirements. This ‘‘Light Truck Loophole’’

caused consumers to use about 20 billion more gallons of gasoline in 2000 and cost

consumers about $30 billion dollars more than if the fuel economy standards of light

trucks was set to the same as that of cars. The light truck market has risen from

19 percent to 46 percent since 1975 and is expected to grow to at least 50 percent

of the passenger vehicle market, driving fuel economy lower in the coming years. • Real World Fuel Economy. Testing for CAFE standards is based on a pair of

simulated driving cycles established in 1975. At the time it was unclear if these cyVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00119 Fmt 6601 Sfmt 6621 D:\DOCS\89683.TXT SSC1 PsN: SSC1
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9 Ibid.

cles represented real world driving conditions, but today it is quite clear that they

do not. Estimates show that real world fuel economy is about 17 percent below tested values and this shortfall is expected to increase over the next two decades.9

• Stagnant Fuel Economy Standards: CAFE standards for cars and light trucks

have not changed in more than a decade. The original schedule called for an increase in car fuel economy to 27.5 mpg by 1985. While this goal was delayed for

a few years, the standard has been at that level since 1990. The light truck standard reached approximately today’s level in the late 1980s while separate standards

existed for 2 and 4-wheel drive vehicles, and, like passenger cars, was stalled for

a short period until reaching today’s 20.7 mpg requirement.

We estimate that these factors, along with continued stagnant fuel economy

standards, would lead to an increase in passenger vehicle fuel use over the next two

decades of 56 percent, to 189 billion gallons per year, by 2020. The result would be

fuel costs to consumers of $260 billion dollars at a gasoline price of $1.40. Total oil

demand would rise from today’s 20 million barrels per day to over 27 million barrels

per day by 2020, 64 percent of which would be imported form outside the U.S. In

addition, annual greenhouse gas emissions from the passenger vehicle sector would

rise to 2,260 million tons of carbon dioxide equivalent while emission of 1,320,000

tons of smog-forming pollutants and 612,000 tons of benzene-equivalent toxic emissions would be produced in the United States each year.

REFORMING REGULATIONS TO REDUCE THE IMPACTS OF DRIVING

The U.S. is not locked into the predictions noted above. A systematic approach

to reducing fuel use would address all of the key factors noted above: stagnant fuel

economy standards, shifting markets, real world fuel economy, and rising travel.

Within this systematic approach, increasing fuel economy standards to 40 mpg by

2012 is the single most effective, fastest and least expensive path to reducing our

future dependence on oil.

Fuel Economy Standards

The 2001 National Research Council study has identified the CAFE standards enacted in 1975 as a key factor in the near doubling of new passenger car fuel economy (15.8 mpg in 1975 rising to a peak of 28.5 in 1998) and the 50 percent increase

in the fuel economy of new light trucks (from 13.7 mpg in 1975 to today’s 20.7 mpg).

In addition, this study notes that CAFE standards have played a leading role in preventing fuel economy levels from dropping as fuel prices declined in the 1990s. UCS

estimates that current fuel economy levels maintained by CAFE saved consumers

over $90 billion in 2000. The NAS report estimates that in the year 2000 alone, increased fuel economy reduced gasoline use by 43 billion gallons, or about 2.8 million

barrels of oil per day (UCS estimates the figure to be about 60 billion gallons of

gasoline, or 3.9 million barrels of oil per day).

These savings put to rest concerns over the effectiveness of improved fuel economy. While fuel use has risen by 30 percent since the CAFE law was passed, this

is primarily due to an increase in the amount of travel by Americans each year—

which would have resulted in an even large increase in fuel use had vehicle fuel

economy not improved.

Savings of same magnitude as seen in the past can be achieved in the future if

fuel economy standards are again increased. UCS analysis has shown that cost-effective technologies for near-term and longer-term improvements in vehicle efficiency exist today. If these technologies are used to increase fuel economy over the

next 20 years, our passenger vehicle oil use could be turned around (i.e. we could

stop the growth in fuel use and even turn back the clock to 1990 levels if standards

are raised sufficiently), the amount of money consumers spend on gasoline could be

substantially reduced, and the impact our driving has on the environment could be

cut in half. Below is a short list of conventional technologies that have already been

developed by automakers that could significantly increase the fuel economy of today’s cars and light trucks, many of which are already in some cars today.

EXISTING CONVENTIONAL TECHNOLOGY OPTIONS FOR FUEL ECONOMY IMPROVEMENT.

Vehicle Load Reduction

• Aerodynamic Improvements

• Rolling Resistance Improvements

• Safety Enhancing Mass Reduction

• Accessory Load Reduction

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Efficient Engines

• Variable Valve Control Engines

• Stoichiometric Burn Gasoline Direct Injection Engines

Integrated Starter Generators

Improved Transmissions

• 5- and 6-speed automatic transmissions

• 5-speed motorized gear shift transmissions

• Optimized shift schedules

• Continuously Variable Transmissions

Estimates from a study released by the American Council for an Energy Efficient

Economy, by DeCicco et. al., indicate that a combination of these technologies, along

with mass reductions targeted at the heaviest vehicles, can produce a fleet of cars

and trucks that averages over 40 miles per gallon. The table below shows the costs

and net savings associated with these improvements in fuel economy. The result is

an increase in fuel economy of over 70 percent and a net saving to the average consumer of over $2,000. Increasing fuel economy standards results in a win-win situation where consumers and the environment are both better off. In this case, fuel

economy standards result in a net cost of carbon dioxide reduction of –$49/ton of

carbon dioxide avoided, in other words, consumers are paid to reduce their impacts

on the environment while at the same time we are reducing our oil dependence.

Fuel Economy and Lifetime Savings from Existing Conventional Technologies.

CAFE

Rated

Fuel

Economy

(mpg)

Real

World

Fuel

Economy

(mpg)

Fuel

Economy

Improvement vs.

baseline

(%)

Cost of

Fuel

Economy

Improvement

Lifetime

Fuel Cost

Savings

Net Savings

Greenhouse

Gas Savings

(tons)

Avoided

Toxic

Emissions

(lb.)

Smog

Precursor

Savings

(lb.)

Small car ............... 48.4 38.7 57 $1,125 $2,595 $1,470 30 16 35

Family car ............. 45.8 36.6 75 1,292 3,590 2,298 42 23 49

Pickup .................... 33.8 27.0 61 2,291 3,964 1,673 46 25 54

Minivan .................. 41.3 33.0 85 2,134 4,534 2,400 53 28 61

SUV ........................ 40.1 32.1 98 2,087 5,346 3,259 62 34 72

Fleet Average ......... 41.8 33.4 74 1,693 3,900 2,207 45 24 53

a Source: DeCicco, An, and Ross. Technical Options for Improving the Fuel Economy of U.S. Cars and Light Trucks by 2010–2015. Washington, DC. American Council for an Energy Efficient Economy. 2001.

b CAFE fuel economy reduced by 20 percent.

c Assumes a 15-year, 170,000-mile vehicle lifetime and a 5 percent discount rate. Average life based on scrappage rates from Davis 2000.

Vehicle mileage based on 1995 National Personal Transportation Survey (NPTS) data.

We have compared the UCS/ACEEE fuel economy results with those from the recent National Research Council report and we find that the costs and improvements

in fuel economy are very similar. Using the results from NRC Path 3 technologies

(NRC 2001, page 3–24) we estimate that a fleet fuel economy of 33 to 47 mpg could

be reached at a retail price increase of about $1,700 to $3,800 per vehicle. This compares favorably to UCS/ACEEE estimates of a fleet fuel economy of 36–49 mpg at

retail price increase of about $1,200 to $3,900. (Friedman et. al, pages 84–87) In

both cases, consumers would be saving thousands of dollars at the gas pump. In

most cases, this would be more than enough to pay for the cost of the fuel economy

improvements, resulting in a net savings to consumers.

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The figure shows the results of the NAS work for Path 2 and Path 3 technologies

as well as comparable UCS and ACEEE analyses. The combination of both the UCS

and the NRC results indicate that it is clearly feasible to reach a fleet average fuel

economy of 40 mpg. We feel that such a standard could be phased in over 10 years,

while the NRC analysis shows that similar fuel economy levels could be achieved

within 10–15 years if weight reduction is not prominently used to reach improved

fuel economy. In less than 10 years, both the NAS and UCS results agree that a

fleet average of close to 35 mpg is technically feasible and cost effective.

The benefits to reaching a 40–mpg fleet by 2012 are quite significant. By 2012,

we would have accumulated savings of 125 billion gallons of gasoline, this is about

one full year’s worth of gasoline and is 25 times the savings sought though the

House energy bill, H.R. 4. In that same year, we would be saving about 1.9 million

barrels of oil per day. This is more than the 1.7 million barrels per day we imported

form Saudi Arabia last year and over three times the amount of oil we imported

from Iraq. Consumers would also see significant benefits, with the U.S. economy

seeing net savings of 12.6 billion dollars in 2012 alone. On top of these financial

benefits, over 40,000 new jobs would be created in the auto industry and close to

70,000 would be created in the U.S. economy as a whole. In the end, increasing the

average fuel economy of cars and trucks would both aid us in reducing our dependence on oil and help stimulate the economy.

Before the 40–mpg standards are phased in, UCS analysis indicates that average

light truck fuel economy could be raised well above today’s 20.7 mpg standard to

that of cars (28.1 mpg) for about $670 in mass production. This increase in fuel

economy could be achieved within 5 years using technologies available in cars today.

By 2010, this increase in fuel economy would save 35 to 40 billion gallons of gasoline, more than seven times the meager savings offered in the existing House Energy Bill, H.R. 4. The overall benefit to consumers would be $7 billion dollars per

year in 2010 alone and would be accompanied by significant reductions in greenhouse gas, toxic, and smog forming pollutants.

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10While it will improve the certainty of the fuel economy achieved, ‘‘truth in testing’’ will not,

by its self, lead to an increase in fuel economy. 11 In fact, increased fuel economy standards without increased gasoline or carbon taxes would

reduce the cost of driving. This could lead to an increase in driving on the order of 1 to 2 percent

per 10 percent increase in fuel economy. 12The –0.5 high end value from Patterson, Transportation’s Contribution to Global Climate

Change. U.S. Department of Energy presentation. 1999. The –0.2 value from Agras and Chapman, 1999, and falls near the high end of elasticities from Niovella and Crandall, 1995.

SHIFTING MARKETS

The NRC report (page 5–11) identifies ‘‘economic incentives for manufacturers to

assure that their vehicles are classified as trucks.’’ These are the ‘‘light truck loophole’’ and the ‘‘gas-guzzler tax.’’ The fact that the fuel economy standard for light

trucks is set at 20.7 mpg, lower than the 27.5 mpg for cars, means that automakers

have to spend less money on the fuel economy of trucks. The resulting lower price

combined with the current strong demand for light trucks means that automakers

can make more money from light trucks and therefore have an incentive to classify

more vehicles as light trucks. In addition, the gas-guzzler tax, which applies to cars

below 22.5 mpg, does not apply to light trucks, creating yet a further incentive to

make sure vehicles are classified as light trucks.

Together with lower tailpipe emissions and safety standards, these loopholes have

and will continue to enable the sales of more vehicles with lower fuel economy, increasing fuel use and air pollution. The tailpipe air pollution loophole for light

trucks will be phased out by 2009 under EPA’s Tier 2 regulations. The vast majority

of these ‘‘light trucks’’ are no longer used for commercial purposes and are instead

used as passenger vehicles. The NRC report (page 5–10 and page 5–11) indicates

that ‘‘The car/truck distinction has been stretched well beyond the original purpose.’’

and that redefining the car/truck classification or reducing economic incentives for

manufacturers to define their vehicles as trucks could alleviate the problems.

Since the existing loophole no longer serves its intended purpose and is enabling

increased fuel use and increased costs to consumers, the light truck loophole in

CAFE should be closed by 2007 as a first step in fleet-wide increases to fuel economy standards. Once this is done, all cars and light trucks can be classified as passenger vehicles and the gas-guzzler tax can be applied to all such passenger vehicles.

REAL WORLD FUEL ECONOMY

Given that current data shows real world fuel economy to be 17 percent lower

than CAFE certified fuel economy, CAFE reform should also include a shift in fuel

economy measurement towards more realistic driving cycles. This has been pursued

for emissions through the incorporation of the SC03 and US06 driving cycles. The

SC03 cycle includes the use of air conditioning, which is not included in standard

CAFE testing. The US06 driving cycle is more akin to modern urban driving with

harder accelerations and higher speeds. Incorporating these driving cycles or some

other measure to ensure ‘‘truth in testing’’ could serve to provide a more certain increase in fuel economy.10

RISING TRAVEL

The increase in total vehicle miles traveled in the U.S., due partly to increases

in individual travel, cannot be addressed by increased fuel economy standards.11

One determinant of the amount of individual travel is the cost of gasoline. Increasing gasoline taxes or instituting a tax on the amount of carbon in a fuel (to account

for global warming effects associated with the emissions of carbon from burning the

fuel) would likely result in some decrease in daily travel. Estimates are that a 100

percent increase in the cost of gasoline would result in about a 10 to 20 percent reduction in the amount each vehicle travels (Greene et. al., 1999), though estimates

of this value vary widely. Significant increases in the price of gasoline alone, or

smaller increases along with increases in the CAFE standards, would result in a

reduction in gasoline use—however, a reform option that relies on large increases

in gasoline costs would face substantial political obstacles.

To put this into perspective, if we consider an increase in fleet fuel economy to

40 mpg, accounting for a rebound effect, fuel use would be reduced by about 40 percent compared to today. Long term elasticity fuel use price elasticity estimates

range from –0.5 to –0.9,12 indicating that a gasoline price increase of 44 percent to

80 percent would be required above today’s values. Assuming last year’s average of

$1.54 per gallon, this translates into a $0.68 to a $1.23 per gallon tax. However,

this assumes a baseline fuel economy at today’s level, which is influenced by existVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00123 Fmt 6601 Sfmt 6621 D:\DOCS\89683.TXT SSC1 PsN: SSC1
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13Present value of $0.80 estimate for 1989 from, Kaoujianou. The effects of Corporate Average

Fuel Efficiency Standards in the U.S.. Journal of Industrial Economics, 1998. 14 Alternatively, the report also states that, ‘‘Regulations such as the CAFE standards are intended to direct some of industry’s efforts toward satisfying social goals that transcend individual car buyers’ interests.’’ (page 2–16)

ing CAFE standards. If we add in the tax that would be required today if CAFE

did not exist, estimated at $1.12 per gallon,13 the total increase could be as much

as $1.80 to $2.35 per gallon. That would have required bringing 2000 gasoline prices

up to as much as $3.89 per gallon.

SAFETY

I will discuss the topic of safety and fuel economy further in a moment, however,

I would like to address some key reforms that can take place under CAFE to improve vehicle safety. The key issue that can be addressed through CAFE is the danger that the ‘‘not-so-light’’ light truck class imposes on other drivers. Because these

trucks are heavy, stiff and have high bumpers, they represent a greater risk to car

drivers, pedestrians, bicycle and motorcyclists.

This is a fact that seems to be agreed upon by the entire NRC/NAS panel in their

recent report (both the majority opinion and the dissent opinion point to reductions

in fatalities from decreasing the size of light trucks). While we do not agree with

the magnitude of the life savings in the report, we believe the direction is correct—

we feel the magnitude is actually larger—and therefore can accept them for demonstrative purposes. The clear message is that any policy that creates an incentive for

light trucks to get lighter will save lives. Closing the light truck loophole would create such an incentive and would therefore provide an increase in safety.

An additional measure to achieve similar ends is the addition of means for controlling the ‘‘Crash Aggressivity (CRAGG) index’’ as introduced in the House Energy

Committee. This is an index that evaluates the stiffness, structure height, and mass

of a striking vehicle. Use of the CRAGG index would highlight the safety hazards

of light trucks which are very stiff, high and heavy. Regulated reductions in the

fleet-wide CRAGG index could produce an opportunity for the Senate to save lives.

COMMENTARY ON THE NATIONAL ACADEMY OF SCIENCE/NATIONAL RESEARCH COUNCIL

REPORT

The following are brief comments on some of the key sections of the NAS/NRC

fuel economy panel report. This is not intended to be an exhaustive analysis and

critique of the report, but instead highlights issues of key concern to UCS.

Rational for Regulation of Fuel Economy

The NAS/NRC panel report provides clear justification of the value of regulating

fuel economy. In their first recommendation it is stated that, ‘‘Because of concerns

about greenhouse gas emissions and the level of oil imports, it is appropriate for

the federal government to ensure fuel economy levels beyond those expected to result from market forces alone.’’ (page 6–6).14 UCS firmly agrees with this statement.

Based on our assessment of the available technologies and the impacts of their use,

we believe that a near term goal of closing the light truck loophole by making light

truck fuel economy standards the same as cars by 2007 provides significant net benefits to society. In the longer term, we believe that a goal of 40 mpg by the middle

of the next decade is both technically achievable and also provides significant net

benefits to society through consumer savings at the gas pump, reduced oil use, reduced global warming and other pollutant emissions, and reductions in highway fatalities.

Fuel Economy Assessment

Overall, UCS analyses agree with the general results for potential fuel economy

improvements and associated costs using what the NAS/NRC terms existing and

emerging technologies. Under some specific comparisons, UCS estimates of fuel

economy are somewhat higher than those of the NAS/NRC. One key reason for this

is that our estimates are based on detailed vehicle modeling that ensures inclusion

of the synergistic effects between technologies that the NAS/NRC menu approach

can miss. Another key reason for the difference is that in our analysis we rely more

heavily on safety enhancing weight reductions for the light truck class, which enables higher levels of fuel economy to be reached at lower costs.

