[Senate Hearing 107-1137]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 107-1137



                    CORPORATE AVERAGE FUEL ECONOMY 
                             (CAFE) REFORM

=======================================================================

                                HEARING

                               BEFORE THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 6, 2001

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


                    U.S. GOVERNMENT PRINTING OFFICE
89-683                      WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

              ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
    Virginia                         CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
MAX CLELAND, Georgia                 GORDON SMITH, Oregon
BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
BILL NELSON, Florida

               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel
                  Mark Buse, Republican Staff Director
               Jeanne Bumpus, Republican General Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on December 6, 2001.................................     1
Statement of Senator Boxer.......................................    20
Statement of Senator Breaux......................................    25
Statement of Senator Burns.......................................    13
    Prepared statement...........................................    13
Statement of Senator Dorgan......................................    24
Statement of Senator Ensign......................................    12
Statement of Senator Kerry.......................................     1
Statement of Senator McCain......................................     3
Statement of Senator Nelson......................................    21
Statement of Senator Smith.......................................     4
    Prepared statement...........................................     5
Statement of Senator Snowe.......................................    15

                               Witnesses

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................    18
Boehlert, Hon. Sherwood, U.S. Representative from New York.......     8
Cischke, Susan M., Vice President, Environmental and Safety 
  Engineering, Ford Motor Company................................    44
    Prepared statement...........................................    46
Cohen, Edward B., Vice President for Government and Industry 
  Relations, Honda North America.................................    51
    Prepared statement...........................................    52
Davis, Thomas J., Group Vice President, General Motors, North 
  American Product Development...................................    40
    Prepared statement...........................................    42
Ditlow, Clarence M., Director, Center for Auto Safety............    95
    Prepared statement...........................................    97
Feinstein, Hon. Dianne, U.S. Senator from California.............     6
Friedman, David, Senior Analyst, Clean Vehicles Program, Union of 

  Concerned Scientists...........................................   112
    Prepared statement...........................................   114
Gravatt, Jr., Dr. Claude C., Director, Manufacturing 
  Competitiveness and Partnership for a New Generation of 
  Vehicles, (PNGV), Department of Commerce, Technology 
  Administration.................................................    33
    Prepared statement...........................................    34
Louckes, Theodore, Chief Operating Officer, Paice Corporation....   126
    Prepared statement...........................................   128
Mesnikoff, Ann R., Washington Representative, Sierra Club Global 
  Warming and Energy Program.....................................    57
    Prepared statement...........................................    59
Olson, James, Senior Vice President, Toyota Motor North America, 
  Inc............................................................   102
    Prepared statement...........................................   103
Reuther, Alan, Legislative Director, International Union, United 
  Automobile, Aerospace and Agricultural Implement Workers of 
  America (UAW)..................................................    74
    Prepared statement...........................................    76
Robertson, Bernard, Senior Vice President, Engineering 
  Technologies and Regulatory Affairs, Daimler/Chrysler 
  Corporation....................................................   107
    Prepared statement...........................................   109
Runge, Hon. Jeffrey W., Administrator, National Highway Traffic 
  Safety 
  Administration, Department of Transportation; accompanied by 
  Robert Shelton, Executive Director.............................    29
    Prepared statement...........................................    31
                                Appendix

                                                                   Page

Association of International Automobile Manufacturers (AIAM), 
  prepared statement.............................................   163
Cohen, Edward B., letter to Hon. John F. Kerry, dated Dec. 19, 
  2001...........................................................   168
Duncan, William C., General Director, Japan Automobile 
  Manufacturers 
  Association, prepared statement................................   157

 
              CORPORATE AVERAGE FUEL ECONOMY (CAFE) REFORM

                              ----------                              


                       THURSDAY, DECEMBER 6, 2001

                               U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m., in 
room 
SR-253, Russell Senate Office Building, Hon. John F. Kerry, 
presiding.

           OPENING STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. Good morning. The Commerce Committee hearing 
on the subject of CAFE standards will now come to order, and I 
welcome our colleagues. This morning, I will make a brief 
opening, and I am confident Senator McCain will want to say 
just a few words. We will try to move along. We have a very 
ambitious, full schedule today on a topic of enormous 
importance, and we really want to try to maximize the expertise 
of the panels that are here, so we want to try to keep it 
moving.
    Let me just begin by saying that the hearing today seeks to 
focus on corporate average fuel economy standards. I readily 
acknowledge to all the panelists that we are well aware that 
there are other possibilities, other ways of trying to deal 
with average fuel economy--or, not average fuel economy, but at 
any rate, fuel economy itself. Whether it is through tax 
incentives or cappage programs or biomass fuels, there are 
other options, and we have been discussing them as we meet, and 
will continue to meet, over the course of the next month or so. 
That is not what we are here to talk about today, and I am 
going to keep bringing us back to the fundamental issue, which 
is the CAFE standards themselves.
    Some of those other policies, let me say, may well make 
sense. They may well be part of a mix, of an intelligent policy 
to try to approach this issue over the long term, but we are 
focusing on CAFE because CAFE is going to be one component of 
it, and it is one of the most pressing and onerous of policy 
questions that we face.
    All of us know that this CAFE program was created 
specifically in response to the 1973-1974 Arab oil embargo as 
part of the Energy Policy and Conservation Act. It was signed 
into law by President Gerald Ford, I might remind everybody, a 
Republican from Michigan, who years later said that enacting 
CAFE was the right decision, and that he found it was a program 
that had been reasonably fair and produced significant 
benefits.
    When President Ford signed that bill, the principal reason 
for signing it was to reduce oil dependence and increase the 
overall economic efficiency and conservation. Today, we have 
also come to recognize that CAFE provides us with environmental 
benefits as well. The accumulation of greenhouse gases has been 
one of the most important considerations in the fuel economy 
debate, and to a great extent CAFE has been successful in 
achieving technical efficiency, economic efficiency, and 
reducing pollution.
    We have built more efficient vehicles. In 1974, the average 
car sold in America got 13 miles per gallon. By 1988, fuel 
economy climbed to a peak of almost 29 miles per gallon, a 120 
percent increase in fuel economy over 14 years. Light trucks 
climbed from 18 miles per gallon in 1979 to a peak of almost 22 
miles per gallon, an increase of almost 20 percent in 9 years.
    We reduced oil consumption as a consequence of this. The 
National Academy of Sciences estimates that the United States' 
gasoline use would be 43 billion gallons per year more, 2.8 
million barrels per day higher than it is today, were it not 
for this program. As a result, the use by cars and light trucks 
today is roughly one-third lower than it would otherwise be, 
and overall oil consumption is 5 percent lower.
    We have also reduced pollution. The National Academy of 
Sciences estimates that without these advances, carbon dioxide 
emissions would be more than 100 million metric tons higher 
each year than they are now. That is a 7 percent cut in 
emissions, and as we consider the importance of global warming, 
it is something to keep in mind as we go forward.
    Now, there are important concerns raised on both sides, and 
Senator McCain and I, Senator Hollings, our Chairman, and 
others on the Committee are determined to do the best job we 
can as a Committee fairly and thoughtfully listening to all the 
sides of this issue as we proceed forward.
    I have not arrived at an overall CAFE figure, a number that 
should be the goal or standard. I have not even arrived yet at 
what the structure might be, and there are several different 
proposals on the table with respect to that, but I think it is 
important to all of us to understand that some of the arguments 
we are hearing are very similar to arguments that were posed 
when this program was first proposed.
    We hear from the Alliance of Automobile Manufacturers 
strenuous opposition to the CAFE program, including concerns 
that there is a negative economic impact on individual 
companies and the industry as a whole, that the public has not 
made a decision to buy in these directions, and that you cannot 
force consumer decisions. They question whether CAFE is the 
most effective policy to achieve the goal of reducing oil 
consumption, and are concerned with the impact that a fixed 
figure with a specific set of time that is not reasonable might 
have on the industry as a whole, and therefore on jobs and on 
the economy of this country.
    I want to make it as clear as I can I think every Member of 
this Committee is deeply concerned about the economy of the 
country, and obviously, none of us wants to adopt a policy that 
appears mindless and geared to putting people out of work. But 
many of us believe that there are ways to avoid those kinds of 
dire predictions and consequences, and that is precisely what 
this hearing is geared to try to examine.
    I think by the same token there are some exaggerated claims 
on other sides of the ledger, and we need to examine those also 
as we go forward. Let me just close by saying one thing. After 
a decade of the CAFE standards being frozen in place, there has 
been a decrease in the overall fleet economy, and we are coming 
back to a place where we have been before. Many of us have been 
deeply concerned that the agencies responsible for trying to 
help work us through this problem have literally been 
prohibited by congressional mandate from even being thoughtful 
about what the options might be.
    As we all know, in 1995 the Administration was prohibited 
from even an evaluation of what might take place with further 
CAFE standards. So we come to this debate mindful of the 
restraints under which we have been forced to operate, and I 
also remind people that there is a track record here. During 
the Reagan and Bush Administrations, it is interesting that 
some of those who opposed CAFE looked to NHTSA to be the 
operating entity, and then when people perhaps viewed as being 
less friendly to their interests were in power, suddenly 
Congress became the empowered entity, and now once again we see 
those people who oppose CAFE looking to NHTSA to try to be the 
governing entity.
    So there is a track record here of people forum-shopping, 
and I think I am certainly going to encourage this Committee to 
not be impressed by those forum-shopping efforts, and to try to 
do what the Congress of the United States ought to do, which is 
to show some leadership and try to set a standard.
    There is a lot on the table today, and I will try to keep 
to my own restraints here.
    Senator McCain, do you have some opening comments?

                STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    Senator McCain. Thank you, Mr. Chairman. I want to thank 
you for having this hearing, and I want to thank you for your 
long involvement in this issue. I welcome our Senate 
colleagues, as well as Congressman Boehlert, who has been a 
staunch leader in this effort as well as in other environmental 
issues. We are pleased you came over to discuss this issue with 
us today, Congressman Boehlert. And again, I want to thank you, 
Senator Kerry. With all of the other issues that we are facing 
here, I think it is important that we have this hearing, 
because I think it is important that we act next year, and I 
think you would agree that we probably have enough information 
to move some legislation, at least, through the Commerce 
Committee.
    The issue is a significant one. I hope today's testimony 
will provide the Committee with an in-depth look at how best to 
address the issue and balance consumer interests and 
environmental issues. The debate is complex because it involves 
the environment, public safety, and the economy. It involves a 
tension between the consumer's choice to drive vehicles that 
perform to the owner's standards and the environmental 
consequences that result from those choices.
    Moreover, higher CAFE standards may now play a more 
significant role in our discussions regarding efforts to 
decrease U.S. independence on the importation of foreign oil.
    The recent NAS report concluded that the benefits resulting 
from CAFE-type programs clearly warrant government intervention 
in the market. The report points out that CAFE has produced 
many positive results, including a reduction in the emission of 
greenhouse gases, a decreased dependence on foreign oil, and 
lower fuel consumption. At the same time, NAS reported that 
CAFE standards have probably resulted in increased traffic 
fatalities due to the down-sizing and down-weighing of vehicles 
by manufacturers in their efforts to comply with the standards.
    To properly address this issue requires careful evaluation 
of new technologies and the costs associated with incorporating 
them into the fleet. I am hopeful that today's testimony will 
enable this Committee to learn more about the technology that 
exists to increase CAFE standards, and how the auto industry 
can implement that technology at minimal cost to the consumer 
without compromising safety or performance. In particular, I 
hope the industry will speak to the research and development in 
which they are currently engaged in their efforts to develop 
vehicles that are more fuel-efficient.
    In conclusion, let me say that it is imperative that the 
Commerce Committee examine this issue in a comprehensive 
manner, and formulate a balanced approach that achieves better 
fuel economy, and at the same time, provides consumers with 
choice and enhanced vehicle performance.
    I thank you, Mr. Chairman. I thank you for your 
involvement, and I thank you for holding this hearing, and I 
know we will probably have to have some more, but I hope next 
year that we can take some action. We have been reviewing it 
for a number of years now.
    I thank you, Mr. Chairman.
    Senator Kerry. Thank you very much, Senator McCain.
    Let me just say for everybody's edification, the schedule 
of the Committee will essentially be accelerated because, as 
everybody knows, there have been a few skirmishes on the floor 
of the Senate with respect to energy policy, and clearly, CAFE 
will be a component of that policy. It will be unavoidable that 
when we have energy on the floor of the U.S. Senate, there is 
going to be some effort to deal with this issue, and so we are 
putting ourselves on an accelerated schedule to try to deal 
with it.
    In that light, I met with Senator Daschle, we talked about 
it, we met with Senator Bingaman, the Chairman of the Energy 
Committee, Senator Feinstein, other interested parties, and it 
will be our intention to try to complete our task within this 
Committee in time to be relevant to that debate and to make our 
recommendations, and that will be sometime late January, 
obviously.
    Senator Smith.

                STATEMENT OF HON. GORDON SMITH, 
                    U.S. SENATOR FROM OREGON

    Senator Smith. Thank you, Mr. Chairman. As a Member of both 
the Energy Committee and the Commerce Committee, I join Senator 
McCain in thanking you for holding this hearing. I think it is 
timely and very, very important. In the interest of time, I 
would ask my full testimony be included in the record. I will 
sum up my remarks by saying that in the past I voted to lift 
the moratorium on CAFE standards, and I am open to a reasonable 
approach to increasing CAFE standards or to any alternative 
plan that can achieve the same policy objectives.
    Our challenge as we craft the legislation will be to 
proceed in the manner that preserves consumer choice, protects 
passenger safety, and does not impair the competitiveness of 
the domestic auto industry. I believe we can do all this while 
maintaining and increasing our environmental stewardship, and I 
note that the National Academy of Sciences recently reported 
that technologies exist that can significantly reduce fuel 
consumption within 15 years, especially for light trucks. If it 
exists, let us get on with it. Let us keep the trucks rolling. 
Let us roll.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Smith follows:]

   Prepared Statement of Hon. Gordon Smith, U.S. Senator from Oregon
    Mr. Chairman, I want to thank you for holding this timely hearing 
on Corporate Average Fuel Economy (CAFE) standards. I believe this 
hearing will be very helpful in the upcoming debate on national energy 
legislation, and I look forward to hearing from the witnesses today.
    I have voted in the past to remove the moratorium on raising CAFE 
standards, and am open to a reasonable approach to increasing CAFE 
standards or to an alternative plan for achieving the same policy 
objectives.
    Our challenge as we craft legislation will be to proceed in a 
manner that preserves consumer choice, protects passenger safety, and 
does not impair the competitiveness of the domestic auto industry. I 
believe that all of this can be attained while we simultaneously 
enhance our environmental stewardship.
    Combating global climate change must involve the transportation 
sector in order to succeed. In addition, our dependence on imported oil 
continues to grow, and is expected to reach 66 percent by the year 
2010. To put that in context, the U.S. imported just 35 percent of its 
oil at the time of the 1973 oil embargo.
    As the recent National Academy of Sciences report found, 
technologies exist that can significantly reduce fuel consumption 
within 15 years, especially for light trucks.
    We need to apply American ingenuity to improving fuel efficiency, 
without sacrificing human safety. This is where the debate on this 
issue has largely centered--fuel efficiency versus the increased 
traffic fatalities that resulted from the downsizing and downweighting 
of vehicles that occurred in the 1970s and 1980s.
    As a society, we are all the poorer for these deaths. Who knows 
what these individuals might have achieved, had they lived.
    We should not, and need not, impose on auto manufacturers fuel 
efficiency standards that will lead to more fatalities. However, even 
under existing fuel standards, today's vehicles within the same class 
vary widely in their safety records. We need to ensure that the safest 
designs are incorporated, and that auto safety requirements are 
adequate, regardless of the outcome of the CAFE debate.
    There are a variety of technologies, such as turbo-charged engines, 
that are already available to increase our fuel efficiency without 
sacrificing performance.
    1 am a co-sponsor of S. 760, sponsored by Senator Hatch, a bill to 
amend the tax code to encourage and accelerate the production and sale 
of vehicles powered by fuel cell technology, hybrid technology, 
alternative fuels or other advanced vehicle technologies.
    I believe these tax credits can spur the commercial development of 
these vehicles as effectively as the federal funds we spend on 
research.
    I look forward to hearing more from the witnesses about the 
effectiveness of the current CAFE standards. I think that in the coming 
months the Congress and the Administration should also explore the 
alternative approaches that, in the Academy's findings, could 
accomplish the same policy objective at lower cost, while providing 
more flexibility to manufacturers.
    I also appreciate the report's recognition that technology changes 
require very long lead times to be introduced into the manufacturers' 
product lines. We must ensure that any policies or actions taken 
relative to fuel economy reflect these lead times, and don't place U.S. 
auto manufacturers at a competitive disadvantage to foreign automakers.
    I look forward to hearing from the witnesses today, and to working 
with my colleagues in the coming months to craft an effective policy on 
this important issue.

