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, 2011

Screening Analysis: Small Business Impacts from Revisions to Motor Vehicle Fuel 

Economy Label

The Office of Transportation and Air Quality (OTAQ) is currently preparing a

final rulemaking (FRM) that will redesign the current fuel economy label (FE label) that 

is posted on the window sticker of all new cars and trucks sold in the U.S. The 

redesigned FE label will provide new information to American consumers about the fuel

economy and consumption, fuel costs, and environmental impacts associated with 

purchasing new vehicles beginning with model year 2013 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 hybrid electric vehicles (PHEVs).

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

Regulatory Enforcement Fairness Act of 1996 (SBREFA), generally requires an agency 

to prepare a regulatory flexibility analysis of any rule subject to notice and comment 

rulemaking requirements under the Administrative Procedures Act or any other statute 

unless the agency certifies that the rule will not have a significant economic impact on a 

substantial number of small entities. This analysis is intended to demonstrate that the 

impacts of the new FE label regulations on small entities will not have a significant 

economic impact on a substantial number of small entities (i.e., no “SISNOSE”).

For purposes of assessing the impacts 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 city, county, town, school district or special district 

with a population of less than 50,000; and (3) a small organization that is any not-forprofit enterprise which is independently owned and operated and is not dominant in its 

field.
2

Small governmental jurisdictions and small organizations as described above will

not be regulated by the FRM. The main industry sector subject to the new regulations

will be car and truck manufacturers. Another industry sector consisting of companies 

that import specialized cars 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 business ICIs.

It is important to note that calculations of burden for 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 requirements, including 

both federal and state requirements. In light of this, two additional industry sectors which 

are subject to parts of the fuel economy labeling requirements have been excluded from 

this analysis. The first sector comprises of companies that take a certified vehicle 

configuration and modify the vehicle within a range specified by the vehicle 

manufacturer, such as stretch limousine manufacturers or hearse manufacturers. Under 

current EPA regulations, such manufacturers may need to replace 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 company planning to modify the vehicle. The second 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, the new regulations do not make any changes to the 

current requirements noted above and therefore there is no incremental impact from the 

new regulations. For this reason, companies that modify certified vehicles, such as 

limousine and hearse manufacturers, as well as new car dealers, are excluded from the 

following analysis of small business impacts.

The following section describes the two industry sectors to which the FRM

would apply, the definition of small business for each sector, the requirements that would

apply to each sector, the number of small businesses to which the FRM would apply, and 

the estimated costs and impacts associated with the new FE label requirements.

I. Brief Description of the Industry

Based on Environmental Protection Agency (EPA) records, there are 

approximately 25 car and truck manufacturers which have certified vehicles for sale in 

the U.S. for the 2010 and 2011 model years. During the last 10 years, the total sales of 

cars and trucks for the U.S. have generally been around 17 million cars and trucks per 

year. However, because of the recent economic downturn, sales have dropped 

significantly. 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 comprised 90

percent or more of the total market, while the remaining companies make up the 

remaining roughly 10 percent.
3

In addition, we have identified 11 ICIs that import cars and trucks into the U.S. 

ICIs 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). ICIs import very

small numbers of vehicles compared to total sales, with total imports of less than 200

vehicles per year for all of the ICIs in recent years.

II. Definition of Small Business

For car and truck manufacturers, SBA defines a small business as one with fewer 

than 1,000 employees. For ICIs, 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. (ICIs 

potentially fall under several different types of primary industry classifications, such as 

used car merchant wholesalers or automotive exhaust system repair and replacement 

shops. The criteria used by SBA to establish whether an entity 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 significant contribution to the U.S.

economy through payment of taxes or use of American products, materials, or labor. We 

have used these criteria to determine the number of small businesses affected by the new

FE label regulations for the analysis 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 determining fuel economy estimates. The FE label adopted 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 economy, 2) how the vehicle’s 

combined city/highway fuel economy compares to a range of comparable vehicles, and 3) 

estimated fuel cost to operate the vehicle for a year. 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 cars, 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 directed manufacturers to 

determine their fuel economy estimates for the label in a different manner. Instead of 

basing their estimates for the label on data from 2 driving cycles, manufacturers must 

base their estimate on a total of 5 driving cycles. EPA provided flexibility through the 

2010 model year to predict the 5-cycle estimates using specified equations that are based 

on 2-cycle test results. However, starting with the 2011 model year, manufacturers are 

