Cost, Effectiveness, and Deployment of Fuel Economy Technologies for Light-Duty Vehicles (2015) / Chapter Skim
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9 Consumer Impacts and Acceptance Issues
9 Consumer Impacts and Acceptance Issues
Pages 307-336
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From page 307... ...
Both horsepower and weight were declinthe fuel economy standards and improvements in technol- ing, but the ratio remained relatively constant. This was ogy that have allowed for increases in both fuel economy during the time when gasoline prices were relatively high and performance.
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From page 308... ...
of the improvement of roughly 4 mpg in the overall fleet is Real gasoline prices started to increase rapidly around 2004, due to change in vehicle mix (market shares) and the other and new fuel economy standards were put in place: for half to changes in technologies applied to specific vehicles.
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From page 309... ...
vs. horsepower, passenger cars in 1980 (blue dots)
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From page 310... ...
Figure 9.5 this increased reliability may be due to changes made to shows the trends in real gasoline prices, actual fuel economy, meet the longer warranty requirements for emissions control and the fuel economy standards for cars and trucks over time. equipment and enhanced systems robustness with tightened Gasoline prices varied over the period but were generally onboard diagnostic monitoring requirements.
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From page 311... ...
The potential to considerations in understanding the standards' impacts on trade-off fuel economy, horsepower, and other attributes has consumers, automakers, and the country are whether or not not remained fixed over time; innovation has pushed out the the market undervalues future fuel savings relative to their technology frontier for improvements to both fuel economy expected full-lifetime discounted economic value, how that and other attributes. In recent years, some of this improve impacts the sales of vehicles with varying fuel economy, and ment has gone into better fuel economy or reliability, but how that bears on the need for standards, as well as the costs much has gone to improving other vehicle attributes such and benefits of these standards.
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From page 312... ...
On the other hand, premise of a well-functioning market, hence the paradox. if consumers substantially undervalue future fuel savings If the energy paradox exists, there are net energy savings (or if the Agencies' estimates of the costs are incorrect)
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From page 313... ...
If con- 1 1 sumers acted based on this model, then they should obtain Pi Mi − L E1 E2 the private benefits of fuel economy technologies without V =∑ regulations. Mathematically, the present value, V, of future i =1 (1 + r )
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From page 314... ...
showed that loss aversion alone could explain vehicles can maximize social welfare. If properly designed, undervaluing future fuel savings by a factor of two or more a "feebate" consisting of a fee on inefficient vehicles with relative to expected value.
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From page 315... ...
Although this is not large enough to explain older studies) found substantial potential for fuel economy all of the undervaluation of fuel economy technologies, it increases for which future fuel savings exceed the upfront could be one of several contributing factors.
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From page 316... ...
to 2009 found it nearly evenly split between studies that Whether consumers value future fuel savings at more or support the hypothesis of rational economic behavior toward less than their discounted present value was evaluated by automotive fuel economy and those that support a significant Allcott and Wozny (2014) using data on transaction prices undervaluing of fuel economy by car buyers (Greene 2010)
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From page 317... ...
It is possible that after almost as much as potential gains results in a similar undervaluing 35 years of experience with fuel economy standards conof future fuel savings relative to their expected value. Four sumers do not understand that they pay more for higher nation ide random sample surveys of 1,000 respondents w fuel economy vehicles or sacrifice other vehicle attributes.
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From page 318... ...
In either case the overwhelmingly positive and AUTOMAKERS' RISK AVERSION TO SUPPLYING consistent public support for fuel economy standards casts GREATER FUEL ECONOMY further doubt on the fully informed, economically rational model as applied to consumers' fuel economy choices. In addition to inefficiencies in how consumers value fuel economy, the Agencies in their Final Rule also raise a supply-side problem -- that automakers may be risk-averse Summary of Consumer Valuation of Fuel Economy to investing in fuel efficiency and therefore undersupplying How markets actually value increases in new vehicle fuel economy to the marketplace in the absence of regulation fuel economy is critical to evaluating the costs and benefits (EPA/NHTSA 2012a, 2012b)
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From page 319... ...
The 2008-2011 MY light-truck the option of investing in fuel efficiency and regaining some fuel economy standards and the first National Program if not all of its lost market share. If the industry as a whole standards for 2012-2016 MY helped create a predictable, is risk-averse, then large-scale adoption of fuel-efficiency stable regulatory environment that provided greater certainty technologies may not occur.
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From page 320... ...
EVIDENCE ON CONSUMER VALUE FOR However, technological progress is likely to continue and VEHICLE ATTRIBUTES other characteristics are likely to improve as they have in the To better understand the impact of fuel economy stan- past. If technology in the absence of the standards were to dards on consumers, it is important to look not just at how increase horsepower, for example, the horsepower function consumers value fuel economy, but also at how they value would continue to rise while fuel economy would remain flat other attributes in the bundle of vehicle characteristics.
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From page 321... ...
Now, more than 2 years later, manufacturers have is considerably lower, diesel fuel costs more than gasoline, made tremendous strides in addressing flaws and limitations and the residual value is higher (see Chapter 3)
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From page 322... ...
When Ford discontinued the fuel efficiency of these engines and mated transmissions. the truck-based Explorer in MY 2010, the label fuel economy These improvements in fuel economy in ICE vehicles with for the XLT four-door with a V6 and five-speed automatic familiar technologies provide the consumer with less incen- transmission was 14 mpg city, 20 mpg highway.