One significant exclusion from the NAS/NRC analysis is an evaluation of the consumer savings of improved fuel economy. The panel chose a potentially misleading

name for their summary analysis. This analysis was termed a ‘‘break-even fuel economy analysis for 14-year payback’’. This might seem to imply that the savings on

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gasoline costs is just equal to the added cost of the fuel economy improvements, resulting in no net savings. In fact, as described in their report on page 4–4, this analysis looks at the point where the marginal savings on gasoline is equal to the marginal cost of fuel economy improvements. In other words, the analysis sought to find

the point where the last dollar spent on improving fuel economy saved exactly one

more dollar on gasoline cost over the vehicle lifetime. This is a classic economic

analysis that is more appropriately termed an ‘‘economically efficient analysis’’ and

actually finds the point where the net savings over the life of the vehicle is at its

maximum. Thus, the analysis performed by the NAS/NRC panel theoretically identifies the fuel economy levels where consumers save the most money. In public testimony, the NAS panel has noted that this is the case and has attempted to clarify

the issue (I believe the NAS has submitted such a clarification to this committee).

I have included an attachment to this testimony, which shows the NAS/NRC report

Table 4–2 but also includes the savings that would accrue from these vehicles.

I have performed an additional analysis using the results for the Path 3 technologies as identified in the NAS/NRC report on page 3–24. The results for the average cost/average fuel economy level in Path 3 are presented below assuming a discount rate of 5 percent (this discount rate corresponds to an 8 percent new car loan,

corrected for inflation).

Here we see that consumers are saving between $360 and $2,500 above the cost

of the fuel economy improvements for different vehicles. The average fleet fuel economy is 39.8 mpg with an average cost of $2,765. UCS estimates predict a higher

fuel economy at this cost, however, the NAS/NRC results still demonstrate the ability to save money while achieving a fleet-wide average fuel economy of 40 mpg.

Thus, when using a discount rate of 5 percent, NAS/NRC numbers show that the

cost of a 40 mpg fleet will pay for itself over a vehicle’s life, even saving consumers

nearly $1,000.

One final issue related to the fuel economy assessments in the NAS/NRC report

is the inclusion of their calculated externality values. The panel identifies the

externalities associated with the oil market and the environmental impacts of gasoline use valued at $0.26 per gallon of gasoline. While we feel that this value is low,

even this amount would show a net increase in savings to society from improved

fuel economy standards. For example, in the average Path 3 example above, the societal savings of a 40-mpg fleet fuel economy would be $1,573 per vehicle and would

vary between $775 and $3500, depending on the vehicle.

Safety

We disagree strongly with the majority of the assertions made by the majority

panel regarding vehicle safety and fuel economy improvements. The key to making

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a vehicle safe is in its design. Proper design techniques, use of powerful computing

resources and high strength materials enable designers to reduce the weight of vehicles while simultaneously including efficient crush space to absorb the impact in a

crash and therefore reduce the forces experienced by the vehicle occupants. Existing

crash data does not provide the ability to differentiate between vehicle weight, physical dimensions, and vehicle design and therefore statistical analysis based on this

data cannot evaluate the direct relationship between changes and weight and

changes in vehicle safety.

On the other hand, we agree generally with the findings of the panel minority

in the dissent chapter on safety and note that significantly more analysis would

need to be done before adequate quantification of the impacts on fuel economy

changes on safety could be produced.

In addition to the key problems raised in the dissent chapter, I would like to point

out at least one conspicuous assertion that was made in the safety analysis. One

of the key reasons why we reject the use of past data to assess current and future

safety impacts of weight reduction is that vehicle technology is changing over time.

On page 2–27 of the NAS/NRC report, an assertion is made that ‘‘the ratio of fatality risk in the smallest vehicles of a given type compared to the largest remained

relatively similar.’’ However, this ratio is never presented to the reader. Calculating

this ratio for the data in the NAS/NRC Table 2–2 produced the following results:

All of the data above, other than the last columns labeled ‘‘ percent change in

ratio over time’’ are the original data from the NAS/NRC report. The added columns

above indicate that the ratio of fatalities in the smallest vehicles to the largest ones

in each class changed during each 10 year period, with these changes being as high

as a 64 percent increase for SUVs and a 40 percent decrease for pickups. Clearly

the ratios did not remain either relatively similar over time, or among the classes.

Even without the existing disagreements relative to the past safety data, this seriously threatens the validity of using the data to predict current or future safety impacts.

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15 Joksch, Massie, Pichler. Vehicle Aggressivity: Fleet Characterization Using Traffic Collision

Data’’. NHTSA. 1998. No vehicles had airbags. Data used was for 1991–1994. 16 Ibid. 17The Taurus, Accord, Civic and Camry. Wards’s Motor Vehicle Facts & Figures 2000 for

model years 1997 and 1998.

Further eroding their analysis is the fact that the type of vehicles in the fleet

have changed drastically over time. The figure below shows how the weight distribution of cars has changed since CAFE was first passed. The key feature that stands

out is that we used to have a lot of cars of many different weights with an overall

high average weight. Now we have a lower overall average weight and the weight

distribution is less spread out. This means that changing the weight of today’s vehicles has a much different effect than it would have in 1975 or even 1990 and therefore past data simply cannot be used to predict current safety performance.

This issue of changing safety relationships over time brings to the fore another

important issue, that of improved safety technology. Some of the differences above

are likely attributable to improvements in the design of the vehicles as well as incorporation of improved safety technologies and/or better use of existing technologies. In our report, we have estimated the potential reductions in fatalities from

simply increasing seat belt use from today’s 70 percent up to 90 percent and found

that 6,000 to 10,000 lives could be saved through increased seatbelt use. Improved

safety belt design could save an additional 3,000 to 5,000 lives, for a total of 15,000

lives saved by safety belts alone. These potential life saving methods completely outweigh any negative safety impacts associated with weight/size reduction even if the

majority analysis is accepted.

As noted above, however, we do not agree with the majority analysis. In our report, we demonstrate that it is the disparity in weight that is the key influence on

safety and that influence is a negative one—the more you mix heavy and light vehicles, the less safe the highways will be. This fact is accentuated by the presence of

light trucks that are heavy, stiff and have high bumpers. These three factors combine to make these vehicles very aggressive in crashes.

Analysis by Joksch et. al. indicates that in a front end collision, light trucks

produce an increase in fatality risk by a factor of 3 to 5.6 when striking a car compared to a car striking a car.16 In front-driver-side collisions light trucks pose risk

factor 2 to 4.5 times that of a car when striking another car on the driver-side.17

Further demonstrating the risks imposed by light trucks, recent analyses done by

Ross and Wenzel shows that the top four selling cars in 1995–98 18 impose less of

a risk in 2-vehicle crashes on other vehicles on the road than do SUVs and pickup

trucks. For vehicles 2- to 5-years old, there were 79 percent more deaths per vehicle

caused by the SUVs than by cars and more than four times as many deaths caused

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18The Ford F Series, Chevy C/K pickup/Silverado, Explorer, and Ram Pickup. Wards’s Motor

Vehicle Facts & Figures 2000 for model years 1997 and 1998. 19 Risk by drivers for cars and light trucks provided in personal communication with Marc

Ross and Tom Wenzel, September 7, 2001. 20 Risk by drivers of top four selling SUVs is 26 percent higher than the risk to drivers in

the top four selling cars and the risk to drivers of the top four selling pickups is 68 percent

higher than that in the top four selling cars.

by pickups than by cars.19 Correcting for the influence of age does not significantly

alter these effects.20

Even more important are the findings by Ross and Wenzel that the risk of death

in all crashes to the person driving one of the four best selling cars is lower than

the same risk associated with driving one of the four best selling light trucks which

are all heavier than the cars.20 These results indicate that for modern vehicle designs with their associated size and weight, not only are the most popular cars less

dangerous to others on the road, they are also safer for the driver compared to the

top selling light trucks.

The NAS/NRC panel findings agree that reducing the weight and historically associated characteristics of light trucks could reduce the fatalities on our highways,

however, in most of their fuel economy assessments they did not include weight reductions. In Path 3 where they did include some weight reduction, it was only 5

percent and was only in 3 of the 10 vehicles investigated, thus providing a very

small benefit to safety. Our analysis indicates that a 10 percent weight reduction

along with streamlining and an efficient variable valve controlled engine would enable light trucks to have the same fuel economy standard as cars. As indicated by

Green and Keller, this would conservatively have saved 176 lives in 1993. Reaching

higher fuel economy levels could require a 20–30 percent reduction in weight, implying a fatality reduction of 352 to 528. We feel that if more accurate assessments

of the negative impacts of today’s aggressive light trucks were developed, these fatality reductions would be further increased, especially since they can be achieved

using high strength materials that maintain occupant safety while reducing

aggressivity.

Weight Based Standards

The NAS/NRC report presents an altered fuel economy standard system termed

E–CAFE, for Enhanced CAFE. A summary of the key impacts of this system is as

follows: • The weight based system creates incentives to add weight to smaller vehicles. • As a result, this system creates a disincentive to adopt one of the most costeffective fuel economy strategies (weight reductions) for many vehicles, one which

PNGV has been working on for years. • The weight based system also does not guarantee a specific fuel economy level

and market shifts could still keep fuel economy on the decline. • The NAS/NRC panel only provided an example of how the standards should be

set. Evaluating and comparing the different impacts of various forms of the standard would be very complicated and leads to significant difficulty in setting fuel economy levels.

This system is predicated on a fuel economy standard that is based on a vehicle’s

weight. The heavier the vehicle the lower the required fuel economy, up to a weight

cap, above which the fuel economy standard becomes constant (i.e. independent of

weight as we have today). The cap creates an incentive for the heaviest vehicles to

shed weight, which we agree seems like a positive step as it would improve overall

vehicle safety, however it is, in essence, not very different from simply modifying

the current flat light duty truck standard. The only difference is that some of the

lightest trucks would not be included, they would instead be replaced by the heaviest cars.

For the vehicles below a weight cap (4,000 pounds in their example), there is no

mathematical advantage to adding or reducing weight. As a result automakers have

no incentive to make the vehicles near the cap somewhat lighter and therefore safer

for the overall fleet. Further, automakers actually have an incentive to increase the

weight of the vehicles below the cap thus creating a very large loophole similar to

the current light truck loophole. This incentive is not created by the proposed standard, but instead by the existing market forces. Automakers can make larger profits

on heavier vehicles today, therefore, there is an inherent financial incentive to increase sales of the heavier vehicles that are more profitable, as we have seen with

SUVs. This shift in sales would increase the overall size and weight of the fleet at

no penalty to a company’s ability to meet the weight based fuel economy standards

because the standards drop as the vehicle becomes heavier. Therefore, economic

pressures turn the weight neutral slope into an incentive to increase weight, likely

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producing a fleet of vehicles that all move towards the 4000 lb. mark set in the

NAS/NRC example, with an overall reduction in fleet fuel economy. A fleet that

minimizes the variations in weight is good for overall safety, however, the cap set

in the standard would effectively become an imposed fleet weight. Lower fleet

weights could be just as safe, if not safer and would produce larger oil savings. A

flat average 40 mpg standard across all car and light truck classes would instead

encourage the heaviest vehicles to get lighter and therefore create a fleet that is

both safer and more efficient.

The next concern is that, even if we ignore the first issue, the exact fleet fuel

economy under this method is quite uncertain. As we have seen with the rise in

light truck sales eroding fuel economy, a potential rise in vehicle weights could

produce a net drop in fuel economy, even with the example 4000 pound limit. Further, the uncertainties of the political process create the risk for an even higher

limit passing, which could further erode fuel economy levels.

Dual-fuel Vehicle Credits

The NAS/NRC panel, in their fifth recommendation on page 6–6 suggests the

elimination of the dual-fuel vehicle credit system. UCS agrees that this system has

not functioned as intended and automakers have received credit for their vehicles

using alternative fuels they have never consumed. One solution is to eliminate these

credits as suggested by the NAS/NRC panel, which we would find acceptable. Another alternative is to tie the amount of credit received by the automakers to the

actual amount of each alternative fuel used in the previous year. Such a system

would ensure that extra fuel economy credit is only given to the degree that the

sales of these vehicles enhances the actual use of alternative fuels and would thus

preserve the intent of the credit without the current pitfalls.

Availability of Higher Fuel Economy Vehicles

One assertion made by in the NAS/NRC report that is often put forward by automakers is that, ‘‘consumers already have a wide variety of opportunities if they are

interested in better gas mileage.’’ (page 1–3) While it is strictly true that there are

a number of models on the U.S. market that achieve more than 30 mpg, all of them

force the consumer to give up some feature or some amount of performance to obtain

the improved fuel economy. They cannot, however, accept in a very few cases, elect

to pay more for a vehicle with the same features and performance, but with higher

fuel economy. The result is that consumers do not truly have a choice to express

a desire for improved fuel economy, all else being equal.

Our analysis and that done by the NAS/NRC panel indicate that the fuel economy

of passenger vehicles can be increased while maintaining the size, performance and

the various features consumers expect. Our analysis also indicates that consumers

can purchase these vehicles without sacrificing and likely increasing overall crash

safety. These improvements in fuel economy do come at a cost, but were these vehicles to be offered, consumers would have a true choice of getting all they expect from

a car or light truck today, but with higher fuel economy and the associated net savings.

Conclusion

Raising fuel economy standards is the fastest, least expensive and most effective

thing Congress can do to reduce our future dependence on oil. The oil savings associated with reaching an average fuel economy of 40 mpg by 2012 for all new cars

and light trucks would be 1.9 million barrels per day in that year alone—this is four

times the expected peak output from the Arctic Refuge at today’s oil prices and over

three times the oil we imported from Iraq last year (and more than we imported

from Saudi Arabia). The cumulative oil savings would be about 3 billion barrels of

oil or 125 billion gallons of gasoline. That means that in 10 years we would save

almost as much oil as is recoverable at today’s oil prices from the whole Arctic Refuge in its 50–60 year lifetime. That is also 25 times the oil savings called for in

the House energy bill, H.R. 4. At the same time we are significantly cutting our oil

dependence, consumers are saving 12.6 billion dollars in 2012 and close to 100 billion dollars per year by 2015, while the auto industry will see a growth of over

40,000 jobs in the U.S.

We feel that between our work, the most recent NAS/NRC fuel economy study as

well as a wealth of other literature available today, it is clear that the technology

exists to cost effectively increase fuel economy with resulting benefits to oil use, consumers and the environment. These significant improvements in fuel economy can

be achieved with existing technology, enabling us to achieve progress in fuel economy in the near term as we watch the market for hybrid electric and fuel cell vehicles grow. We can see both near and longer term increases in fuel economy and

these increases can be accompanied by the same safety, comfort and performance

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consumers expect today and could even improve the overall safety of America’s highways if the light truck loophole is closed.

Thank you for the opportunity to testify before the Committee today. I would be

happy to answer any questions you may have.

Attachment—Analysis of Savings in the NAS 14-Year ‘‘Break-Even’’ Study

The assessment performed by the NAS panel in chapter four of their report finds

the point where the financial benefits to a consumer are maximized, ignoring the

financial impacts of externalities. This is done through a process where the last dollar spent on improving fuel economy is just offset by an additional dollar saved from

that same improvement in fuel economy. This identifies an equilibrium point associated with significant savings that were not reported in the NAS/NRC report. Below

I have re-created Table 4–2 from the NAS/NRC report and I have included the net

savings consumers would experience using the NAS/NRC conservative assumption

of a 12 percent discount rate. I have also included a summation of the vehicles into

class and an overall fleet average fuel economy

These results show that, even using the conservative discount rate, consumers

would be saving $340 to $1,600 above the cost of fuel economy improvements under

the average cost average fuel economy scenario. These results show the maximum

net savings for consumers and the associated fleet fuel economy varies between 29

mpg and 33 mpg. If a more reasonable discount rate, based on current automobile

loan rates of 7–8 percent, corrected for inflation to yield 5 percent, had been used,

the average fuel economy levels would be higher and the costs would also be higher.

The savings and fuel economy levels would further be higher if the value of

externalities was included in the analysis.

Senator KERRY. Thank you, Mr. Friedman, we appreciate it.

Mr. Louckes.

STATEMENT OF THEODORE LOUCKES, CHIEF OPERATING

OFFICER, PAICE CORPORATION

Mr. LOUCKES. Mr. Chairman, thank you for the invitation to address this Committee regarding fuel economy issues.

I am Ted Louckes, Chief Operating Officer of the Paice Corporation. Paice is an American company. We have offices in Silver

Spring, Maryland and Livonia, Michigan. Our management team

and board of directors include engineers with more than 200 years

of experience in the automotive industries.

My career has been in the automobile industry, including 40

years with General Motors where I served as Chief Engineer of the

Oldsmobile division. We are here today to present an American

technology that can meet the challenge of improving fuel economy

in passenger cars and light trucks.

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The Hyperdrive system, as we call it, is a unique power train

that delivers a combination of fuel efficiency and vehicle performance that has not yet been achieved. Unlike hybrids in the market

today, it is well suited for the wide range of vehicles that consumers choose to buy, including SUVs, minivans and light trucks.

The Hyperdrive will work in any climate, climb steep hills and

haul big loads. Most significant, our studies indicate that

Hyperdrive can be produced at costs competitive to today’s conventional power trains, largely because it uses similar technologies

and the materials are the same as used today—nothing new, nothing exotic or expensive. We are in the process of securing funding

from automakers, automobile suppliers, financial investors and perhaps the U.S. Government to finalize the subsystem and component design, build demonstration vehicles and, therefore, accurately determine the cost of producing the hybrid system. We believe that ours is the only hybrid drive system available today that

can be commercially produced in large volume and be successful in

the marketplace.

Based on high voltage, and high powered semiconductors, high

horsepower electric motors and downsized internal combustion engines, the Hyperdrive is unique and superior among hybrid power

trains. Our patented method of control, the selective use of all the

on-board power sources for maximum efficiency under all driving

conditions, is the key to its success.

