Opinion ID: 446520
Heading Depth: 2
Heading Rank: 3

Heading: Comparison of Costs and Benefits for Various Systems

Text: 95 If NHTSA had simply established best estimates for every component of cost and benefit, its identification of an optimal bumper standard would have required no more than addition of the estimates and [243 U.S.App.D.C. 144] comparison of the totals for each system. But in order to be realistic about uncertainty and conflicts in the data, the agency established ranges of possible values, rather than point estimates of the most likely values, for several of the key components of bumper system costs and benefits. Absolute cost and benefit figures were then converted into relative advantages (in terms of bumper system costs and benefits) using the 5.0/5.0 mph system as the baseline. The resulting product was a range of relative benefits and costs for each alternative based on the maximum possible variance obtainable from the variance in the constituent cost and benefit items. 20 The FRIA sets out the agency's figures in Tables X-5 through X-8, FRIA at X-12 to -15, and summarizes those findings in Table X-9, FRIA at X-16, which is reproduced below as Table IV. Each horizontal row of the Table corresponds to the designated combination of extreme assumptions used: e.g., the first row employs the highest value in the benefit range (advantage in the cost of bumpers over the 5.0/5.0 system), and the lowest value in the cost range (disadvantage in expected damage cost reduction relative to the 5.0/5.0 system). 96 [243 U.S.App.D.C. 145] NHTSA's first task was to determine whether the existing standard--the 5.0/5.0 system--met the requirements of the Cost Savings Act. On that issue the outcome was clear: it provided significantly fewer benefits to the public and consumers than several of the alternatives. 47 Fed.Reg. 21,82 5. Only under the fourth set of extreme assumptions--one which the agency concluded would be especially unlikely to occur in reality, id. at 21,826--did the existing [243 U.S.App.D.C. 146] standard prove superior to the alternatives. That conclusion was not independently challenged by petitioners. 97 The next step was the agency's selection of the 2.5/2.5 standard over the remaining alternatives. NHTSA rejected, for reasons not at issue, all remaining alternatives except two--the 2.5/2.5 and 5.0/2.5 systems. Id. at 21,825-26. It then compared those two directly under all examined sets of extreme assumptions, as well as under those sets of assumptions deemed by the agency most representative or most likely to occur. Id. at 21,826. The agency employed no fewer than four methods of comparison. First, it averaged the benefit and cost range end points and compared the resulting net benefits. This resulted in a $1 net advantage for the 5.0/2.5 alternative ($24 vs. $23 for the 2.5/2.5 alternative). FRIA at X-18 to -19. Second, it computed the simple arithmetic average of the net benefits associated with the four combinations of extreme assumptions. This again produced a $1 net advantage for the 5.0/2.5 bumper ($23 vs. $22 for the 2.5/2.5 alternative). Table IV, supra. Third, it recomputed the arithmetic average after excluding the values from the fourth combination of assumptions, which it had concluded was highly unlikely. 47 Fed.Reg. 21,826. That indicated substantial superiority of the 2.5/2.5 bumper system--a $9 net advantage ($42 vs. $33 for the 5.0/2.5 alternative). Table IV, supra. Fourth, it computed averages for several of the variables for which ranges had been used--e.g., a sales-weighted industry average for primary cost savings. FRIA at XI-19. That gave the 5.0/2.5 system a $4 advantage over the 2.5/2.5 system. Id. In light of these analyses, 21 NHTSA concluded that because the 2.5/2.5 bumper was markedly superior to the 5.0/2.5 alternative under the third method of comparison--which, as noted, excluded calculations based on highly unlikely assumptions--its cost-benefit analysis favored the less restrictive standard. 47 Fed.Reg. 21,826. 98 Petitioners point out that in three comparisons the 5.0/2.5 bumper was shown to be superior, albeit by only $1, $1, and $4 respectively, and they accuse the agency of blatant manipulation in rejecting, for purposes of its other comparison, the most unlikely set of extreme assumptions. It seems to us that such rejection was entirely reasonable. Averaging values from all four sets of extreme assumptions would be statistically valid only if each of the four combinations had an equal probability of occurrence. The agency explicitly found, however, that it was virtually impossible for the fourth combination--which included the lowest estimate of consumer price reductions, the highest estimate of the frequency of bumper-related accidents, and the highest values for delay and inconvenience--to occur in the real world. 