    Senator Kerry. Thank you, Senator Smith, and without 
objection your full statement will be placed in the record.
    It is my understanding that Congressman Boehlert and 
Senator Feinstein both have to leave early. Is it all right 
with Senator Bingaman--as Senior Member, I just wanted to ask 
you if we could proceed with them first.
    Senator Feinstein, would you lead off then, and then 
Congressman Boehlert. We are delighted to have you here, and 
Senator Snowe as well. Thank you for taking time to be with us, 
and we look forward to your testimony.

              STATEMENT OF HON. DIANNE FEINSTEIN, 
                  U.S. SENATOR FROM CALIFORNIA

    Senator Feinstein. Thanks very much, Senator Kerry, Senator 
McCain, Senator Smith.
    Senator Kerry, this is the second time I have had the 
privilege of appearing before you to speak about fuel 
efficiency standards for SUVs. I am delighted that the Chairman 
of the Energy Committee on which I am proud to serve is here, 
and my cosponsor in the legislation I am going to speak about 
this morning, Senator Snowe from Maine, is also going to 
testify and, of course, Congressman, we welcome your support.
    Senator Snowe and I have introduced legislation which is 
very straightforward and, as Senator Smith said, we believe a 
reasonable piece of legislation. That legislation would bring 
the fuel efficiency standards for SUVs and light trucks into 
conformance with those standards on sedans, our legislation 
says, in 6 years. The National Academy of Sciences said that 
the time period--actually, a report that was leaked was much 
more aggressive, but the final report said within 10 to 15 
years.
    I, for one--I have not had a chance to discuss this with 
Senator Snowe, but it seems to me that this can be well-
accommodated within a 10-year period, and I would like to 
explain why.
    At the time original CAFE legislation was introduced in 
1975, people did not drive SUVs. When the automotive companies 
began to manufacture SUVs, they built them to meet truck 
specifications. As a result, the vehicles were not held to the 
same fuel economy standards as regular passenger vehicles. Now 
the rub is that today, almost half of all new passenger 
vehicles sold in this country are SUVs, or light duty trucks, 
so today they are used as passenger vehicles, and yet they get 
the lower fuel efficiency standards.
    The United States contains only 3 percent of the world's 
oil reserves, and we consume 25 percent of oil produced 
worldwide. We use about 19 million barrels of oil a day, about 
10 million of which are imported. 40 percent of the oil we use 
in the United States goes into our motor vehicles. The 
Feinstein-Snowe legislation saves 1 million barrels of oil a 
day, reducing our dependence on foreign oil by 10 percent right 
off the bat. There is no bigger bang for the buck than that.
    The fuel economy for automobiles has not improved since 
1987. That is 14 years with no progress. Meanwhile, SUVs and 
light trucks have not improved since 1981. That is 20 years 
with no progress. As I have said, since almost half of the 
vehicles on the road are SUVs and light duty trucks, fuel 
economy today has reached its lowest overall level in 20 years. 
That is why we are here.
    I really believe that the Feinstein-Snowe legislation, 
which would phase in an increase in fuel economy standards for 
SUVs and light duty trucks and also increase the fuel economy 
of our government fleet, may be the single most important 
energy policy we can implement right now, today.
    Additionally, closing what is called the SUV loophole would 
prevent about 240 million tons of carbon dioxide--that is the 
top greenhouse gas the single biggest cause of global warming--
from entering the atmosphere each year, so it is one of the 
best steps we can take to help combat global warming.
    I think all we have to do is sit here on this brilliant 
December day in Washington and see cherry blossoms beginning to 
bloom to understand that global warming is, indeed, a real 
phenomenon.
    So why have we not raised CAFE standards? The short answer 
is because of the automotive industry. The industry has opposed 
fuel economy standards in 1975, and they have essentially 
recycled the same arguments to oppose any new standards. They 
argue they will cost jobs. They argue they will jeopardize 
safety. They argue that they do not have the technology to 
improve fuel economy.
    Let me just briefly respond. There is no evidence that 
improving fuel economy will result in the loss of a single job 
in the United States. The National Academy of Sciences was 
directed to assess whether fuel economy would cost jobs. They 
found that it did not. In fact, I believe the biggest threat to 
jobs will be the continuing loss of market share by the Big 
Three to Toyota and Honda and other foreign manufacturers who 
are producing more efficient vehicles.
    Second, the automotive industry argument that the only way 
to improve fuel economy would be to make vehicles lighter and 
thus less safe is simply not true. The Academy of Sciences 
report points out that there are other ways to improve fuel 
economy and safety at the same time, and this is significant.
    For instance, you can encourage weight reduction using 
advanced lightweight materials that will not only keep light 
duty trucks safe, but also improve the safety of all vehicles 
on the road. The academy report also points out that 
improvements in drive train and engine technologies can greatly 
increase fuel economy without changing a vehicle's weight.
    So the issues of fuel economy and safety can easily be both 
accommodated and separated. If you want to talk about safety, 
you should talk about the SUV rollover and roof crush 
standards, not the CAFE loophole.
    Last, the automotive companies argue they do not have the 
technology to do this. Again, the academy report says that 
substantial fuel economy gain can be made in 10 to 15 years, 
and the summary of the draft report, as I also mentioned, was 
even more aggressive in that direction.
    In Europe, where regulations and the threat of regulations 
are much stronger, the European automotive manufacturers, which 
include Ford, GM, and Chrysler, have promised to decrease 
carbon dioxide emissions of all their new vehicles by 25 
percent by 2005. Ford has pledged a 25 percent improvement in 
fuel economy of its domestic SUV fleet by 2005. That is here in 
the United States, and the other automotive companies have 
pledged to follow suit, so it seems the technology, indeed, is 
there to do this.
    I strongly believe, and I think Senator Snowe and Senator 
Bingaman join me in this, that global warming is real. It is a 
threat, and it may well be the greatest environmental threat 
facing us in our lifetime, and the single most effective action 
we can take at this time is to limit reliance on foreign oil 
and to reduce global warming by increasing the fuel economy of 
our vehicles.
    I thank you, Mr. Chairman.
    Senator Kerry. Thank you very much, Senator Feinstein.
    Congressman Boehlert.

             STATEMENT OF HON. SHERWOOD BOEHLERT, 
               U.S. REPRESENTATIVE FROM NEW YORK

    Mr. Boehlert. Mr. Chairman, thank you for your invitation 
to appear here today. It is good to be here with you again in 
common cause, and with my classmate and partner in so many 
adventures, Senator McCain and the other Senators with whom I 
enjoy an outstanding working relationship.
    I want to congratulate you on holding this hearing, because 
raising CAFE standards is the single most significant step we 
could take as a Nation to reduce our dependence on foreign oil, 
improve our national security, protect our environment and our 
economy, and assist our consumers. Even a very moderate 
increase in CAFE standards would save more oil than would be 
produced by drilling in the Arctic National Wildlife Refuge 
under the most optimistic scenarios.
    In part, that is because transportation is the sector of 
our economy most dependent on oil. 43 percent of the oil the 
Nation used in the year 2000 was consumed as gasoline. We are 
simply never going to kick our dependency on foreign oil if we 
do not use less fuel in our cars. That is why, when the House 
considered its energy bill, H.R. 4, I proposed along with Mr. 
Markey that we phase in a single CAFE standard for all cars and 
light trucks of 27\1/2\ miles per gallon over 5 years.
    As you know, 27\1/2\ miles per gallon is the current 
standard for cars. The approach we took, a single average for 
all vehicles, provides maximum flexibility for automobile 
manufacturers. They can choose to make cars more efficient, or 
SUVs and light trucks more efficient, or some combination of 
both.
    I would encourage the Senate to move forward with this 
proposal. Moving ahead should be easy, because in many ways it 
is hard to argue against tighter CAFE standards. We all know 
that we have to become less dependent on oil, and that CAFE 
standards unarguably would contribute to that. Moreover, fuel 
standards can save consumers money, which is one reason why 
pollsters consistently find public support for raising them.
    Indeed, the case for tighter standards is so self-evident 
that their opponents sometimes reach for scare tactics and 
sophistry to combat them. For example, opponents argue that 
CAFE standards represent interference with the marketplace, but 
there is no way for consumers to send a market signal that they 
want more fuel-efficient SUVs. If you want an SUV, you have to 
buy gas guzzlers. There are no other choices. This is a classic 
market failure, a case in which individual choices cannot 
express a collective desire for vehicles that use less energy.
    Other arguments are less philosophical and even easier to 
refute, thanks to the study released this past summer by the 
National Academy of Sciences, and that is a well-read study, 
and it should be read by a lot more people. This study was so 
damning for opponents of CAFE standards that the automobile 
industry actually tried to argue that the academy, the Nation's 
most prestigious scientific body, did not understand physics. 
Not surprisingly, just this week the academy reiterated that it 
was sticking to its conclusions, and what did they conclude?
    First, the National Academy of Sciences said having 
separate standards for cars and SUVs had been stretched well 
beyond the original purpose, and makes no sense. You can refer 
to pages ES 4 and 5 through 10 of the academy report for 
confirmation.
    Second, the Academy said that raising fuel economy 
standards will be a net savings for consumers. Look at page 4 
through 7 to check that one out.
    Third, the Academy said raising fuel economy standards will 
not hurt American workers, and that is particularly important, 
and they base that on the real experience of the past decades. 
That is on page 2 through 16.
    Fourth, the Academy said that improved fuel economy is 
perfectly feasible even with current available technology, 
technology that is on the shelf, ready to be put to use, and 
capable of achieving higher standards than Mr. Markey and I 
have proposed. That is on page ES 5.
    You can also look at the May 14, 2001 issue of Automobile 
News and find a list of the technologies that auto companies 
already have to make dramatic improvements in fuel economy.
    Fifth, and most important of all, the Academy said that 
increases in fuel economy can be achieved without degradation 
of safety, and let me emphasize that, without degradation of 
safety. In fact, the report says that some available 
technologies can even improve fuel economy and increase safety 
at the same time. That is on page 4 through 26.
    In the House, I knew I won the debate on merit but I was 
going to lose the vote on emotion when the opponents to 
increase CAFE standards said in their closing arguments passage 
of this amendment will result in the loss of thousands of lives 
on our Nation's highways. That is unmitigated nonsense. Ask the 
National Academy of Sciences.
    In short, raising CAFE standards can make our Nation more 
secure without harming workers or compromising safety. In the 
aftermath of September 11, we no longer have the luxury of 
hesitating to take simple, painless, and proven steps of 
raising CAFE standards.
    Thank you very much, and good luck with your most important 
work.
    Senator Kerry. Congressman, thank you very much. I would 
like to ask you a couple of questions, and I meant to do so 
with Senator Feinstein. I did not realize she was going to 
leave immediately.
    But let me sort of put to you the industry point of view in 
response to what you just said. First of all, you made the 
argument that we are not going to kick our dependency on 
foreign oil if we do not improve fuel economy. Don't we have to 
be careful of that? I mean, if we are using 25 percent of the 
world's oil resources, 50 percent of which go to 
transportation, and we have only 3 percent of the reserves in 
the U.S., it seems unlikely that CAFE standards are ultimately 
going to affect our dependency in any major way.
    Mr. Boehlert. It will lessen the dependency significantly.
    Senator Kerry. Significantly, you say? How is that? I am 
just trying to understand.
    Mr. Boehlert. Well, if we just had more fuel efficient 
automobiles we are not going to consume as much oil.
    Senator Kerry. Correct. But while I am in favor of reducing 
our consumption by 2.5 million barrels per day, I just do not 
want to overplay an argument here.
    Mr. Boehlert. Neither do I, Senator.
    Senator Kerry. But reducing dependence on foreign oil is 
not going to ultimately affect our need for fuel economy. Even 
if you bring all the Alaska oil and everything else online, we 
are still never going to be able to produce enough oil in this 
country. We are still dependent.
    Mr. Boehlert. But we do not have to have an economy 
exclusively dependent on oil for energy.
    Senator Kerry. That raises the larger question, which is, 
which of these arguments do you want to accent?
    Mr. Boehlert. Well, I have so many valid arguments in 
support of increasing CAFE standards that I will choose from 
the menu.
    Senator Kerry. Well, let me give you the opportunity to do 
that. The auto industry comes in and says, look, the first grab 
bag of mileage was relatively easy. We were able to come in 
with lighter vehicles, we were able to change the power train, 
different kinds of engines, aluminum, so forth and so on. But 
their argument is that those economies of scale have now been 
gained, and they disagree with the National Academy of Sciences 
that they can gain these additional readily available 
technologies on a scale that is going to make a difference. 
What do you say to that?
    Mr. Boehlert. Well, I would point--and I have a chart right 
here from Automotive News. This was a front page story with a 
chart, and I would command your attention to some of the items 
on there. It is probably too small for you to read from afar, 
but they say, if we have adaptive automatic transmissions, we 
optimize transmission performance. That will get a fuel economy 
gain of 5 to 7 percent. Now, that would increase the cost of 
the vehicles, admittedly, by an average of $2 a vehicle, not a 
bad investment.
    They talk about improved aerodynamics, and that is in the 
lower right-hand corner, changes to bumper and wheel covers and 
exterior mirrors reduces wind drag. That improves the economy 
by 5 percent. That might cost a little bit more, $20 or so per 
vehicle.
    The point is, the technology is there, it exists in the 
marketplace, at a very modest cost to increase the fuel 
efficiency, and I say get on with the job.
    I would also say that we do not have to have an economy 
exclusively dependent upon oil, no matter where the source. It 
is particularly abhorrent that so much of it is foreign-based. 
We can have alternative fuel vehicles.
    I am involved in a little venture right now with the U.S. 
Postal Service. The U.S. Postal Service is right now in the 
first phase of a contract to purchase 500 electric vehicles for 
use in areas like the Los Angeles Basin, which is an area of 
non-attainment in clean air standards. It is going to use 
electric vehicles. Coincidentally, they happen to be 
manufactured by a consortium of Ford Motor Company and Baker 
Electromotive in my congressional district, so understandably I 
am a cheerleader, but not just because it provides jobs in my 
district.
    It is innovative. It is something for the future. It is so 
because it lessens our dependence on foreign sourced oil, at 
the same time helping us to meet the high Clean Air Act 
standards that we all want to meet.
    Senator Nelson. Mr. Chairman, I would like Congressman 
Boehlert to put back up that chart where you compared it to 
ANWR as another means of answering your question on, if you 
just close the light truck loophole look how much per day you 
are saving, as compared to how much you would be getting if you 
drilled in ANWR.
    I think when Senator Bingaman testifies he is going to tell 
you that most of our energy consumption is in the 
transportation sector, and if, in fact, we make a significant 
difference by utilizing technology and increasing the miles per 
gallon you are going to see a significant lessening of 
dependence on foreign oil.
    Senator Kerry. My point was not that there would not be a 
lessening. My point was that independence is a difficult word, 
and so I am drawing a distinction there.
    Let me ask you one final question, and then we will go to 
my colleagues. The auto industry also comes in and makes the 
point that the essential ingredient of profit within the 
industry today is almost exclusively within SUVs. Other 
automobiles are actually sold at a loss, but that is made up 
for and the profitability in the industry comes from the 
current configuration of SUVs.
    They then make the argument that if there is a mandate with 
respect to the size and marketability of the current SUV, they 
could be significantly disadvantaged in the marketplace, with 
loss of jobs.
    What is your comment to that?
    Mr. Boehlert. If you buy that argument, I would encourage 
you to go over to the House side and listen to the Judiciary 
Committee and the Commissioner of Baseball making the sad 
commentary that baseball is losing $500 million a year. Give me 
a break.
    The fact of the matter is, the auto industry is a 
profitable sector. I want the auto industry to continue to be a 
profitable sector. I just want them to be wiser, and I would 
point out that the auto industry is the industry that told us 
many years ago, when we initiated CAFE standards, do not do it, 
Congress. If you do that, we are going to be a Nation driving 
compacts within a decade. Guess what? It is hard to find a 
compact on the open road today. SUVs are all over the place.
    The fact of the matter is, profit is not a dirty word. I 
encourage profit. Business goes into business to make a profit, 
but I want the business to be responsible, and the fact of the 
matter is, it will enhance the competitive position of the 
domestic auto industry if they follow some of the other 
manufacturers from abroad who are much farther ahead in this 
area, and if you look at the future, and the consumer is 
convinced that buying a more fuel-efficient vehicle will save 
the family budget a lot of money, the consumer is going to go 
to the marketplace option that provides that increased fuel 
efficiency.
    Senator Kerry. Do any other colleagues have any questions?
    Senator McCain. I just have one. Mr. Chairman, the American 
people overwhelmingly have decided they want to drive SUVs. If 
standards were changed, which then would force changes in SUVs, 
would we be denying the American people a choice?
    Mr. Boehlert. Not at all, because as the National Academy 
of Sciences study has conclusively proven, not only can you 
continue to have SUVs, you do not have to sacrifice weight. 
There are a number of things you can do to increase the fuel 
efficiency of SUVs. I do not want to deny the consumer the 
option in the marketplace that he or she would exercise. I just 
want to make certain that the vehicles are more fuel-efficient 
for all the right national security reasons for the country, 
and all the right reasons for the family budget.
    In the final analysis, the consumers are going to say, you 
have done us a great favor, because now we can pull up the new, 
more fuel-efficient SUV that we voluntarily selected in the 
marketplace to the gas station and instead of requiring 
frequent visits to that gas station, there will be less 
frequent visits, and they will require less gasoline 
consumption, so the budget will be favorably impacted.
    Senator McCain. As an SUV owner, I look forward to that 
day.
    Senator Kerry. Let me remind everybody, we do have a lot of 
ground to cover, and we have two colleagues waiting.

