UNITED STATES ENVIRONMENTAL PROTECTION AGENCY NATIONAL VEHICLE AND FUEL EMISSIONS LABORATORY

2565 PLYMOUTH ROAD ANN ARBOR, MI 48105
- 2498

OFFICE OF AIR AND RADIATION May 2 , 201 1 Screening Analy sis: Small Business Impacts fro m Revisions to Motor Vehicle Fuel Economy L abel The Office of Transportation and Air Quality ( OTAQ) is currently preparing a final rulemaking (F RM) that w ill redesign the current fuel econom y label (FE label ) that is posted on the window sticker of all n ew cars and trucks sold in the U.S. The redesigned FE label will provide new information to American consumers about the fuel econom y and consumption, fuel costs, and environmental impacts associated with purchasin g new vehicles beginning with model ye ar 20 13 cars and trucks ( and optionally for the remaining portion of the 2012 model year) . The FRM will also include new FE labels for advanced technology vehicles which are poised to enter the U.S. market, in particular electric vehicles (EVs) and plug
- in h ybrid electric vehicles (PHEVs)
. The Regulatory

Flexibility

Act (RFA) , as amended by the Small Business Regulatory

Enforcement Fairness Act of 1996 (SBREFA), generall y requires an agency to prepare a regulatory

flexibility

anal ys is of an y rule subject t o notice and comment rulemaking requirements under the Administrative Procedure s Act or an y other statute unless the agency

certifies that the rule will not have a significant economic impact on a substantial number of small entities. Th is an aly sis is int ended to demonstrate that the impacts of the new FE label regulations on small entiti es will not have a significant economic impact on a substantial number of small entities (i.e., no “SI SNOSE”). For purposes of asses sing the impact s of the new regulations on small entities, a small entity

is defined as: (1) a small business as defined by the Small Business Administration’s (SBA’s) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a cit y, co unt y, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not
- for
profit enterprise which is independentl y owned and operated and is not dominant in its field
.2 S mall governmental juri s dictions and small organizations as describe d above will not b e regulated b y the FRM
. The main industry sector subject to the new regulations will be car and truck manufacturer s . Another industry sector consisting of companies that import special ized car s and trucks into the United States (U .S. ) , referred to as Independent Commercial Importers (ICIs), will also be subject to the new regulations. Therefore , the discussion below considers the impact on small business car and truck manufacturers and small b usiness I CI s . It is important to note that calculations of burden fo r evaluating the impacts of the FRM are incremental to a baseline that includes current market factors and presumes full compliance with all existing applicable statutory or regulatory

re quirements, including both federal and state requirements. In light of this, two additional industry sectors which are subject to parts of the fuel econom y labeling requirements have been excluded from this analy sis. The first sector comprises of compani es that take a certified vehicle configuration and modify the vehicle within a range specified b y the vehicle manufacturer, such as stretch limousine manufacturers or hearse manufacturers. Under current EPA regulations, such manufacturers may need to repl ace the fuel economy label on the original vehicle if the modified vehicle weight is increased. The fuel economy information needed for the replacement label is provided by the original manufacturer to the compan y planning to modify the vehicle. The seco nd sector comprises of new car dealers. Under current EPA regulations, dealers are required to make available to customers copies of the Fuel Economy Guide published annually by the Department of Energy
. For both of these sectors, th e new regulations do not make any changes to the current requi rements noted above and therefore there is no incr emental impact from the new regulations . For this reason, companies that modify certified vehicles, such as limousine and hearse manufacturers, as well as new car d ealers , are excluded from the following analy sis of small business impacts. The following section describe s the two indu stry sector s to which the FRM would app ly , the definition of small business for each sector , the requirement s that would apply to eac h sector , the number of small business es to which the FRM would apply , and the estimated costs and imp act s associated with the new FE label requirement s. I. Brief Description of the Industry Based on Environmental Protection Agency (EPA) records , there are approximately 25 car and truck manufacturers which have certified vehicl es for sale in the U
. S
. for the 2010 and 2011 model years. During the last 10 ye ars, the total sales of cars and trucks for the U.S. have generally been around 17 million cars an d trucks per ye ar. However, because of the recent economic downturn, sales have dropped significantl y. In 2009, total sales were approximately 10.6 million cars and trucks. The car and truck market is dominated by large businesses. Based on U.S. sales levels for cars and trucks , the top 10 car and truck manufacturers have consistently comprise d 90 percent or more of the total market, while the remaining companies make up the remaining roughl y 10 percent.3 In addit ion, we have identified 11 IC Is that import cars and trucks into the U.S. IC Is work with customers to bring in cars from overseas either because the owners are moving to the U
. S
. , or because the vehicle is not otherwise available in the U
. S
. (e.g., high
- performance sports cars and right
- hand drive postal vehicles)
. IC Is import very small numbers of vehicles compared to total sales , with total imports of less than 200 vehicles per ye ar for all of the I CI s in recent years. II . Definition of Small Business For car and truck manufa cturers , SBA defines a small business as one with fewer than 1,000 employees . For I CI s, SBA defines a small business as one with fewer than 100 employees , or less than $7 million in annual revenues , or less than $23 million in annual revenues depending on the primary industry classification of the ICI
. (I CI s potentially