Our written testimony provides details of the system, our test

data, and our engineering calculations of what Hyperdrive can

achieve in terms of improving fuel economy through a complete

range of vehicles. We have proven the concept of the Hyperdrive

power train by testing a full size prototype system on a dynamometer.

The prototype was built to replicate a large passenger car and

operated on the EPA test cycles. And the result was a combined

fuel economy of 44 miles per gallon. This compares to 24 miles per

gallon for the comparison car. Using this data, we are able to

model and calculate the fuel economy and performance that can be

expected from Hyperdrive and all sorts of vehicles.

Our modeling results indicate that we can, on average, increase

the fuel efficiency of the complete vehicle subject to CAFE regulation by roughly 50 percent.

With potential fuel economy improvements of this magnitude, application of Hyperdrive and a large volume production vehicle

would significantly reduce our Nation’s total gasoline consumption.

For the matter of possible government support, we and the auto

industry would benefit from support of the national laboratories.

We suggest that Argonne National Laboratory, which has substantial experience in the simulation and analysis of hybrid electric vehicles, should model the Hyperdrive power train to corroborate our

conclusions regarding fuel economy and vehicle performance.

We have been in contact with automakers in the United States,

Europe, and Japan for more than a year. Several of these OEMs

are evaluating the technology and its cost to justify the investment

it will take to bring this to market.

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Mr. Chairman, we thank you for the opportunity to tell you

about our technology and we will be very happy to answer questions.

[The prepared statement of Mr. Louckes follows:]

PREPARED STATEMENT OF THEODORE LOUCKES, CHIEF OPERATING OFFICER,

PAICE CORP.

Thank you for the opportunity to testify before your Committee regarding Corporate Average Fuel Economy (CAFE) issues. I serve as Chief Operating Officer of

Paice Corporation. We are an American company (our offices are in Livonia, Michigan and Silver Spring, Maryland) with an American technological solution to the

challenge of increasing fuel efficiency in passenger cars and light trucks. Paice is

an acronym for Power Amplified (battery and traction motors) Internal Combustion

Engine. Paice Corporation has designed, patented 1, 2, 3, 4, 5 and tested a hybrid electric vehicle (HEV) powertrain system called the Hyperdrive. I come before you today

to explain how the Hyperdrive system works and to describe our estimates of its

potential impact on fuel economy of automobiles subject to CAFE regulation.

The Hyperdrive System, a unique series/parallel hybrid electric powertrain for

automobiles and light trucks, delivers a previously unattainable combination of fuel

efficiency and vehicle performance at cost premiums that are reasonable when compared to conventional powertrains. Moreover, the Hyperdrive is well suited for a

wide range of passenger vehicles, including SUVs, light trucks, and minivans. While

other HEV designs can improve fuel economy or reduce emissions, no such design

can produce these benefits in as wide a class of vehicles or at costs as favorable as

the Hyperdrive. For these reasons, Paice Corporation believes that it has developed

the only HEV powertrain system, to date, capable of being profitably produced on

a large scale.

Paice Corporation has successfully demonstrated the benefits of the Hyperdrive

System on a full-scale prototype powertrain on a dynamometer with funding from

The Abell Foundation of Baltimore, Maryland, and is raising additional funding to

incorporate the Hyperdrive into vehicles intended for large-scale production. The

Company is currently in discussions with automakers throughout the world regarding production-intent vehicle prototype programs.

Paice is a small company that has attracted a unique group of highly experienced

automotive industry officials for its development efforts. For example, Dr. Alex

Severinsky, Chairman and Chief Executive Officer and founder of Paice Corporation, has been granted 21 U.S. patents, including three (3) on the Hyperdrive. He

has unique technical knowledge of operations of electric motors, electronic power

converters, electric storage batteries, and control of electro-mechanical systems. As

for myself, prior to joining Paice Corporation where I am the Chief Operating Officer, I was with General Motors for 40 years, including a four-year military leave

to participate in the Korean War, and retired as Chief Engineer of the Oldsmobile

Division. Among other programs at GM, I was responsible for the development of

the first overhead cam, 4-valve engine for American passenger cars and the introduction of the world’s first airbag system.6 Another of our staff, Nathanael Adamson, Executive Vice President, served Ford Motor Company for 32 years and gained

domestic and international experience in product development, program control,

marketing, and business management of consumer and industrial products in the

automotive industry. In addition, David Polletta, Vice President of Engineering, has

18 years of experience in engineering and management of EV and HEV projects and

12 years of experience at Ford Motor Company as a supervisory engineer in commercial truck engines and powertrain engineering.7

On our board of directors, we have several former auto industry officials. For example, Robert Templin, a retired GM Executive, has over forty years of experience

in the design, development, and production of automobiles and powertrains. Over

the years, he has held such GM positions as Technical Director of the Research Laboratories, Chief Engineer of the Cadillac Motor Car Division, General Project Manager of Special Product Development, and Special Assistant (Engines) to the President of GM. In addition, George Kempton has over 40 years of management experience in automotive and industrial products, including powertrain components for

commercial vehicles and most recently he left Kysor Industrial Corporation where

he was Chairman and Chief Operating Officer. Finally, Robert Oswald who recently

left his position as a member of the Robert Bosch GmbH’s Board of Management,

and Chairman, President and CEO of Robert Bosch’s North American subsidiary

Robert Bosch Corporation, after serving there for more than a decade.

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9Fuel Targets for Sport Utilities Pose Difficulties for Automakers, The New York Times, November 23, 2001, p. C1.

Our testimony today is divided into several topics: first, an overview of the characteristics of the Hyperdrive powertrain system; second, modeling results that demonstrate the Hyperdrive powertrain system’s potential for reducing fuel consumption

in three selected vehicles (a compact car, a full-size car, and a large SUV); third,

a discussion of why the Hyperdrive powertrain makes it possible to profitably commercially mass produce an HEV (and thereby deliver the fuel economy and emissions results that HEVs make possible); and fourth, a discussion of the implications

of the Hyperdrive system for fuel consumption. It is important to note that

powertrain developments at Paice Corporation continue at a rapid pace. What we

present here is a current overview of our development effort that will change as we

make further improvements and refinements to our system.

As will be discussed in greater detail below, the Hyperdrive system can increase

fuel efficiency in the selected vehicles modeled for this testimony by approximately

50 percent. We encourage the Senate Commerce Committee to ask the Argonne National Laboratory to model our results to corroborate our conclusions regarding fuel

economy and performance. We also encourage the Senate Commerce Committee to

request that the Oak Ridge National Laboratory 8 estimate what impact the

Hyperdrive system would have on future fuel consumption, based on the modeling

results from Argonne. In this regard, Paice Corporation would welcome the opportunity to work with automakers and/or the federal government to produce a demonstration vehicle that can be tested to reconfirm the conclusions discussed here

today and to more precisely determine the cost of producing such a system.

I. The Paice Hyperdrive System

Fundamental Principles

An auto industry executive was recently quoted as saying: ‘‘we can’t dictate customer choice, nor should we try to.9 This statement is widely accepted as a governing axiom in automotive marketing. To compete against current and future

powertrains, any HEV system as well as the Hyperdrive must be at least equal, and

even superior to existing powertrains in all respects. Only this will result in market

forces choosing the adoption of fuel saving powertrain technology. Accordingly, our

development of the Hyperdrive was guided by the following fundamental considerations:

• The system should run on readily available gasoline or diesel fuel.

• The internal combustion engine (ICE) should be used to convert liquid fuel

chemical energy into mechanical energy, as it is the most efficient means yet discovered.

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• The system should use the ICE only in its most efficient operating region; that

is, under those load conditions in which Brake Specific Fuel Consumption (BSFC)

is minimized. In Figure 1 we present graphically how the ICE is used in the

Hyperdrive in comparison with current powertrains.

• Use of the ICE in this way will result in increased fuel efficiency as well as

improvements (i.e. reductions) in exhaust emissions. Emissions can also be reduced

by use of advanced computer control of the engine air-fuel ratio, catalyst preheating

and a simplified engine operating cycle (eliminating ICE transients). While a number of current production vehicles are already meeting California’s Ultra-Low Emission Vehicle (ULEV) requirements, the Hyperdrive can assist in achieving this level

in the full range of vehicles and at lower cost.

• Sophisticated software control algorithms must be employed to control

powertrain components, without any need for an increase in driver skills or driver

awareness.

• Customer expectations must be satisfied without compromise. Present levels of

acceleration, convenience of operation, and operating/ownership cost must be equal

to or be better than those offered by present powertrains.

• Manufacturing raw material requirements must be satisfied by using the same

readily available materials already used in present high-volume automotive production, i.e. iron, lead, copper, aluminum and silicon. Special material needs, such as

catalytic agents, must be no more critical than they are today.

• System flexibility and cost must be applicable over a wide range of vehicle

weights and sizes to allow the benefits to be achieved over the entire passenger vehicle market.

• Current restrictions imposed on design flexibility by vehicle space, weight, drag

and architecture requirements should be reduced to allow more freedom for design

variations.

• Physical size and arrangement of the drive components must be flexible enough

to allow installation in existing body and chassis concepts to avoid the costs, lead

times and investments in plants and equipment that radical new vehicle programs

would require.

• Vehicle, powertrain and fuel system service requirements must be compatible

with the skills, training and diagnostic capability available at the retail level.

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Testing and Test Results

Based on these principles, Paice Corporation built and tested the Hyperdrive system (Figure 2) on a dynamometer load representing a typical 4,250 lbs. large passenger car. In Figure 2, we present arrangements and rating of components in the

Hyperdrive powertrain system as tested and in Figure 3 we present some photographs from the testing.

Table 1 presents a summary of the fuel economy test results. To verify these results, we have measured energy losses in all parts of the Hyperdrive together with

energy applied to the load, and compared this with the energy coming from the fuel.

These results coincided within tolerances of measurements. This allowed us to calibrate our control software model, which we have used to determine the expected results of using the Hyperdrive system in other vehicles discussed below (a compact

car, a full-size car, and a large SUV).

Key Technical Principle

The key technical principle underlying the Hyperdrive system is that it employs

a unique method of control (use of the engine) that optimizes the operation of the

internal combustion engine in hybrid electric vehicles. 1, 2, 3, 4, 5 This method of control results in the achievement of operational thermodynamic efficiencies1 of 32–34

percent as compared to the recognized maximal attainable efficiency of 35 percent

for spark-ignition internal combustion engines. By way of comparison, the internal

combustion engine in conventional vehicles typically operates at overall efficiencies

of around 20 percent. Our improved overall operating efficiency is supported by the

configuration of components in the Hyperdrive, including a lead-acid battery system

that stores the energy generated by the engine (and regenerated while braking), and

high-power electric motors that propel the vehicle when the engine cannot be used

in its most efficient operating region. Recent advancements in high voltage power

semiconductors, coupled with extensive positive experience in new lead-acid battery

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applications, have provided the practical basis for the commercialization of our technology.

How the Hyperdrive System Works

The internal combustion engine (ICE) of a conventional vehicle is required to deliver power under a wide range of loading as a function of driving condition. This

is an inefficient way of producing mechanical power from the energy in gasoline or

diesel fuel. If the ICE were allowed to operate only in its optimal operating region,

fuel efficiency improvements of roughly 50 percent would be possible (depending on

the size and type of vehicle and its intended application). This is the fundamental

principle behind the Hyperdrive as is illustrated in Figure 1.

Paice achieves this high level of performance and fuel economy by introducing a

battery system that captures the energy output of the ICE (which is operated only

in its most efficient range) and an electric motor that uses this electrical energy to

power the vehicle when the ICE cannot be used efficiently or when power requirements are higher than can be delivered by the ICE alone. The motor also acts as

a generator to recover energy from the vehicle during deceleration. (There are other

significant features of the Hyperdrive, but the foregoing is illustrative of the basic

concept that results in the dramatic improvements in fuel economy.)

The operation of all of these components and their function is managed by the

Paice Control Module, a multiprocessor with associated control software and embedded proprietary control algorithms. Through this patented method of control of the

drive components, the Hyperdrive system improves powertrain efficiency by roughly

50 percent over conventionally powered vehicles (depending on vehicle type and application). Other than the Paice Control Module, the various hardware components

in the Hyperdrive system already exist in one form or another in conventional vehicles. The differences lie in the relative sizes of components, their functional relationships and, most significantly, the software incorporating Paice’s patented method of

control, which enables the components to function as a highly efficient system.

Thus, the Hyperdrive represents an evolutionary step in automobile technology, and

does not require advanced development efforts or dramatic changes in manufacturing infrastructure.

Modes of Operation

There are four typical modes of operation that illustrate the basic functionality

of the Hyperdrive: city driving, recharging during city driving, acceleration, and

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cruising on the highway. In addition to these four, there are a number of other

modes defined in the control algorithm.

The Hyperdrive system includes a clutch—essentially a device that is either engaged or disengaged. The clutch must be engaged for the mechanical power from

the engine to be delivered directly to the driving wheels. The most frequent condition controlling whether the clutch is engaged or disengaged is vehicle road load reflected on the engine shaft. If this load is sufficient for the engine to be used near

its maximum efficiency, then the clutch is engaged. Otherwise, it is disengaged.

Generally, the clutch is not engaged during low speed city driving and is engaged

during rapid acceleration and highway driving.

In Figure 4, below, the clutch is disengaged in low speed city driving. In part A

of Figure 4, the battery is above its minimum state of charge and the traction motor

drives the vehicle. At this point, the vehicle is operating like an electric car. The

battery is used in a narrow range of the state of charge, normally in 50 percent to

70 percent under partial state of charge (PSOC) condition, to assure long operating

life. The amount of energy used in this electric-only mode is far below the PNGV

definition of ‘‘dual mode hybrid’’. The Hyperdrive system operates like an electric

car upon initial starting of the vehicle and during the intervals between times in

which the battery is being charged.

Part B of Figure 4, shows a time period in city driving after the battery has been

used to power the traction motors. Once the battery has reached its minimum state

of charge, 50 percent or so, the starter/generator motor starts the engine. Upon

starting the engine, a load is applied by the starter/generator motor (now operating

as a generator) so that the engine runs close to its minimal BSFC operating condition. The power produced by the starter/generator is split. One part of it is delivered

to the traction motor, making the Hyperdrive operate as a serial hybrid. The balance of the power is used to recharge the battery. Upon reaching the maximum level

of battery charge, about 70 percent, the engine is stopped.

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* This data is based on a study conducted by Oak Ridge Laboratories. Davis, SC 2001. Transportation Energy Data Book: Edition 21, ORNL–6966, available at http://www.ornl.gov/

webworks/cppr/y2001/rpt/111858.pdf.

In Figure 5, the clutch is engaged to accelerate onto and cruise on the highway.

When time-averaged road load on the Hyperdrive is sufficient to place the engine

in a region close to its minimum BSFC, the clutch is engaged. If the engine was

off, it is started and synchronized by the starter/generator motor. At this point the

engine begins to provide the average power demands of the vehicle. In this mode,

the Hyperdrive acts as a conventional powertrain with its transmission in the direct

drive position. This is depicted in Part A of Figure 5.

For vehicle acceleration or deceleration, all motors are used in a manner that

minimizes energy loss in all electrical and electronic components. The Paice Control

Module can assure this on a millisecond-by-millisecond basis. Acceleration with only

the traction motor is shown in Part B of Figure 5. This is parallel hybrid mode. Engine torque is controlled to lag motor torque to assure operation with the most efficient air/fuel mixture. This allows for material reduction of engine-out emissions,

not only for EPA test purposes but also under any driving conditions. Because electric motors provide excellent torque response to the driver’s command, optimized

levels of car responsiveness become possible, even varying the shape of this response

as a function of the driver history and driving condition.

II. Modeling of Selected Vehicles

Effect of the Hyperdrive System on the Fuel Economy of a Fleet of Vehicles Subject

to CAFE

Paice Corporation has modeled three vehicles (a compact car, a full-size car, and

a large SUV) to provide benchmark data on expected fuel economy improvements

in vehicles that can be produced in large volumes utilizing the Hyperdrive. The selection is limited to vehicles subject to CAFE regulation; that is, with Gross Vehicle

Weight (GVW) under 8,500 lbs.

In Table 2* , we present a summary of composition of vehicles subject to CAFE

regulation that were sold in year 2000, along with the fuel economy average for each

class. By combining sales volumes with combined fuel economy values, we calculated

the overall combined fuel economy to be 24.6 mpg.

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On the following pages, we show the results of our modeling for three particular

vehicle classes represented in Table 2. These are a compact car (page 10), a fullsize (large) car (page 11), and a large SUV (page 12).

Using the Hyperdrive system:

• a compact car exhibits an increase from 31 to 45 mpg (a 45 percent improvement);

• a full-size car exhibits an increase from 27 to 39 mpg (a 44 percent improvement); and

• a large SUV exhibits an increase from 16 to 26 mpg (a 62 percent improvement).

We believe that these modeling results represent the type of increase that all vehicles subject to CAFE can produce using our powertrain.

Compact Car

In Figure 6, we present the configuration of components in the Hyperdrive in a

compact car. Given this configuration, in Table 3, we present a comparison of performance between a conventional compact car and a similar car with the

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* As an illustration of the significance of gradeability standards, climbing even a 10 percent

grade at 45 mph for 5 minutes will elevate the vehicle by approximately 2,000 feet, or as high

as a 160-story building.

Hyperdrive. For this comparison, we specifically selected a top performer in both

driving characteristics and fuel economy.

It is important to note that combined fuel economy is improved from 31 to 45

mpg, or 45 percent. The passing performance is better with the Hyperdrive, accelerating from 55 to 75 mph in 5 seconds versus 6.7 seconds. Gradeability with the

Hyperdrive on a continuous basis is better at 80 mph and otherwise meets requirements of the auto industry.*

137

While the Hyperdrive car is a little heavier than its conventional counterpart (125

lbs. in total), this difference is already factored into the fuel economy results. We

138

believe that implementation of the Hyperdrive in a compact car will meet or exceed

customer expectations for performance and provide 45 percent improvement in fuel

economy.

