10 Congress' intent with CAFE was that consumers should drive more fuelefficient vehicles. What was not anticipated was that consumers could have an alternative. Because of their prior specialization in small cars, some foreign manufacturers have been able to let their fleet CAFES fall with the introduction of new, larger, high-performance models and still remain above the standard. The most significant factor which accounts for differences in average fuel economy among manufacturers is size mix. In fact, studies comparing a fullline manufacturer to the size and mix typical of small car manufacturers have shown that nearly all of the difference in average fuel economy can be explained by mix. Looking at the difference between GM's 1990 performance and that of Nissan, Honda and Toyota, adjusted for mix, GM would have the same CAFE as Nissan and only about one mpg less than Toyota and Honda. While vehicles that have already incorporated fuel enhancing technologies prior to the base year will not have the benefit of "re-applying" these technologies after the base year to boost their CAFE, this is true for all manufacturers. 13. Would the amendments to the Motor Vehicle Information and Cost Savings Act proposed in Title XI give the Secretary adequate discretion to modify fuel economy standards as circumstances warranted? If not, provide recommendations on this issue. GM appreciates the committee's recognition of the importance of granting the Secretary adequate discretion to modify the fuel economy standards as conditions warrant. The history of CAFE has shown that factors outside of a manufacturer's control, such as a significant drop in oil prices that results in a shift in consumer demand toward large vehicles, can render a full-line manufacturer unable to comply with CAFE standards through no fault of its own. Accordingly, it is very important that the Secretary retain adequate discretion to amend the CAFE standards. Section 11008 does provide the Secretary with adequate discretion to amend the new standards applicable to the 1996 and subsequent model years. However, the bill may cause some confusion concerning the Secretary's authority to amend the standards for model years before 1996. This confusion arises from the proposed deletion (in Section 11003) of Section 502(a)(4), which authorizes the Secretary to amend the standard for 1985 and subsequent model years. This confusion could be prevented if Section 11008 were revised to read (on page 168, line 18): "(1) by striking 'subsection (a)(3)' and inserting 'subsection (a)' each place it appears." Whenever the Secretary establishes the near term standard he should also set the long-term standards. However, to guard against unforseen circumstances, the Secretary should be required to reassess the long-term standard 11 just prior to the effective date of the near-term standards and have the authority to adjust the standard or revise the effective date of the longterm standard. 14. Legislative vs. Administrative Decision-Making Describe the advantages and disadvantages of a legislative vs. administrative determination of MFAFE. Describe the amount and quality of information currently in the public record on the potential for increased fuel economy. The CAFE program, with its unintended consequences and its unforeseeable effects, has proven to be extremely complex. Not many individuals, including those who have lived with the program since its inception, are confident enough to say that they fully understand the CAFE program and all its ramifications. What may seem a matter of common sense or of a linear causal relationship, with CAFE, rarely is so. However, if a CAFE approach is pursued, we urge reliance on a rulemaking process to determine appropriate standards. It would allow for detailed consideration of the assumptions and factors that go into setting CAFE levels. Among these factors are ones dealing with safety, financial, competitive, technological, employment, consumer satisfaction and other important issues. The studies of technological feasibility by Messrs. Plotkin, Duleep and others are of concern to us because of their treatment of economic issues. We believe they include optimistic assessments of the costs and the timing of implementation. And we believe they fail to take into account such issues as marketing and safety risks and the engineering, manufacturing, financial and other resource constraints facing producers. 15. Credit Trading Evaluate the credit carry-forward and credit trading system proposed under section 11010. Note any expected effects on fuel economy and compliance costs. a. Some would argue that it would be unfair if credits earned prior to 1996 could be sued when new standards go into effect in 1996. Please comment. b. Some would argue that manufacturers should not be able to carry forward indefinitely credits that are earned in 1996 or later. Please comment. General Motors believes that credit carry-forward and trading provisions ought to provide manufacturers with greater flexibility consistent with the main goal of the law -- reducing energy use in new vehicles. a. We sympathize with those who maintain that it would be unfair if credits earned prior to 1996 were used to meet the standards in effect after 12 1996. Under current CAFE law, credits can be earned by manufacturers who are relatively specialized in the production of smaller cars regardless of the level of fuel economy technology embodied in their cars. Since one of the intentions of this proposal is to eliminate this source of "windfall" credits and to make all manufacturers bear an approximately equal burden in improving fuel economy, it may be appropriate to restrict the use of credits earned under the old CAFE law. b. Once a new law is fully implemented, however, credits earned under the new CAFE regime should have an indefinite lifetime. Manufacturers should be provided with adequate incentives to improve the fuel economy of their vehicles at the earliest possible date. Allowing for unlimited credit lifetimes provides such incentives, since it fully rewards over-compliance with the standards in the early years of a new CAFE program. Allowing credits earned from early year over-compliance to offset later CAFE shortfalls would not reduce the energy saving potential of the program over its lifetime in comparison to requiring year-by-year compliance or providing for only very limited credit lifetimes. It will, however, offer the potential for considerably lower compliance costs. 