                STATEMENT OF HON. JOHN ENSIGN, 
                    U.S. SENATOR FROM NEVADA

    Senator Ensign. I just wanted to say--I think that 
everybody would--in an ideal world, love to see more fuel 
efficiency from all of our vehicles. I mean, I would love to be 
able to drive a Suburban that got 100 miles to the gallon and 
was just as safe and just as comfortable, and be able to drive 
the family around and all that.
    I just wanted to challenge you, Congressman Boehlert, about 
your comment about the market. You said that there is not a 
true market force out there because there are no fuel-efficient 
SUVs to be able to choose from, but it seemed a little 
inconsistent because in your arguments, when you were talking 
about foreign competition, you stated that we were going to 
lose jobs to foreign competition because Toyota and Honda were 
going to produce more fuel-efficient vehicles like this and 
take jobs away from the Big Three.
    Well, if that is the case, why is that not happening today 
with SUVs? In other words, why are they not building more fuel-
efficient SUVs of the same size and taking market away? Last 
time I checked, business is in business to get as much market 
share as they can and be as profitable as they can, and so why 
wouldn't they do some of the simple things at $2 a car, or $20 
a car that you mentioned today, to gain an advantage in the 
marketplace? I mean, these people are not stupid.
    Mr. Boehlert. You are right, and they are beginning to move 
in that direction. The American public is patient. I happen to 
believe that basically the American public wants to buy 
American, but the patience will wear thin. If you cannot buy 
American that is fuel-efficient, then you look to other 
options, and that other option will be across the sea, and that 
is not very favorable for us.
    The biggest-growing SUV sector is smaller SUVs, where the 
Japanese have an advantage.
    Senator Ensign. OK, but is that not the market? In other 
words, isn't the market then starting to work? Back in the 
1970s, I remember we built some pretty lousy cars here in 
America, and the Japanese came over and started outcompeting 
us, especially during the oil crisis. People became much more 
conscious. They forced American cars to become better. Well, is 
that not the way the market works? Are those not what market 
forces are all about?
    Mr. Boehlert. But Senator, you know, there are a lot of 
other factors here. We want the consumer to have the choice in 
the marketplace. What I am suggesting to you is that the 
American consumer essentially is patient, waiting. But I am 
wondering how long they can wait before they say, ``buy America 
is a good notion. It provides jobs for our neighbors and our 
communities.'' But I think we are going to have to look 
elsewhere, and I do not want to do that.
    Senator Kerry. Colleagues, I have got to interrupt this if 
I can.
    Senator Burns, are you urgent on your question?

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. Well, I want to follow up on light trucks, 
and thank you, Mr. Chairman, for this hearing, and I will put 
my statement in the record this morning.
    [The prepared statement of Senator Burns follows:

               Prepared statement of Hon. Conrad Burns, 
                       U.S. Senator from Montana
    Thank you, Mr. Chairman, and thank you to our witnesses for being 
here today to discuss the National Research Council's report on The 
Effectiveness and Impact of CAFE Standards, or Corporate Average Fuel 
Efficiency Standards. As a Member of both the Energy and Commerce 
Committees, this is a subject which is important to me in many 
different aspects.
    There is no doubt among any of us that today's auto is cleaner, 
safer, and more efficient than those made 30 years ago. While some 
would like to give the credit for that to the U.S. Congress for all the 
rules and standards it has developed, I would rather give credit where 
credit is due and thank the automakers. I would say technology and 
competition have brought to where we are today much more than any rule 
has.
    Coming from Montana, I have a different way of looking at cars and 
trucks than many of my colleagues. Performance in Montana has a much 
different meaning than it does on the Beltway. Yes, we have a lot of 
big cars and trucks to haul equipment, but remember, people are hauling 
a lot more than boats and RV's in Montana. We are moving livestock 
around, or carrying ranch or farm equipment from one place to another. 
And it might be 80 or 100 miles from one town to the next. For that 
kind of a job you need a reliable truck, and you need to have the 
confidence that it will get you and your merchandise without any 
trouble. Not for fun, or because it looks cool, but because it's your 
life.
    Before we get too far into this, I ask my colleagues to take into 
consideration the different situations that drivers in different parts 
of the country face. Larger vehicles cannot and should not be 
classified into some sort of luxury status. Without the use of those 
vehicles at an affordable price, the American West would be a very 
different place than it is today. By asking that automakers place fuel 
efficiencies over any other goal, I fear that a big chunk of the burden 
will fall on the people who need these vehicles most to make a living. 
These are the farmers and ranchers who feed this country, but are being 
squeezed from every direction. They are facing higher prices for the 
goods they buy including fuel and fertilizer, and lower places for the 
goods they sell. Ranchers and farmers are interested in fuel 
efficiency, because that hits them in the pocketbook. But they are also 
dependent on a lot of other features that cars and trucks provide. By 
focusing purely on fuel efficiency, we are minimizing the importance of 
reliability, safety, and performance.
    Today's automakers have no choice but to build a better car or 
truck next year than they did this year just to stay ahead of the 
competition. I have no doubt they will continue to do this with or 
without a change in CAFE standards. However, if we make changes in the 
standard without thinking about what the other effects will be that is 
a big mistake. For example, by forcing manufacturers to pour all their 
resources into fuel efficiency, what do we trade for it in safety and 
reliability that may have been achieved otherwise?
    The report estimates that 1300 to 2600 highway fatalities in 1993 
alone may be attributable to smaller, lighter cars that resulted partly 
from strict CAFE standards. Fuel efficiency, or any other attribute 
come at a cost. We need to know what those costs are.
    I support the continued research and development of technologies 
that may not undertaken without federal support. The technology cycle 
can be drastically cut when we are willing to undertake this research 
for the public good before it is feasible in the marketplace. I would 
like to recommend that we focus on research before we focus on 
restrictions because this gives our American automakers a chance to 
compete in the global marketplace.
    I am glad that the time and energy was put into producing this 
report because it answers some questions about what CAFE standards have 
and have not accomplished. It guides us in deciding how to make these 
standards more fair and effective. But it does not answer all my 
questions, and I am glad to have the witnesses here today to answer 
some of them.

    Senator Burns. Congressman Boehlert, I will be right honest 
with you, I would drive a compact today if I could get in the 
damn thing with a hat on.
    [Laughter.]
    Senator Burns. I would probably drive a light truck that 
got good gas mileage if it would get me to the back pasture and 
back. That is the problem here. And if you want to worry about 
your patience, I will tell you what will drive the market to 
that lighter SUV, is when gasoline goes back to $2.50 a gallon. 
It will not be because we pass a law, and make companies or the 
people drive what we, here in this 17 square miles of logic-
free environment, think that they should, because we are 
smarter than they are when we are not.
    I will tell you, it is hard to buy a new vehicle for rural 
America that you can go down the road and use and get any kind 
of longevity out of it, and let it operate at any kind of 
efficiency.
    What is happening in agriculture today, I mean, the cost of 
what it takes to do business, to raise a crop and to run a 
ranch, is unbelievable, and vehicle expense--and I have got old 
friends that they do everything the old way. They do not truck, 
they trail. I mean--and they still make money maybe, but then 
they wear out more leather than we do socks, and that kind of 
gets hard on the hide, but nonetheless, that is one thing, and 
I think if you talk about patience, when gasoline goes back to 
$2.50 a gallon, then John over here is exactly right, and that 
is what will happen, and it will not happen because we pass a 
law or require some things to be done.
    Now, I want to ask you one question. Whenever you convert 
to electricity, or electric plus, you know, some sort of a 
hybrid situation, what does that do, the impact on the need for 
electrical power, of which over 50 percent of it is produced by 
coal-fired generators?
    Mr. Boehlert. Well, first of all, you have natural gas, 
which is becoming increasingly more important in terms of 
generating electricity. There are other ways to generate 
energy, Senator, as you well know, and there are a number of 
Members of this panel I have worked in partnership with to deal 
with wind energy, solar energy, geothermal energy, hydro 
energy. There are a number of sources. We cannot focus all our 
attention exclusively on oil, which because of circumstances a 
disproportionate share is elsewhere, and we have to import that 
into our market. That does not work very favorably for the 
American economy.
    Senator Kerry. Senator, we have got a number of panels, and 
really we have tested the patience of our colleagues, and I 
think we do need to move on. Congressman, thank you very, very 
much.
    Mr. Boehlert. Thank you, Senator. I do want to point out 
that hybrids are self-generating. That is very important to 
remember.
    Senator Kerry. We will leave the record open for any 
further questions.
    Senator Snowe and Senator Bingaman, thank you very much for 
hanging in and waiting.
    Senator Snowe, if you would lead off, then Senator 
Bingaman, and then we will engage in a very brief round of 
questions.

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Mr. Chairman. I certainly will be 
brief. As a Member of this Committee, I do not want to 
overextend my time, but I am delighted to be here today. Most 
importantly, thank you, Mr. Chairman, and Senator McCain and 
Members of this Committee, for holding a hearing to examine and 
explore the most vital issue of vehicle fuel economy.
    And I am very pleased to join Senator Feinstein in 
cosponsoring her legislation to explore the issues concerning 
the SUV loophole for CAFE standards, and also to be here with 
Senator Bingaman, who is Chair of the Energy Committee. His 
leadership has been exceptional, as well as Congressman 
Boehlert, who has really provided the legislative leadership in 
the House of Representatives on closing the loophole regarding 
sport untilty vehicles, or SUVs. This is precisely why we are 
here today, Mr. Chairman, because the current disparity that 
exists between the standards for light trucks and passenger 
vehicles no longer makes sense the way it did when CAFE 
standards went into effect in 1978.
    Back then, the term SUV was not even coined, and, in fact, 
light trucks were more likely to be delivering corn from the 
field than coffee from Starbucks. Twenty-one years ago, light 
trucks comprised less than 20 percent of the market. For the 
first time in history, however, we are likely to see the sales 
of light trucks--minivans, SUVs, and pickup trucks--to exceed 
the sales of passenger cars nationwide this year. That is the 
kind of change that has occurred in the marketplace.
    In fact, this percentage of change has already been 
registered in 36 States across this country. We also see zero 
percent interest financing that has been offered by the 
automobile industry to consumers that has produced a record-
breaking SUV sales month in October, and so it is likely that 
the number of these vehicles sold will be pushed even higher.
    I happened to read recently where Volvo is intending to 
make an SUV for eight passengers, three rows. That prompted Jay 
Leno to say, ``That is what we used to call a bus.''
    The point of it is that we have now seen that the SUV 
loophole is not only an anachronism, but it is also a threat to 
our environment, it is a threat to our national security and 
oil interests, and the ongoing war on terrorism with a 
pronounced instability in the Middle East. Now is the time to 
begin taking steps to reduce oil consumption. We know it is not 
going to eliminate our reliance on imported foreign oil, but 
reducing it is a national imperative.
    In closing, the SUV loophole is one of the single best 
steps that we can take to reduce our reliance by more than 1 
million barrels a day. That represents 5 percent of the 20 
million barrels of oil that we consume on a daily basis. We 
currently import half of our needs for oil, 10 million barrels 
a day. That is 300 million barrels a month. That is what we 
have to import from one of the most unstable regions in the 
world--10 percent of our daily usage.
    In fact, 2 weeks ago, OPEC was threatening to curb 
production in order to drive up prices. Fortunately for us, 
Russia thwarted that effort because it refused to join the OPEC 
cartel in that endeavor. But we know those threats are going to 
be repeated over and over again, not only in the short term, 
but also in the long term.
    One of the fastest, most efficient, and cleanest ways that 
we can reduce our dependency on imported oil is to improve the 
fuel economy of SUVs and minivans. These are the vehicles that 
are now dominating our Nation's highways. This loophole issue 
is multidimensional. First of all, it provides benefits as well 
to our environment, as it has already been mentioned. It will 
reduce the amount of carbon dioxide emissions by more than 200 
million tons of carbon dioxide--a greenhouse gas that 
contributes to global warming.
    Just to put that into perspective, 200 million tons of 
carbon dioxide is the equivalent of the weight of 92 million 
Ford Explorers, and as you well may know, SUVs and minivans, 
light truck category, can emit 27 to 49 percent more in the way 
of carbon dioxide.
    For benefits to the consumer, we know that it will enhance 
the savings for the consumer in the long term. There was a 
report done in 1999 that indicated that if we had established 
the equivalency with respect to fuel economies between the 
passenger vehicles and light trucks, that it would have 
produced a savings to the consumers of more than $13.6 billion 
in the previous year. But, instead, what has happened is that 
the overall economy of all the model year 2001 vehicles on the 
highway has fallen to an average of 24.5 miles per gallon. That 
is the lowest in 20 years.
    We are moving in the wrong direction, and it is the wrong 
road to take.
    Now, we have the ability to at least intervene and weigh in 
on this issue to make a difference. It is not going to happen 
without congressional action. That is abundantly apparent. The 
only way in which we have had CAFE standards is when Congress 
has weighed in and passed legislation.
    And, we know it is doable. The National Academy of Sciences 
has said so in its own report that was requested by Congress 
last year to examine these issues. We know it is doable from 
the industry standpoint. In our original legislation, we were 
saying, let us improve fuel efficiency by 33 percent by the 
year 2007. Ford Motor Company has pledged to make those 
improvements of 25 percent by the year 2005--25 percent. That 
is 4 percent higher than our goals for that particular year in 
our legislation.
    Chrysler and General Motors have indicated they also would 
be willing to make improvements, and so we know that there is 
the ability to do it.
    The National Academy of Sciences said in their report that 
it is doable within 10 to 15 years to achieve a 40 percent fuel 
efficiency--40 percent--and the cost could be recoverable for 
the consumer over the lifetime of the ownership of that 
vehicle, without sacrificing performance.
    The Chairman of the National Academy of Sciences, when he 
appeared before this Committee in August, indicated that he 
believed--and every member of the report committee agreed--that 
it is possible to begin to achieve increased fuel economies 
within 3 to 4 years, but we have to start that process. We have 
to create the lead time.
    Senator Feinstein and I are willing to work with the 
industry to achieve realistic timeframes and mandates. We are 
not saying this is an all-or-nothing proposition and mutually 
exclusive. It is going to take a combination of efforts in 
order to reduce reliance on imported oil and to make the 
difference in terms of what we are talking about, in terms of 
our environment as well as on saving in the consumption of 
gasoline.
    The fact of the matter is, without the CAFE standards, we 
would have seen a consumption of gasoline 14 percent higher. 
Importantly, the National Academy of Sciences said in its 
report that it could not be done without a mandate in the CAFE 
standards. That is the reality.
    And finally, with respect to the technologies, they exist. 
There are some already on the table. If you look at the list 
that was provided by the report, they are all available today. 
They probably could achieve just what we are establishing in 
our legislation, and there are many more that are in the stages 
of being researched and in development that could be available 
within the 10-year margin we are talking about in the National 
Academy of Sciences report to achieve a 40 percent increase in 
fuel economy.
    But even then, in each of these new technologies that are 
being developed, you can achieve improvements in fuel economies 
from 3 to 6 percent. Some are even higher. I do not think 
anybody believes that America does not have the technological 
know-how. It is indisputable. It is already being deployed by 
manufacturers, as Senator Feinstein indicated, in Europe and in 
Japan, because the incentive for fuel economy in those 
countries is because of the higher gasoline prices at $4 to $5 
per gallon, and so they are already being deployed. It can be 
done.
    So I thank you, Mr. Chairman and Members of the Committee, 
for giving me this opportunity to testify. I do not think that 
there is any doubt that this effort is just one aspect to many 
things that we may ultimately have to achieve and accomplish. 
But this one effort alone will be of benefit to consumers, to 
the environment, and there is no question of benefit to our 
national security. We have to begin to reduce and sever this 
kind of vulnerability that we have with our overwhelming 
reliance on imported oil.
    And lest there be no doubt, let me just add one more point. 
Our imported oil back in 1980 was 37 percent. Today, it is 55 
percent, and running higher--55 percent. In my region of the 
country and your region of the country, Mr. Chairman, it is 
more than 80 percent, so it is undeniable what the stakes are 
on this issue.
    Thank you, Mr. Chairman.
    Senator Kerry. Thank you very much, Senator Snowe.
    Chairman Bingaman, thank you for your patience. We look 
forward to your testimony.