47 Fed.Reg. 56,65 0. It reasoned that although each of these extreme assumptions may separately have some degree of probability, the probability that they will be accurate in combination is virtually zero. FRIA at XI-15 to -17. This finding was based on two considerations. First, although all four sets of assumptions involved extreme estimates, having only a remote possibility of occurring in combination, the agency considered the estimates in the excluded high-cost, low-benefit combination to be especially unlikely, id., a conclusion which finds ample support in the record. For example, with regard to the low-benefit $18 estimate of consumer savings attributable to the reduced purchase price of 2.5/2.5 bumpers, most companies submitted estimates at least $10 higher than the $18 figure, FRIA at XI-8 to -9, Ford and Chrysler both projected savings of $35, id. at VII-20, and NHTSA's own estimate of bumper component cost savings was $49--$14 higher than the upper-range figure based on manufacturer submissions and $31 (or 172 percent) higher than the $18 figure, id. at [243 U.S.App.D.C. 147] VII-21, -25. In addition, the agency's high-cost estimate of 3.20 average lifetime bumper accidents per vehicle, based on a submission by Allstate, was not supported by data, id. at III-15, had no independent factual basis ... in the record, id. at X-3, and indeed was used solely to test the sensitivity of the results to changes in lifetime accidents, id. at XI-7, i.e., it was never intended to be a substantive part of a real-world cost-benefit analysis. Thus, in making its calculations of the expected real-world consequences of varying bumper standards, NHTSA was fully justified in heavily discounting--or even discarding--the set of assumptions containing both this unsubstantiated high estimate of accidents and the low $18 estimate of consumer cost savings. 22 99 Second, the agency suggested that the low-benefit, high-cost estimates involve contradictory behavioral assumptions. 47 Fed.Reg. 21,825; 47 Fed.Reg. 56,650; FRIA at XI-15. The only specific inconsistency pointed to by the agency, however, is the alleged incompatibility of the high-range figures for the number of lifetime bumper accidents (3.20 per vehicle) and the valuation of unrepaired damage (75 percent of the cost of repair). NHTSA reasoned that 100 where more than three accidents per year are assumed, the valuation of unrepaired damage at 3/4 the cost of repair would be inconsistent with the probability that at least one of such accidents would in fact lead to repair, and thus to the absence of unrepaired damage, and the absence of at least some of the inconvenience value due to the absence of need for repair estimates. 101 Id. at X-4 to -4a. Like petitioners, we are utterly baffled by this reasoning. In addition to wrongly assuming that the 3.20 figure represents accidents per year (whereas in fact it represents accidents per vehicle-life), this passage seems to assume that the unrepaired damage percentages (50 to 75 percent) represent the percentage of all damage that goes unrepaired--whereas they in fact represent, for the quantum of unrepaired damage that is independently calculated (see Column 4 of Table III, supra ), the percentage of the hypothetical repair cost that represents the value of the damage to the consumer. This passage bears every evidence of having been inserted as a make-weight by someone who had not the slightest idea what he was talking about. Even so, the agency's decision on this point is adequately supported by the alternative rationale based on the confluence of independently improbable assumptions. Considering the record as a whole, we cannot say that this single error on an alternative point--blatant though it may be--renders the entire rulemaking arbitrary or capricious. 102 Thus, the agency was justified in concluding that the cost-benefit analysis favored, even if only slightly, the 2.5/2.5 bumper. NHTSA further noted, however, that even if it used the methodology urged by petitioners, it would find the 5.0/2.5 and 2.5/2.5 standards indistinguishable and would in any event select the latter because it best promotes the policies of the Cost Savings Act in ways not considered by the formal cost-benefit analysis. 47 Fed.Reg. 21,826-27. Contrary to the petitioners' contentions, we think it was permissible for the agency to consider such factors. Once it was determined on cost-benefit grounds that the 2.5/2.5 and 5.0/2.5 standards were both clearly superior to the existing standard, NHTSA had an obligation under the Cost Savings Act to choose one of these alternatives. But if--as would be the case using the cost-benefit methodology recommended by petitioners--the cost-benefit analysis showed that neither alternative was appreciably superior to the other, then it was entirely reasonable for the agency to decide on the basis [243 U.S.App.D.C. 148] of factors that promote the policy of the Cost Savings Act, even if not included within the formal cost-benefit model. 