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From page 323... ...
, offered the best label fuel economy at 51 mpg city, 48 mpg propane, and hydrogen fuel cell vehicles. These vehicles highway, while the pricey 2014 Lexus LS 600h offered the are helping the United States to reduce its dependence on worst at just 19 mpg city, 23 mpg highway, a point below petroleum and to reduce vehicle emissions, but availability GM's five full-size truck offerings, which get 20 mpg city, often varies by state, and there are barriers to deployment 23 mpg highway.
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From page 324... ...
Currently, The modest size of the hybrid market does not necessarily the infrastructure is very limited, with just 10 stations in the reflect a lack of consumer demand for fuel efficiency overall United States at the end of 2013 (see Chapter 4)
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From page 325... ...
available, relatively low in price, and burn with lower emissions of criteria pollutants than gasoline or diesel, though all Survey Results on Fuel Economy and Other Attributes must meet the same tailpipe emissions standards. Vehicles equipped with CNG get about the same fuel efficiency as The extent to which consumers value fuel economy gasoline-powered vehicles.
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From page 326... ...
, with fuel economy chosen as most important In addition to variation between consumers in their valuby 14 percent of respondents, the second largest group. For ation of vehicle attributes, there is also variation in how they truck buyers, 25 percent said "quality and dependability" value vehicle attributes at different times during the purchase TABLE 9.5 NADA New Car and SUV/Truck Preference Surveys, August 2014 Ranking of Factors Considered during Ranking of Factors Considered during New Car Purchase New SUV/Truck Purchase Factor Average Rank Ranka Factor Average Rank Ranka Fuel Economy 3.0 1 Fuel Economy 3.4 1 Cost of Ownership 3.8 2 Cost of Ownership 3.6 2 Power and Performance 4.2 3 Power and Performance 4.2 3 Advanced Safety Systems 4.8 4 Versatility and Utility 4.9 4 Versatility and Utility 5.2 5 Advanced Safety Systems 5.0 5 Build Quality and Reliability 5.8 6 Build Quality and Reliability 5.5 6 Vehicle Design 6.1 7 Vehicle Design 6.1 7 Environmental Impact 6.6 8 Environmental Impact 6.8 8 Brand 7.4 9 Brand 7.3 9 Technology 8.2 10 Technology 8.3 10 a1 – Most Important, 10 – Least Important.
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From page 327... ...
. As noted above and acknowlthe reluctance of mainstream consumers to adopt alternative edged by the Agencies, there is great variation in the value of technology vehicles that may be perceived to sacrifice reli- fuel savings across individuals in the population depending ability and durability for improved fuel economy.
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From page 328... ...
To reflect the uncertainty of gasoline prices in the future, the Agencies' analysis is Financing Costs based on estimates from the Energy Information Agency The Agencies also estimated increases in costs due to the (EIA) Annual Energy Outlook (AEO)
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From page 329... ...
of $1,615. This decrease in net consumer valua TABLE 9.6 Private Cost of Ownership at Purchase Decision Born By the Individual Consumer Cost as a percent of purchase price Cost Incremental Purchase Cost MY2025 $1,836 Discount rate 3.0% Increase due to higher sales tax +5.5% +$101 Increase due to higher insurance costs +8.0% +$147 Increase due to higher financing costs +5.10% +$94 Residual value recovered at resale −30.64% −$563 Change in value −12.04% −$221 Net consumer valuation (without fuel savings)
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From page 330... ...
The residual value does assume fuel savings Urbanization and household formation are also influafter the initial 5-year period. The impact on sales should encing the growth of alternative transportation methods such consider how consumers value fuel economy at purchase as as car sharing programs, for example Car2Go and Zipcar, well as any residual value recovered at resale for improved and on-demand transport services such as Uber and Lyft.
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From page 331... ...
If, on the other hand, they do perceive the purchase as risky, such as if they look to the used car market If the cost and fuel savings estimates of the Final Rule for a cheaper, less fuel efficient vehicle, then loss aversion are approximately correct, the standards appear to make will still apply. Also, views on fuel economy could change vehicles more affordable for both new and used car buyers.
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From page 332... ...
Some consumin vehicle technology over time, enabling improvements in ers may be loss-averse or risk-averse, not wanting to take on many vehicle attributes at relatively low cost. Much of the what may be perceived as a risky investment in fuel economy, technology change during the period from 1985 to 2005 while others may lack understanding of the amount and value went to improve attributes such as horsepower and accel- of the future stream of fuel savings, especially as technoloeration, and not to fuel economy.
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From page 333... ...
However, over Finding 9.5 In the absence of increasingly stringent fuel time, implementations of new technologies can improve economy standards, vehicle manufacturers may be risk- and potentially find consumer acceptance, and some fuel averse to long-term investments in fuel economy tech- economy technologies improve drivability or performance, nologies. There has been much less analysis of supply-side which may be valued by consumers.
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From page 334... ...
2011. 2017 and Later Model Year Light-Duty Vehicle Green com/b2b/NADAOutlook/UsedCarTruckBlog/tabid/96/entryid/298/ house Gas Emissions and Corporate Average Fuel Economy Standards, NADA-Spring-2013-Car-Shopper-Preference-Survey-Quality-and- Proposed Rules.
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Corporate Average Fuel Economy standards. Rand Journal of Economics Gilmore, E., and L
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From page 336... ...
footprint-based fuel economy standards. tions and energy efficiency.
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