               STATEMENT OF HON. JEFF BINGAMAN, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Bingaman. I will be very brief, Mr. Chairman.
    We do have a very real interest in this in the Energy 
Committee, as, of course, some of your Members are with me on 
the Energy Committee, and they are very familiar with this, but 
in the energy bill that was introduced by Senator Daschle and 
myself yesterday along with many of our colleagues, we left a 
place there for this Committee to make a recommendation as to 
what should be done with CAFE standards, and we think this is a 
very important part of what has to be dealt with if we are 
going to be responsible in the area of national energy policy.
    This chart that we put up here I think makes the case very 
dramatically. It shows U.S. oil consumption, millions of 
barrels per day. I take several conclusions from it. The green 
line down toward the bottom, that represents domestic oil 
production. You can see that we peaked in domestic oil 
production in about 1970. It has been coming down since then. 
It will continue to come down, and that is just because we do 
not have a lot of reserves. We have got something like 3 
percent of the world's reserves.
    If the Congress and the President decide to go ahead and 
open ANWR to drilling, that will improve our situation as far 
as domestic production, and that is the little red line down 
there you can see, the uptick on domestic oil production, but 
still the inevitable long-term trend of declining U.S. 
production will continue, and that is, I think, agreed to by 
all.
    The total oil demand has been increasing, and by far the 
largest factor in that increase, the growth in demand, is in 
the transportation sector, and that is what you are talking 
about today, gasoline for fueling our cars and trucks, and 
SUVs, so what you propose is going to be crucial as to whether 
or not we can take that middle line, that transportation demand 
line and begin to flatten that out.
    Frankly, that is what we are talking about. The Chairman is 
right, we are not going to become independent of foreign 
sources of oil any time in the foreseeable future, but we can 
reduce the growing dependence. We can flatten out the demand, 
the growth in the demand, and that, I think, is a very major 
accomplishment.
    Some suggestions that been made that let the market solve 
this problem. The problem with that is, the market will not 
solve this problem. There is a very interesting chart in the 
report that the National Research Council, or the National 
Academy of Sciences National Research Council issued its figure 
2-4, and I do not have copies for everybody, but I am sure you 
have a copy of that report.
    What it does, it shows passenger and light truck fuel 
economy from 1965 through the year 2000. It is very 
interesting, for the first 10 years of that, 1965 through about 
1977, the first 12 years of that, the fuel efficiency is 
essentially static. That is because we did not have in place 
any requirement for it to improve.
    Then Congress came along in response to the Arab oil 
embargo and required improvement, adopted the CAFE requirement, 
and you did substantial improvement up until about 1988, when 
the requirements for improvement each year stopped, and since 
1988, or 1989, it has been again steady, just like it was back 
between 1965 and 1977. It has been steady and, in fact, has 
declined somewhat. The fuel efficiency has declined somewhat, 
and so that is left to its own devices.
    The truth is, you can buy gasoline in Albuquerque, New 
Mexico, for $1.00 a gallon today, and when gasoline is $1 a 
gallon there is very little financial incentive for people to 
go out and worry about the fuel efficiency of cars and trucks 
and SUVs. It will be back at $2.50 a gallon, but it is 
extremely volatile, and that means that the market signals that 
people need are not going to be there to solve this problem, so 
we need to put in place policies if there is going to be 
continued and persistent attention to this problem, and I think 
frankly we have a great experiment coming up here in this next 
session, this last session of this Congress, and the experiment 
is, can the Congress adopt an enlightened policy that serves 
our country's best interest with regard to fuel efficiency in a 
circumstance where you have very low prices for gasoline? That 
is exactly the circumstance we are in.
    Last time we did this, we had the Arab oil embargo, which 
was a crisis situation that prompted action by Congress. This 
time we do not have that crisis situation. I commend the 
President and the Vice President for making energy policy a 
real priority for the Congress and for the Administration, but 
frankly, they have not made improvement in vehicle fuel 
efficiency a priority, and the question is, will we have the 
will to do that in this Congress?
    I think we need to, and I hope this Committee will do that, 
and I hope we will come up with a proposal that we can all 
adopt on the Senate floor.
    Senator Kerry. Well, Senator Bingaman, thank you very much. 
Thanks for your leadership, particularly on the Committee and 
on the energy bill, and we look forward to that debate in 
January and to your leadership then.
    There are two colleagues who need to go to another 
Committee, and they have asked the indulgence of the Committee 
just to make 2 minutes of comments each before they have to go. 
I would recognize Senator Boxer, then Senator Nelson to do 
that, and Senators, could you stay just for a moment? I think 
there may be a couple of questions.

               STATEMENT OF HON. BARBARA BOXER, 
                  U.S. SENATOR FROM CALIFORNIA

    Senator Boxer. Thank you very much, Mr. Chairman. I will be 
brief and very much to the point. I really want to say to this 
panel, two of whom are still here, how important their work is 
and how pleased and proud I am that a bipartisan group can get 
together and make such a coherent case for what I consider to 
be a no-brainer, frankly. Listening to you, you just laid it 
right out there.
    The President has asked us all to help in this war against 
terrorism, and I think you are really helping because clearly, 
if we can all get into more fuel efficient cars and reduce our 
dependence on that area of the world which we are now fighting, 
it makes us a stronger country, and we should in this 
Committee, I hope, lead the way as well.
    I remember--and I probably should not say this--when cars 
got 10 miles to the gallon, 12 miles to the gallon, and the 
auto companies said, ``Oh, my God, we really cannot do better, 
it is impossible.'' And they could not make seat belts, and 
they could not make airbags. So when one of my colleagues, 
Senator Burns, whom I greatly admire and respect, says we do 
not have to do it, I would respectfully disagree.
    In closing, let me just say a quick personal story.
    In 1993, I bought a car here in Washington, DC., and I made 
a big mistake. I got a very comfortable gas-guzzler, and every 
time I drive it I have regrets. Now, and in California, I 
decided to make things better, because when gas prices went up 
over $2 a gallon--well over $2 a gallon, we bought a hybrid 
car.
    Now, it is true, I am a little person, and I fit very 
comfortably in there, but other people who are not little 
people fit very comfortably in that car, this hybrid car. My 
regret is I could not get an American car because they do not 
make them yet. They keep saying they are going to make the SUVs 
pretty soon as hybrid vehicles, and this is going to be a big 
breakthrough.
    I have worked with a number of colleagues, including 
Senators McCain, Wyden, and others, on pushing the regulatory 
agencies to crack down on what we call ``zone pricing'' and 
these ridiculously high prices that even the agencies 
themselves say are not warranted. We cannot get anywhere--I 
mean, my view is that--and excuse me for saying this as bluntly 
as I will, that the special interests really weigh heavily on 
those agencies.
    Therefore, the answer, Mr. Chairman, to not energy 
independence, but less dependence on the Middle East. And the 
answer to avoid these terrible prices is to reduce demand, and 
I am very excited about this panel and very pleased that you 
have brought us together today.
    Senator Kerry. Thank you, Senator Boxer.
    Senator Nelson.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Thank you, Mr. Chairman. I drive an SUV. By 
the way, when I bought it--a Jeep Grand Cherokee--a couple of 
years ago, it was an American company and it is now a foreign 
company. And you all can see my SUV, because since we do not 
have an office in Hart and we are spread out everyplace, 
sometimes I park it in front of the Senate steps, and I hail 
forth with staff and cell phones and so forth.
    Senator Kerry. Does it have a for sale sign on it?
    [Laughter.]
    Senator Nelson. Well, as a matter of fact, I have always 
gotten an American car, and I am in the market for another 
American car. You automobile manufacturers do a great job, and 
you do a terrific product for us. But there is no reason why 
you would oppose increasing miles per gallon, which with all 
the testimony here--and we have not heard your testimony, but 
we have heard four of our colleagues, two Democrats and two 
Republicans at the table--telling us of the logic of this and 
what we can do to lessen dependence on foreign oil.
    Now, mark my word, with everything that is going on in this 
world with regard to terrorism, sooner or later, a terrorist is 
going to try to sink a tanker in the Strait of Hormuz, and when 
that occurs, and the free flow of oil out of the Persian Gulf 
to the free world stops, you are going to have another great 
energy crisis, and we could well be on the road to solving it.
    As Senator Bingaman has pointed out by his chart, most of 
the energy consumption is in the transportation sector, and 
what better way than right here, and this is about as common 
sense as it can be.
    And Senator Burns, speaking of common sense and 
agriculture, I think you ought to have every right, with your 
hat, to get into a vehicle that you feel like that you have the 
room, and the marketplace will determine that. But the 
marketplace ought to have choices, and if you want to drive an 
SUV, you ought to have the choice of an SUV that does not have 
nearly as much consumption of miles per gallon when technology 
would allow us today to offer another choice.
    Thank you, Mr. Chairman.
    Senator Kerry. Thank you very much, Senator.
    We are going to have a very brief round of questions, 
because we need to move to the next panel. We have got several 
panels, and I think we can get into a more exhaustive 
examination of some of the objections and conflicts that exist 
here. Let me raise one of them, if I can, Senator Snowe, with 
you.
    The testimony that you will not hear unless you are sitting 
with us at that time, from Honda, from Ed Cohen, who is going 
to testify, he says the following: We caution that if cars and 
trucks are combined into a single fleet with a single standard, 
or if the same standard is adopted for both cars and light 
trucks, there must be sufficient lead time.
    Your lead time currently is 2007 in the bill.
    Senator Snowe. It is incremental, 26 mpg by 2005 and 27.5 
mpg by 2007.
    Senator Kerry. 2007 is the final, 6 years from now. It then 
says, technology will help, but the lead time must be 
sufficient. Time frames reflected in the NAS report appear to 
be more reasonable, and this is the important sentence: but we 
know of no technology or imminent breakthroughs that can take 
CAFE to 39 or 40 miles per gallon, as some have proposed, in a 
decade or so without severe marketplace disruptions.
    Now, that will be essentially the testimony of almost all 
of the automobile manufacturers today. Are we missing 
something? Are you missing something?
    Senator Snowe. Well, first of all, Mr. Chairman, in our 
legislation we move to 27.5 miles per gallon, which is the 
equivalent to what passenger vehicles have to meet, so I do not 
think that that is an unrealistic timeframe.
    Obviously, as Senator Feinstein indicated, we are even 
willing to adjust the timeframe to meet that standard, but Ford 
Motor Company--let me repeat that, and I have not read anything 
differently since Ford's announcement, the Ford Motor Company 
pledged to improve, to reach their goal of 25 percent 
improvement by the year 2005. That brings them to 25.815 miles 
per gallon, which actually is even 4 percent higher than our 
goal for that particular year.
    So the point, obviously, for Ford Motor Company to make 
that type of commitment, is an indication that the technology 
does exist, and going back to the National Academy of Sciences 
report, it does really enumerate a number of technologies that 
exist that could bring the industry to a certain point.
    There are obviously other technologies that go to the 39 or 
40 percent increase, and obviously it is going to require the 
development of other technologies that are in the research and 
development stage.
    Senator Kerry. You are saying, then, that you believe the 
SUV capacity could reach the passenger vehicle standard, as 
opposed to the overall CAFE standard, because as we know, the 
CAFE standard applies to the whole fleet. It is a fleet average 
and not individual, and so you are suggesting, then, that the 
SUVs are a particular target of opportunity that somehow can be 
greater, it could be greater gain there than otherwise?
    Senator Snowe. That is correct, and also I think that 
Congress really ought to look at doing this in multiple stages 
in timeframes that are achievable, and working with the 
industry, because it does take significant lead time to 
accomplish these objectives. No one is suggesting it can be 
done overnight, but obviously, the industry has already 
developed many modifications to automobiles over time, but to 
the exclusion of fuel economy.
    I mean, there has not been any adjustments in fuel economy 
on a voluntary basis.
    Senator Kerry. Senator Ensign.
    Senator Ensign. Just very briefly, Chairman Bingaman, in 
your graph--because I think, Mr. Chairman, the point you were 
making about not being able to be energy independent is a valid 
point, and I just wanted to pursue that just a little further, 
and that is, with these CAFE standards being raised, are there 
studies that have been done as part of the National Academy of 
Sciences, that would obviously--people feel that there would be 
savings involved percentagewise. What does that do to your 
graph? In other words, how much of a difference does it make to 
your graph? Do you have other graphs that suggest that it is 
going up, that it is going to continue to go up, because it 
goes up just a little bit slower, and in that, is that worth 
what we are going to do, I guess?
    Senator Bingaman. Well, I do not have alternative graphs 
this morning, but we could try to develop some of those 
statistics for you. I think the main change here is that after 
some period of years, and that relates to how quickly any 
additional CAFE requirements would be phased in, but after some 
period of years you would begin to see transportation demand 
flatten to some extent, and the inexorable increase that we see 
on this chart would be mitigated, and that is the single 
largest thing we can do to reduce our dependence on foreign 
oil.
    Senator Ensign. Just to further a point, and this may be 
something we cannot answer right now, I am a big believer in 
alternative fuels. I think we are way too dependent on oil, and 
hopefully we will be developing more of the technologies, the 
hybrid vehicles, fuel cells, all kinds of different things that 
are out there today. I hope that we become less dependent on 
our cars just running on gasoline.
    In that vein, if we become less dependent on oil, that 
means the price is going to go down, which, is there a perverse 
incentive, or lack of incentive, then, to develop some of these 
alternative fuels?
    Senator Bingaman. Well, as I tried to indicate before, I do 
think that the market does not send us very consistent signals 
about what people--what their priorities ought to be and where 
their financial interest lies, and that is one reason why you 
need to put policies in place in order to provide some of those 
outcomes.
    I think you are exactly right that, as the price of oil 
goes down, there is less incentive to develop alternatives, and 
less incentive on the part of people to buy alternatives, and I 
think that is why something like a CAFE standard has been 
required in order to give some priority to the issue of how 
much fuel we are going to use in our vehicles.
    Senator Ensign. Just last, Mr. Chairman, the reason I bring 
up that point is because, yes, we put in CAFE standards, but 
they did not fully go into effect when you saw those drops. The 
reason that we saw in the late, or basically the 1980s was a 
change in consumer behavior. I was one of those concerned. I 
had a Mustang that got about 8 to 10 miles to the gallon, and 
the energy problem was hitting, the price of gasoline went up, 
and I bought a Honda, and dramatically changed, because the 
price of gasoline--I mean, in those days it was the price.
    I guess that is a question I think we have to ask ourselves 
is, are we going to affect, with policies that we put into 
place, a significant enough change in behavior to affect those 
lives, because it would seem to me that those lives are the 
most critical parts of this, not only environmental things, but 
also those lives as far as energy, less energy dependence in 
the future.
    Senator Bingaman. Those are excellent questions.
    Senator Kerry. Senator Dorgan.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, first of all, let me thank my 
colleagues. I worked with Senator Bingaman on the energy plan 
we have introduced, and I am anxious to work in this Committee 
on this other aspect of it.
    I do not think the choices are between doing nothing and 
doing the wrong thing, as some seem to imply. If we will do 
something, we will do the wrong thing, that is not the choice 
at all. I think that things have changed here in this country 
in a fundamental way, and we would be foolish to believe that 
this is all about convenience and nothing is changed in our 
future.
    If, God forbid, tonight some terrorist interrupted oil 
supply tomorrow, our economy, because of our dependence on 
foreign source energy, would be in devastating shape, and so I 
think we need a balance of interests here. I am not quite sure 
how we should come out of this, but we need to balance the 
interests and understand that we have a role to play in public 
policy.
    I like all of the talk about the marketplace. I used to 
teach economics, and I respect the marketplace, but it is not 
perfect. It has certain perverse influences. Judge Judy, that 
cranky little judge on TV, makes $7 million a year, and a Texas 
shortstop is paid $50 million, so that is the marketplace, too. 
The marketplace works sometimes and does not work so well other 
times.
    Let me tell you, if you roll those cowboy hats up on the 
sides you can get more in a pickup truck in Montana, but aside 
from that, let me just make this point. It is the 
responsibility of this Committee to address the subject, and 
that is why Senator Bingaman and I and others on the Energy 
Committee left a place-holder in the energy bill.
    We would be ill-advised, given the time and place, to do 
nothing. We ought to do something. The question is what, how do 
we make it thoughtful, and how do we balance the interests, but 
I think there is a significant role to play in public policy 
here, and one of the pieces of testimony we will receive 
shortly, I think, is from General Motors. I was reading some of 
the testimony and they were talking about CAFE standards they 
are not very happy about, but there were other policies, 
replacing, for example, the older and less-efficient cars, 
getting them off the road more quickly. That makes sense.
    I stopped at a donut shop about 3 days ago, I was telling 
Senator Breaux, and there was this wonderful circumstance--not 
for the two drivers--but there was the largest black Mercedes 
that you can buy with the big chrome on the bottom, and then 
there was a 20-25 year old Dodge with the bumpers hanging and 
no paint left, and the Dodge was backing out of the parking lot 
by this donut shop and it grazed the fender, ever so slightly, 
of this Mercedes, and the two drivers were standing there with 
their engines running, and the old Dodge was belching all of 
this blue stuff out the back end.
    I had my window down just a bit, and I heard them 
discussing the fact that the guy in the Dodge did not have 
insurance, and I did not finish my donut and listen to the 
conversation, but I was thinking about the paradox here of this 
old car, relatively inefficient car, and he backs into probably 
the wrong vehicle to back into.
    But the testimony I was reading last night about getting 
the less-efficient cars off the road, the older, less-efficient 
cars, makes sense. That is one part of the policy. There are 
several things we can do that are important, one of which, I 
think, is CAFE standards, in a way that is thoughtful in a way 
to try to pull and to push public policy along, because Senator 
Bingaman has the chart that says it all. Transportation demand 
is the relentless upward push of our consumption for oil, and 
if we do not address that, if we do not address that in some 
meaningful way and thoughtful way, we will not, in my judgment, 
serve this country's energy interest.
    I did not ask a question, but I did want to make a 
statement, because I came late. Thank you, Mr. Chairman, for 
holding the hearing.
    Senator Kerry. Thank you very much, Senator. Let me just 
say to everybody we are going to take as long today as we need 
to to make sure that we are not going to give any panel short 
shrift. I think it is an important topic, and we do want to run 
through the questions.
    Senator Breaux.