Full-Size (Large) Car

Next, in Figure 7, we present the configuration of components of the Hyperdrive

in a full-size (large) car. Again, we specifically selected a top performer in fuel economy. In Table 4, we present a comparison of performance between a conventional

full-size car and a similar car with the Hyperdrive.

As shown here, combined fuel economy improves from 27 to 39 mpg, or 44 percent. Again, passing performance is better: 4.4 seconds versus 5.7 seconds. The

weight of the Hyperdrive vehicle is 125 lbs. greater than its conventional counterpart and this has been factored into our findings. We believe that implementation

of the Hyperdrive in a full-size (large) car will meet or exceed customer expectations

for performance and provide 44 percent improvement in fuel economy.

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140

Large SUV

Figure 8 shows the Hyperdrive modeled to represent a large SUV with the Gross

Vehicle Weight of 8,500 lbs., the highest weight vehicle subject to CAFE regulations.

In this configuration, the Hyperdrive replaces the mechanical 4x4 drive with an

electrical component and, because of a large difference in load range, we use a twospeed automatic transmission. In Table 5, we present a comparison of performance

between a conventional large SUV and one equipped with the Hyperdrive. Importantly, unlike other HEV designs that must compromise performance, with the

Hyperdrive system there is no change in trailer towing capacity.

Combined fuel economy is improved from 16 to 26 mpg, or 62 percent. Acceleration with the Hyperdrive SUV is markedly superior, accelerating from standstill to

60 mph in 7.7 seconds versus 9.6 seconds. Top speed is limited by tire rating.

Gradeability meets the requirements of the auto industry in the conventional SUV.

We believe that implementation of the Hyperdrive in a large SUV will meet or exceed customer expectations for performance and provide 44 percent improvement in

fuel economy. Unlike other HEV designs, the Hyperdrive does not need to eliminate

or greatly reduce trailer-towing capacity in order to provide the fuel consumption

benefits desired.

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III. Economics

We believe that a Hyperdrive vehicle can be produced with the same as or better

performance characteristics than conventional vehicles, and with improvements in

fuel efficiency and emissions, without substantially increasing cost. For example,

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* In its report ‘‘Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards’’, the Congressionally-authorized National Academy of Sciences (NAS) CAFE Study Panel

evaluated break-even fuel efficiency using two evaluation cases. Case 1 assumed that a vehicle

is driven 15,600 miles in its first year of service, decreasing 4.5 percent for each of the remaining years of its 14-year services life. This results in total mileage of 165.000 over the vehicle’s

assumed 14-year life. For Case 1, the CAFE Study Panel also assumed a current gasoline cost

of $1.50 and applied a 12 percent discount rate to render a current year present value analysis.

(The panel also applied an additional discount to the reported EPA mileage (15 percent) and

assumed a penalty for future vehicle weight gains (3.5 percent)). Applying this analysis to the

fuel economy improvements realized with the Hyperdrive-powered large SUV (16 mpg to 26

mpg), the present value of the fuel savings is $3,920. This compares favorably to the anticipated

increase of $1,700 in system cost. (The panel also reviewed a simpler Case 2 in which fuel use

over 3 years was evaluated, without discount. This case would yield savings over 3 years of

$2,057, also greater than the anticipated increase in system cost.)

Paice Corporation believes that the Hyperdrive could cost approximately $1,700

more than the conventional powertrain that it would replace in the large SUV application. Sources of data for this estimate came from prior experience of auto industry

suppliers, new components suppliers and from our own experience. To further refine

our cost estimates we are currently establishing a program to build a demonstration

vehicle with all of the components specifically designed for their intended use by

qualified automotive suppliers.

As an illustration of life cycle cost savings, the fuel economy benefit for the large

SUV is 10 mpg. Thus, as a rough estimate, if the vehicle is driven 12,000 miles per

year (average for American drivers) and has an expected life of 10 years, this fuel

economy improvement will yield approximately 2,900 gallons in fuel savings.*

The decision as to whether the fuel savings justify the increased manufacturing

cost is, of course, not purely quantitative. Evaluation of the secondary effects, however, is not within the expertise of the Paice team.

Building a cost competitive Hyperdrive system for large vehicles became possible

only after commercial introduction of high voltage power semiconductors, specifically

1,400 Volt IGBTs. This occurred in 1998, the year we started building a prototype

of the Hyperdrive. In Fig. 9 we present the ‘‘chain reaction’’ of effects of high voltage

power semiconductors.

The existence of high voltage semiconductors offers the ability to make inexpensive and efficient DC/AC inverters. This in turn permits introduction of powerful

traction motors. With powerful traction motors, elimination (or, in some cases, simplification) of the transmission is made possible. When using all these components,

the Hyperdrive implements our new method of engine control to achieve near-maximum thermodynamic efficiency of spark-ignition engines (32-34 percent as comVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00146 Fmt 6601 Sfmt 6621 D:\DOCS\89683.TXT SSC1 PsN: SSC1
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pared to the maximum of 35 percent). There are also additional benefits of using

lead-acid batteries at lower currents, such as increased operating life and lower cost.

The Hyperdrive is essentially an evolutionary improvement of the conventional

gasoline (or diesel) powertrain. It uses the same component technology, but in substantially different ratios. The engine is smaller. The transmission is either eliminated or reduced. The starter motor and alternator become more powerful and larger in size and weight. The lead-acid battery is increased in size and weight. There

are more powerful electronic power controllers than just existing voltage regulators:

the DC/AC inverters. However, these inverters employ the same basic type of components that exist in vehicles today. The operation of all of the components is coordinated through a highly sophisticated powertrain computer controller, similar in nature to existing engine control modules from a components viewpoint. Thus, the

Hyperdrive relies on very similar components very similar to those currently in use

and the resulting system weight is almost identical. Altogether, this leads to total

cost that is modestly greater than present powertrain configurations.

IV. Potential for Improvements in Fuel Efficiency

Based on the fundamental principles of thermodynamic efficiency, we believe that

the fuel efficiency of our powertrain represents close to the practical limit of what

is technically possible in passenger vehicles. We presented modeling results for

three vehicles: a) compact car, b) full-size (large) car, and c) large SUV. Using the

Hyperdrive system, a compact car exhibits an increase in combined fuel economy

from 31 to 45 mpg (a 45 percent improvement), a full-size car exhibits an increase

from 27 to 39 mpg (a 44 percent improvement), and a large SUV exhibits an increase from 16 to 26 mpg (a 62 percent improvement). We believe that these modeling results are representative of the type of increase that all vehicles subject to

CAFE can produce using our powertrain.

To provide a more complete picture of the improvement in fuel economy that could

be expected in other classes of vehicles, we identified the relevant characteristics of

all of the vehicle categories listed in Table 2 (the categories defined in the Oak

Ridge Transportation Energy Data Book and currently subject to CAFE regulation)

and designed the Hyperdrive system for a representative vehicle in each category. A

summary of our modeling results showing the original fuel economy of each representative vehicle, the fuel economy that results from incorporation of the

Hyperdrive system, and the percentage improvement from such incorporation is proVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00147 Fmt 6601 Sfmt 6621 D:\DOCS\89683.TXT SSC1 PsN: SSC1
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* The three Hyperdrive vehicles modeled and presented in section 2 above were chosen to represent the Hyperdrive system as compared to the top performing vehicles for compact and full

size (large) cars and the heaviest SUV subject to CAFE regulation. In Table 6, the Hyperdrive

was modeled to be representative of the class as a whole. As a result, the fuel economy results

for the categories ‘‘Compact Automobile’’, ‘‘Large Automobile’’ and ‘‘Large SUV’’ in Table 6 differ

somewhat as compared to the results for the three specific vehicles selected and described above

in section 2.

vided in Table 6.* With potential fuel economy improvements of the magnitude

shown here, application of Hyperdrive to a large volume of production vehicles

would significantly reduce total gasoline consumption and consequently, the requirements for oil imports.

All of the fuel economy improvements presented herein are based only on the use

of the new Hyperdrive power train. Further small improvements are still possible,

such as through ICE engine optimization, but such improvements will be subject to

the law of diminishing returns as the Hyperdrive is operating the engine within 1–

3 percent of its possible maximum thermodynamic efficiency. Furthermore, improved fuel economy from the use of lighter materials, smaller aerodynamic drag,

and lower resistance tires (those potential improvements discussed by the report of

the Union of Concerned Scientists.

4. United States Patent Application number 09/822,866, Severinsky and Louckes,

Hybrid Vehicles, published November 8, 2001. Available at http://www.paice.com/

patents/.

5. World Intellectual Property Organization PCT Patent Application, PCT/US99/

18844. Published March 23, 2000. International Publication number WO 00/15455.

Title page available at http://www.paice.com/patents/.

6. Louckes, Ted and Timbario, Tom, The Hybrid: A Challenge and an Opportunity

for IC Engines, Proceedings of the AVL International Congress on Internal Combustion Engine versus Fuel Cell—Potential and Limitations as Automotive Power

Sources, Graz, Austria, September 2001. pp. 145–160. Available at http://

www.paice.com/library.html.

7. Polletta, David, Fuel Economy and Performance Impact of Hybrid Drive Systems in Light Trucks, Vans, and SUVs, presented at the SAE Bus and Truck Conference, Chicago, IL, October, 2001. SAE paper number 2001–2826. (c) 2001 Society

of Automotive Engineers, Inc. Available (with permission of SAE) at http://

www.paice.com/library.html. are not included in our analysis and would potentially

result in additional improvements in fuel efficiency.

Of course, any HEV can only reduce overall fuel consumption in a meaningful way

if it is commercially mass-produced. As discussed above, we believe that the

Hyperdrive system has the only cost effective configuration of HEV that is fully scalable and is not cost prohibitive to mass-produce. As a first step toward the mass

production of a Hyperdrive vehicle, our projections for cost will have to be substantiated through a manufacturing cost analysis of actual components in an actual vehicle that exhibits the performance and fuel economy advantages described above.

Once cost projections are verified in the prototype vehicle, we would expect that participating automakers will begin the process of preparing for large-scale production

of vehicles with the Hyperdrive system. If a development program were to begin

now, automobiles with the Hyperdrive could be commercially introduced into the

U.S. market within five years. We are hopeful that this process will commence in

the near future in view of the level of interest being demonstrated by several leading automakers and key component suppliers.

It should be noted that such a transition will take substantial time to complete.

To begin with, it will take Paice Corporation two years to deliver a complete demonstration vehicle and two additional years for the automakers to test and evaluate

the vehicle and go through the expensive process of preparing for production. Once

a vehicle with the Hyperdrive system appears on the market, subject to the level

of customer acceptance and commitment on the part of the automaker, it will then

take a number of years for the transition of the full range of the automakers vehicle

lines.

While the Hyperdrive system can deliver fuel economy improvements of roughly

50 percent across the full range of automobiles and light trucks, an additional question is in which vehicles is it most appropriate to begin implementing the

Hyperdrive powertrain. We believe that the greatest fuel savings can be realized by

introducing the Hyperdrive system into the SUV/light truck class of vehicles. To understand why this is the case, one must evaluate the issue of fuel efficiency under

a gallons per mile analysis, as well as the traditional miles per gallon analysis.

As illustrated by Figure 10, under a miles per gallon (MPG) analysis, introduction

of Hyperdrive technology results in an increase from 31 to 45 mpg for a compact

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car (a 14 mpg increase) as compared to an increase from 16 to 26 mph for a large

SUV (a 10 mpg increase). Thus, from a MPG standpoint, it appears that greater

value is added by incorporating the Hyperdrive powertrain into a compact car.

However, under a gallons per mile (GPM) analysis, those same increases in fuel

efficiency result in dramatically different amounts of gallons used over 12,000 miles

(one year of driving). As Figure 10 illustrates, using the Hyperdrive system in the

same compact car yields a savings of 120 gallons per 12,000 miles. Conversely, using

the Hyperdrive system in the same large SUV yields a savings of 290 gallons per

12,000 miles—more than double the fuel savings from the compact car.

While other factors bear on fuel economy, we feel that it is logical to focus on the

number of gallons consumed for a specific distance traveled. Moreover, it makes

sense that the Hyperdrive technology will yield the greatest per vehicle fuel savings

when introduced into the SUV/light truck class of vehicles, because passenger cars

are already more fuel-efficient than SUVs and light trucks and, therefore, don’t have

as much room for improvement. Consequently, if the goal is to yield the greatest

fuel savings in the categories of vehicles currently on the road, the Hyperdrive system should be introduced first in the SUV and light truck vehicle class.

Additionally, we recommend that the Senate Commerce Committee ask Argonne

National Laboratory to use its modeling software to corroborate our technical data

and modeling. Their software is designed specifically for hybrid-electric vehicles and

is able to match performance of physical models within 1–2 percent accuracy. It will

allow the Government to corroborate our technical results without spending millions

of dollars for physical prototypes, and will take weeks instead of years to complete.

We also recommend that the Senate Commerce Committee take ANL’s data and ask

Oak Ridge National Laboratories, the originator of the report referenced in this testimony, to do a detailed analysis of the impact of the Hyperdrive on oil uses in the

future. Paice Corporation is prepared to work with these national laboratories in

performing such studies and to meet with the Senate Commerce Committee or other

parties to discuss the results.

Conclusion

The Paice Corporation has designed and developed a hybrid electric powertrain,

which results in ICE fuel efficiencies in the range of 32–34 percent, approaching the

limit of thermodynamic efficiency for spark-ignition engines. Current automobile

ICEs operate at around 18–22 percent, so the Hyperdrive has a potential to deliver

significant gains in fuel economy.

We have successfully demonstrated fuel economy improvements in a full-scale prototype of the Hyperdrive on a dynamometer and used the data derived from such

tests to model three selected vehicles, a compact car, a full-size car, and a large

SUV. As compared to their conventional counterparts, the vehicles powered by the

Hyperdrive exhibited an increase in combined fuel economy as follows:

Compact car—from 31 to 45 mpg (a 45 percent improvement)

Full-size car—from 27 to 39 mpg (a 44 percent improvement)

Large SUV—from 16 to 26 mpg (a 62 percent improvement)

The Hyperdrive is suitable for all vehicles covered by current CAFE regulations,

and we believe that the modeling results presented are generally representative of

the type of increases in fuel economy that can be realized in all vehicles subject to

CAFE.

Regardless of the type of regulations imposed, Paice believes that national fuel

consumption can only be meaningfully reduced in the long term if the auto industry

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can produce cars at acceptable cost that suit the needs and desires of consumers

and that are at the same time highly fuel-efficient.

Hyperdrive cars will match or better the performance of existing vehicles. They

will also have conveniences and features not feasible in present day cars.

Hyperdrive cars will be more heavily dependent on real-time control software and

other more advanced technologies than present ones and do things we can’t even

imagine now, as cell phones did just a few years ago. In a truly American way, they

will save gas, and they will be better products.

We are confident that the Hyperdrive can be a valuable tool in enhancing fuel

economy, improving our environment and reducing our dependency on foreign oil.

We look forward to working together with the Government and the auto industry

in achieving these goals.

References

1. United States Patent number 5,343,970, Severinsky, Hybrid Electric Vehicle,

issued September 6, 1994. Available at http://www.paice.com/patents/.

2. United States Patent number 6,209,672, Severinsky, Hybrid Vehicle, issued

April 3, 2001. Available at http://www.paice.com/patents/.

3. United States Patent Application number 09/392,743, Severinsky and Louckes,

Hybrid Vehicles Incorporating Turbochargers, allowed October 12, 2001. A copy of

this patent will be made available at http://www.paice.com/patents/ once it is published by the U.S. Patent and Trademark Office.

4. United States Patent Application number 09/822,866, Severinsky and Louckes,

Hybrid Vehicles, published November 8, 2001. Available at http://www.paice.com/

patents/.

5. World Intellectual Property Organization PCT Patent Application, PCT/US99/

18844. Published March 23, 2000. International Publication number WO 00/15455.

Title page available at http://www.paice.com/patents/.

6. Louckes, Ted and Timbario, Tom, The Hybrid: A Challenge and an Opportunity

for IC Engines, Proceedings of the AVL International Congress on Internal Combustion Engine versus Fuel Cell—Potential and Limitations as Automotive Power

Sources, Graz, Austria, September 2001. pp. 145–160. Available at http://

www.paice.com/library.html.

7. Polletta, David, Fuel Economy and Performance Impact of Hybrid Drive Systems in Light Trucks, Vans, and SUVs, presented at the SAE Bus and Truck Conference, Chicago, IL, October, 2001. SAE paper number 2001–01–2826. (c) 2001 Society of Automotive Engineers, Inc. Available (with permission of SAE) at http://

www.paice.com/library.html.

8. This data is based on a study conducted by Oak Ridge Laboratories. Davis, SC

2001. Transportation Energy Data Book: Edition 21, ORNL–6966, available at

http://www.ornl.gov/webworks/cppr/y2001/rpt/111858.pdf.

Senator KERRY. Thank you very much, Mr. Louckes.

I guess any sort of non-expert layperson’s reaction to the testimony is to quickly turn to the industry and say why not or where

is this? What’s your reaction to that particular technology and if

it is as good as he says it is, why aren’t the Big Three chasing

these guys like bandits?

Mr. ROBERTSON. We have had dialog with Paice in the past. I

have to say not recently. We, I think we all recognize that as we

sit here, the potential for hybrids, we feel that we have a number

of both proprietary and non-proprietary approaches to hybrids

which can yield, depending upon how it is done between 20 and 30

percent better fuel efficiency in and of itself, and the big challenge

of course is doing it cost effectively.

