Opinion ID: 446520
Heading Depth: 2
Heading Rank: 1

Heading: Bumper System Costs

Text: 58 NHTSA identified three different sources of cost differences among alternative bumper systems. First, more protective bumper systems, which require additional [243 U.S.App.D.C. 133] components such as energy-absorbing pistons, increase the weight of the car and thus the cost of the fuel that it will consume over its lifetime. This increase occurs not only in the primary weight of the bumper system, but also in the secondary weight of additional body and frame structural reinforcement needed to accommodate the increased primary weight. Second, more protective bumper systems cost more to manufacture and install--costs which can likewise be divided into primary (attributable to the bumper itself) and secondary (attributable to related structural reinforcement). 11 Third, and finally, that portion of the increased (primary and secondary) bumper system price which is financed imposes additional finance costs on the consumer. See FRIA at VII-12. 59 NHTSA solicited from the automobile industry confidential production cost data and weight estimates for the alternative bumper systems. Based upon those submissions, and taking into account its own assessment of expected changes in fleet composition over the next decade, id. at VII-2 to -4, it estimated that bumpers satisfying the adopted standard would result in production cost savings (over the 5.0 mph system) of $18-$35 in primary production cost, id. at VII-19 to -25, and $6-$20 in secondary production cost, id. at VII-35 to -36. It estimated that the new standard would eliminate 15-33 pounds in primary weight, id. at VII-28, and 11-33 pounds in secondary weight, id. at VII-35 to -36. Using gasoline price forecasts supplied by the Department of Energy, id. at VII-43, its own data on lifetime mileage distribution, id. at VII-44, and an estimated fuel consumption/weight ratio of 1 gallon: 1 pound over the lifetime of the car, id. at VII-40 to -42, NHTSA estimated that those weight reductions would produce fuel savings over the life of the car (reduced to present value using the Office of Management and Budget's 10 percent discount rate and standard discounting methodology, id. at III-66) of $28-$70, id. at VII-46. Finally, the agency estimated a $2-$6 per car reduction in finance charges to consumers. Id. at VII-47 to -53, -60 to -61. The sum of these production cost, fuel cost and finance cost savings produced a cost advantage of $54-$131 for the 2.5 mph system. 60 Petitioners do not challenge NHTSA's overall methodology. 12 Moreover, although [243 U.S.App.D.C. 134] there is admitted uncertainty with respect to nearly every variable, they take serious issue only with NHTSA's primary and secondary weight estimates. 13
61 Insurance Company Petitioners, repeating the argument made by the Insurance Institute for Highway Safety in its petition for reconsideration, claim that, in arriving at a 15-33 pound range of primary weight reduction on the basis of estimates by automobile manufacturers, NHTSA simply excluded from its analysis the estimates of Chrysler, Volkswagen, and Mitsubishi that weight savings would be significantly less than the agency's 15-pound minimum. Brief for Insurance Company Petitioners at 37. It is true enough that NHTSA excluded those submissions, but not without sound reasons. As noted in some detail in the agency's response to petitions for reconsideration, Chrysler's 10-pound estimate was for a Phase II bumper system. Compliance with a 2.5/2.5 Phase I standard could be expected to yield additional weight savings of 1-2 pounds. 47 Fed.Reg. 56,645. More importantly, Chrysler noted that its estimate was a minimum figure. Id. Similarly, Volkswagen indicated that its 8-pound savings estimate referred only to the savings from one particular design change; total savings were expected to be higher. Id. The exclusion of Mitsubishi's low estimate of 11-13 pounds was explained by the fact that Mitsubishi sales were relatively insignificant. Since the savings estimates were not weighted to reflect the United States sales volumes of particular cars or manufacturers, the agency deleted low and high extreme estimates submitted by manufacturers with very small sales in the United States. Thus, it excluded Mitsubishi's low estimate of 11-13 pounds but also Volvo's high estimate of 39 pounds. Id. 62 Petitioner CFAS charges that, in estimating weight reductions, NHTSA failed to consider the effect of the fuel economy test procedures of the Environmental Protection Agency (EPA). Brief for Petitioner CFAS at 30. The argument is that consumer estimation of new-car fuel economy is based upon EPA mileage ratings; and that the EPA classifies vehicles for purposes of its fuel efficiency tests according to weight classes. See 40 C.F.R. §§ 86.129-80, 600.111-80 (1983). Because vehicles in the same class, even if of different weight, will be tested as though they weigh the same, manufacturers lack the incentive to reduce a vehicle's weight unless they can achieve a weight reduction large enough to move the vehicle into the next lower class. Since the weight savings achievable under the new bumper system are small (15-33 pounds) relative to the weight class increments used by EPA (250 pounds for cars over two tons and 125 pounds for cars under two tons), manufacturers, according to CFAS, will save money by using heavier, cheaper materials and forgo the potential weight reductions. 63 It is patently false to assert that the agency failed to consider this point. See 47 Fed.Reg. 56,646. Petitioner's quarrel is with the resolution of it--and even there we think the agency not only acted within the bounds of reason but clearly has the better of the argument. It is fallacious, to begin with, to assume that consumer expectation of fuel economy is the manufacturer's only incentive to reduce weight. The agency observed that there are quite independent incentives, such as the fact that many weight-reducing changes (e.g., the removal of energy-absorbing pistons) reduce manufacturer costs. Id. Even assuming, [243 U.S.App.D.C. 135] however, that consumer expectation of fuel economy is the only incentive, that that expectation is based entirely upon EPA estimates, and that the manner of computing EPA estimates will remain unchanged (none of which assumptions we consider the agency was obliged to indulge); the petitioner's argument would still be flawed. The lumpiness of current EPA weight classes does not necessarily reduce the incentive, on average, to take advantage of small weight reductions. In designing cars, there are many small potential weight savings. The 15 to 33-pound savings offered by the new bumper standard--alone or in combination with secondary weight reductions that it makes possible--may be just enough in some cases to make it worth the manufacturer's while to implement a whole host of changes that together would be enough to move the vehicle into the next weight category. When this occurs, a far larger weight reduction is achieved than would be made possible by the bumper change itself. Thus, one might reasonably conclude that, on average, the bumper weight reduction potential would be given its full effect. 64 In addition, the agency noted that it had calculated its weight savings range from what manufacturers had told it they would in fact do, not from what they thought was theoretically possible. Id. Nothing in the record calls those intentions about future weight reductions into question. Moreover, the agency used its own studies as a check on manufacturer estimates of weight savings, id., concluding that, if anything, the 33-pound upper-range estimate was too low. 47 Fed.Reg. 21,832. We find no basis for overturning the agency's judgment on this point.