               STATEMENT OF HON. JOHN B. BREAUX, 
                  U.S. SENATOR FROM LOUISIANA

    Senator Breaux. Thank you, Mr. Chairman, and I thank our 
Members and colleagues for being with us.
    You know, I think that many times all of us seek simple 
solutions to difficult problems and think that there is one 
answer, and there really in this business is not a single 
answer. There are some who advocate that the solution to 
America's energy problem is very simple, just produce more 
energy. Others say no, it is simple, but that is the wrong 
answer. The right answer is to consume less energy, and in 
reality it has got to be a combination of both those things.
    We have to produce more. What we do today is intolerable, 
in the sense that we import about 57 percent of our energy from 
foreign countries, many of which are not friendly to us, many 
of which are engaged in activities in setting the prices that 
if they did that while they were in this country they would go 
to the penitentiary, because they regularly fix prices, and 
that is illegal, and yet we allow this country to buy from 
people who would go to the penitentiary. Were they doing the 
same thing every day in this country it would send them to the 
pen, but some people say, well, it is cheap, so that is fine.
    That is intolerable and cannot be continued. We have to 
have energy bills that allow for a rational production and 
rational production in all parts of the country, and do it in 
an environmentally safe manner, which we can. Also, I am a 
believer in alternative fuels, and I believe in solar power and 
geothermal power and any other kind that we can possibly 
produce. That is not going to solve the problem, but it should 
be a part of the ingredient and ultimate solution to the 
problem.
    My concern--and also using less, obviously, is also 
important, and trying to make sure that the trucks and cars we 
use get the best bang for the buck and the greatest miles for 
the gallon that we possibly can, seeing that there is a limit, 
though.
    If we require everybody in America to drive the little new 
vehicle I saw on Good Morning America, the little scooter--you 
lean forward, and it goes forward. You lean back, and it goes 
backwards, and you can probably solve America's problem real 
quick, but I doubt whether Americans would put up with that, 
and so there has got to be a degree of how far we can go in 
making cars smaller and littler and lighter before you start 
adversely affecting safety and convenience.
    The question I would have maybe for either one of you maybe 
just to comment on, because you have given a great deal of 
thought to this, I notice in one of the comments from one of 
the manufacturers that they quote that the National Academy of 
Sciences concluded that downweighting and downsizing of the 
vehicles in the 1970s and 1980s in which there was a very 
aggressive effort to do so, probably resulted, according to the 
National Academy, in an additional 1,800, or 1,300 to 2,600 
traffic fatalities in this country, and so there is a concern 
here from a safety standpoint.
    We could make them a lot smaller and get 100 miles to the 
gallon probably easy if we put everybody in scooters, but where 
is the breaking point? Where is the dividing point between 
concern for safety and concern for greater mileage efficiency? 
How do we get to that point and say, look, we can make it a lot 
cheaper to operate, but that is not going to be as safe? What 
is the dividing line?
    Senator Bingaman. I cannot tell you where the line is. That 
is your job here on this Committee to figure that out.
    Senator Breaux. We need your help, though.
    Senator Bingaman. I think you can make a good case that if 
all of us drove Humvees we would be better off safetywise. I do 
not think that is a practical solution. I do not think it makes 
sense for the country to have everybody in military vehicles.
    Senator Breaux. I agree with that.
    Senator Bingaman. But the question is, how much safety is 
enough safety, and of course there are a lot of things you 
could do to improve safety with additional requirements on 
driver training and other things.
    There are all sorts of ways to improve safety on the 
highways, and I favor virtually all of them, but it is a 
question of how much is enough, and at some point you have 
other policies that you also need to factor in, and that is my 
view on it. I think you could have a very safe vehicle. I think 
the hybrid vehicles that are in the market today are safe 
vehicles. I think they provide adequate safety.
    You also have this problem of escalating weight, in the 
sense that it is almost like the nuclear arms race, in the 
sense that if everybody on the road is going to be driving an 
enormous, extremely heavy vehicle, that it does become less 
safe for people to drive a normal-sized vehicle.
    So do you say the solution is to ratchet everybody up to 
that same level? I do not know. I do not think it is 
necessarily the right answer.
    Senator Snowe. I would also like to address that question, 
because obviously, that is one that has been raised 
consistently, even in the course of the National Academy of 
Sciences report, and these issues, again, are not mutually 
exclusive. In fact, there is in a stage of developing composite 
materials that are lightweight with high strength that could 
address the question of weight. You could also look at the 
question of the current weight of SUVs. If you are hit by an 
SUV and you are in a smaller size car, who is likely to be the 
victim? There are statistics that support that argument as 
well,when you are talking about traffic fatalities.
    But I do think that this is a question that ought to be 
addressed to resolves people's questions concerning this issue. 
In fact, the National Academy of Sciences recommendation, their 
seventh recommendation, does suggest having the National 
Highway Traffic and Safety Administration conduct research on 
this issue between fuel economy and safety, and I would 
recommend, Mr. Chairman, that the Committee pursue that 
recommendation and I make a request of the National Highway 
Traffic Safety Administration today to research this particular 
issue.
    Senator Kerry. They are the next people to testify, and 
they are hearing your request.
    Senator Snowe. Let me just make one further comment, and 
that is that one member of the National Academy of Sciences 
said there is no fundamental scientific reason why increasing 
fuel economy should be deadly compensated.
    Senator Kerry. Should be what?
    Senator Snowe. Deadly compensated, so we are not saying you 
should accomplish fuel economy at the expense of safety, and it 
does not necessarily have to be that way even the modest goals 
we are establishing in the Feinstein-Snowe legislation do not 
sacrifice safety. In fact, the National Academy of Sciences 
would indicate that as well.
    Senator Breaux. Well, I just want to comment, I think this 
is an issue we cannot dodge and cannot ignore. It is easy to 
meet the standards if you make the cars smaller and lighter and 
smaller and lighter, but an awful lot of families and people 
are very concerned that what are they going to do in a smaller 
and smaller car that is lighter and lighter when they are on 
the highways with 18-wheelers and everything else going 70 
miles an hour plus? I mean, it is not a comfortable feeling.
    Thank you all very much for your contribution.
    Senator Kerry. Just to follow up on that, again--and I am 
just now posing questions to draw the issue out and create the 
record, but the auto industry would point out that under the 
requirements of the original CAFE standards, station wagons as 
we knew them ceased to be manufactured, and that is why people 
shifted into SUVs, because it met the market demand for size, 
for family, for numbers of seats, et cetera, and they were able 
to provide the size the market wanted. How do you respond to 
that? Should there be a mandated ratcheting down of that 
demand?
    Senator Snowe. Not necessarily, because I think that they 
possess sufficient ingenuity and technological know-how to 
accomplish both goals.
    Senator Kerry. But they say they do not. We are going to 
have to wind our way through this issue.
    Senator Snowe. We are talking about setting reasonable 
goals, and obviously the Ford Motor Company recognizes that 
improving fuel economies by 25 percent by the year 2005 must be 
a reasonable goal, because it is one that they said they are 
striving for, so obviously it can be done, and why not give 
consumers a choice to purchase an SUV that gets better gas 
mileage.
    I just cannot believe that in today's corporate 
environment, that they cannot develop an SUV or a minivan that 
provides comfortable choices for the consumer and also achieves 
some fuel economy savings. I just cannot believe it.
    Senator Kerry. We are going to explore that with them 
thoroughly. We have a terrific panel from the auto industry and 
we are certainly going to explore those questions.
    The one thing I would point out, as I thank both of you 
very, very much for the length of time you have spent and for 
your efforts on this, it seems to me that we have got to frame 
this discussion perhaps differently than we have in the past. I 
think one of the most significant arguments made for reducing 
the level of oil consumption is the resulting reduction in 
carbon dioxide emissions tonnage. The gains with respect to the 
environment are perhaps more compelling and more important than 
the relative level of, quote, energy independence.
    The reason I say that is, when we began this debate in 1973 
we were 30 percent dependent on oil from the Middle East and 
elsewhere, foreign oil. Now we are over 50 percent dependent, 
and in the same breath, many people make an argument that you 
should not drill in ANWR, because if you were going to drill 
there, it is going to make a tiny dent in independence, 
ultimately maybe 2 to 3 percent maximum. You are still going to 
be 50 percent dependent, so even if you drive the industry most 
significantly to improve fuel economy, you are still likely to 
be almost 50 percent dependent on foreign oil, and that is 
unacceptable from a national security point of view.
    So the real argument is not how do you marginalize your 
reduction of oil. All of us know we are going to be using oil 
for the next 30, 40, 50 years. The question is how much oil 
should we use and for what purposes? In the transportation 
sector we should be talking about how we reduce oil consumption 
altogether, and that is what the hydrogen fuel cell race is 
about, that is what the hybrid is about and so forth, and it 
seems to me that is a more compelling place for us to go. The 
question is not how do you fractionalize this dependency, but 
how do you reduce dependency on oil altogether with respect to 
transportation sector. That is where I think the debate ought 
to move.
    I want to thank both of you for being here, and we will 
move right away to the next panel if we can. Dr. Runge and Dr. 
Gravatt, if you would both come to the table.
    Administrator Runge, thank you very much for your patience, 
and Dr. Gravatt, thank you for being with us. Would you lead 
off with your testimony?