The last time we looked at the Paice system, it was a 900 volt

lead acid volt battery system with a diesel. There are a number of

issues with that. We are very enthusiastic about the diesel. We

would love to use diesel in this market like we do in Europe, but

I think you know, there are some real impediments to that which

we are all working hard on. 900 volts is a real challenge. I think

the industry is trying to drive the voltage down as low as possible

for all of the obvious reasons, and batteries, lead acid batteries are

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attractive from a low-cost point of view, but that is the end of the

positives.

Most of us are trying to get to lithium ion and probably starting

out with nickel metal hydride and will go to lithium iron as soon

as there is a supplier able to supply them.

In a nutshell again, I would have to say we have not looked very

recently and would be happy to do that. I have no basis to quarrel

with the testimony, but for a variety of technical reasons, we think

that the approach that we are taking and the approach we have

already announced for 2003 and 2004 production will be more cost

effective, more attractive and hopefully, equally effective.

Senator KERRY. Do you want to comment also, Mr. Olson?

Mr. OLSON. Briefly. I am not aware of whether engineers at our

parent corporation in Japan have talked to Paice. I know that we

tend to be an intensely not-invented-here company. We like to do

our work internally. We have three different types of hybrids already in Japan.

It is a very, very promising technology. We think it is a core

technology for the mid-and longer term and we intend to deploy it

aggressively. We will have more announcements about that in the

near future.

Mr. LOUCKES. If I could just add something.

Senator KERRY. I was going to come back to you.

Mr. LOUCKES. Our technology is not based on diesel. The data I

am speaking to you about, in a written submission, is based on

spark ignition engines. However, we are doing a project for one of

the overseas companies using a diesel engine and it is far better,

of course, but it is not dependent on that.

With regard to high voltage, that is one of the keys to the economies of this type of approach. And of course, we have been through

a great deal of examination with Underwriters Laboratories as to

the relative safety of this application as compared to a 200–and

300-volt application and it was found by them to be even safer.

The key is that as you go to higher voltage, the cost of power

electronics goes down as a square of the current and so one of the

keys to getting low cost in hybrids is to get the cost of the electronics and power electronics and motors at lower levels. When you

take it to higher voltage, that is possible.

With regard to lead acid batteries, we have a tremendous background of experience. There is current testing going on that indicates that this application can use lead acid batteries very successfully, perhaps even more successfully than nickel metal hydride or

lithium iron and in the sense that we use it very gently. It is very,

very well proven to operate successfully in all climates, at extreme

temperatures, both low and high. Lead acid batteries have been in

the automotive industry for well over 50 years, as long as I have

been in it.

Senator KERRY. Where are you in the development and testing

of this at this point?

Mr. LOUCKES. Well, as I indicated, we have built a prototype system. We have tested it on a dynamometer according to the standard testing as well as random driving and we are in the process

now of working with potential suppliers and automotive

industry——

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Senator KERRY. How long does it take to get this into vehicle design?

Mr. LOUCKES. We could get a complete prototype program done

from 2 years from whatever day you start, and based upon my experience in the industry to take that to production successfully

with due care and production reliability all established is probably

another 2 to 3 years after that before you could be in volume. To

be honest with you, perhaps it could be done sooner, but that is the

prudent thing. I would say——

Senator KERRY. What does your modeling suggest is the cost to

the customer?

Mr. LOUCKES. Well, for example, and we have, of course, a lot of

experience of our own on the cost of these components. We have inhouse in our own organization a very experienced cost analyst who

has worked with the industry in the United States for many years.

We see a large sports utility 4-by-4 at about plus-$1,700.

Senator KERRY. Plus-$1,700 and the savings in fuel, so it would

be 50 percent of the savings?

Mr. LOUCKES. $1,700-plus for an improved performance and with

a fuel economy that I indicated that went from 16 and combined

to 26.

Senator KERRY. So what’s the lifetime? And I have not done the

math on it.

Mr. LOUCKES. Well, in 10 years, you will save about $3,000.

Senator KERRY. 10 years. Most people do not keep their cars 10

years.

Mr. LOUCKES. No. But I am just talking about 12,000 miles a

year. And it depends upon the cost of fuel. Of course, if you take

today’s fuel, that is what I am talking about.

Senator KERRY. Have you discussed your technology with automakers in Europe and Japan?

Mr. LOUCKES. Yes, I have.

Senator KERRY. Is there a differential in the interest between domestic and foreign automakers?

Mr. LOUCKES. There appears to be at this time.

Senator KERRY. Meaning?

Mr. LOUCKES. We seem to be getting a more ready acceptance

from the suppliers, the automobile makers overseas. Of course, we

are an American company and we hope that we can work with the

U.S. auto industry to bring this technology to market because ours

provides significant advantages over other hybrid technologies.

Senator KERRY. Let me come back for a moment if I can to Mr.

Robertson. Your comments a moment ago about NHTSA. I just

want you to know for the record that I respect the industry and

its uniformity in the industry. You all would prefer to have NHTSA

handle this, and that is clear in the testimony today.

But let me just make it clear to everybody that that is a wish

that I am afraid cannot be farther to the fact in this situation.

There is an energy bill that is going to come down the pike in January, whether this Committee moves or not, someone is going to

introduce something on the floor of the Senate.

What we are trying to do is address fuel economy in the most orderly and thoughtful way possible, which is through the committee

process, but there is an inevitability to some kind of passage, a cerVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00152 Fmt 6601 Sfmt 6601 D:\DOCS\89683.TXT SSC1 PsN: SSC1
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tainly, a confrontation, on the issue of CAFE standards. But I have

to say to you that you have got to be sensitive to the politics that

I discussed earlier, about the road we have traveled here, the kinds

of comments that have been put on the table in prior years and

particularly, with respect to NHTSA.

Here is where credibility gets put to the test, unfortunately, in

the flip-flop according to who’s where, who’s in power, and where,

obviously, they think they are going to ‘‘do better,’’ and better

seems always to be not how do we find the best median here, but

how do we just keep the status quo. And so in 1989 and 1991, both

Chrysler and GM urged this Committee to defer to NHTSA and oppose the Committee’s strong CAFE legislation because, of course,

NHTSA was then regarded by the industry as being in friendly

hands.

In 1995, when NHTSA was poised to issue revised standards,

Andrew Card, on behalf of the automakers, told a House Committee that NHTSA held too much authority over CAFE and urged

Congress to take back CAFE policy responsibility, which as we

know in 1995 it did through the detriment of this 6 years of thinking without any kind of fact gathering or genuine effort to make

a change. So from my perspective, there has been such obvious

forum shopping that it is hard to take your suggestion that it is

anything more than a continuation of that and it is not going to

have an impact on the Committee’s need to try to find a way to

work with you on this and so I know you stated it for the record.

It is out there. But I am just saying for the record that the Committee is going to proceed forward to try to come up with something through the legislative process.

I can’t guarantee you it is going to be non-confrontational, but I

would like to be as non-confrontational as it could be. I’d like to

find a way to see if we couldn’t meld a combination of efforts here

that makes for good policy, and I hope we will be able to do that

in some way and perhaps we can.

Mr. ROBERTSON. Mr. Chairman, may I?

I certainly respect those points, and the reality is as you cited

it and with regard to your comments earlier this morning about

forum shopping, I can’t quarrel with that. I can’t make a persuasive case otherwise.

I would only say that I think you have conducted this hearing

today in a very objective manner, if I may say so, and allowed people to bring out their views and have been very patient in that, and

I commend that.

In listening to it all, it is clear that it is a very, very complex

subject and the deeper you dive into any element, whether it is an

attribute-based system or has safety really been affected or not,

just how do you interpret the National Academy results. It is a

very, very complex subject and I can only say that we hope that

however it is done and whether it is done in Congress or at NHTSA

or in conjunction, we hope that it is done by all means quickly, but

in the very thorough manner and I can only plead that the appeal

of the NHTSA approach is that they have the staff and the technical people on the premises that we think can add to that analysis.

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Senator KERRY. Well, we will certainly reach out to them. Look,

I want this to be objective. This is important stuff, and it has a serious impact on people. I think there are a lot of things to weigh

and I found as one digs into it, there really are interesting, interesting and really fairly delicate balances between where the gains

have been made.

I think there was some cherry picking in the initial part of

CAFE, and so the weight components and some of the carburetion

and other kinds of gains that were there to be grabbed were much

easier to grab. That having happened, there is an obvious hybrid

option here and hybrid takes you way up in the 1960s, 1970s,

1980s of MPG, it depends on what the particular technology in vehicle is.

But clearly, if consumer choice is going to be one of the things

we are trying to measure, in the current marketplace, it is hard to

find what’s going to drive consumers toward that, unless it is really

equal in performance. I mean, some salesman is going to have to

be able to sit here and say ‘‘Hey, let me see this car.’’ It has got

the same acceleration, exact same comfort level, the same driving

characteristics and so forth and if it doesn’t, I can see how a buyer

is going to say, ‘‘Well, that is kind of new and I am not sure about

it yet, and this is all tried and true and that is where I want to

go.’’ So you know, we have got to think through all of these kinds

of things. There are also some inherent, and I say this nicely, but

I think some deficiencies. I am not in the auto industry.

If I had been in the business 30 or 40 years ago, I would have

driven my company in a very different direction. I think Europe

has taught us that through the years. We have seen their products

and the influence they have had on our market, but we still always

tend to kind of push the extreme of the marketplace and there is

an American culture about it, too. We all grew up thinking differently about the automobile than people in other countries and

culture is part of your marketplace and you have to obviously appeal to that.

So I am aware of this, and I am trying to find a way to get the

parameters of the realities here, what is the reality of the NAS review? What is the reality of the technology? What is the reality of

what we could gain if there is some cherry picking left, how much

does that amount to in terms of miles per gallon gained, and how

fast can we push the envelope and what incentives should we appropriately use to push that envelope and maybe we can be creative about this and think about it as a mix and match a little bit.

I am not sure of the answer to that yet. But we are open to looking

at that as thoughtfully as possible.

Mr. Friedman, let me just ask you, you have listened to the industry and I found again with all due respect, often people can sit

on the outside of the industry itself and look at the technology and

say these are ready available, but then you run into the kinds of

complications that Mr. Robertson or others have tried to describe.

Is the lead acid battery perhaps more dangerous or is not it more

dangerous? You have different points of view about these things.

How sure are you when you talk about the technological feasibility,

and the prior panel said they had agreed to disagree with the National Academy of Sciences. We have not made a judgment yet, but

151

how sure are you of the notion that outside of hybrid, there are

these miles per gallon to be gained from current level of technologies.

Mr. FRIEDMAN. I would have to say that I am very sure. I think

the analogy you made earlier to cherry picking is a very good one.

We did have a lot of cherries to pick in the late 1970s and early

1980s to improve fuel economy, but the great thing about cherry

trees is the cherries grow back and technology is a lot like that,

technology progress keeps moving forward.

And in the last 15 years, where fuel economy standards have basically stayed stagnant, many technologies have come on line that

are now just like the cherries that we were able to pick before.

Senator KERRY. Such as?

Mr. FRIEDMAN. Such as, for example, one of the technologies

General Motors mentioned, cylinder cutoff systems. Such as continuously variable transmissions.

Senator KERRY. But they are using them.

Mr. FRIEDMAN. They are using them. They are starting to bring

them into vehicles.

Senator KERRY. What percentage of vehicles? Does anybody

know?

Mr. OLSON. Do you mean CVT? CVTs are very low usage yet.

Senator KERRY. And what kind of gains are available in them?

Mr. FRIEDMAN. The gains from continuously variable transmission can be quite significant, especially when combined with an

advanced engine. One of the really impressive things about a lot

of the technologies is that actually in a lot of cases the benefits can

add between the two.

Continuously variable transmissions can easily give you anywhere between 5 to 10 percent increase in fuel economy depending

upon the vehicle and efficient engines such as advanced versions

of variable valve technology engines that are some versions of

which are on the road today can get you another 10 to 15. Together

they can get you a little bit more because they work off each other

to increase the benefits. And there is a lot of examples of where

those synergies do exist.

Senator KERRY. You are suggesting that in the stagnation of the

last years without any impetus from NHTSA, without any enforcement, with the sort of permissive decline as well as with the cost

of fuel, there has been an open season on retrenchment, if you will.

Mr. FRIEDMAN. We are in an ironic position that the policy that

was brought up earlier to take all vehicles off the road and replace

them with new cars would actually decrease the fuel economy of

the fleet.

The cars we are selling today are lower in fuel economy than

they were 10 to 15 years ago. These cars are more fuel efficient but

their fuel economy is lower. A lot of the technologies, we have lost

some technologies because of that stagnation, but at the same time,

technology progress as you were saying and summarizing is not

stopped, and there is a lot of technologies out there and I think the

automotive news picture that was shown previously shows some

additional examples of that and that is what the National Academy

of Sciences study focuses on is all existing and emerging technologies.

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This is not rocket science. These are not brand new technologies.

These are things the automakers have been looking at for quite a

while.

Senator KERRY. How about that, Mr. Olson?

Mr. OLSON. One of my colleagues just tapped me on the shoulder

and said to remind you again of what I said in my testimony.

Sixty-two percent of our engines now have variable valve technology.

Senator KERRY. That is what I thought I heard you say.

Mr. OLSON. I should have said it again.

Senator KERRY. That is all right. I thought I heard 62 percent

now, but what is the Chrysler story?

Mr. ROBERTSON. We have a relatively small number of engines

right now that have variable valve timing. We have——

Senator KERRY. Could you gain much from it?

Mr. ROBERTSON. In and of itself, there is a small potential improvement. Obviously we are trying to do a variety of these things,

cylinder deactivation was mentioned. We have one engine with

that. We will have another one next year. The cylinder deactivation

is really only applicable to 8-cylinder or 10- or 12-cylinder engines,

simply because when you shut off half the engine, obviously you

are down to 4 cylinders in the case of an 8; or 3 in the case of a

6-cylinder. You then start to run into some of these other sort of

subjective issues like will the customer accept a V–6 that feels like

a 3 cylinder when it is in deactivation mode?

Those are the kind of day-to-day challenges that obviously we all

deal with. The other comment I wanted to make though, and frankly one of the areas in which we agreed to disagree with the National Academy as Ms. Cischke indicated, is to what extent you can

add these things together. And again, as a member of the Academy, I am not inclined to dump on the Academy, but where we disagreed probably more than anything else.

Senator KERRY. How cumulative they are?

Mr. ROBERTSON. Yes. Can you add a CVT at 5 to 10 percent on

top of an efficient engine on top of this, that, and the other?

Senator KERRY. What about that, Mr. Friedman? Is that fair?

Mr. FRIEDMAN. Well, that was a point that was brought up at the

National Academy of Sciences meeting and, in fact, it produced

some very strong reactions from the panel members on the National Academy of Sciences. The automakers accused the National

Academy of Sciences of violating the laws of thermodynamics. That

is not jaywalking. That is a felony to a scientist, I mean, this is

serious.

[Laughter.]

Mr. FRIEDMAN. And yet, they later retracted that and said no,

well, we actually wouldn’t talk about it that way. The engineers on

the National Academy of Sciences panel are confident. I am confident that they did the best job that they could. There is some potential on the very, very high end for some double counting. I did

not even show those numbers. Those numbers showed that you

could get to 46 miles per gallon.

Senator KERRY. So the conservative low end median is what

level?

153

Mr. FRIEDMAN. The median range from Path 3 technologies is

what I have up there. That is the average range is 38.9 miles per

gallon from Path 3. From Path 2——

Senator KERRY. Over what period of time?

Mr. FRIEDMAN. That is 10 to 15 years. Path 2, which is within

10 years, is 34.2 miles per gallon and that is without using weight

savings. All of these vehicles are either the same weight as vehicles

are today.

Senator KERRY. Do any of those things, Mr. Ditlow, compromise

safety?

Mr. DITLOW. No, they do not. I mean, for example, if you go to

weight savings, you can use higher strength, lower weight materials, as a substitute.

Senator KERRY. What does that do to cost?

Mr. DITLOW. It will raise the cost, but it will not raise the cost

significantly.

One of the dilemmas within the automobile industry, though, is

the cost philosophy is if you have a dollar additional cost per vehicle spread over 15 million vehicles, that’s $15 million, so if it is

$10, that is $150 million and so any time you deal with the automobile industry, you are dealing with big numbers and so, but

what the automobile industry is not looking at is the cost savings

to consumers because their cost accounting ends at the sticker

price and so the savings to the consumer in terms of reduced gasoline consumption don’t get reflected into the cost accounting of the

automobile manufacturers.

I want to add one thing about NHTSA. As an observer of NHTSA

over the years, the ability of that agency to do analytical work in

fuel economy today is 1/10th of what it was in 1980. I mean they

have just dramatically cut back the number of staff and the

amount of resources in that budget.

Senator KERRY. We’re not sure they remember how to do it. It

has not been in the forefront of their work and I do not mean to

be snide about it, but that is a question I do not know the answer

to.

What is the lead time? Mr. Robertson, and Mr. Olson, what sort

of lead time is reasonable to assume here and I am looking at the

manufacturing cycles, design cycles. I mean, I know you do not

want to accept the notion of any particular figure, but if there were

some mix and match here that we do decide to do, what is the most

reasonable lead time that you think we ought to try to embrace

even as perhaps a very, very, varied span of time X, minimum X

maximum.

Mr. ROBERTSON. There are two major components to lead time.

One is just simply the development, the more ‘‘stretch,’’ the technology, obviously, the longer it takes to develop it and to prove that

it is reliable and so on under all conditions, then the other aspect

of it is the extent to which we have already gotten invested and

have a cycle plan for turning over products. If we have to replace

a transmission plant, for example, that we just spent the billions

of dollars to tool.

We have a schedule for retooling those things and retooling models which is in the sort of eight to 10-year range, so when the Academy said 10 to 15 years to populate technologies across the whole

154

fleet, that from our point of view, that is probably a reasonable

amount of time, that doesn’t mean it takes 10 to 15 years to develop a particular technology, but if you look at some of the significant turnovers that we have seen before the shift from carburetors

to fuel injection, that took about 15 years to convert the whole fleet

and so on. In that case, there was a certain amount of customer

pull to facilitate it.