fall under several different t ypes of primary industry class ifications, such as used car merchant wholesalers or automotive e xhaust sy stem repair and replacement shops . The criteria used by SBA to es tablish whether an entit y is a small business vary by the primary

industry classification .) Furthermore, SBA defines a small business as a concern that is organized for profit, with a place of business in the U
. S
. , and which operates primarily

within the U
. S
. or makes a sign ificant contribution to the U
. S
. econom y through payment of taxes or use of American products, materials, or labor. We have used the s e criteria to determine the number of small businesses affected by th e new FE label regulation s for th e an al ys is presented in this memorandum
. III . Current and Anticipated Regulations (A ) Current Requirements In 2006, we adopted new FE label requirements and several testing provisions related to deter

mining fuel econom y estimates. The FE label adop t ed under the 2006 revisions required all new cars and other personal vehicles to contain the following three pieces of core information: 1) City and highway

fuel econom y , 2) h ow the vehicle’s combined city

/highway fuel econom y compares to a range of comp arable vehicles , and 3) e stimated fuel cost to operate the vehicle for a ye ar. The requirement to use the new FE labels took effect in 2008 for all manufacturers , except those that produce only electric vehicles
. In the recent greenhouse gas rule for car s , EPA amended the regulations to require the FE label to manufacturers producing only electric vehicles starting in 2012. 1 The new FE label requirements adopted in 2006 also direct ed manufacturer s to determine their fuel economy estimates for the label in a different mann er. Instead of basing their estimates for the label on data fro m 2 driving cycles, m anufacturers must base their estimate on a total of 5 driving cycles . EPA provided flexibility through the 2010 model ye ar to predict the 5
- cycle estim ates using specified equations that are based on 2
- cycle test results. However, startin g with the 2011 model year, manufacturers ar e

1 See 75 FR 25324, dated May 7, 2010. See regulatory

section 40 CFR 600.301
- 12.4

required to collect actual fuel econom y data on the 5 driving cycles at the test group level
. (The requirement to test ov er 5 driving cycles does not appl y to alternative
- fueled vehicles, including electric vehicles. ) M anufacturer s can continue predicting 5
- cycle results for vehicle models within a test group onl y in cases where they can demonstrate that the actual fuel eco nomy data fr om 5
- cycle testing agree with the predicted values from the 2
- cycle test results within a few percent based on the certification vehicle for the test group
. (B ) New Requirements As noted earlier, w e are planning to adopt requirement for a revised fuel economy and environmental label to be affixed to all new automobiles sold in the U.S. starting with the 2013 model year and optionally for the remaining portion of the 2012 model ye ar. The new final fuel econom y and enviro nment labels retain man y of the attributes of the existing fuel economy label; specificall y: estimated annual fuel cost; city , highway , and combined MPG; and fuel econom y relative to other vehicles in the same class will remain on the label, although their relative prominence is revised to create space for new features. Vehicles run on liquid fuels will display MPG, while vehicles run on other fuel ty pes will display

