UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

NATIONAL VEHICLE AND FUEL EMISSIONS LABORATORY

2565 PLYMOUTH ROAD

ANN ARBOR, MI 48105-2498

 OFFICE OF

AIR AND RADIATION

August 12, 2010

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

notice of proposed rulemaking (NPRM) that would 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 2012 cars and trucks. 

The proposed rulemaking 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 draft proposed 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 draft proposed 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 proposed rule. The main industry sector subject to the proposed 

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 proposed 

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 

proposed rule 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 proposed regulations do not 

make any changes to the current requirements noted above and therefore there is no 

incremental impact from the proposed 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 proposed

rule would apply, the definition of small business for each sector, the proposed

requirements that would apply to each sector, the number of small businesses to which 

the proposed rule would apply, and the estimated costs and impacts associated with the 

proposed FE label requirements.

I. Brief Description of the Industry

Based on Environmental Protection Agency (EPA) records, we have identified a 

total of 22 car and truck manufacturers for the 2010 model year which have certified 

vehicles for sale in the U.S. Over 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 to approximately 10.6 

million cars and trucks for 2009, the most recent year for which sales information is 

available. 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 
3

up the remaining roughly 10 percent.

In addition, we have identified 11 ICIs that are currently importing 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 varies

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 

proposed 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 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 

 

1

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

test results. However, starting with the 2011 model year, manufacturers are 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 proposing a new FE label for all cars and trucks sold in 

the U.S. to take effect starting with the 2012 model year. EPA is actually proposing two 

label designs without a single primary proposal. While both label designs rely on the 

same underlying data, they differ in how the data is used and presented on the label. One 

is a more traditional label design that retains the current label’s focus on fuel economy 

values and annual fuel cost projections, with a general label layout more similar to the 

current label. The second label design contains all appropriate information but 

prominently features a letter grade to communicate the overall fuel economy and 

greenhouse gas emissions – along with the 5-year fuel cost savings associated with a 

particular vehicle compared to an average vehicle. All labels expand upon the content 

found on the current label and include the following information for conventional 

vehicles (advanced technology vehicle labels contain additional information tailored to 

the individual technology):

• City and highway fuel economy values in miles per gallon

• Combined city/highway fuel consumption in gallons per 100 miles

• Tailpipe carbon dioxide (CO2) emissions in grams per mile

• Annual fuel cost in dollars per year

• A slider bar comparing the combined fuel economy to all other vehicles

• A slider bar comparing the CO2 emissions to all other vehicles

• A slider car comparing “other” emissions to all other vehicles

• A Smartphone interactive tool

• A reference to “fueleconomy.gov”, the government’s fuel economy website

The proposal also addresses how to provide information on performance and cost 

that is most useful for certain advanced technology vehicles that are entering the 

marketplace now and in the near future, such as EVs and PHEVs. These kinds of 

technologies, which use fuels other than traditional liquid fuels, present special problems 

for providing useful information on the label to consumers. In order to provide this 

information for EVs and PHEVs, we are proposing testing requirements for determining 

these performance characteristics. EVs must already be tested for purposes of range 

determination for the Federal Trade Commission’s (FTC’s) hang-tag requirement. The 

testing procedures being proposed for the FE label rule are consistent with the 

requirements already in place for the FTC hang-tag requirement.

Commensurate with the proposed FE label changes, we are also proposing to 
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eliminate the requirement for 5-cycle testing of vehicles that would otherwise apply for 

ICIs starting in 2011. Under the proposal, 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 22 car and truck manufacturers identified by EPA, only one company

meets the SBA definition of a small business. The one small business identified is Tesla, 

an electric vehicle manufacturer. There are other manufacturers that are considering 

selling cars in the U.S. and have less than 1,000 employees. 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 11 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, the proposed FE label designs include the use of color. Because the 

current FE labels are black-and-white only, there will be some additional costs associated 

with the use of color printing. Fourth, EPA is proposing new testing requirements for 

EVs and PHEVs. Finally, EPA is proposing to eliminate certain testing requirements for 

ICIs.

The cost of the proposed 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, the production

volumes for each manufacturer, and whether the companies produce any EVs or PHEVs. 

The following section summarizes the costs of the FE label provisions for the small 

businesses affected by the proposed program. The inputs used in this small business 

analysis are based on the cost analysis described in the “Projected Impacts of the 

Proposed Requirements” section of the proposed rule (see section VII of the proposed 

preamble).
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(B) Estimated Impacts on Small Businesses

The one small business car and truck manufacturer identified certifies one test 

group with EPA which is an EV. Under the draft proposed regulations, the manufacturer

will be required to start using the new FE label starting in 2012. Because the vehicle 

produced by the manufacturer is an EV, the manufacturer will need to perform testing to 

demonstrate the operating characteristics of the batteries used to power the vehicle. 