  STATEMENT OF HON. JEFFREY W. RUNGE, ADMINISTRATOR, NATIONAL 
     HIGHWAY TRAFFIC SAFETY ADMINISTRATION, DEPARTMENT OF 
   TRANSPORTATION; ACCOMPANIED BY ROBERT SHELTON, EXECUTIVE 
                            DIRECTOR

    Mr. Runge. Mr. Chairman, thank you very much, Members of 
the Committee. I am Dr. Jeff Runge, Administrator of the 
National Highway Traffic Administration. On my left is Mr. 
Robert Shelton, who is the Executive Director of the National 
Highway Traffic Safety Administration. On behalf of the U.S. 
Department of Transportation, I want to thank you for the 
opportunity to contribute to your deliberations of automobile 
fuel economy.
    Mr. Chairman, I have submitted written testimony for the 
record, and with your permission I would like to summarize my 
comments.
    Senator Kerry. Without objection, your full testimony will 
be in the record.
    Mr. Runge. The Department of Transportation has the 
responsibility to administer the CAFE program. The CAFE 
standard for passenger cars is set by statute at 27.5 miles per 
gallon, whereas the CAFE standard for light trucks is set for 
each model year by the Department through the rulemaking 
process. Since fiscal year 1996, as you mentioned, Congress has 
frozen the standard for light trucks at the level of 20.7 miles 
per gallon through provisions in the appropriations acts.
    There were significant improvements in fuel economy during 
the early years of the CAFE program in the 1970s and 1980s, 
with strong public demand for energy-efficient vehicles. Since 
the mid-1980s, however, gasoline prices have typically been 
declining, and consumer demand has shifted toward vehicle 
performance and utility, away from fuel economy, with the 
result that the fuel economy level for the passenger vehicle 
fleet as a whole has declined from its peaks.
    Senator Kerry. Do you mind if I interrupt as we go along? 
Why did that shift occur? Is that market-driven, or was that a 
relaxation of the enforcement of standards?
    Mr. Runge. We believe it was market-driven. As the price of 
fuel declined, people began to value performance and space and 
size over fuel economy.
    Senator Kerry. And in a sense the rules empowered them to 
push for those attributes because there was no constraint, 
there was no target, there was no goal, there was nothing that 
constrained their ability to just do what they wanted to do, 
even if it was bad policy?
    Mr. Runge. Yes, sir. To the extent that the industry could 
make cars to comply with the rules, I suppose that is true.
    Senator Kerry. But they do not comply with the rules. In 
fact, the real-world fuel economy is 17 percent lower than the 
CAFE certified fuel economy level, so they do not comply, so it 
comes down to mechanism enforcement and structure, does it not, 
to some degree?
    Mr. Shelton. Mr. Chairman, if I may elaborate, they do, of 
course, literally comply with the rules, since the statute said 
we were to use the EPA test procedure to determine the fuel 
economy level for compliance, but certainly there has been a 
recognition since the program started that vehicles do not 
achieve the level on the EPA cycle in the real world. There is, 
like you say, around a 15- to 17-percent difference.
    Senator Kerry. Right, but that is the bottom line, the real 
world.
    Mr. Shelton. Yes, absolutely.
    Senator Kerry. OK, but it seems to me that makes a 
compelling argument that, (1) you need enforcement; (2) you 
need a structure that is adequate to enforce, and then you 
condition some of the market behavior.
    Mr. Runge. Well, thank you for that comment.
    Senator Kerry. You agree with me, then, and I am sorry to 
screw up your day.
    [Laughter.]
    Senator Kerry. Go ahead.
    Mr. Runge. I am just glad I have my technician here to my 
left.
    As you indicated, today's drivers are, indeed, using more 
petroleum than if the fuel efficiency program had continued as 
it did in the early years of the CAFE program. Fortunately, the 
appropriations act passed by you all this week does not 
continue the prohibition on our CAFE rulemaking, so the agency 
will be free to begin rulemaking to set the light truck 
standard at the maximum feasible level for the upcoming model 
years.
    We welcome the lifting of the restrictions so we may now 
fulfill our statutory duty to set the fuel economy standard for 
light trucks this summer. When it was apparent the restriction 
was likely to be lifted, Secretary Mineta urged the Congress to 
do so before the end of the fiscal year so that we would have 
sufficient time to begin such rulemaking to effectuate changes 
for model year 2004, rather than waiting for the fiscal year 
2002 appropriations act to be enacted. Unfortunately, this did 
not occur.
    The CAFE law requires the standard be set at the maximum 
feasible level. We are further required to issue any standard 
for a given model year at least 18 months before the model year 
begins, which for model year 2004 would be April 1, 2002. 
Therefore, because of the lateness of the date, and although we 
began our work the day the freeze was lifted, the rulemaking 
for model year 2004 will not likely result in a significant 
increase in fuel economy for that model year.
    However, if the agency concludes through its processes that 
the maximum feasible model year 2004 fuel economy standard is 
higher than 20.7, we will not hesitate to set such a higher 
standard. Therefore, our primary focus will be gathering and 
analyzing data so that we can determine the maximum feasible 
levels for model year 2005 and beyond.
    At the beginning of the Administration, the President 
directed a review of these issues which is contained in the 
President's national energy report. It recommends that fuel 
economy standards should be based on sound science and should 
consider passenger safety, economic concerns, and the impact on 
the U.S. versus the foreign fleet of automobiles. We will 
consider both the National Academy of Sciences report and the 
National Energy Policy report as we review those alternatives 
available to improve fuel economy.
    The NAS report also points out the potential adverse safety 
consequences of improving fuel economy by measures that simply 
reduce the size and weight of vehicles. I want to assure you we 
will consider vehicle safety in any rulemaking that we 
undertake on CAFE consistent with our obligations to meet 
statutory criteria governing the CAFE program. As an agency 
whose primary mission is safety, we are committed to the safety 
of Americans on the Nation's highways.
    We want to further assure the Committee we will carry out 
our responsibility under the CAFE law to the best of our 
ability toward the goal of improving fleet fuel economy and 
with the gains we have made in passenger safety over the last 
20 years.
    This concludes my statement. Mr. Chairman, I will be glad 
to answer any question I can.
    [The prepared statement of Mr. Runge follows:]

 Prepared Statement of Hon. Jeffrey W. Runge, Administrator, National 
         Highway Traffic Safety Administration, Department of 
                             Transportation

    Mr. Chairman and Members of the Committee: On behalf of the U.S. 
Department of Transportation and Secretary Mineta, I welcome the 
opportunity to contribute to the Committee's consideration of 
automobile fuel economy. This is a matter of great importance to the 
economy, our national energy security, and passenger safety.
    The Department administers the corporate average fuel economy 
(CAFE) program as its principal contribution to energy conservation in 
the light-duty vehicle fleet. Enacted in 1975 in response to the energy 
crisis caused by the 1973-1974 oil embargo, the CAFE program requires 
motor vehicle manufacturers to ensure that their new-vehicle fleets 
meet a specified average level of fuel economy in each model year. The 
CAFE standard for passenger cars is set by statute at 27.5 miles per 
gallon (mpg), whereas the CAFE standard for light trucks is set by the 
Department by regulation for each model year. The light-truck CAFE 
standard has been frozen at the model year 1996 level of 20.7 mpg 
(through model year 2003) by provisions in the Department's annual 
appropriations acts.
    The early years of the CAFE program were marked by significant 
improvements in fuel economy, as the public demand for energy-efficient 
vehicles during the late 1970s and early 1980s was strong. This was in 
part caused by the downsizing of vehicles, as well as by improvements 
in vehicle technology. Since the mid-1980s, however, gasoline prices 
have typically been stable or declining (in constant dollars) and 
consumer demand has tended to favor vehicle utility, safety, and 
performance over fuel economy, with the result that the fuel economy 
level for the passenger car fleet has leveled off. Lower gasoline 
prices and consumer preferences have attracted buyers away from 
passenger cars into less fuel-efficient vehicles such as minivans and 
sport utility vehicles. These vehicles filled the public's desire for 
vehicles that can accommodate family and sporting activities, such as 
carrying numbers of children, and play and sports equipment. The result 
is that the average fuel economy for the new light duty vehicle fleet 
as a whole (the fleet of vehicles with a gross vehicle weight rating of 
8,500 pounds or less) has declined from an all time high of 26.2 mpg in 
model year 1987 to 24.5 mpg in model year 2001. Under actual driving 
conditions, as shown by the Environmental Protection Agency's annual 
Fuel Economy Trends report, the new-car fleet fuel economy was 22.1 in 
model year 1987 and 20.4 in model year 2001.
    This decline means that today's fleet is using more petroleum, an 
increasing percentage of which is imported, than it would if fuel 
efficiency had continued to improve beyond the early years of the CAFE 
program.
    The Department welcomes lifting the restrictions on CAFE rulemaking 
Congress has imposed since fiscal year 1996, to permit the Department 
to once again engage in rulemaking that will set fuel economy standards 
for the light truck fleet. The Appropriations act passed by the House 
and Senate does not continue the restrictions on CAFE rulemaking, so 
that we will soon be free to begin rulemaking to set the light truck 
standard for model year 2004.
    When it became apparent this summer that the restriction on 
rulemaking would not be perpetuated in fiscal year 2002, Secretary 
Mineta urged the appropriations committees to consider legislation that 
would remove the restriction before the end of fiscal year 2001, so 
that the Department would not need to wait until the enactment of 
appropriations for fiscal year 2002, but could begin work right away. 
Unfortunately, the Congress did not act on the Secretary's request.
    We now face an immediate need to begin rulemaking for the light 
truck fleet for model year 2004. Under the CAFE law, we must issue a 
standard for that model year not later than 18 months before the model 
year begins. We consider model years to begin on October 1, so we will 
need to issue the MY 2004 standard by April 1, 2002, 18 months before 
October 1, 2003, the beginning of MY 2004.
    Although we will begin our work immediately, I must caution you 
that our knowledge of the potential to improve fuel economy is limited. 
We have not been able to collect data on our own or conduct any 
analyses that would be needed to support the statutorily required 
determination that a specific level is the ``maximum feasible average 
fuel economy level.'' In making this determination, we are directed by 
the statute to consider ``technological feasibility, economic 
practicability, the effect of other motor vehicle standards of the 
Government on fuel economy, and the need of the United States to 
conserve energy.'' Due to the freeze on activity related to CAFE, we 
have not been able to address these issues.
    Our rulemaking for MY 2004 will not likely result in a significant 
change in the CAFE standard. The time available between April 2002 and 
October 2003 is simply too short for a significant change, since the 
technologies with the largest potential for increasing fuel efficiency 
would require much longer to incorporate into vehicles. The CAFE law 
requires us to consider ``economic practicability,'' which means that 
we must provide the lead-time necessary to incorporate changes without 
substantial economic disruption to the vehicle manufacturers. As a 
result, we do not anticipate adopting a standard that would result in 
significant changes in the manufacturers' current plans for light truck 
CAFE for MY 2004. We will immediately begin the process of reviewing 
fuel economy levels for model years 2005 and beyond. We believe 
focusing our efforts on the MY 2005 rulemaking will allow us to 
consider more significant changes in the light truck CAFE standard. Our 
CAFE rulemaking faces a further challenge, in that the new 
appropriations act does not give us the resources to conduct the 
analyses that we need to support our regulatory determinations.
    Beyond the context of near-term fuel economy rulemaking, our work 
will be aided by the July 2001 report on the CAFE program prepared by a 
committee of the National Academy of Sciences. The report contains a 
number of findings and recommendations that bear on the future of the 
CAFE program.
    While the report supports a Federal program to ensure fuel economy 
levels beyond those expected to result from market forces alone, it 
cautions that selecting fuel economy targets will require ``uncertain 
and difficult tradeoffs among environmental benefits, vehicle safety, 
cost, oil import dependence, and consumer preferences.'' The report 
found that ``the downweighting and downsizing that occurred in the late 
1970s and early 1980s, some of which was due to CAFE standards, 
probably resulted in an additional 1,300 to 2,600 traffic fatalities in 
1993.'' This finding was based primarily on research conducted by NHTSA 
in the mid-1990s, which we are updating in a study that we expect to 
complete next spring. The National Academy of Sciences' report went on 
to observe ``that the likelihood of similar response to further 
increases in fuel economy must be taken seriously.'' I want to assure 
you that we will consider vehicle safety in any rulemaking that we 
undertake on CAFE, consistent with our obligations to meet the 
statutory criteria governing the CAFE program. As an agency whose 
primary mission is safety, NHTSA is completely committed to the safety 
of Americans on the nation's highways.
    We agree that there will be difficult tradeoffs. At the beginning 
of this administration, the President directed a review of these 
issues, which is contained in the President's National Energy Policy 
report. That report recommends that the standards should be based on 
sound science, and should consider passenger safety, economic concerns, 
and the impact on the U.S. versus the foreign fleet of automobiles.
    We will consider both the National Academy of Sciences report and 
the National Energy Policy report as we review the alternatives 
available to improve fuel economy. These reports also highlighted the 
opportunities for the use of new technologies and the development of 
alternative fuel vehicles such as those powered by fuel cells. However, 
we are not prepared at this time to recommend specific changes to the 
fuel economy law.
    It is clear that there are many points of view about the best means 
to improve the fuel economy of the light duty vehicle fleet, as 
illustrated by the continuing debate in the Congress on whether to 
legislate higher CAFE standards or to require specific reductions in 
fuel consumption by certain segments of the fleet, such as light 
trucks. The National Academy of Sciences committee examined a number of 
alternative measures, some of which are represented in pending 
legislation. The debates on these measures illustrate the difficult 
nature of the choices facing us.
    To achieve a specified CAFE level, a manufacturer must produce fuel 
efficient vehicles that the public will buy. If cost-effective measures 
can be devised to increase consumer demand for fuel-efficient vehicles 
without compromising passenger safety, those measures should be 
examined. The President's National Energy Policy report recommends that 
the Secretary of Transportation evaluate market-based approaches to 
increasing new motor vehicle fuel economy. We are moving forward to 
consider these approaches. The National Academy of Sciences report also 
notes that we need to consider consumer demand, vehicle attributes, and 
the impact on passenger safety of fuel economy standards.
    We want to assure the Committee that the Department will carry out 
its responsibilities under the CAFE law to the best of its ability, 
with the goal of improving fleet fuel economy without sacrificing 
passenger safety, thereby producing benefits to the economy, our 
national energy security, and our nation's traveling public.
    This concludes my statement. I look forward to working with the 
committee as we continue to address the issue of fuel economy. I will 
be glad to answer your questions.

    Senator Kerry. Thank you very much. Do either of the other 
of you have testimony you want to make at this point?
    Dr. Gravatt. Mr. Chairman, I have submitted testimony for 
the record. I can quickly summarize or wait.
    Senator Kerry. I think that would be helpful. I would like 
to hear that, thank you.

      STATEMENT OF DR. CLAUDE C. GRAVATT, JR., DIRECTOR, 
    MANUFACTURING COMPETITIVENESS AND PARTNERSHIP FOR A NEW 
  GENERATION OF VEHICLES, DEPARTMENT OF COMMERCE, TECHNOLOGY 
                         ADMINISTRATION

    Dr. Gravatt. I am Claude Gravatt. I work in the Department 
of Commerce Office of the Under Secretary for Technology, and I 
also serve as the U.S. Government's Director for the 
Partnership for a New Generation of Vehicles. That partnership 
is an industry-government partnership R&D activity started 
about 8 years ago to try to increase the menu of technologies 
and components and materials that would be available to the 
auto industry to use in increasing the mileage of future 
vehicles.
    We give a number of the details of the program in the 
written testimony. Let me just quickly summarize it. For the 
first approximately 4 years, we studied a wide variety of 
technologies, since we truly did not know which might be most 
effective, either on a cost or a technology or fuel economy 
basis.
    In 1997, we selected from among that rather large number a 
smaller number to focus on more thoroughly in the 3 years up 
until the year 2000. At that time, the three industry 
participants in the program, Daimler/Chrysler, Ford, and 
General Motors, each revealed and displayed here in Washington 
a concept vehicle that they had put together that represented 
their thinking at that point in time as to how they would 
achieve the one goal of the program, three times fuel 
efficiency of increase over what was available in 1994, when 
the program started.
    I think the interesting thing about those three concept 
vehicles was that although they in a sense selected from the 
same menu of options and there was a lot of commonality in the 
vehicles, there was a lot of diversity as well. Each company 
selected what they thought they could do best, would be most 
appealing to the consumer, and moved in that direction, and I 
think that diversity is very important in an activity of this 
sort.
    One other interesting aspect of the program, each year we 
have a review of the program by a panel of the National Academy 
of Engineering, and their seventh report was released about 3 
or 4 months ago which we summarized in here as well. They point 
out that we have made good progress, but we still have some 
considerable issues to address, one of which is cost, the need 
to get the cost down for many of these technologies so that 
they are more acceptable to the consumer.
    Second, that there are some emission issues, serious 
technical ones as well related to one of the engines we were 
working on at the time and still are; and third, that we 
probably needed to pay more attention to the fuels and 
components of the fuel.
    The initial declaration of intent of the partnership 
addressed fuels, but it is only now that we are getting to the 
point where it is a major issue and we are moving in that 
direction. Let me conclude at this point, and I will be glad to 
also answer any questions.
    [The prepared statement of Dr. Gravatt follows:]

      Prepared Statement of Dr. Claude C. Gravatt, Jr., Director, 
 Manufacturing Competitiveness and Partnership for a New Generation of 
   Vehicles (PNGV), Department of Commerce, Technology Administration

    Mr. Chairman. I am Dr. Claude C. Gravatt, Jr., Director of 
Manufacturing Competitiveness and PNGV in the Technology Administration 
at the Department of Commerce. I wish to thank you for the opportunity 
to testify before you today. My remarks will be focused solely on the 
Government and Industry's research investments in improving fuel 
economy under PNGV, and in no way suggests that the Department or the 
Administration have taken a position on CAFE or on the PNGV program.