gasoline
- energy

equivalent MPG (or MPGe). The FRM also requires fuel econom y and emissions certification test procedure and calculation methodologies for electric and plug
- in hy brid electric vehicles, essentially codifying the procedures that have been in use under EPA’s general authority to develop procedures for technologies not specificall y discussed in the re gulations. New label features include a vehicle fuel type identifier in the upper right corner, fuel consumption (the inverse of fuel economy), fuel econom y relative to all new vehicles (as well as within class), the projected five
- ye ar fuel costs or savi ngs of this vehicle compared to the average new vehicle, and environmental ratings for smog
- forming pollutants and greenhouse gases. The vehicle’s projected range when fully fueled will be required on dedicated alternative fuel vehicles and can be include d at the manufacturer’s discretion on flexible fuel vehicles. For vehicles that use an external electricity source, charge time at 220
- 240 V (or optionally at 110 V) will also be shown. Several features of the design of the label differ from the current labels, such as the removal of the large image of a fuel pump, the blocking of the label into various defined areas, and the name on the label, as well as other design changes. Plug
- in hy

brid electric vehicle labels will reflect energy use during operat ion in charge
- depleting mode and, separately , in charge
- sustaining mode. As with labels for other technologies, PHEV labels will feature a prominent MPG or MPGe metric, as well as fuel consumption values based on units of purchased fuel; for PHEV labels, these values will be presented for each operating mode. Several values on the label

— fuel costs and savings, MPGe relative to other vehicles, and the greenhouse gas and smog ratings

— will be based on assumptions of the relative use of the two fuels, using a standard utility factor approach. Fuel cost and savings values, as well as MPGe relative to other PHEV labels, will also indicate the range of the charge
- depleting mode as well as the entire range. Finally , charge time will be displayed as on electric v ehicles.5 Commensurate with the new FE label changes, w e are also planning to eliminat e the requir ement for 5
- cycle testing of vehic les that would otherwise appl y for I CI s starting in 2011
. Under the FRM , IC Is would be allowed to continue predicting th eir 5
- cycle fuel econom y estimates from data collected over 2 driving cycles. As noted earlier, IC Is import very limited number of vehicles each year, with many of the vehicles being imported for people moving to the U.S. and bringing their vehicle with them
. Because the cost of performing testing on 5 driving cycles is significantl y higher, as described in more detail below, i ncreasing the cost of importing the vehicle by such a significant amount would likely

prevent most people from imp orting their veh icles into the U.S
. through an ICI. IV . Number of Small Business es to Which the Rule Applies Of the car and truck manufacturers identified by EPA , five companies meet the SBA definitio n of a small business. The five small business es identified include Tesla, THI NK Global, Wheego Electric Cars, and Azure Dy namics Corp oration, all of which produce electric vehicles , and The Vehicle Pro duction Group, which produce s gasoline vehicles
. There ar e other manufacturers that are considering selling cars in the U.S
. or have sold cars in the past in the U.S. an d may meet the SBA definition of a small business
. However, these companies are not currently certifying vehicles with EPA . For this reason, we have not included an y of these manufacturers as small busines ses for the purpose of this anal ys is. Of the 11 IC Is identified by EPA , all of these companies meet the SBA definition of a small business. V . Projected Business Impacts (A ) Estimated Costs Costs are expected to be incurred in several categories. First, we assume that revising the FE label will require some initial labo r costs for manufacturers to become familiar with the new requirements. Second, there will be one - time graphic design work on the part of each manufacturer to redesign the current FE label . Because EPA would provide the template or high
- qualit y images for the design, these costs are not expected to be large. Third , EPA is adopt ing new testing requirements for EVs and PHEVs . Finall y, EPA is eliminating certain testing requirements for IC Is
. (In the proposal for this rule, EPA proposed FE label designs include the use of color. However, this provision has been dropped from the final rule and therefore we are not projecting any additional costs associated with the use of color printing.) The cost of the new fuel econom y label program will be different for each manufacturer depending on a number of factors. The primary factors that will impac t costs are the number of vehicle test groups certified by th e manufacturer and whether th e compan ies produce an y EV s or PHEVs
. The following section summarizes the costs of6