 

1

 See 75 FR 25324, dated May 7, 2010. See regulatory section 40 CFR 600.301-12.
4

required to collect actual fuel economy data on the 5 driving cycles at the test group 

level. (The requirement to test over 5 driving cycles does not apply to alternative-fueled 

vehicles, including electric vehicles.) Manufacturers can continue predicting 5-cycle

results for vehicle models within a test group only in cases where they can demonstrate 

that the actual fuel economy data from 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, we 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 

year. The new final fuel economy and environment labels retain many of the attributes of 

the existing fuel economy label; specifically: estimated annual fuel cost; city, highway, 

and combined MPG; and fuel economy 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 

types will display gasoline-energy equivalent MPG (or MPGe). The FRM also requires 

fuel economy and emissions certification test procedure and calculation methodologies 

for electric and plug-in hybrid electric vehicles, essentially codifying the procedures that 

have been in use under EPA’s general authority to develop procedures for technologies 

not specifically discussed in the regulations.

New label features include a vehicle fuel type identifier in the upper right corner, 

fuel consumption (the inverse of fuel economy), fuel economy relative to all new vehicles 

(as well as within class), the projected five-year fuel costs or savings 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 included 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 hybrid electric vehicle labels will reflect energy use during operation 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 vehicles. 
5

Commensurate with the new FE label changes, we are also planning to eliminate

the requirement for 5-cycle testing of vehicles that would otherwise apply for ICIs 

starting in 2011. Under the FRM, ICIs would be allowed to continue predicting their 5-

cycle fuel economy estimates from data collected over 2 driving cycles. As noted earlier, 

ICIs 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 significantly higher, as described in 

more detail below, increasing the cost of importing the vehicle by such a significant 

amount would likely prevent most people from importing their vehicles into the U.S.

through an ICI.

IV. Number of Small Businesses to Which the Rule Applies

Of the car and truck manufacturers identified by EPA, five companies meet the 

SBA definition of a small business. The five small businesses identified include Tesla,

THINK Global, Wheego Electric Cars, and Azure Dynamics Corporation, all of which 

produce electric vehicles, and The Vehicle Production Group, which produces gasoline 

vehicles. There are other manufacturers that are considering selling cars in the U.S. or 

have sold cars in the past in the U.S. and 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 any of these manufacturers as small businesses for the 

purpose of this analysis.

Of the 11 ICIs 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 labor 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-quality images for the design, these costs are not expected to 

be large. Third, EPA is adopting new testing requirements for EVs and PHEVs. Finally, 

EPA is eliminating certain testing requirements for ICIs. (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 economy label program will be different for each 

manufacturer depending on a number of factors. The primary factors that will impact 

costs are the number of vehicle test groups certified by the manufacturer and whether the 

companies produce any EVs or PHEVs. The following section summarizes the costs of 
6

the FE label provisions for the small businesses affected by the new program. The inputs 

used in this small business analysis are based on the cost analysis described in the

“Impacts of Label Requirements” section of the FRM (see section VI of the preamble).

(B) Estimated Impacts on Small Businesses

The five small business car and truck manufacturers identified fall into two 

categories, those that produce gasoline vehicles and those that produce EVs. One of the 

small businesses certifies gasoline vehicles and four of the small businesses certify EVs. 

In all cases, the manufacturers certify one test group with EPA. Under the new

regulations, the manufacturers will be required to start using the new FE label starting in

2013. For the gasoline vehicle manufacturer, the new requirements will only require the 

use of a new FE label design. For those manufacturers that produce EVs, the 

manufacturers will need to use the new 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 manufacturers currently sell EVs in the market, the 

manufacturers already perform the same type of testing under existing Federal Trade 

Commission (FTC) requirements noted earlier. As noted earlier, the testing procedures 

being adopted for the FE label rule are consistent with the requirements already in place 

for the FTC hang-tag requirement. Therefore, the new requirement being adopted by

EPA for EVs will not result in any increased testing costs for these small business car and 

truck manufacturers.

The 11 small business ICIs certify multiple test groups with EPA. In most 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 

year, depending on the type of vehicles being imported in any given year. Under the new

regulations, the ICIs will be required to start using the new FE label starting in 2013. 

With regard to testing, we are relaxing the testing requirements for vehicles imported by

ICIs. As noted earlier, we are allowing ICIs to continue using 2-cycle test results to 

derive the 5-cycle fuel economy estimates needed for the FE label starting in 2011. 