THE ROLE OF THE PNGV PROGRAM IN DEVELOPING TECHNOLOGIES TO IMPROVE FUEL 
                     ECONOMY OF LIGHT DUTY VEHICLES

Background

    The Partnership for a New Generation of Vehicles (PNGV) is a 
groundbreaking partnership between the Federal Government and the U.S. 
Council for Automotive Research (USCAR)--whose members include Daimler/
Chrysler, Ford, and General Motors (GM)--to plan and manage research 
and development activities for a wide range of leading-edge 
technologies that have the potential to dramatically improve the fuel 
economy of, while also reducing the emissions from, cars and other 
light duty vehicles, including vans, SUVs and pick-up trucks.
    The U.S. Department of Commerce, Office of the Under Secretary for 
Technology, leads the Federal Government's participation in the 
partnership and also serves as the government secretariat. Federal 
agencies participating in the PNGV Program at the technical level 
include the Departments of Commerce, Energy, Transportation and 
Defense; the Environmental Protection Agency; the National Science 
Foundation; and NASA. More than 20 Federal laboratories from these 
agencies are involved in the program. In addition to the Federal 
partners and USCAR, more than 350 automotive suppliers, universities, 
and small businesses have participated in PNGV.
    PNGV is best known for its long term objective: developing the 
technologies required to enable the production of environmentally 
friendly cars with up to three times the fuel efficiency of cars in 
production at the start of the program (1994). This objective 
specifically would increase the fuel efficiency of mid-size family 
sedans from 27 mpg to 80 mpg. However, the technologies being developed 
by the program are not limited to application in just mid-size sedans, 
but instead are applicable across the entire range of light duty 
vehicles. This objective is expected to be accomplished without 
sacrificing affordability, performance, or safety. PNGV's other goals 
are: (1) to significantly improve national competitiveness in 
automotive manufacturing across all components, sub-systems and vehicle 
lines; and (2) to apply commercially viable innovations developed under 
the PNGV research effort to conventional vehicles as quickly as 
possible.
    The level of effort among the participating agencies varies, based 
on the specific technical activities under active R&D at any point in 
time, and based on the missions and current core competences of the 
agency and its laboratories. In fiscal year 2001, total government 
support for PNGV-related research is $234 million, of which $162 
million is for R&D activities directly focused on PNGV goals and 
coordinated by the PNGV technical teams. Currently, the U.S. Department 
of Energy and EPA provide approximately one-half of direct Federal 
funding for PNGV, with DoE being the largest, and EPA second. The 
National Research Council estimated the industry's contribution to PNGV 
research and development to be $980 million in 1999, which includes 
major efforts on the part of the industry partners to develop the year 
2000 concept cars.

Status

    The initial PNGV R&D program consisted of an extremely wide range 
of technical areas which might be combined at the vehicle level to 
achieve the program goals. In 1997 the first major program milestone 
was achieved when these technical areas were reduced to focus on those 
that appeared to have the highest potential in terms of technical 
feasibility and affordability. In 2000 the program achieved its second 
major program milestone with the unveiling of the PNGV Concept cars. 
Although these cars all were based on the R&D activities of the 
program, each manufacturer selected from among them in ways which best 
met their corporate competitive strategy.
     The Daimler/Chrysler concept car, the Dodge ESX3, was a 
diesel-electric hybrid with an estimated fuel economy of 72 mpg.
     The Ford Prodigy was a diesel-electric hybrid with fuel 
economy estimated at more than 70 mpg.
     Two versions of the GM Precept were unveiled. The diesel-
electric hybrid version of the Precept had a projected fuel economy of 
80 mpg. GM estimated the fuel cell version of the Precept might achieve 
108 mpg.
    Many PNGV technologies--such as thermoplastics, lightweight 
aluminum, and composite materials--have already been used in production 
vehicles.
     Migration of PNGV technologies into production vehicles, 
such as;
    --production of a new, lighter, recyclable thermoplastic hardtop 
for the Jeep Wrangler in 2001,
    --use of 412 pounds of lightweight aluminum in the 2000 Lincoln LS, 
saving 188 pounds,
    --a new composite pickup truck box on the 2001 Chevrolet Silverado 
that is 50 pounds lighter than the traditional steel box aluminum used 
for door, deck, and hood panels for Cadillac, Oldsmobile, and Chevrolet 
vehicles
     Development of near-production technologies
    --complete demonstration of thin-slab continuous casting of 
aluminum,
    --development of laser welding techniques.
     Progress in manufacturing processes, to include
    --standardization, scrap recovery initiatives with the aluminum 
industry, and recycling and design of hybrid material bodies
    --through development of more accurate software to predict 
springback behavior in large steel and aluminum stampings, die-recuts 
are reduced by 50 percent and cost of new die sets is reduced by 30 
percent.
    Examples of significant accomplishments in the area of science and 
technology are:
      Development of carbon foam with extremely high heat 
conductivity (2000 R&D 100 Award)
     Near frictionless carbon coating, many times slicker than 
Teflon (1998 R&D 100 Award)
     Oxygen-rich air supplier for clean diesel technology (1999 
R&D 100 Award)
     Development of a compact microchannel fuel vaporizer to 
convert gasoline to hydrogen for fuel cells (1999 R&D 100 Award)
     Development of aftertreatment devices to remove nitrogen 
oxides from diesel exhaust with efficiencies greater than 90 percent, 
when used with diesel fuel containing 3 ppm of sulfur
     Improvement of the overall efficiency and power-to-weight 
ratios of power electronics to within 25 percent of targets, while 
reducing cost by 86 percent to $10/kW since 1995
     Reduction in cost of lightweight aluminum, magnesium, and 
glass-fiber-reinforced polymer components to less than 50 percent the 
cost of steel
     Reduction in the costs of fuel cells from $10,000/kW in 
1994 to $300/kW in 2000
     Substantial weight reduction to within 5 to 10 percent of 
the vehicle weight reduction goal
    Additionally, each of the USCAR partners has announced it will 
begin volume production of new generation hybrid-electric vehicles in 
2003-2004 timeframe. Each of these products is in the light truck/sport 
utility vehicle segments where hybrid technology provides greater fuel 
saving opportunities.

Daimler/Chrysler

     2003 Hybrid Dodge Durango
     2004 Hybrid Dodge Ram

Ford

     2003 Hybrid Escape
     2004 Ford Focus Fuel Cell Vehicle

General Motors

     2004 Hybrid Chevrolet Silverado/GMC Sierra
     2004 ParadiGM Propulsion
    The National Academies 7th Annual Peer Review Report on the PNGV 
Research Program, administered by the National Research Council, was 
released in August 2001. This annual Peer Review process provides 
independent validation of the program's progress and success and has 
been very helpful in the past in focusing and streamlining the PNGV 
research portfolio. This year's review of the PNGV program identified 
several barriers to volume production of vehicles incorporating the 
full range of PNGV technologies, including: (1) the remaining high cost 
of PNGV technologies; (2) the uncertainty of meeting the more stringent 
Tier 2 emissions regulations issued by the Environmental Protection 
Agency last year, using advanced diesel engines as were included in the 
2000 Concept Cars; and (3) the availability of advanced low-sulfur 
reformulated fuels. The PNGV participants are continuing to address 
each of these areas, and are optimistic that solutions will be 
developed.
    Once again, I want to thank the Committee for the invitation to 
testify. I would be happy to answer any questions you might have.

    Senator Kerry. Thank you very much, doctor. I appreciate 
it. Tell me, how long have you been with the program?
    Dr. Gravatt. I was with the program when it started for 
approximately 2 years, in its initial formative process and the 
initial aspects of it. I then went back to in a sense what was 
my normal job and was working in an industry-government 
partnership in semiconductor manufacturing, and I came back to 
it about a year or year-and-a-half ago and have been with it 
since then, so in a sense I was there the first 2, 
approximately 2 or 3 years, and I have been back approximately 
one.
    Senator Kerry. You heard the testimony of our colleagues 
who sat at the table ahead of you, who talked with optimism and 
confidence about the technological capacity to move forward, 
certainly to close the SUV loophole, and certainly to 
strengthen the overall CAFE standard. What have you learned 
from the PNGV program that would weigh on your acceptance of 
their arguments, or what measurement would you make of their 
arguments based upon what you have learned?
    Dr. Gravatt. Well, they made a range of arguments. Let me 
just touch on several of them. Technological progress has been 
very good. There is quite a menu of materials, components, 
systems, and subsystems that can be brought together into a 
vehicle to increase the fuel efficiency, fuel economy, and 
reduce the emissions of that vehicle, and some of these are 
getting into the marketplace at this point in time, and we have 
a list of them in there, and I am sure that industry speakers 
who will follow can be more specific in many of those areas.
    As the National Academy pointed out, cost is still in 
advanced technology a serious issue, and the industry is always 
trading off the concept of cost versus the technical gains that 
they have there, and so I think cost is one, and second, 
looking at fuels and looking at the emission issues related to, 
in the one particular case, the direct injection diesel engine, 
compression ignition engine, is one that we still have to 
address, so I think the menu of options is certainly better 
than it was when the program started.
    Senator Kerry. How tangible are those options?
    Dr. Gravatt. Some of them are very tangible. Some of them 
need both more technical work and cost reduction, and 
manufacturing engineering.
    Senator Kerry. In your judgment, are they sufficiently 
tangible to permit the industry to meet the goal of passenger 
car standards for SUVs?
    Dr. Gravatt. The passenger cars?
    Senator Kerry. Could you close the loophole as it is known 
with respect to SUVs?
    Dr. Gravatt. All of the technologies that we have been 
working on will certainly apply to SUVs as well as other light 
duty vehicles, and they are bringing brought out in that 
component. Certainly, each manufacturer has indicated they 
could move in that direction. In addition to the technical 
capability, as I say, there is the cost issue and manufacturer 
ability, and just the rate of introduction, how quickly you can 
turn over the fleet, but I think things can move in a positive 
direction, yes, sir.
    Senator Kerry. You cite significant accomplishments in the 
area of science and technology and the development of carbon 
foam with high heat conductivity, and near frictionless carbon 
coating many times slicker than teflon, oxygen-rich air 
supplier for clean diesel technology, development of a compact 
micro-channel fuel vaporizer, the conversion of gasoline to 
hydrogen for fuel cells, improvement of overall efficiency in 
power-to-weight ratios of power electronics to within 25 
percent of targets, reducing cost by 86 percent since 1995, 
reduction in cost of lightweight aluminum magnesium glass fiber 
reinforced polymer components, reduction in the cost of fuel 
cells and so forth.
    Have any of those advances been embraced by the industry at 
this point, incorporated into current production?
    Dr. Gravatt. Well, they have certainly participated in work 
on all of them.
    Senator Kerry. Have they been incorporated into the 
production of automobiles at this point in time?
    Dr. Gravatt. Some have been incorporated in. Others are in 
the planning stages. I would prefer that you ask them with 
regards to exactly what each company is doing. Some of that is 
very proprietary. Others they might be able to comment on.
    Senator Kerry. Usually when we ask them it is sufficiently 
proprietary that we do not get told what they are doing at all, 
and so I am not sure how far we will get with that.
    What I am trying to get from you is, in your judgment, are 
there technologies that are real, that are sufficiently within 
reach or that could be pushed by setting a standard that you 
believe can be reached within a reasonable period of time, that 
would assist in meeting a stronger and more enforced CAFE 
standard?
    Dr. Gravatt. Yes, sir, there are certainly things there 
that will assist in moving in that direction and providing the 
possibility of meeting the standard.
    Senator Kerry. In your judgment, what are the most 
promising of those?
    Dr. Gravatt. As I indicated earlier, each company takes a 
diverse approach. I am not the best one to design the vehicle.
    Senator Kerry. I understand that, but what I am trying to 
do is to get as hard a sense as the Committee can get of the 
real possibilities here. If it is a menu of possibilities, so 
be it. I know there is some vision involved here. You have got 
to look ahead and say, I think these things are real, but that 
is the judgment we are looking to you for from the experience. 
That is precisely why this partnership was created, and I am 
trying to get a judgment from you that we can measure some 
public policy thoughts on.
    Dr. Gravatt. Well, the hybrid concept, hybrid is a broad 
term, and it includes many things, but the combination of an 
electric drive, where significant progress has been made both 
in the electric motor itself, the regenerative braking and all 
the rather difficult control systems that go into putting that 
together, along with internal combustion or diesel engine, are 
very attractive, and each manufacturer has announced the intent 
to get these things into production in the next several years. 
I think that looks very promising.
    Senator Kerry. In that context, in terms of hybrid, we will 
hear later on one of the later panels from the Paice 
Corporation about the development of a power train system 
called Hyperdrive. Did you examine that in this context?
    Dr. Gravatt. I met with them just several weeks ago and got 
an update on some of their activities over and above what I was 
aware of 3 or 4 years ago, and I think they have some very 
interesting things to present, and have done some significant 
work in that area.
    Senator Kerry. In your program, in the PNGV concept cars, 
the Daimler/Chrysler concept car, the Dodge EX-3, had estimated 
fuel economy of 72 miles per gallon, is that correct?
    Dr. Gravatt. Yes, sir.
    Senator Kerry. And the Ford Prodigy was a diesel electric 
hybrid with fuel economy estimated at more than 70 miles per 
gallon, and there were two versions of a GM precept unveiled. 
What was the conclusion you drew with respect to these concept 
cars and those efforts?
    Dr. Gravatt. Concept cars are put together in onesies and 
twosies, and many of them do not drive, but these certainly 
have that capability. They are rolled onto the floor to 
demonstrate a concept, but these were vehicles that could be 
driven and have been evaluated, and each company has moved 
forward from where they were at that point about a year-and-a-
half ago.
    They proved that there was the capability of bringing these 
pieces together, the technical pieces, and you could achieve 
this kind of performance, what they need in vehicles that met 
other requirements as well, but that much needed to be done in 
manufacturer ability and cost of components and cost of 
bringing the whole thing together, and that is where they are, 
and that is where they are working, but it was shown that there 
was a way of taking the pieces and addressing them and 
combining them and getting these kinds of performance 
characteristics.
    Senator Kerry. I gather each of the U.S. car partners have 
agreed, or announced that they are going to begin volume 
production of those new generation hybrid electric vehicles in 
the 2003-2004 timeframe, in the truck, sport utility vehicle 
segments. So you have got a Daimler/Chrysler offering; you have 
got a Ford offering; a General Motors offering, to the best of 
my knowledge, and those will be coming online.
    Should the fact of their production coming online in 2003 
and 2004 suggest to the Committee that if that technology is 
available for production now, in that sector, and if we set 
some goals and standards, that within a 10-year frame of time 
one could hope for much broader production in that area and 
much more rapid gain than we might even imagine today?
    Dr. Gravatt. Well, the introduction of the first products 
will give them a sense to do a good job of answering that 
question. The SUV provides an attractive platform to bring some 
of the hybrid technologies out. You have got space, you can 
handle the weight, it is really a very attractive platform from 
a technical point of view as well as a market sector point of 
view.
    As several people previously pointed out, that market 
sector has just exploded since this program started from near 
zero to 20-some percent at this point in time, so it has all 
the attractive features. It is technically a convenient one to 
put the devices in, and it is a high-volume seller, which is 
what you are trying to achieve.
    Senator Kerry. Dr. Runge, I know you have not been on the 
job that long, and your background is as a physician handling 
countless thousands of motor vehicle trauma accidents, 
etcetera, and that is a different area of experience, but given 
the responsibilities of NHTSA and where we are trying to head 
here, can you share with us a sense of what you would 
anticipate as a schedule for your activities, and what kind of 
enforcement we might find from you with respect to this 
particular issue and the other issues that sort of dovetail 
with it?
    Mr. Runge. Yes, sir. Thank you. As I indicated in my 
remarks, for the year 2004 we are required to issue a rule by 
March 31 or April 1 of 2002. That puts us on a very, very short 
timeframe to issue a standard. We will have to do the work of 
18 months in about less than 4 months in order to get that 
standard out.
    Senator Kerry. The standard with respect to what model 
year?
    Mr. Runge. 2004. However, simultaneously we will begin to 
amass data as soon as the freeze is lifted on 2005 and beyond, 
hopefully with a multiyear standard. The staff is cocked and 
ready, and as soon as we are able, we will pull the trigger and 
have them begin this in earnest.
    Senator Kerry. The auto industry obviously hopes your 
standard will be the only game in town. Do you have a view with 
respect to how that ought to play out?
    Mr. Runge. Senator, you all make the laws and we administer 
them, and we will do that to the best of our ability. We look 
forward to working with you in the development of that law to 
the extent that you will allow us to do so.
    Senator Kerry. Let me ask you this. Since you are on an 
accelerated schedule, and we are, too, obviously, would you be 
prepared to meet with us and share some thinking on this as we 
go along over the course of the next weeks?
    Mr. Runge. Absolutely, with the caveat that we have been 
prohibited from gathering data, and so our data are old. We do 
have the NAS report. We have the energy policy. We do have 
experts who have been actively engaged in thinking about it, on 
their own time, of course.
    [Laughter.]
    Mr. Runge. And we will be ready to devote whatever time is 
necessary to do that.
    Senator Kerry. They have had about 6 years to think about 
it.
    [Laughter.]
    Senator Kerry. We look forward to the results of your 6 
years of thinking. It should be very productive. Thank you. 
While pending that I think it would be beneficial for us to 
move on to the next panel. We certainly appreciate you being 
here, Dr. Gravatt, thank you very much, very much.
    If we could call the second panel: Mr. Tom Davis; Susan 
Cischke; Edward Cohen; Ann Mesnikoff; and Alan Reuther.
    Welcome to all of you and thank you for being here.
    First of all, thank you for your patience. We appreciate 
very much everybody participating in this. What I would like to 
do is just run down the table here.
    Mr. Davis, if you would lead off. I know you are on the end 
there, and maybe you could share the mike and just run on down. 
I appreciate it.
    Thank you.