16. The proposed credit trading system would remove implicitly the distinction between the imported and domestic fleets of a manufacturer. a. To what extent have separate fuel economy standards for imported and domestic fleets preserved employment in the domestic auto industry? Did separate standards increase, maintain, decrease, or slow the rate of change in these jobs? b. Provide specific examples where possible of the effects of separate standards on employment, e.g., effects on types of automobiles, specific firms or plants, or model lines. c. How would the implicit removal of separate standards affect future employment in the domestic auto industry? Discuss the potential impacts on both plant siting and overall profitability, and their effect on employment. The extent to which separate fuel economy standards for imported and domestic fleets have preserved employment in the domestic auto industry is hard to isolate. Separate fuel economy standards for imported and domestic fleets have led to a number of trade-distorting effects, many of which were clearly not intended by the authors of the original legislation. While the two-fleet rule may have encouraged some increased domestic production of cars with higher fuel economy, its effect also has been to reduce domestic production of larger and higher performance cars and to encourage the entry of overseas producers into those upscale segments to the detriment of domestic automotive production and employment. This is because, owing to higher fuel prices and other institutional factors, overseas producers have historically had a comparative advantage in 13 the production of smaller vehicles, while domestic producers have concentrated on the production of larger, family-size vehicles. Thus, when confronted with an increased CAFE mandate, domestic producers often must rely on restricting larger car output, as opposed to increasing the output of smaller cars. In addition, domestic manufacturers have incentives to reduce the domestic content of their larger vehicles so as to in effect make them "imports" under the twofleet standard. Finally, the two-fleet rule provides incentives for firms with domestic transplant operations to limit the domestic content of those vehicles so as to retain the ability to average the fuel economy of transplant-produced vehicles with their high-mileage imported vehicles. Looking to the future, if the distinction between domestic and foreign fleets is maintained, we can expect more of the same — costly trade-distorting consequences with no obvious fuel economy or domestic production benefits. 17. Excessive Fuel Consumption Fee Section 11014 would modify the Motor Vehicle Information and Cost Savings Act so that failure to meet a fuel economy standard would no longer be unlawful. This section also boosts the fee for non-compliance from $5 to $20 per tenth of an m.p.g. per car. Evaluate this proposal. Would it give manufacturers adequate incentive to meet fuel economy goals? GM supports Section 11014's removal of the unlawful conduct provision of Section 507 and the concept of assessing an "excessive fuel consumption fee" if a manufacturer does not meet its CAFE standard once it is determined that all credits (past, future or purchased) cannot make up the shortfall. GM does not believe the unlawful conduct provision is necessary to provide manufacturers an incentive to achieve the CAFE standards. GM also does not believe that it is necessary to boost the fee for non-compliance from $5 to $20 per tenth of a m.p.g. per vehicle. As has been seen in the few penalty assessments that NHTSA has commenced, the current $5 penalty can result in significant total penalty amounts, easily in the millions of dollars. A quadrupling of the amount is unnecessary and excessive, particularly when a CAFE shortfall is the result of factors beyond the manufacturers control, such as a shift in consumer demand due to a significant drop in gasoline prices. For example, if a manufacturer like GM failed to meet a standard by merely one-tenth of a m.p.g. due to a shift in consumer demand, a $20 per tenth fee would result in an excessive fuel consumption fee of $80 million (assuming a fleet of 4 million vehicles). 18. Alternate Fuel Credits Section 513(g) of the Motor Vehicle Information and Cost Savings Act places a cap on the increase in average fuel economy that a manufacturer can gain through the sale of dual energy automobiles. Some have argued for increasing this cap (or removing it altogether) as a means of encouraging the use of alternate fuels. Others argue that such proposals could actually increase gasoline consumption by allowing fuel economy to decrease while providing no assurance that alternate fuels would be used 14 in dual energy automobiles. Evaluate these arguments and provide a General Motors supported enactment of the Rockefeller bill that established the credit for alternate fuels in part, because we believe programs that rely on incentives rather than "command and control" mandates are more likely to achieve their objectives. However, we did not support inclusion of the credit cap. Removing the cap would act as an incentive to produce and sell dual-fueled vehicles. Fleet-type sales would have access to methanol because they are centrally fueled. Individual sales may initially operate on gasoline, but as methanol becomes available through the normal distribution system, these vehicles would be able to operate on it, thus reducing the time until the total fleet will be capable of operating on methanol. 19. Auto Scrappage Program Sections 11016 and 11017 direct the Secretary of Energy to provide Since new cars account for only a fraction of the total number of vehicles on the road and less than ten percent of gasoline consumption, it seems essential that any energy policy address all vehicles -new and used. A major flaw in mandatory energy conservation standards such as that contemplated in the proposed legislation is that they provide a strong incentive for people to hold on to the largest and lowest mileage vehicles in service. By restricting the availability of the most fuel-efficient new cars, such command and control legislation works against itself to encourage the uneconomic retention of older, larger and more powerful vehicles that offer the comfort, performance, carrying and towing capacity and other features that many Americans want and need. The corresponding decline in the scrappage rate of such vehicles serves to offset a portion of the theoretical energy savings contemplated in such legislation and contributes to other negative side effects, such as the increased emissions associated with keeping older, higher polluting vehicles in service beyond their useful life. One way to deal with this problem might be for the government to offer financial incentives for early retirement of such vehicles such as that proffered in Section 11017 of the proposed legislation, which would encourage the retirement of all pre-1980 model year automobiles. Such an approach would surely be more cost-effective than mandatory conservation standards that work to increase the retention of older less fuel-efficient vehicles. |