Comments on the CAR June 2011 Report

Earlier this week the Center for Automotive Research (CAR) issued a report titled “The U.S. Automotive Market and Industry in 2025.” This is a fuller exposition of an economic forecast that CAR initially presented in December 2010. Its focus is on the impact of U.S. greenhouse gas and fuel economy standards for 2017–2025 currently under consideration by the EPA and the Department of Transportation.

In March 2011 the ICCT published a critique of CAR’s December presentation, in which CAR had forecast that the costs associated with those future standards would far outweigh associated fuel savings, leading to declining demand and reduced levels of production and employment in the automotive and related industries. Our review uncovered so many fundamental technical and scientific errors as to make it clear that CAR’s analysis could not, without significant correction and improvement, serve as a basis for serious policy discussions.

In its newly released report, CAR has indeed corrected a number of errors, primarily with respect to calculation of the fuel savings. However, the analysis remains fundamentally flawed by improper use of data, incorrect methodologies, erroneous assumptions, and unsound appraisal of technological and other tendencies. Our assessment of CAR’s forecast therefore remains unchanged.

See below for a link to download a detailed enumeration of our criticisms of the CAR report. To summarize briefly:

The major problems with CAR’s cost assessment remain essentially unchanged. Most importantly, CAR inappropriately uses estimates of current fuel consumption technology benefits and costs from the 2010 NAS CAFE report to represent 2025 vehicles, despite the report’s explicit warning against doing so: “Tables S-1 and S-2 show the committee’s estimates of fuel consumption benefits and costs for technologies that are commercially available and can be implemented within 5 years.  The cost estimates represent estimates for the current (2009/2010) time period to about 5 years in the future.”  [Page S-1]

By employing near-term projections as long-term estimates, CAR ignores technology advances and cost reductions due to research and development and learning that are generally expected to occur. Because of these erroneous assumptions, the CAR forecast also requires a much higher market share for hybrids, plug-in hybrids, and battery electric vehicles, along with their associated charging equipment costs, which further increases vehicle technology costs.

The report also ignores the near certainty that automakers will take full advantage of air conditioning credits, and thus raises the effective performance target by about 1% per year, compounded annually.  For example, this means that CAR’s 5% scenario is about the same stringency as EPAs 6% scenario. It also includes projected costs of safety equipment that are entirely irrelevant to this analysis (and compounds the error by including zero benefits from that equipment).

These errors have major impacts. Inclusion of safety equipment arbitrarily increased CAR’s vehicle costs by $1,500. CAR’s own assessment (buried in Appendix I but not included in their primary analyses) was that inclusion of the AC credits would reduce the cost of the 3% scenario by $305 per vehicle, the 4% scenario by $1,250, the 5% scenario by $1,100, and the 6% scenario by $2,764. CAR’s inclusion of a powersplit hybrid instead of the cheaper ISG hybrid increased hybrid costs by over $1,800 per hybrid vehicle, with only an incremental 3% reduction in fuel consumption. The charging equipment costs alone for the inflated number of PHEVs and BEVs were $40 on average for all vehicles for the 3% scenario, $175 for the 4% scenario, $348 for the 5% scenario, and $1,105 for the 6% scenario; and the incremental vehicle costs are much higher yet.

CAR’s use of 2010 technologies and costs has by far the largest impact on the total costs, although it is difficult to quantify. The methodology of the report is equivalent to using 1995 technology and costs to characterize 2010 vehicles. No one would attempt to defend that idea, given the massive improvements in technology and costs that have occurred since 1995. Yet it makes even less sense to use 2010 technologies and costs to characterize 2025 vehicles, as improvements in computer simulations and computer-aided design are continuously accelerating the pace of technology innovation. In fact, EPA and NHTSA are the only organizations we are aware of that are undertaking meticulous technology projections for 2025, instead of relying on outdated studies.

The cumulative effect of the errors in the CAR report is, again, to overestimate vehicle price and underestimate the available technology associated with potential greenhouse gas/CAFE standards. If CAR had used a more credible analytical approach and representative estimates for technology and cost, it would have found significant CO₂ and fuel efficiency benefits at moderate cost, translating into greater savings to consumers and positive impacts on industry and employment.