the FE label provisions for the small business es affected b y the new program . The inputs used in this small business analy sis are based on the cost anal ys is described in the “ Impacts o f Label Requirements ” section of the FRM (see section VI of the preamble). (B ) Estimated Impacts on Small Business es T he five small business car and truck manufacturer s identified fall into two categories, those that produce gasoline veh icle s and those that produce EV s. One of the small businesses certifies gasoline vehicles and four of the small businesses certify EVs. In all cases, the manufacturers certif y one test group with EPA
. Under the new regulations , the manufacturer s will be required to start using the new FE label starting in 2013
. For th e gasoline vehicle manufacturer , the new requirements will only require the use of a new FE label design. For those manufacturers that produce EV s , the manufacturer s will need to use the n ew FE label design and perform testing to demonstrate the operating characteristics of the batteries used to power the vehicle. However, because each of these EV manufacturer s currentl y sell EVs in the market, the manufacturer s already perform the same ty pe of testing under existing Federal Trade Commission (FTC) requirements noted earlier
. As noted earlier, the testing procedures being adopt ed for the FE label rule are consistent with the requirements already in place for the FTC hang
- tag requirement. T herefore, the new requirement being adopt ed by EPA for EVs will not result in any increased testing costs for these small business car and truck manufacturer s . The 11 small business I CI s certi fy multiple test groups with EPA. Inmost cases, each vehicle is certified as its own test group because each vehicle is a unique vehicle being imported for an individual. The actual number of test groups varies from year to ye ar, depending on the t ype of vehicles being imported in an y given ye ar . Under the new re gulations, the IC Is will be required to start using the new FE label starting in 2013
. With regard to testing, we are relax ing the testing requirements for vehicles imported by IC Is. A s not ed earlier, we are al low ing IC Is to continue using 2
- cycle test r esults to derive the 5
- cycle fuel economy estimates needed for the FE label starting in 2011
. Without this new provision, I CI s would be required to test the each vehicle being imported ove r 3 additional driving cycles. (i) Label costs T he FE label changes being adopt ed would not affect either the existence or size of the FE label. Manufacturers currentl y have significant flexibility in whether the FE label should be a stand
- alone label or included in the “Monroney label” (which provides information on the price and options included for a specific vehicle), or where it is placed on the Mo nroney

label. We are not making an y changes to this flexibility
. Each manufacturer is likely to incur some startup costs associated with the new label. These includ e understanding the new requirements and adopting the new label design. We estimate the one - time costs of understanding the new requirements to be no higher than $ 300 per manufacturer based on an estimate of 3 hours of time required for a7

professional (e. g., engineer) to carry out this task
. We es timate the one
- time costs of ad opting the new label design to be no higher than $ 2,400 per manufacturer based on an estimate of 24 hours of time required for a professional (e.g., engineer) to carry out this task
. (For the purposes of this analy sis, we have used a labor rate of approximately $50 per hour for a professional 2 , and have included a 10 0% markup for overhead. ) Based on the numbers presented above , the total label
- related costs are es timated to be $2, 70 0 for each of the small business car and truck manufacturer s , and also $2,700 for each of the small business I CI s. (ii) Testing costs As part of the new FE label rule, EPA is adopt ing test procedures for EVs and PHEVs that will provide information re quired for the new FE labels . These are modifications of testing procedures already used for certification of light
- duty vehicles, light
- duty trucks, and medium
- duty passenger vehicles. As noted earlier, four of the small business car and truck manufacturer s currently produce EVs that must already be tested for purposes of rang e determination for the FTC’s hang
- tag requirement. The results from the test ing performed to determine the FTC range determination can also be used to satisfy the v alues for the n ew FE label. Therefore, we estimate that there is no incremental testing cost for the four small business car and truck manufacturer s that produce EVs
. We are not adopting an y new testing requirements for manufacturers of gasoline cars and trucks. Ther efore, there are no new testing costs for the one small business manufacturer of gasoline cars and trucks. For those manufacturers that produce EVs and PHEVs , we expect there will be an additional one
- time cost of updating information systems to accommodate the additional te sting required for these vehicles
. While we do not believe the four small business car and truck manufacturer s that produce EVs will need to perform extra testing for their vehicle s, we are including the costs of updating their information sy stems to communicate the testing results to their information sy stem in order to get the data to EPA and the FE label because there is no need to do that currentl y. We estimate this cos t to be no higher than $24,000 for each of the four small busin ess car and truck manufacturer s that produce EVs . This is based on an estimate of 6 professionals (e.g., information technology