Senator KERRY. Well, I think Mr. Friedman, let me just check

with you on this. In this ‘‘Drilling in Detroit’’ report, you estimate

that the automobile equipment sector could provide the creation of

40,000 jobs by 2010 and over 100,000 jobs by 2020. The auto companies, on the other hand, are clearly arguing that this requirement would result in the loss of jobs.

How do we reconcile these two approaches?

Mr. FRIEDMAN. Well, I think part of it is that if you look at a

lot of the analyses by the auto industry on the impacts of raising

fuel economy standards, one of the strongest assumptions that is

made there is that any plants that make vehicles that do not meet

that standard would have to shut down and that is equivalent to

giving up and I think it is clear what National Academy of Sciences

results, the technology is there that they do not have to give up.

They can modify the vehicles over time and improve their fuel

economy, so there is no reason for these jobs to be lost unless they

give up on trying to compete in that market segment with those

vehicles.

Senator KERRY. What happens to the niche that they have created now? Particularly General Motors is making money through

the significant sale of the SUVs. It sells other cars at a loss, and

that niche is a critical niche to the profitability and ability of the

company to keep the people employed who are working there. Who

knows what the economic impact might be on that particular division. What is your attitude about that?

Mr. FRIEDMAN. Well, I believe that they have the technology to

ensure that they are not going to lose that niche. They can make

these vehicles more fuel efficient, but just as comfortable and just

as safe as what they have today. They are competing well in those

markets. They have the technology to ensure that they can continue to competing in those markets.

Senator KERRY. Do you agree with that, Mr. Louckes? I mean,

some of the things that other designs have put onto those vehicles

have added weight, or altered the entire configuration, or the safety that they provide, or decreasing performance, and so forth. I

mean, if they scale back on performance, is the vehicle still as marketable and still as interesting to the consumer?

Mr. FRIEDMAN. Our analysis shows you can reach the fuel economy levels, as does the National Academy of Sciences analysis say

that you can reach these levels without giving those things up.

Without changing the overall design of the vehicle, without changing or reducing the performance of the vehicle; in fact, in some

cases you can improve the performance of the vehicle.

Senator KERRY. Do you agree with that, Mr. Louckes?

Mr. LOUCKES. Well, we do, based upon what we are trying to implement.

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Senator KERRY. If your engine worked and if you could implement it, it works to the modeling.

Mr. LOUCKES. There is nothing unique about our engines, of

course, but this is a complicated system and it will take a significant technical development program.

Senator KERRY. Your particular system, will it add weight? The

lead batteries?

Mr. LOUCKES. Typical applications had a very small additional

weight in a large sport utility, it is probably going to be a neighborhood of 250 pounds net. It depends upon the application. Where

you have a passenger car, a typical passenger car, we eliminate the

automatic transmission completely. We downsize the engine by

about nearly half the size. That is offsetting weight to the added

weight for the battery system. The power electronics are all very

light. That doesn’t really add up to much because——

Senator KERRY. What is the impact, Mr. Ditlow, of 250 pound

add-on in terms of SUV in terms of what you were talking about?

Mr. DITLOW. In terms of reducing—well, you need to find some

other weight substitutions, materials to reduce the weight of the

SUV, but we are much more concerned about the stiffness of the

SUV than we are about the weight of the SUV. Because if you have

an SUV of the same weight, but it crumples very nicely in the front

like a passenger car, that is going to be a safer SUV for its occupants than the occupants of the vehicle it strikes, regardless of

whether the weight stays the same or not.

Mr. LOUCKES. Our calculations are based upon those added

weights for the fuel economy that our modeling demonstrates. I

have had a lot of experience on the safety side, too.

I was responsible for the first airbag systems in General Motors

back in the early 1970s, and we are not going to change the basic

structure of the vehicle with this technology at all. As a matter of

fact, it may allow you to improve in certain areas in terms of crush

space.

Senator KERRY. Just a final question for both of the manufacturers. Mr. Olson and Mr. Robertson.

What do you believe happens in terms of that sort of niche in the

current marketing structure with a mandate to meet a higher

standard?

Mr. OLSON. I am not sure I understand the question.

Senator KERRY. Well, if all of a sudden the CAFE standard goes

up and you have X number of years to meet it, you are currently,

you have got, there is a pretty good market out there with respect

to these larger, more powerful, more capable cars with all of the

creature comforts that have been put into them that add weight

and so forth, and did not affect fuel consumption.

In your judgment, what happens to the Big Three in terms of

their current domination, if you will, of that component of the market, which incidentally, foreign producers are now attacking a little

more aggressively anyway?

Mr. OLSON. I made the point in my testimony that we are a full

line manufacturer. And to give you an example, I looked at the

sales year to date through November, 45 percent of our sales are

LDT, light duty trucks; 48 percent of GM sales are in the light

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duty truck category. Ford is much more dependent on that category, I will point out in all honesty.

If any CAFE changes are structured to be effective and they are

structured to be fair and they are structured to better rely on the

market with policy goals, we are confident in whatever race you set

under way because we are confident in our technology. I will leave

it at that. I do not know whether that answers your question.

Senator KERRY. Well, it underscores to me why some other people are concerned.

Let me just thank all of you for taking the time. I know this has

been a long haul, but I think it is been very helpful and helped us

lay an initial record. I am not sure when the next hearing will be.

We will have an additional hearing to try to go further with some

of these issues, working off of sort of this threshold than the prior

hearing.

We may be in touch with some of you privately and personally

just to sort of talk through some of this. We look forward to following up.

Thank you all very much. We stand adjourned.

[The hearing adjourned at 2:10 p.m.]

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APPENDIX

PREPARED STATEMENT OF WILLIAM C. DUNCAN, GENERAL DIRECTOR,

JAPAN AUTOMOBILE MANUFACTURERS ASSOCIATION

Mr. Chairman and Members of the Committee: On behalf of the Japan Automobile Manufacturers Association, I want to thank the Committee for the opportunity to submit this statement for the record in this hearing on fuel economy

standards.

JAMA is the trade association of Japan’s motor vehicle manufacturers, representing a significant number of the companies directly affected by the Corporate

Average Fuel Economy (CAFE) standards, and in particular by the CAFE ‘‘fleet

split’’ or ‘‘2-fleet’’ rule. JAMA has long taken the position that the CAFE fleet split

rule; represents a regulatory burden on auto manufacturers that should be eliminated, without adversely affecting the goal of fuel efficiency.

In addition, JAMA notes that in the National Academy of Sciences (NAS) study

entitled, ‘‘Effectiveness and Impact of Corporate Average Fuel Economy Standards,’’

requested by Congress, the study’s Finding 3 stated, ‘‘The committee could find no

evidence that the ‘2-fleet rule’ distinguishing between domestic and foreign content

has had any perceptible effect on total employment in the U.S. automotive industry.’’ Accordingly, the study made Recommendation 4: ‘‘Under any system of fuel

economy targets, the 2-fleet rule for domestic and foreign content should be eliminated.’’ We concur with this recommendation.

In March 2000, JAMA submitted. a paper on the fleet split issue to the National

Highway Traffic Safety Administration. Since this paper provides substantial detail

and analysis supporting JAMA’s position on eliminating the fleet split rule, I would

like to submit it as part of my statement for the record.

If the Committee has any questions or would like additional information on any

aspect of JAMA’s position, I would be pleased to respond.

Thank you.

Attachment

Corporate Average Fuel Economy Fleet Split Requirement: The Need for

Deregulation; Japan Automobile Manufacturers Association

Introduction

On June 19, 1997 the Governments of Japan and the United States agreed to an

Enhanced Initiative on Deregulation and Competition Policy. The Enhanced Initiative is a dialog intended to address regulatory measures which have the effect of

unnecessarily distorting trade, raising costs and limiting choices for consumers. The

ultimate objective of the Enhanced Initiative is the removal of sectional and structural impediments to expanded international trade and investment flows.

At its inception, the Enhanced Initiative recognized that the United States and

Japan are part of an increasingly integrated world economy. Nowhere is this fact

more evident than in the automotive industry, which is at the forefront of

globalization, and is made up of multinational competitors with manufacturing operations throughout the world. Aspects of the Corporate Average Fuel Economy

(‘‘CAFE’’) regime exist in stark contrast to this reality, imposing restrictions and requirements that cut against the grain of a global automotive industry.

Specific provisions of the CAFE law and regulations are preoccupied with what

is ‘‘domestic’’ and what is ‘‘foreign,’’ an increasingly irrelevant, distinction in light

of the automotive industry’s development over the last 20 years, and particularly

over the last 2 years. Unfortunately the distinction as imposed under CAFE is not

trivial in terms of its burden on trade costs, and consumer choice, which is why the

regulatory scheme is an appropriate topic of discussion under the Enhanced Initiative.

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Simply put, the CAFE ‘‘fleet split’’ rule imposes artificial bureaucratic restrictions

that increase costs, do not serve arty useful purpose, distort normal market-based

decisions by multinational companies, and undermine other, equally desirable goals

of U.S. policy. The ‘‘fleet split’’ should be eliminated.

Relevant Statute

As part of the U.S. response to the fuel shortages of the early 1970s, Congress

enacted the Energy Policy and Conservation Act of 1975 requiring manufacturers

of passenger cars and light trucks to meet specific fuel-efficiency (miles-per-gallon)

standards that would be set by the Federal Government, through NHTSA. The Environmental Protection Agency (‘‘EPA’’) also has a role in the testing and verification

of fuel efficiency for vehicles. These Corporate Average Fuel Economy (‘‘CAFE’’)

standards were ostensibly designed to require the auto industry to produce increasingly more fuel-efficient vehicles in order to conserve energy.

The Act set a CAFE standard for passenger cars that has increased several times.

Since Model Year 1986, the standard has been 27.5 miles per gallon for cars. The

current standard for ‘‘light trucks,’’ a category which includes sport utility vehicles

(‘‘SUVS’’), mini-vans, and pickup trucks is 20.7 miles per gallon. These standards

are applied on a fleet-wide basis for each manufacturer, requiring the numerical average of the fuel economy ratings for a manufacturer’s entire line of vehicles to

equal or exceed the appropriate standard for its category.

NHTSA is authorized to raise or lower the truck standard for a particular model

year to achieve the ‘‘maximum feasible average fuel economy,’’ taking into account

technological feasibility, economic feasibility, the effect upon fuel economy of other

Federal motor vehicle standards, and the need of the Nation to conserve energy. For

the last several years, Congress has amended DOT appropriations acts to prohibit

NHTSA from preparing, proposing, or promulgating any new fuel-economy requirement. Under the Act, a manufacturer that fails to meet the CAFE standard is liable

for a monetary penalty. However, a manufacturer may offset its shortfall in meeting

the CAFE standard 1 year with credits it has earned by exceeding the standard in

other years.

A manufacturer’s passenger car fleet must be divided into two parts for CAFE

purposes, depending on content: its ‘‘domestic’’ fleet consisting of vehicles with 75

percent or more U.S./Canadian cuntent; and its ‘‘import’’ fleet of vehicles with less

than 75 percent U.S./Canadian content. If a manufacturer produces both domestic

and import fleets, each fleet must separately comply with the CAFE standard. The

term ‘‘fleet split’’ has been applied to this arrangement. No such requirement exists

with respect to light trucks, where the import and domestic fleets are combined.

The North American Free Trade Agreement (‘‘NAFTA’’) Implementation Act of

1993 provided that the value added to a passenger automobile in Mexico will be considered to be domestic value as of January 1, 2004 and in all subsequent model

years. This provision is being implemented in phases, with certain manufacturers

currently permitted to elect the model year for which Mexican content in their automobiles will be treated as domestic content.

Artificial Bureaucratic Restrictions

The regulatory structure established to implement the CAFE fleet split is cumbersome. It does not reflect the actual conditions in the auto industry, nor is it sufficiently flexible to allow for changes in those conditions. Moreover, substantial record

of questions and agency responses has grown up around these regulations. In short,

the U.S. Government, through NHTSA, has become a ‘‘micro-manager’’ in the economic decisions of U.S. and foreign automakers involving where production and procurement are to be located.

How Fleet Split Works

The rules governing the separation of domestic and foreign passenger car fleets

for CAFE purposes, found at 40 C.F.R. 600.511–80, establish the following requirements.

A manufacturer that produces passenger cars with both domestic and imported

content is required to divide its fleet into two content-based sections. For CAFE purposes also, the U.S. and Canada have been treated as one country and cars with

75 percent or more U.S./Canadian content are considered ‘‘domestics.’’ Cars with

less than 75 percent ‘‘domestic content’’ are classified as ‘‘imports.’’ Each of the two

parts of this ‘‘split fleet’’ must comply separately with the CAFE standard.

Pursuant to NAFTA, cars produced in Mexico are now becoming ‘‘domestic’’ for

CAFE calculations when at least 75 percent of the cost to the manufacturer of the

vehicle can be attributed to value added in NAFTA. This new requirement will be

completely phased in by January 1, 2004, although manufacturers already assembling cars in Mexico may elect to be included sooner.

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Under CAFE, an automobile is considered to be domestically manufactured if at

least 75 percent or more of the cost to the manufacturer is attributable to value

added in the U.S., Canada, or Mexico (if the manufacturer has already elected coverage for vehicle assembly there), inclusive of labor and other overhead costs such

as advertising and depreciation on plant and equipment.

Where content levels are close to the 75 percent threshold, the regulations require

manufacturers to trace individual components to their raw material sources to attain an accurate measure.

Light trucks are not subject to the fleet split requirement.

Why CAFE Fleet Split Does Not Match Real World Conditions

Requiring the creation of two car fleets, on the basis of a legalistic, bureaucratically applied formula, is neither realistic nor practicable.

CAFE fleet split requirements disrupt and distort market-based decisions by auto

manufacturers. The automobile industry is global. Auto companies need to be able

to meet consumer demand, increase productivity, and keep costs low to succeed in

a highly competitive climate where there is pressure to maintain price stability.

They need to be free to make market-based choices about sourcing of parts and components and the selection of the most appropriate location of assembly. The benefits

of globalization and flexibility are passed on to the consumer, in the form of lower

costs and a wider variety of makes and models. Under the CAFE fleet split requirements, however, auto manufacturers must constantly balance potential CAFE penalties for their imported and domestic fleets against their desire to meet consumer

preferences and keep costs down.

The original intent behind the twenty-five year old fleet split requirement was to

preserve small car production in the United States, not to enhance fuel efficiency

of automobiles sold in the United States, since that could be accomplished without

separating the import and domestic fleets. At the time of implementation, the fear

was that, absent such restrictions, Ford, General Motors and Chrysler would move

small car production off-shore. Yet there is simply no evidence to substantiate that

fear in today’s setting. Indeed, as the chart below indicates, there is significant

small car production in North America (and particularly in the United States) now.

Moreover, it is unlikely that the billions of dollars invested in small car production

and parts facilities in the North America by Japanese and U.S. automakers would

simply walk away if the fleet split requirement were removed.

North American Production of Small Cars 1998

Model by Segment United States Canada Mexico Total

Lower Small

Geo Metro ............................................................. 0 21,136 0 21,136

Suzuki Swift ......................................................... 0 2,481 0 2,481

Subtotal ...................................................... 0 23,617 0 23,617

Upper Small

Chevrolet Cavalier ............................................... 233,806 0 78,376 312,182

Chrysler Neon ....................................................... 203,101 0 55,630 258,731

Ford Escort ........................................................... 198,679 0 136,744 335,423

Geo Prizm ............................................................. 45,284 0 0 45,284

Mercury Tracer ..................................................... 27,760 0 1,872 29,632

Nissan Sentra ...................................................... 54,358 0 62,239 116,597

Pontiac Sunfire .................................................... 96,851 0 7,212 104,063

Saturn .................................................................. 244,101 0 0 244,101

Toyota Corolla ...................................................... 158,180 150,413 0 308,593

VW Golf ................................................................ 0 0 60,066 60,066

VW Beetle ............................................................. 0 0 106,627 106,627

VW Jetta ............................................................... 0 0 123,037 123,037

Subtotal ...................................................... 1,262,120 150,413 631,803 2,044,336

Specialty Small

Eagle Talon .......................................................... 295 0 0 295

Mitsubishi Eclipse ............................................... 50,715 0 0 50,715

Nissan 200SX ...................................................... 6,102 0 0 6,102

Subtotal ...................................................... 57,112 0 0 57,112

Total Small ................................................................... 1,319,232 74,030 631,80 2,125.065

Source: Ward’s Automotive Yearbook 1999. Segmentation based on Ward’s sales segmentation.

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Light Truck Exception

Whereas manufacturers of passenger cars have long suffered from the CAFE fleet

split requirement, there is no comparable restriction for light trucks. While a provision within the CAFE regulations does require the separation of ‘‘captive imports,’’

its impact is no longer of any significance. Like the fleet split requirement for passenger cars, the ‘‘captive imports’’ provision was first and foremost intended to prevent Ford, General Motors and Chrysler from shifting auto production (in this case

light truck production) overseas. It served to curtail a 1980s trend by U.S. manufacturers to import trucks produced by foreign manufacturers and ‘‘re-badge’’ the imports under their own nameplates.

There is no logical reason for maintaining a fleet split requirement for passenger

cars while applying no such distinction for light trucks. The fact that CAFE has

served its purpose with respect to light trucks by enhancing fuel efficiency in those

vehicles in the absence of any fleet split requirement is ample evidence that the requirement is unnecessary for passenger cars.

Renault-AMC and Volkswagen Exceptions

The U.S. Congress, 20 years ago, confirmed just how artificial and counterproductive the CAFE fleet split rule was (and still is) when it compromised the rule

to serve the needs of AMC, which had just merged with Renault, and Volkswagen.