However, because this manufacturer is already selling EVs in the market, the 

manufacturer already has to perform the same type of testing under existing Federal 

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

procedures being proposed for the FE label rule are consistent with the requirements 

already in place for the FTC hang-tag requirement. Therefore, the new requirement 

being proposed by EPA for EVs will not result in any increased testing costs for this 

small business car and truck manufacturer.

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 

draft proposed regulations, the ICIs will be required to start using the new FE label 

starting in 2012. With regard to testing, we are proposing to relax the testing 

requirements for vehicles imported by ICIs. As noted earlier, we are proposing to allow 

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 proposed provision, ICI’s would 

be required to test the each vehicle being imported over 3 additional driving cycles.

(i) Label costs

The FE label changes being proposed 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 proposing 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 

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 
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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.)

The primary variable cost for the new label design is the difference in cost 

between black-and-white printing and color printing. Based on a study by the California 

Air Resources Board (CARB) on the incremental cost of color labeling3as well as 

computer industry estimates4, we believe the upper-end cost of switching from black-andwhite printing to color printing will be no more than $0.08 per label. The total 

incremental cost for printing the new FE label will depend on the number of vehicles sold 

by each manufacturer. In general, vehicle sales numbers are considered confidential 

business information by manufacturers. Based on a search of publically available 

information, we estimate the vehicles sales for the one small business car and truck 

manufacturer (Tesla) to be no more than 500 vehicles per year. (This is based on a sales 

number of 1,000 units since 2008 cited in a respected business magazine.5) Based on 

sales of 500 vehicles per year, the increased cost due to the proposed FE label would be 

$40 per year. For the small business ICIs, the number of vehicles sold per year, varies, 

but rarely exceeds 50 vehicles per ICI per year. Using a sales number of 50 vehicles per 

ICI, the increased labeling costs should be no more than $4 per year per ICI.

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

to be $2,740 for the one small business car and truck manufacturer, and $2,704 for the 

small business ICIs.

(ii) Testing costs

As part of the proposed FE label rule, EPA is proposing 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, the one small 

business car and truck manufacturer currently produces EVs that must already be tested 

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

 

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

3

 CARB, “Staff Report: Initial Statement of Reasons for Rulemaking: Proposed 

Amendments to the Smog Index Vehicle Emissions Label,” May 4, 2007. Available at 

http://www.climatechange.ca.gov/publications/arb/2007-06-21_isor.pdf

4

 Hewlett-Packard, “Head to head comparison: color versus black-and-white printing.” 

Available at http://www.officeproductnews.net/files/hpc2447wpcolorvsbwgov.pdf

5

 Bloomberg Businessweek, “Tesla Electric-Car Credit Sales to Honda Ease Losses.” 

Available at http://www.businessweek.com/news/2010-06-04/tesla-electric-car-creditsales-to-honda-ease-losses-update2-.html
8

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

satisfy the values for the proposed FE label. Therefore, we estimate that there is no 

incremental testing cost for the one small business car and truck manufacturer.

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 EVs and PHEVs. While we do not believe the one small business car 

and truck manufacturer will need to perform extra testing for its EVs, 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 the one 

small business car and truck manufacturer. This is based on an estimate of 6 

professionals (e.g., information technology staff) spending four weeks to update the 

information systems.

As noted earlier, we are also proposing to eliminate the requirement for 5-cycle 

testing of vehicles that would otherwise apply for ICIs starting in 2011. Under the 

proposal, 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.6 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 to the one 

small business car and truck manufacturer identified by EPA to be $26,740 in the first

year of the program. In order to evaluate those costs for the small business car and truck 

manufacturer, we obtained sales/revenue information for the small business. Based on 

information from Hoovers, a leading source of financial information on businesses, the 

annual sales/revenue for the small business car and truck manufacturer is estimated to be 

approximately $110 million per year. Therefore, the annual cost of the proposed FE label

provisions is estimated to be significantly less than 1 percent of the small business car 

and truck manufacturer’s annual sales/revenue.

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

small business ICIs identified by EPA 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., 

 

6

 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

the $2,704 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 

proposed regulations will result in a net savings to ICIs, the annual cost of the proposed 

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

proposed FE label requirements on the small businesses identified by EPA. Given that 

we are projecting that the one small business car and truck manufacturer and all of the 

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

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

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