65 NHTSA found that each pound of reduced bumper weight would be accompanied by further reductions, ranging from 0.7-1.0 pounds, in the weight of basic automobile structures. Petitioners contend that this conclusion finds no support in the record, because no manufacturer promised in its submission to make secondary reductions. This is an unduly narrow view of the kind of evidence that the agency may properly rely on. NHTSA's prediction of secondary weight reductions was based upon generally recognized and accepted design theory, the incentives facing manufacturers and manufacturer comments. 47 Fed.Reg. 56,647. (As noted earlier, the premise that there are incentives to reduce weight is reasonable.) It would be a novel legal proposition to hold that such commonplace agency prediction of market behavior is arbitrary and capricious unless supported by manufacturer commitments in rulemaking submissions. Since NHTSA's reasoning was made part of the record and has a rational basis, it is sufficient to support the agency's conclusion. See National Tour Brokers Ass'n v. ICC, 671 F.2d 528, 533 (D.C.Cir.1982); Ryder Truck Lines, Inc. v. United States, 716 F.2d 1369, 1385 (11th Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 1707, 80 L.Ed.2d 181 (1984). 66 Petitioners next argue that even if NHTSA properly concluded that reduced bumper weights would lead to some secondary weight reductions, these reductions would be realizable only over a lengthy period of time, as manufacturers gradually redesign their fleets to take advantage of potential weight savings. Thus, NHTSA's cost-benefit analysis should have allocated and discounted the projected secondary savings over several years (or longer). Instead, NHTSA treated them as available in the first year of implementation of the new standard, FRIA VII-35 to -38, XI-19, thus greatly overstating the present value of the benefits of the 2.5 mph bumper standard. 67 In its denial of petitions for reconsideration, NHTSA acknowledged that the anticipated secondary weight savings would not be fully available right away, but noted that the same could be said of primary weight reductions, since the new bumper standard would not result in the immediate disappearance of all 5.0 mph bumpers from the market. Production requirements and market pressure will constrain any move immediately to 2.5 mph bumpers only. 47 [243 U.S.App.D.C. 136] Fed.Reg. 56,647. Though inelegantly stated, the agency's position is understandable if not clear: No objection has been raised to the agency's unreal assumption (for purposes of its cost-benefit analysis) that it is dealing with a universe of vehicles entirely equipped, here and now, with the 2.5 mph bumpers that the new standard would permit--for while this assumption distorts the magnitude of the costs and benefits that the new standard will produce (in the first few years at least), it does not distort what is important here, the relative net benefit of one standard over the other. The same is true of structural design changes accompanying the new bumper, and there is no need to treat them differently. See Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 535 (D.C.Cir.1983) (we must defer to the agency's decision on how to balance the cost and complexity of a more elaborate model against the oversimplification of a simpler model). In calling for discounting, petitioners confuse the physical state of affairs that the new standard will produce (including both the new lighter bumpers and the new lighter supporting structures), which can properly be assumed to exist at once, with the costs and benefits engendered by that state of affairs, some of which (i.e., accident costs, finance costs and fuel savings) will only accrue over time and must be discounted. The agency did discount the latter--for secondary weight reduction as for primary weight reduction--at a rate of 10 percent. FRIA at III-70. 68 Finally, petitioners claim inconsistency between NHTSA's treating secondary weight reductions as presently implemented and its failure to consider the effects of future design improvements that might reduce the weight of 5.0 mph bumpers. The two are not inconsistent. The latter involves technological speculation while the former is a known consequence of the new standard which, like the new bumpers themselves, is immediately achievable as far as technology is concerned. Moreover, NHTSA could reasonably assume that any such technological improvements would also reduce the weight of 2.5 mph bumpers and thus not affect the relative cost-benefit analysis. 47 Fed.Reg. 21,834; 47 Fed.Reg. 56,646.