Without this new provision, ICIs would be required to test the each vehicle being 

imported over 3 additional driving cycles.

(i) Label costs

The FE label changes being adopted would not affect either the existence or size 

of the FE label. Manufacturers currently 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 Monroney label. We are not making any changes to this flexibility.

Each manufacturer is likely to incur some startup costs associated with the new 

label. These include 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 a 
7

professional (e.g., engineer) to carry out this task. We estimate the one-time costs of 

adopting 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 analysis, we have used a labor rate of approximately $50

per hour for a professional2, and have included a 100% markup for overhead.)

Based on the numbers presented above, the total label-related costs are estimated 

to be $2,700 for each of the small business car and truck manufacturers, and also $2,700

for each of the small business ICIs.

(ii) Testing costs

As part of the new FE label rule, EPA is adopting test procedures for EVs and 

PHEVs that will provide information required 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 manufacturers currently produce EVs that must already be 

tested for purposes of range determination for the FTC’s hang-tag requirement. The 

results from the testing performed to determine the FTC range determination can also be 

used to satisfy the values for the new FE label. Therefore, we estimate that there is no 

incremental testing cost for the four small business car and truck manufacturers that 

produce EVs.

We are not adopting any new testing requirements for manufacturers of gasoline 

cars and trucks. Therefore, 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 

testing required for these vehicles. While we do not believe the four small business car 

and truck manufacturers that produce EVs will need to perform extra testing for their

vehicles, we are including the costs of updating their information systems to 

communicate the testing results to their information system in order to get the data to 

EPA and the FE label because there is no need to do that currently. We estimate this cost 

to be no higher than $24,000 for each of the four small business car and truck 

manufacturers that produce EVs. This is based on an estimate of 6 professionals (e.g., 

information technology staff) spending four weeks to update the information systems. 

(These additional costs for updating information systems would not apply to the one

small business car and truck manufacturer that produces 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.pdf
8

vehicles that would otherwise apply for ICIs starting in 2011. Under the FRM, ICIs 

would be allowed to continue predicting their 5-cycle fuel economy 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. These 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, respectively, to perform for a vehicle.3 Therefore, by 

eliminating the requirement for ICIs to test imported vehicles over these three additional 

driving cycles, the ICI will not be required to incur approximately $6,500 of testing costs 

per vehicle imported by an ICI.

(iii) Total costs compared to annual sales

Based on the information provided above, we estimate the overall costs in the first 

year of the program to be $2,700 for the small business car and truck manufacturer that 

produces gasoline cars and trucks and $26,700 for those small business car and truck 

manufacturers that produce EVs. In order to evaluate those costs for the small business 

car and truck manufacturers, we obtained sales/revenue information for the small 

businesses. Based on information from Hoovers (a leading source of financial 

information on businesses), the small business car and truck manufacturer that produces 

gasoline vehicles has annual sales/revenue of $3.9 million per year. For the four small 

business car and truck manufacturers that produce EVs, the annual sales/revenue ranges

from $3.6 million to $110 million per year. Therefore, the annual cost of the new FE 

label provisions is estimated to be less than 1 percent of each of the seven small business 

car and truck manufacturers’ annual sales/revenue.

Based on the information provided above, we estimate the overall costs to the 11

small business ICIs 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 only import one vehicle, 

the overall cost will be a net savings of approximately $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 ICIs is 

estimated to range from $200,000 to $4,200,000 per year. Because the new regulations 

will result in a net savings to ICIs, the annual cost of the new FE label provisions is 

estimated to be less than 1 percent of each of the small business ICIs’ annual 

sales/revenues.

VI. Summary of Impacts on Small Businesses

The discussions presented above provide an analysis of the impacts of the new FE 

label requirements on the small businesses identified by EPA. Given that we are 

projecting that all of the small business car and truck manufacturers and all of the small

business ICIs will be impacted by less than 1 percent of annual sales/revenues, we 

 

3

 U.S. EPA, “Final Technical Support Document: Fuel Economy Labeling of Motor 

Vehicle Revisions to Improve Calculation of Fuel Economy Estimates,” December 2006. 

Available at http://www.epa.gov/fueleconomy/regulations.htm
9

believe we can certify that the new FE label provisions will not have a significant 

economic impact on a substantial number of small entities (i.e., no SISNOSE).