AMC sought to import small-fuel efficient Renault models, but the rule prevented

AMC from combining those imports with its domestic models to help it comply with

CAFE standards. Volkswagen had established manufacturing facilities in Pennsylvania to make VW Rabbits. As VW increased its U.S. procurement, and the U.S.

content of those Rabbits approached 75 percent, VW risked having its fleet split between ‘‘imported,’’ lower mileage Porsches and Audis that did not meet CAFE standards, and ‘‘domestic,’’ high-mileage Rabbits that did.

AMC and Volkswagen requested special exemptions from the CAFE fleet split,

and Congress granted them. Both were allowed to combine their fleets, with limits

placed on the level of foreign content and volume of imports permitted.

At the time Congress and the President agreed to this exemption, the justification

was the need to encourage new investment and small car production in the United

States. Twenty years later, the exception has now proven to be the rule. Many manufacturers have now established plants in the United States to build fuel-efficient

cars. Yet the fleet split, long ago compromised solely to encourage such investment,

remains in place. What was an unnecessary disincentive to U.S. procurement and

investment then is even more so today. Certainly the VW and AMC Renault exceptions indicate there has been no defensible policy justification for this rule for many

years.

Distortion of Normal Market-Based Decisions

The CAFE fleet split creates artificial conditions that influence auto manufacturing. The global auto industry has changed radically since this regulatory scheme

was imposed, but CAFE has not changed in any substantial way. Under the CAFE

fleet split, as noted above, decisions which should be made on practical economic

considerations such as productivity, costs, access to suppliers, consumer demand,

and profitability are being compromised to avoid the adverse regulatory consequences of CAFE penalties.

Non-Market Impact on Parts Sourcing

The CAFE fleet split requirements distort the normal market-based decisions of

global auto manufacturers. Because auto manufacturers must meet separate fuel efficiency requirements for their imported and domestic fleets, their sourcing flexibility is limited and strongly influenced by the threat of CAFE penalties. In some

instances, the sourcing practices of automakers in the U.S. market amount to a kind

of CAFE shell game. For example, in a well-documented case Ford shifted the ‘‘citizenship’’ of its least fuel-efficient cars (at that time the Crown Victoria and the

Grand Marquis) to stay ahead of the fleet split curve by simply switching out rear

axles. This move saved Ford over a million dollars in CAFE penalties without

changing the fuel economy of the cars at issue.

Even more important for JAMA member companies and other foreign manufacturers is the fact that the CAFE fleet split can penalize those companies when they

seek to increase their procurement of U.S.-made parts. Since 1986, production of

Japanese nameplate vehicles in the U.S. has increased almost 300 percent from

617,000 units in 1986 to 2.38 million units in 1998. JAMA member companies have

for two decades made significant and sustained effbrts to procure auto parts for

these U.S.-built vehicles from U.S. suppliers. As a result, JAMA member companies

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have increased their procurement of U.S. auto parts from $2.09 billion in 1986 to

$24.57 billion in 1998.

Ironically, however, the CAFE fleet split works against this effort and the benefits

its creates. Japanese auto companies (and other foreign-based manufacturers) producing cars in the United States are forced by the CAFE fleet split to make a potentially uneconomic choice. They can increase local procurement at their U.S. plants

and exceed the 75 percent content criterion for the cars they build in the U.S., so

that they shift the mix of their ‘‘import’’ fleet, and risk paying CAFE penalties. Or,

they can source parts from overseas to keep U.S.-built cars in their ‘‘import’’ fleet

and avoid CAFE penalties.

This negative effect thus keeps foreign auto companies from increasing their U.S.

parts purchases to avoid the possible shift in classification from ‘‘import’’ to ‘‘domestic.’’ Such a change would limit their ability to import the larger cars that are in

growing demand from U.S. consumers, but for which the volume of sales will not

support a U.S. production facility.

The CAFE fleet split has the opposite effect on manufacturers with U.S.-produced

fleets with content exceeding 75 percent. They have an added incentive to increase

their foreign purchasing when it is to their advantage to have certain U.S.-produced

cars reclassified from ‘‘domestics’’ to ‘‘imports’’ for CAFE purposes.

The diagram below generally illustrates this non-market impact on parts

sourcing.

In this diagram, assume that all of these cars are being built in the United States.

In Model Year 1, since Car A and Car B both do not meet the CAFE content requirement of 75 percent, the entire fleet is considered ‘‘imported,’’ and meets the

27.5 mpg standard. In Model Year 2, the manufacturer has increased U.S. procurement for Car B, but Car A has retained its 50 percent content. As a result, the manufacturer’s U.S. production of the same vehicles has now been split into two fleets,

and the import fleet no longer meets the CAFE standards. No fuel economy benefits

have been achieved, and the manufacturer is now exposed to CAFE penalties, all

because it sought to buy more U.S. parts.

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What these facts indicate is that the CAFE fleet split has encouraged, rather than

eliminated or curtailed, the off-shore sourcing patterns of multinational auto companies operating in the United States. The ‘‘Big 3’’ source off-shore because they can,

and the other companies do so because they must. When these sourcing decisions

are driven by such CAFE considerations, they undercut the goal of increasing U.S.

parts purchases.

In 1993–94, a GATT dispute settlement panel examined the CAFE fleet split rule,

determining that it could not withstand scrutiny under Article III:4 (National Treatment) analysis. In summary, the panel concluded that the fleet split rule could not

be justified simply because it balanced less favorable treatment of imported cars in

some instances against less favorable treatment of domestic cars in other instances:

‘‘In this case, less favorable treatment of large foreign cars (because they could not

be averaged with small domestic cars, as large domestic cars could) would be balanced by less favorable treatment of large domestic cars (because they could not be

averaged with small foreign cars, as large foreign cars could). The Panel noted that

under Article HT–4 a contracting party cannot justify less favorable treatment to an

individual product by showing that other products receive more favorable

treatment... and concluded that the separate foreign feet accounting accorded less

favorable conditions of competition to cars and car parts of foreign origin than those

accorded to like domestic products, and thus was inconsistent with Article HT–4.’’

Report of the Panel on United States—Taxes on Automobiles. 29 September 1994

DS31/R.

As the GATT panel found, the CAFE fleet split requirement distorts trade and

alters the competitive environment in which automobiles are manufactured and sold

in the United States. This result is unwarranted and unnecessary in meeting the

stated intent of the law.

Counterproductive

As this paper has demonstrated, the CAFE fleet split regulatory scheme is a burden on both manufacturers and consumers. It neither enhances efficiency nor reduces cost, but can have the opposite effect, and thereby serves to restrict competition in the industry and deprive consumers of the benefits such competition would

produce—more of the vehicles they want at lower costs. In short, it inhibits both

the productivity of the industry and the marketplace with no offsetting benefit.

By restricting the sourcing decisions of auto manufacturers, the CAFE fleet split

requirement necessarily drives up manufacturing costs by preventing selection of

the most cost-effective means of auto production. These costs are passed on to the

consumer. In many cases, U.S. parts suppliers are unable to supply U.S. auto operations where the parts supplied could tip the balance between whether a car line

is deemed domestic or foreign and therefore trigger CAFE problems. The opportunity costs that these suppliers lose are incalculable, but surely reach millions of

dollars in lost sales for U.S. companies, lost investment by multinational companies

that might otherwise locate or expand plants in the U.S., and many jobs for U.S.

workers.

The CAFE fleet split requirement does more to foster gamesmanship in the calculation of ‘‘domestic’’ and ‘‘foreign’’ fleet fuel efficiency ratings than to encourage

actual gains in fuel efficiency. Parts allocation has become a function of knowing

how far or close an auto manufacturer is to meeting its ‘‘domestic’’ and ‘‘foreign’’

fleet requirements. Where an auto manufacturer’s ‘‘domestic’’ or ‘‘foreign’’ fleet is

below the CAFE standard, it is more likely to turn to creative parts sourcing or

move car lines between the two classifications, rather than actually seek to increase

the fuel efficiency of the car in question, to gain a competitive edge or avoid penalties.

CAFE standards would be more effective if they allowed fuel efficiency gains to

be achieved through combining overall fleets in a global manufacturing context.

Conclusion

The CAFE fleet split is counterproductive, inefficient and unjustifiable in the new

global manufacturing setting. It fails to achieve its stated intent of promoting fuel

efficiency and preserving U.S. small car production. Instead, it works against those

objectives by limiting any real incentive to enhance fuel efficiency or improve the

environment. No legitimate U.S. interest is served by such an outcome.

This regulation creates burdens that adversely affect auto manufacturers, with a

substantial burden falling on non-U.S. manufacturers with significant investments

in the United States that support U.S. jobs and U.S. manufacturing. Because of the

unjustified burdens this regulation creates, it should be repealed.

Enhancing fuel efficiency in automobiles is a worthy objective. However, the fleet

split requirement is not a fuel efficiency issue. It is a burdensome, outdated and

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1 AIAM members include American Honda Motor Co., Inc., American Suzuki Motor Corporation, Daewoo Motor America, Hyundai Motor America, Isuzu Motors America, Inc., Kia Motors

America, Inc., Mitsubishi Motors America, Inc., Nissan North America, Inc., Peugeot Motors of

America., Inc., Saab Cars USA, Inc., Societe Anonyme Des Usines Renault, Subaru of America,

Inc., and Toyota Motor North America, Inc. The Association also represents original equipment

suppliers and other automotive-related trade associations. AIAM members have invested over

$20 billion dollars in new production and distribution capacity, creating tens of thousands of

high-skill, high-wage jobs across the country in manufacturing, supplier industries, ports, distribution centers, headquarters, R&D centers and automobile dealerships.

counterproductive regulation for which there is no practical justification. This is particularly true today, when ownership and investment changes have made the distinction between a ‘‘domestic’’ and a ‘‘foreign’’ car virtually irrelevant. Companies operating in the U.S., like companies operating in any national economy, need to be

free of regulations like the CAFE fleet split, which act as a drag on new investment

and responsiveness to the consumer. Eliminating the fleet split will have no detrimental effect on auto companies’ efforts to achieve new efficiency levels in their

fleets. Eliminating the fleet split will almost certainly result in more sourcing of

parts and assembly in the U.S., since it would no longer be necessary or desirable

to make overseas production or sourcing decisions primarily to allow adjustment of

content for CAFE purposes.

PREPARED STATEMENT OF THE ASSOCIATION OF INTERNATIONAL

AUTOMOBILE MANUFACTURERS (AIAM)

AIAM appreciates the opportunity to express its views to the Committee regarding the important matter of motor vehicle fuel economy.1

AIAM member companies have for many years been leaders in offering fuel-efficient vehicles for the U.S. market. Historically, vehicles produced by our member

companies have headed EPA’s annual list of most fuel-efficient vehicles. Indeed,

these companies have achieved success in the U.S. market to a significant extent

through the offering of high quality, fuel-efficient vehicles.

AIAM member companies have achieved this fuel economy leadership by pioneering the introduction of advanced automotive technology. The Honda Insight and

Toyota Prius hybrid vehicles are notable examples of this leadership. We anticipate

that AIAM companies will continue to follow this advanced technology path that has

led to their success.

AIAM supports the current reassessment of national energy policy by Congress

and the Administration. As NHTSA Administrator Jim Runge stated at the hearing

on December 6, the Department of Transportation (DOT) plans to proceed expeditiously to consider changes to the light truck standards as part of this reassessment.

The recent report of the National Academy of Sciences (NAS) provides DOT with

a strong starting point for its work. AIAM plans to participate fully in this process.

The existing CAFE authority has proven to be reasonably effective, and AIAM believes there is no need for Congress to take action at this time to revise DOT’s legal

authority. Moreover, the existing authority has an advantage over some alternative

formulations to regulate fuel economy because it (like every other motor vehicle

standard) imposes precisely the same requirements upon each manufacturer. We believe that competitive fairness is a critical element to any regulatory program, and

the current program passes this test.

Nevertheless, the current CAFE system has been criticized by several parties and

undeniably has elements that could be improved. If Congress decides to amend the

current law, these program flaws should be addressed. However, any new legislation

should embody three key principles:

• The requirements of the program must be applied equally. Any approach, such

as uniform percentage improvement (UPI) standards, that imposes different numerical standards on the different manufacturers is inconsistent with this principle and

therefore unacceptable. As discussed during the December 6th hearing, the UPI approach discriminates against companies that have achieved high levels of fuel economy and American workers employed by these companies. AIAM believes this approach is fundamentally unfair.

• The requirements raust be technologically feasible and effective in reducing petroleum consumption.

• The requirements must provide adequate lead-time. Fuel economy improvements can most effectively be implemented through careful integration of new technology. If sufficient lead-time is not provided, manufacturers may be forced to select

less efficient technological approaches that may not be accepted by consumers.

164

Chief among the flaws of the current program is that the program operates almost

exclusively on the supply side, in 1hat it simply directs manufacturers to produce

vehicles having a specified level of average; fuel economy or higher. On the demand

side, however, current market signals and incentives are insufficient to cause consumers to demand such vehicles, producing an imbalance in the marketplace. CAFE

also has been and will continue to be insensitive to future market shifts. AIAM believes that marketbased measures would more efficiently promote national goals of

energy security and reduced emission of greenhouse gases.

Nevertheless, we recognize that political realities may make it exceedingly difficult for the government to adopt more efficient strategies for promoting energy security and global climate policies, such as through higher or new fuel taxes. We also

recognize that the seriousness of the current energy security and global climate concerns may justify a regulatory role for the Federal Government in enhancing vehicle

fuel economy. These considerations lead us to support the efforts of this Committee

to assess whether the current CAFE system can be revised to minimize its flaws,

if not also to make it more effective.

If the Committee decides to pursue; structural changes to CAFE, AIAM and its

member companies urge the Committee to align the program’s incentives with accepted national goals and minimize those aspects of the program that interfere with

the free functioning of the marketplace. We recommend that the Committee consider the following measures, most of which are also among the recommendations

in the recent National Academy of Sciences report:

1. Reject uniform percentage improvement (UPI) standards based on individual

manufacturer performance. The UPI format turns the incentives of the current program on their head, by penalizing the companies that have historically offered the

most fuel-efficient vehicles and rewarding technology laggards. Standards formats

must be competitively neutral. If Congress were to adopt the UPI format as part

of CAFE, it would set a precedent for the use of that approach in other regulatory

programs, sending a message to businesses nationwide (and their employees) that

they could be punished if they do more than the absolute minimum required. These

flaws in the UPI approach have been noted by two NAS Committees (1992 and

2001), the Office of Technology Assessment (OTA), the Justice Department, and

other reputable organizations.

2. Eliminate the domestic/import separate fleet requirement for passenger autos.

It is clear that the fears of small vehicle manufacturing moving offshore that led

to the initial adoption of this requirement are no longer credible. Moreover, the current requirement perversely discourages increased U.S. content and employment.

3. Create new tax credits and other incentives to encourage consumers to demand

fuel-efficient vehicles. Ideally, such credits and incentives should be performancebased and technology-neutral. Incentives are needed to facilitate the introduction of

advanced technology into the market, since such technology frequently has high initial cost.

4. Authorize credit trading. A trading system would enhance the efficiency of the

overall CAFE system by facilitating least cost compliance strategies. The government could become the seller of last resort for credits, thereby both establishing a

maximum cost of compliance and enabling the replacement of the current civil penalty compliance system. We believe that this can be accomplished without sacrificing

overall fuel economy improvements.

5. Require improvements in fuel quality, such as near zero sulfur gasoline and diesel fuel, stability in distillation parameters of gasoline, and control of deposits. Many

of the advanced power-train systems that are being developed will require clean

fuels.

6. If changes to the current CAFE format are deemed appropriate, thoughtful attention should be given to a variety of attribute-based systems, such as market class,

size, or weight-based standards. A size or weight-based system could be designed either on a class basis or through a continuous mathematical function. Attributebased systems can be developed that would permit manufacturers to compete on an

equal-footing basis in any market segment.

7. Provide adequate lead-time to allow manufacturers to plan and implement fuel

efficiency improvements.

Discussion of Key Issues

The following elaborates on the seven points highlighted above:

1. Uniform percentage improvement standards. AIAM absolutely opposes uniform

percentage improvement (UPI) standards based on individual manufacturer performance. Simply stated, they represent bad public policy. The UPI standards format was extensively debated a decade ago in Congress. The standards format was

roundly criticized and thoroughly discredited by several respected national organizaVerDate 03-FEB-2003 08:48 Sep 19, 2005 Jkt 089683 PO 00000 Frm 00168 Fmt 6601 Sfmt 6621 D:\DOCS\89683.TXT SSC1 PsN: SSC1
165

2 Id, page 5–19.

3 Id, page 181.

4Statement of the Office of Technology .Assessment to the Senate Commerce, Science, and

Transportation Committee, 101st Congress, Senate Hearing 101–347. 5Letter from the Assistant Attorney General for Legislative Affairs to the Consumer Subcommittee, Senate Commerce, Science and Transportation Committee, January 26, 1990.

tions. This format would create unique fuel economy standards for each manufacturer, based on the manufacturer’s performance in a base year. The same percentage increase would be required for each company, but the, actual standards differ

due to differences in the fuel economy baselines. We are unaware of any current

regulatory program that uses this standards format. Under UPI standards, if two

manufacturers were to produce the same mix of vehicle sizes and technology in the

same year, one manufacturer could be assessed civil penalties while the other could

be awarded credits, due to differences in the two companies’ baselines. We believe

that a system that assigns differing compliance consequences to the same conduct

by two entities is fundamentally discriminatory.