103 Petitioners also challenge the propriety of the particular extra-model factors the agency considered. The primary factor relied on by NHTSA was that the less restrictive standard would produce benefits--e.g., a reduction in automobile purchase prices--more certainly and immediately than would the 5.0/2.5 standard. 47 Fed.Reg. 21,826. Petitioners fault this reasoning on the ground that the 2.5/2.5 standard already received full credit for the immediacy of its benefits under the cost-benefit model, because reductions in accident costs, the principal benefit of the more restrictive standard, were discounted to present value. This discounting, however, took account of the cost of money, not the inherently more speculative nature of the future costs. FRIA at III-65. Thus, having already reduced the costs of anticipated accidents to present value, NHTSA could reasonably favor allowing consumers to benefit from immediate concrete price reductions rather than forcing them to spend additional money now in order to forestall accident costs that probably will, but might never, materialize. 104 NHTSA's second extra-model factor was that the wider design freedom permitted by a less restrictive standard would promote innovation, which could result in more effective bumpers at lower cost to the public than would otherwise be available, 47 Fed.Reg. 21,827. Petitioners find this to be counter-intuitive and counter to experience. Reply Brief for Insurance Company Petitioners at 27. It does not seem to us counter-intuitive, since a reduced standard would enable manufacturers to experiment with designs and materials likely, but not certain, to achieve more than 2.5 mph protection without fear of violating the law if they fell short of 5.0 mph protection. Such new designs, if successful, might then make possible the design of bumpers providing 5.0 mph or greater protection at a lower cost than was previously possible. As for prior experience, it is for the agency, not the court, to determine whether conditions in the automobile industry today (as opposed to 1966 or 1972) are incompatible with the agency's assumption that production freedom will promote innovation. Cf. State Farm, 103 S.Ct. at 2872. Furthermore, petitioners do not challenge NHTSA's more general conclusion that reduced standards would promote innovation to achieve values other than increased bumper protectiveness --for example, increased ability to accommodate consumers' automotive design preferences and the collection of data on different bumper performances. See 47 Fed.Reg. 21,827. Petitioners also question whether the record comments support the conclusion that a 2.5/2.5 standard would promote innovation better than the 5.0/2.5 alternative. The conclusion, however, was not based on record comments, but on the (indisputable) proposition that lower standards increase design freedom, which, as discussed above, NHTSA reasonably thought would promote innovation. Id. 105 A third extra-model factor considered by NHTSA was that a 2.5/2.5 standard will promote commonality, and hence achieve lower production costs than a standard with different requirements for front and rear bumpers. Petitioners attack this as resting on the ridiculous assumption that front and rear bumpers are identical. Reply Brief for Insurance Company Petitioners at 28. This misstates the agency's reasoning, which was based on commonality, not of front and rear bumpers, but of front and rear bumper components. See 47 Fed.Reg. 21,827. It seems to us not at all ridiculous, and not arbitrary or capricious, to assume that front and rear bumpers meeting the same impact standards have more components in common than bumpers required to meet differing impact standards. Petitioners have not even asserted that this plausible assumption is false. 106 Finally, NHTSA noted that the less restrictive standard would increase international harmonization. 47 Fed.Reg. 21,828-29. Petitioners assert that this is irrelevant to the requirements of the Cost Savings [243 U.S.App.D.C. 149] Act. Even that contention seems to us questionable, since harmonization produces public benefits by promoting international commerce. In any event, NHTSA did not assert that harmonization was a benefit under the Cost Savings Act. Rather, it was relying upon the Trade Agreements Act of 1979, Pub.L. No. 96-39, Title IV, § 402, 93 Stat. 144, 242-43 (1979) (codified at 19 U.S.C. § 2532 (1982)), which instructs each federal agency that is developing standards to take into consideration international standards and ..., if appropriate, base the standards on international standards. 19 U.S.C. § 2532(2)(A). NHTSA concluded that this statute was not controlling--i.e., did not require it to select the standard that best promoted harmonization, regardless of other factors--but that the 2.5/2.5 standard is far more compatible with relevant international regulations than the 5.0/2.5 alternative. 47 Fed.Reg. 21,829. We cannot say that this was an improper consideration.