staff) spending four weeks to update the information sy stems. ( These additional costs for updating information syst ems would n ot appl y t o the one small busi ness car and truck manufacturer that produce s gasoline cars and trucks
. ) As noted earlier, we are also eliminating the requirement for 5
- cycle testing of

2 Bureau of Labor Statistics, based on “ Total compensation rates” for full
- time workers, as taken from Table 11 of “Employer Costs for Employee Compensation”, March 2010, rounded to the nearest $10. Available at http://www.bls.gov/news.release/pdf/ecec.pdf8

vehicles that would otherwise appl y for ICIs start ing in 2011. Under the FRM , I CI s would be allowed to continue predicting their 5
- cy cle fuel econom y estimates from data collected over 2 driving cycles. During the previous FE label rule, we estimated the cost of performing testing on the three additional driving cycles. T hese three cycles, referred to as the US06, SC03, and Cold
- temperature CO, were estimated to cost $1,860 per test, $2,206 per test, and $2,441 per test , respectivel y, to perform for a vehicle. 3 Therefore, b y elimin ating the requirement for ICIs to test imported vehicles over these three additional driving cycles, the ICI will not be required to incur approximately $6,5 00 of testing costs per vehicle imported b y an I CI
. (iii) Total costs compared to annual sales Based on the information provided above, we estim ate the overall costs in the first ye ar of the program to be $2,700 for th e small busi ness car and truck manufacturer that produce s gasoline cars and truck s and $26,70 0 for those small business car and truck manufacturers that produce EVs
. In ord er to evaluate those cost s for the small business car and truck manufac turer s , w e obtained sales /revenue information for the small bus iness es . Ba sed on information from Hoovers ( a leading source of financial information on businesses ), the small busi ness car and truck manufacturer that produce s gasoline vehicles has annual sales/revenue of $3.9 million per year. For the four small busi ness car and truck manufacturer s that produce EVs , the annual sales/revenue range s from $3.6 million to $110 million per year. Therefore, the annual co st of th e new FE label provisions is estimated to be less than 1 perc ent of each of the seven small business car and truck manufacturer s ’ annual sales /revenue
. Based on the information provided above, we esti mate the overall costs to the 11 small business I CI s to be a net savings
. The actual savings for each ICI will depend on the number of vehicles imported in a given year , but even if they onl y import one vehicle, the overall cost will be a net savings of approx imately $3, 300 (i.e., the $2,700 for labeling costs along with the cost savings of $6,000 for reduced testing burden)

. Based on information from Hoovers, the annual sales/revenue for the small business I CI s is estimated to range from $200,000 to $4,200,000 per year. Because the new regulations will result in a net savings to I CI s, the annual cost of the new FE label provisions is estimated to be less than 1 percent of each of the small business I CI s ’ annual sales/revenues. VI . Summary

of Impacts on Small Businesse s The discussions presented above provide an anal ysis of the impacts of the new FE label requirements on the sma ll business es identified by EPA
. Given that we are projecting that all of the small business car and truck manufacturer s and all of the small business I CI s will be impacted by less than 1 percent of annual sales/revenues , we

3 U.S. EPA, “Final Technical Support Document: Fuel Econom y Labeling of Motor Vehicle Revisions to Improve Calculation of Fuel Economy Estimates,” December 2006. Available at http://www.epa.gov/fueleconom y/regulations.htm9

bel ieve we can certify

that the new FE label provisions will not have a significant economic impact on a subst antial number of small entities (i.e., no SI SNOSE).