The 2001 NAS CAFE Committee pointed out the inequities associated with the

UPI standards format. The Committee’s report stated as follows:

The UPI system would impose higher burdens on those manufacturers who had

already done the most to help reduce energy consumption. The peer-reviewed literature on environmental economics has consistently opposed this form of regulation: it is generally the most costly way to meet an environmental standard; it locks

manufacturers into their relative positions, thus inhibiting competition; it rewards

those who have been slow to comply with regulations; it punishes those who have

done the most to help the environment; and it seems to convey a moral lesson that

it is better to lag then (sic) to lead.’’ 2

The 1992 NAS Committee had similar criticisms of the UPI standards format.3

During Senate Commerce, Science, and Transportation Committee consideration

of UPI standards a decade ago, the Office of Technology Assessment also criticized

the UPI standards format.

The structure does not account for the fact that at least a portion of the current

differences in companies’ CAFES are (sic) due to... the companies’ different efforts at moving advanced technology into their fleets. Our analysis of the fuel economy characteristics of various company fleets... indicates that some companies

have fleet fuel economies that are well above the industry average even when the

effects of fleet size distribution are accounted for. Thus, this type of standard penalizes manufacturers who have tried the hardest to increase their fleet fuel efficiency

in the past. They now have the most difficult technological challenge, because they

have already ‘‘used up’’ a larger portion of the technological headroom available to

them from off-the-shelf technology. Companies that have hesitated to use the best

available technologies... are instead rewarded by being presented with the lowest efficiency target... Also, it is possible that companies that wind up with the

lowest efficiency targets could use the leeway these lowered targets afford them to

increase vehicle performance to levels that companies with higher efficiency targets

may not be able to match (because higher performance reduces fuel efficiency).

[Such a result would] have not only rewarded the lower efficiency automakers with

an easier target, but have given them a market advantage as well.4

The Justice Department reached a similar conclusion regarding UPI standards in

a letter to the Consumer Subcommittee of the same Senate committee 10 years ago.

The Justice Department letter states that... manufacturers with high average

fuel economies will be impeded in entering U.S. markets for larger cars because

such entry—even if they produce more efficient larger cars than are now available—

could prevent them from meeting the new standards. Thus, competition would suffer

and the fuel efficiency of a whole category of vehicles could be kept artificially low.5

We can only add our strongest possible agreement with these statements and note

that nothing that has occurred over the past decade has improved the UPI standards concept.

At the December 6 hearing, it was claimed that the differences in fleet fuel economy between some of our member companies and the Detroit-based manufacturers

is due simply to differences in model mix. Claims of this sort have been used in the

past in an attempt to justify the UPI format, by suggesting that each company has

the same potential to improve fuel economy, on a percentage basis. However, this

claim is not true. We note, however, that even if the claim were true that the company-to-company CAFE differences are all due to mix, UPI standards would not be

appropriate. The UPI format would still prevent a high MPG manufacturer from

competing with a low MPG manufacturer in the large/luxury vehicle market segments, simply by virtue of the fact that the low MPG company first entered those

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6 ‘‘Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,’’ National

Research Council, 1992, page 5–13. 7 ‘‘Automobile Fuel Economy, How Far Should We Go?’’, National Research Council, 1992,

page 184. 8 Id, page 184.

9 Id, page 5–13 through 5–15.

segments. Such barriers to market entry would be clearly discriminatory and anathema to the concept of a free market.

2. Domestic/import separate fleet requirement. The current law requires dividing

a manufacturer’s passenger automobile fleet into domestic and import classes that

must comply separately with fuel economy standards. There is no similar requirement for light trucks. This requirement was originally intended to inhibit domestic

manufacturers from simply importing large numbers of small, ‘‘captive import’’ vehicles as a strategy for increasing their average fuel economy. Today, AIAM companies are profitably producing fuel-efficient vehicles in the United States. Subsequent

events, such as consolidation within the industry, have shown that, whatever the

original validity of this concern, the concern should no longer exist. There is no reason to believe that the current market would accept large numbers of very small

vehicles that were originally designed for foreign markets. Moreover, the provision

has created a disincentive for foreign-based companies to increase the U.S. content

of their vehicles to levels above 75 percent, since doing so would place the vehicles

in a separate compliance fleet. This disincentive is real, not theoretical, and has cost

U.S. jobs. AIAM member companies have been compelled to limit increases in domestic content levels in the past in order to avoid creating a new CAFE compliance

fleet. For example, Nissan’s efforts to increase the domestic content of its Tennessee-produced Sentra model were delayed by the separate fleet restriction. There

have even been situations in which a company may have decreased the U.S. content

of certain low efficiency domestic vehicles to a level below 75 percent, so that those

vehicles can be averaged with the manufacturer’s more fuel-efficient import fleet.

This year’s NAS CAFE report 6 states that ‘‘the committee believes that the twofleet rule no longer serves any useful purpose, but does increase cost to consumers.’’

The 1992 NAS CAFE committee 7 concluded that the separate fleet requirement

‘‘has no obvious or necessary connection to the achievement of fuel economy’’ and

encouraged Congressional consideration of repeal. In addition, NHTSA concluded a

decade ago that the two-fleet requirement serves no purpose. We strongly concur in

these assessments.

3. Tax credits/incentives. As previously noted, a major deficiency of the CAFE system is the insufficiency of its market signals on the demand side to encourage consumers to purchase fuel-efficient vehicles. The best market signal is an increase in

the cost of driving. Given the current political realities that work against increased

fuel taxes, the next best alternative may be to create a variety of market incentives

to stimulate demand for fuel efficiency as a vehicle attribute. Such incentives would

encourage manufacturers to develop and introduce advanced technologies by enhancing the market for vehicles that use such technologies. Advanced fuel-efficient

technologies are frequently costly, particularly in their first years of introduction,

so incentives would facilitate the introduction of these items by helping to bridge

the price differential between these vehicles and conventional vehicles. Congress has

considered a variety of technology-based incentives in recent years to encourage consumers to purchase advanced technology vehicles. AIAM member companies have

generally supported these incentives. However, ideally, we believe that such incentives should be performance-based and technology-neutral, i.e., they should be designed to encourage the production and sale of fuel-efficient vehicles, regardless of

the technology selected by the manufacturer to achieve high fuel efficiency.

4. Credit trading. New authority for credit trading between standards classes and

between companies under the CAFE program would provide manufacturers with increased compliance flexibility in dealing with unanticipated market shifts. The

1992 8 and 2001 9 NAS CAFE Committees suggested this approach. Permitting such

trading would also enhance the overall efficiency of the system. Concerns have been

expressed that a credit trading system would primarily benefit foreign-based manufacturers of fuel-efficient vehicles. However, under a weight- or size-based system,

there is no reason in principle why there should be any disparate effects of this sort.

A variation on this credit theme that was discussed briefly at the February meeting

is the establishment of the government as the seller of last resort of CAFE credits.

Under this approach, the government would set a fixed price for the credits that

it would sell. This price would be set above the effective cost of compliance for a

reasonably efficient manufacturer, to maintain the incentive for manufacturers to

meet the fuel economy targets. However, for a manufacturer that faces unusual

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10 2001 NAS report, pages 5–36 through 5–37.

compliance problems or should market shifts occur or technology not develop as anticipated, this approach has the advantage of establishing a maximum cost of complying with the requirements. In addition, manufacturers could be required to make

up any fuel efficiency shortfalls within a specified period of time. The credit system

could replace the current civil penalty system under the law, a change that the 1992

NAS CAFE Committee characterized as a ‘‘real advantage.’’ In addition, the concepts of averaging and credit banking, which are part of the current system, should

be retained.

5. Fuels and fueling infrastructure. As EPA recognized recently in its Tier 2 emissions standards and diesel sulfur regulations, advanced engine technology and high

levels of fuel quality go hand-in-hand. Direct injection engine technology requires

gasoline with very low sulfur levels, and advanced diesel engines will require diesel

fuel with near zero sulfur levels in order to meet applicable emissions standards.

Stability in distillation parameters of gasoline and control of deposits are also needed for future vehicles. In the longer term, special fueling infrastructure will be needed for fuel cells and certain types of hybrid vehicles. A coordinated and sustained

effort will be needed to assure that appropriate fuels are available as new technologies are implemented.

6. Standards format. Should alternative standards formats be considered, they

should be competitively neutral. These could be in the form of market class-, sizeor weight-based standards. Under such standards formats, fuel efficiency improvements would be required for all vehicle classes. The burdens of the standards would

be approximately the same, regardless of the mix of vehicles produced by the manufacturer.

The attribute-based standards concept described in the recent National Academy

of Sciences report is interesting, but would require further analysis. If Congress decides that there is a need to change the standards format, an alternative formulation could be developed through rulemaking by the Department of Transportation.

Some vehicle class-based approaches could be implemented within the scope of the

existing statutory authority to set separate standards for different classes (for light

trucks). See 49 U.S.C. 32902(a).

7. Lead time. Fuel economy improvements can be most efficiently implemented

when they are timed to coincide with manufacturers’ normal redesign cycles. The

precise amount of lead-time needed would vary depending upon the magnitude of

any standards increase. The 18-month minimum lead-time currently specified in the

law is clearly insufficient to enable manufacturers to comply with new standards

of significantly increased stringency. The recent NAS report recommended lead-time

in the 10–15 year range for a significant CAFE increase. AIAM concurs with this

conclusion.

Issues Raised at the December 6 CAFE Hearing

AIAM would like to comment on two additional issues raised at the December 6

CAFE hearing held by this Committee.

1. ‘‘Light truck loophole.’’ Several pending legislative proposals would close the socalled ‘‘light truck loophole’’ by raising the light truck standard from its current 20.7

mpg level to 27.5 mpg, the current level of the passenger automobile standard. This

CAFE increase is equivalent to that projected in the recent NAS study under the

Case 1 ‘‘break-even’’ fuel economy analysis. However, Case 1 assumes: 1) the use

of ‘‘Path 3’’ technology, the report’s most aggressive technology scenario, 2) a 14-year

payback period for the cost of new technology, a period much longer than many consumers would accept, and 3) lead time of up to 15 years. Thus, a light truck standard of 27.5 mpg would be very stringent, involve technological and economic risk,

and require substantial lead-time. Moreover, simply raising the light truck standard

to the passenger auto level would be inequitable, financially penalizing those manufacturers whose production is concentrated in light trucks relative to those manufacturers whose production was concentrated in cars.10

2. On-road fuel economy discrepancy. Another issue raised at the hearing involves

the difference between fuel economy data used for standards compliance purposes

and the mileage experienced on-the-road by drivers. One witness claimed that this

difference is relevant to the standard-setting deliberations of the Committee. We believe this is a non-issue. Fuel economy standards data is generated using procedures

specified in the law, i.e. 1975 EPA test procedures or procedures that give ‘‘comparable results.’’ See 49 U.S.C. 32904(c). By specifying a test procedure baseline,

Congress created a fixed ‘‘yard-stick’’ for measuring CAFE improvements. A gap between measured and on-road fuel economy existed in 1975, and that gap remains

today. In fact, data used for CAFE standards purposes now reflects credits added

168

by Congress subsequent to 1975 to encourage the production of alternative and

dual-fueled vehicles, potentially creating a larger gap between CAFE data and onroad fuel economy. Since no test procedure can practically replicate every individual’s driving experience, there will always be some divergence between test procedure results and those experienced by any particular driver.

However, this gap is irrelevant from the CAFE standards perspective, so long as

the test procedures encourage the manufacturers to implement technology that results in on-road fuel efficiency improvements. We are unaware of any data that suggests a problem of this sort with the data generated for standards compliance purposes. (It should be noted that the data used in fuel economy labels and the EPA/

DOE Gas Mileage Guides is different from the data used for CAFE standards purposes. The label/Guide data is adjusted mathematically by EPA to provide consumers with representative information about anticipated mileage levels.) If Congress were to mandate the use of a new test procedure for standards compliance

purposes, future fuel economy improvement potential would be assessed based on

this new procedure, probably leading to numerically lower standards than would be

the case using the 1975 procedures. However, in either case, the real world fuel

economy performance would be the same.

HONDA NORTH AMERICA, INC.,

Dec. 19, 2001

Hon. JOHN KERRY,

Committee on Commerce, Science, and Transportation, United States Senate

DEAR SENATOR KERRY: Thank you for the opportunity to testify on fuel efficiency

issues before the Senate Committee on Commerce, Science, and Transportation on

December 6, 2001. Honda appreciates the opportunity to present information about

our company’s efforts to improve fuel economy, and we believe the hearing stimulated a good exchange of ideas.

During the hearing, you questioned Honda about the fuel economy of our vehicles

compared to other manufacturers on a model-to-model basis. You referenced testimony from Susan Cischke of Ford Motor Co. and a chart submitted by Ford, labeled

‘‘Vehicle Fuel Economy Comparison.’’ Unfortunately, Honda had not seen Ford’s testimony or their chart prior to the hearing; thus, we were unable to respond at that

time. Subsequent to the hearing, we examined Ford’s testimony and are now responding to Ford’s claims. We respectfully request that this letter and the two attachments be included in the hearing record.

The fuel economy comparisons submitted by Ford is incomplete, misleadingly selective, and in many cases compared apples to oranges. As a result, the data provides no basis for sound analysis:

• Ford only compared mid-size cars—all other car comparisons were excluded.

Had they compared the compact car class, the analysis would have shown that the

average fuel economy of the Honda Civic is almost 20 percent higher than the Ford

Focus and over 25 percent higher than the Chevrolet Cavalier.

The ‘‘car’’ comparison included only 6-cylinder engines. While this appears fair on

the surface, it is really an apples and oranges comparison. 6-cylinder engines are

standard on the Ford Taurus, Chrysler Concorde, and Chevrolet Impala. 4-cylinder

engines are standard on the comparable Honda Accord and Toyota Camry—the 6-

cylinder engine is a performance option. This is because the advanced technology

on Honda’s engines provides very high power output for a given engine size, allowing a 4-cylinder Accord to have similar performance (and much better fuel economy)

compared to other manufacturers’ 6-cylinder engines. This is demonstrated by the

fact that most Accord buyers feel the performance of the 4-cylinder is more than

adequate for their needs—only 30 percent of Accord purchasers opt for the 6-cylinder engine.

• The small SUV comparison excluded the Honda CR–V.

• Ford only compared manual transmission models of small SUVs. Because of the

performance characteristics of the engine, the Ford Escape is available with a 4-cylinder engine only with a manual transmission. This engine is so low-performance

that Ford does not offer it with an automatic transmission—customers must take

a 6-cylinder engine with much lower fuel economy if they want an automatic transmission. By contrast, the 4-cylinder engine on the Honda CR–V is sufficiently powerful that we do not need a 6-cylinder option to support an automatic transmission.

• Ford selected the Honda Passport for comparison with other mid-size SUVs.

This is entirely inappropriate. The Passport is a very old design that will cease production after the 2002 model year. Ford excluded the Acura MD–X from the comparison, even though Honda sells over twice as many MD–Xs as Passports. The

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MD–X is the best fuel economy performer in its class and has significantly better

fuel economy than the other models listed by Ford, in addition to substantially more

horsepower.

• The minivan comparison is also misleading, although in a less egregious way.

The Chevrolet Venture and the Toyota Sienna are significantly smaller than the

other minivans. Not only does the Honda Odyssey have substantially more horsepower than the other minivans listed, but it also has better fuel economy than the

two other minivans of comparable size, the Ford Windstar and the Chrysler Caravan.

We have appended as Attachment 1 a corrected vehicle comparison. It is based

on Ford’s ‘‘Vehicle FE Comparison,’’ but with the problems listed above corrected

and a ‘‘horsepower’’ column added. These comparisons clearly contradict Ford’s testimony that: ‘‘Contrary to what you may have heard or believe, on art apples-to-apples basis, the fuel efficiency of vehicles from domestic manufactures is comparable;

to those from the international companies. Looking at today’s fuel economy data, on

a model-to-model basis, you will see very little difference in the fuel economy performance across the major manufacturers.’’ That statement is simply inaccurate.

Given the variety of vehicles and engines offered by the major manufacturers, any

comparison of individual vehicles could be selective; and potentially biased. Fortunately, a much better source of data is available. The Fuel Economy Trends report

published annually by EPA includes average mpg data for each model. EPA uses

confidential production information submitted by each manufacturer to calculate a

sales-weighted average fuel economy of the different engine and transmission offerings within each model.

Attachment 2 lists the top mpg vehicles for each vehicle class in which Honda

competes, listed in order of decreasing mpg. These are the sales-weighted mpg values from Appendix C of the 2001 FE Trends Report, except that manufacturers

other than DC, Ford, GM, Honda, and Toyota have been eliminated. The vehicle

classes listed in Attachment 2 are also taken from Appendix C of the 2001 FE

Trends Report.

The sales-weighted model data clearly demonstrates that, on a model-to-model

basis, Honda’s vehicles have substantially better fuel economy performance than vehicles from DC, Ford, and GM. The only apparent exception is the minivan class,

where the Honda Odyssey ranks behind the GM Venture. However, as previously

explained, the GM Venture is much smaller than the Odyssey and has much lower

horsepower. When size and power are considered, the Odyssey also has significantly

better fuel economy performance than its competitors.

Honda’s vehicles have better fuel economy primarily due to advanced engine technology. As discussed above, Honda’s engines have very high power output. This is

accomplished by careful design and use of many incremental technologies in our

mass-market engines, such as 4 valves/cylinder, overhead camshafts, lightweight

aluminum blocks, reduced engine friction, variable valve timing, and sequential

multi-point fuel injection. Honda also pays attention to careful body design, to reduce weight and improve aerodynamics. The net result of these efforts can be seen

indirectly in the class-leading fuel economy of our high volume vehicles.

In summary, the comparisons submitted by Ford do not accurately reflect comparable-model fuel economy performance. The Ford surnmary’s omissions and careful selections lead to conclusions that are not supported by accurate and unbiased

analysis. We trust that your Committee’s examination will include all the relevant

data, which shows conclusively that in fact there are very significant differences in

fuel economy performance among the major auto manufacturers.

Sincerely,

EDWARD B. COHEN,

Vice President, Government & Industry Relations

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