  STATEMENT OF THOMAS J. DAVIS, GROUP VICE PRESIDENT, GENERAL 
                MOTORS, NORTH AMERICAN PRODUCT 
                          DEVELOPMENT

    Mr. Davis. Thank you for the opportunity to testify on this 
important subject. My name is Tom Davis. I am Group Vice 
President, North American Product Development.
    My organization has the responsibility to conceive, style, 
engineer, and develop vehicles for the North American market. 
We work to ensure that our vehicles meet a wide spectrum of 
customer requirements and are the kind of vehicles that 
Americans will buy and want to drive.
    Because the Congress has examined energy policy this year, 
a number of statements have been made about the continuing need 
for the U.S. to conserve energy, to increase and diversify 
energy supplies, and to enhance energy security.
    We at GM share these concerns. We expect to meet the 
growing demand for safe personal transportation with technology 
over the past century, power train technology has changed 
dramatically--to the point today where it is a highly refined 
and very mature technology.
    While we continue to aggressively push for technological 
refinement in those systems, we recognize that the continuing 
incremental evolution of drive trains based upon the internal 
combustion engines can eventually be surpassed by shift to a 
new, more advanced technology.
    As a company, we are committed to be the leader in new 
technologies to meet the energy, environmental and economic 
challenges of the 21st century. U.S. technology leadership 
historically has provided the key to efficient transportation, 
environmental protection and a strong American economy. We see 
the ultimate vision for sustainable energy future in vehicles 
powered by hydrogen fuel cells. Hydrogen fuel made from 
renewable sources of energy can be used to power fuel cell 
vehicles that are more than twice as energy efficient as 
today's vehicles and emit only pure water.
    These same fuel celled vehicles could be a clean reserve of 
electrical power sources for home or work sites. The pacing 
element to make this vision a reality are the development of a 
hydrogen fuel infrastructure and the reduction in system costs. 
Our government and industry together have to take a global 
leadership role in moving toward a hydrogen future for personal 
transportation.
    In the meantime, we are pressing for incremental gains in 
fuel economy for the driving public. As a result, we have 
announced the deployment of displacement on demand engine 
systems, continuously variable transmissions which are in 
production today and hybrid systems, but what does all this 
have to do with CAFE policy? Well, CAFE is actually an obstacle 
to the realization of this vision. With relatively low gasoline 
prices, CAFE works against the market, the consumer and the 
long-term technology development. As the National Academy of 
Sciences report states: ``There is a marked inconsistency 
between pressing automobile manufacturers for improved fuel 
economy from new vehicles on the one hand and insisting on low 
real gasoline prices on the other.''
    We are investing significant engineering resources to 
create a completely revolutionary technical capability. A near-
term shift in CAFE policy engineering resources back to the 
incremental advancements in internal combustion engine systems 
and through reductions in vehicle power, weight, and size.
    Today's regulatory process provides for a review of CAFE 
standards by the Department of Transportation that is intended 
to consider technical feasibility, highway safety, American 
employment and the economy, costs to the American consumer, the 
historical and continuing impacts on domestic automakers, and 
the American consumers' right to choose vehicles that meet 
their safety and transportation needs.
    Now, these are exceedingly complex and intertwined issues, 
as indicated by many of the other speakers, but issues of great 
significance. The regulatory process calls for an in-depth 
analysis and balancing of these diverse CAFE impacts and that 
comprehensive process should be used to consider any change to 
CAFE and any legislative support of such changes.
    There have also been discussions about changes to the 
structure of the CAFE program. Any reform of CAFE would have to 
address the significant adverse consequences of the current 
system, including the disparate impact on domestic, foreign 
automakers; the failure to recognize the lead time required for 
development and manufacturing of new vehicles; the adverse 
impact on driver and passenger safety; the opposition to 
natural market forces; the negative impact on the consumer's 
choice of vehicle; the encouragement to increase driving by 
reduced mile per gallon costs.
    So changes to CAFE system which have been studied for 20 
years and one conclusion is very clear. CAFE cannot be fixed by 
simply a simple shift in the formula. CAFE is determined 
primarily by what people choose to buy, and that choice 
reflects consumer needs.
    In addition, there are better ways to conserve petroleum in 
the transportation sector. With over 200 million passenger 
vehicles already on the American roads today, reducing their 
overall fuel consumption would be a great policy to pursue. For 
example, we see opportunities in incentives to scrap older, 
less efficient vehicles and to reduce fuel-consuming congestion 
on American roads.
    In addition, large fuel savings are possible through the 
use of hybrid buses for urban mass transit. Another attractive 
option would be to find ways to permit the new clean diesel 
engines that were just discussed and now capture nearly 40 
percent of the European passenger car sales. These types of 
policies would engage the power of market forces and act to 
reduce fuel consumption by the large number of vehicles already 
on the road.
    Let me summarize by saying we are convinced sound 
regulatory policy is critical to provide a constructive 
environment for the pursuit of significant technology advances.
    Our challenge is to balance our resources between meeting 
today's regulatory market demands and responding to the long-
term needs of the American driving public and society at large.
    We urge that the regulatory process be used to develop 
recommendations for CAFE policy.
    Thank you very much. And I'd be pleased to welcome your 
questions.
    [The prepared statement of Mr. Davis follows:]

     Prepared Statement of Thomas J. Davis, Group Vice President, 
           General Motors, North American Product Development

    Thank you for giving me the opportunity to testify on behalf of 
General Motors on this important subject. My name is Tom Davis, GM 
Group Vice President, North American Product Development. My 
organization has the responsibility to conceive, style, engineer, and 
develop vehicles for the North American market. We work to ensure that 
our vehicles meet a wide spectrum of customer requirements and are the 
kind of vehicles that Americans choose to buy and drive.
    As the Congress has examined energy policy this year, a number of 
statements have been made about the continuing need for the U.S. to 
conserve energy, to increase and diversify energy supplies, and to 
enhance energy security. We share these concerns.
    We expect to meet the growing demand for safe personal 
transportation with technology. The internal combustion engine has 
powered our vehicles for a century. Over that time, powertrain 
technology has changed dramatically--to the point today where it is a 
highly refined, mature technology. While we continue to aggressively 
push for technical refinements in those systems and to explore the 
benefits of hybrid drivetrain variants, we recognize that the 
continuing incremental evolution of drivetrains based on internal 
combustion engines will eventually be surpassed by a shift to new, 
advanced technologies. And like the shift we have seen to a computer-
based information age and the shift to the new world of wireless 
personal communication, new technologies for transportation must 
address emerging needs of customers and must be embraced by the market.
    Ultimately then, meeting our energy goals, addressing the growing 
demand for transportation and retaining the functions and performance 
of the vehicles that our customers demand requires a significant 
advance in technology. So this is a challenging time for General 
Motors. As a company, we are committed to being a leader in developing 
new technologies to meet the energy, environmental and economic 
challenges of the 21st Century. U.S. technology leadership historically 
has provided the key to efficient transportation, environmental 
protection, and a strong American economy. And leadership in developing 
technology will be key to our future competitiveness.
    We see the ultimate vision for a sustainable energy future in 
vehicles powered by hydrogen fuel cells. Hydrogen fuel made from 
renewable sources of energy can be used to power fuel cell vehicles 
that are more than twice as energy efficient as today's vehicles and 
emit only pure water. These same fuel-cell vehicles could, and should, 
be a clean reserve electrical power source for homes and work sites--
and may indeed find their easiest commercial applications in clean 
stationary sources of electricity for residences and businesses.
    This technology offers a path to balance environmental stewardship 
with the growing demand for energy that supports our quality of life 
and rising populations. The pacing elements to make this vision a 
reality are the development of a hydrogen fuel infrastructure and the 
reduction in system costs. Our government and industry together have to 
take a global leadership role in moving toward a hydrogen-fueled future 
for personal transportation.
    In the meantime, we are pressing for incremental gains in fuel 
economy for the driving public. As a result we have announced the 
deployment of displacement-on-demand engine systems, continuously 
variable transmissions, and hybrid systems. CVT transmissions are in 
production today.
    For those who argue the need for more high fuel economy vehicles, 
many such vehicles are available today. In fact, over 50 models in the 
U.S. market offer fuel economy above 35 mpg, but they attract less than 
1 percent of sales. Hence, they have an insignificant impact on 
Corporate Average Fuel Economy, or CAFE. Indeed, as the recent National 
Academy of Sciences report on CAFE notes, ``Consumers have a wide 
variety of opportunities to exercise their preference for a fuel 
efficient vehicle if that is an important attribute to them.'' What 
does our long-term vision for hydrogen-based, clean, efficient, 
personal mobility have to do with CAFE policy? Well, CAFE is actually 
an obstacle to the realization of this vision. With relatively low 
gasoline prices, CAFE works against the market, the consumer and long-
term technology development. As the National Academy of Sciences report 
states, ``There is a marked inconsistency between pressing automobile 
manufacturers for improved fuel economy from new vehicles on the one 
hand and insisting on low real gasoline prices on the other.''
    We are investing significant engineering resources to create a 
completely revolutionary technical capability. A near-term shift in 
CAFE pulls engineering resources back to incremental advancements in 
internal combustion engine systems and to reductions in vehicle power, 
weight and size. Much has been written on the risks of focusing on 
vehicle weight reduction as a means to accomplish increase in fuel 
economy. The CAFE report by the National Academy of Sciences concluded, 
``the down-weighting and downsizing that occurred in the late 1970s and 
1980s, some of which was due to CAFE standards, probably resulted in an 
additional 1300 to 2600 traffic fatalities. . .'' annually. 
Furthermore, reduced power and size degrade the vehicle utility 
required by American farmers and tradesmen, and chosen for family 
travel and personal use.
    Today's regulatory process provides for a review of CAFE standards 
by the Department of Transportation. This review is intended to 
consider technical feasibility, highway safety, American employment and 
the economy, costs to the American consumer, the historical and 
continuing impacts on domestic automakers, and the American consumers' 
right to choose vehicles that meet their safety and transportation 
needs. These are exceedingly complex and intertwined issues of great 
significance for our nation.
    The regulatory process for review of CAFE standards calls for in-
depth analysis and balancing of these diverse CAFE impacts. That 
comprehensive regulatory process should be used to consider any changes 
to CAFE and any legislative support such changes would require. We 
intend to work closely with the Department of Transportation as it 
resumes full CAFE rulemaking authority.
    There have also been discussions about changes to the structure of 
the CAFE program. A change in the mathematical formulation of the CAFE 
standards is not likely to significantly affect U.S. petroleum 
consumption in the face of abundant gasoline. Any reform of CAFE would 
have to address the significant adverse consequences of the current 
system:
     disparate impact on domestic automakers
     failure to recognize the lead time required for 
development and manufacture of new vehicles
     adverse impact on driver and passenger safety associated 
with reduced vehicle weight
     opposition to natural market forces
     negative impact on the consumer's choice of vehicle
     new vehicle cost that encourages retention of older less-
efficient vehicles
     encourages increased driving by reducing per-mile cost
    However, changes to the CAFE system have been studied for 20 years 
and one conclusion is clear--CAFE can't be fixed by a simple shift in 
the formula. CAFE is determined primarily by what people choose to buy, 
and that choice reflects consumer needs and the abundance of gasoline.
    There are better ways than CAFE to conserve petroleum in the 
transportation sector. With over 200 million passenger vehicles already 
on American roads today, reducing their fuel consumption would be the 
best policy to pursue. For example, we see opportunities in incentives 
to scrap older, less efficient vehicles and to reduce fuel-consuming 
congestion on American roads. In addition, fuel savings can be 
encouraged through incentives to deploy hybrid buses for urban mass 
transit since the fuel savings of hybrid powertrains are greatest in 
stop-and-go urban driving and in high-consumption vehicles like buses, 
and the purchase of hybrid vehicles for government fleets. Another 
attractive option would be to find ways to permit the new clean diesel 
engines that now capture nearly 40 percent of European passenger car 
sales. These types of policies would engage the power of market forces 
and act to reduce fuel consumption by the large number of vehicles 
already on the road. In that regard, they offer the opportunity for 
immediate impact. Advances in the energy efficiency of future vehicle 
production can also contribute, though at a slower pace because new 
vehicles replace approximately 5 percent of the on-road fleet each 
year.
    In conclusion, let me summarize by saying that we are convinced 
that sound regulatory policy is critical to provide a constructive 
environment for the pursuit of significant technology advances. We now 
see our way to fuel cell technology advances that will fundamentally 
change personal transportation during this century.
    Our challenge is to balance our resources between meeting today's 
regulatory and market demands and responding to the long-term needs of 
the American driving public and society at large. Therefore, we urge 
that the regulatory agencies proceed in that spirit to develop 
recommendations for CAFE policy.
    Thank you. I look forward to responding to your questions.

    Senator Kerry. Thank you very much, Mr. Davis.
    Ms. Cischke.

        STATEMENT OF SUSAN M. CISCHKE, VICE PRESIDENT, 
    ENVIRONMENTAL AND SAFETY ENGINEERING, FORD MOTOR COMPANY

    Ms. Cischke. Thank you, Mr. Chairman, and Members of the 
Committee. Thank you for inviting me to address the Committee 
on this very important issue.
    My name is Susan Cischke, and I am Vice President of 
Environmental and Safety Engineering for Ford Motor Company.
    I appreciate the opportunity to share with you our views on 
these subjects, which are of critical importance to our 
business, our customers, shareholders and the Nation. We 
support efforts to create an effective energy policy for the 
U.S., and believe that industry and government both have a role 
to play in addressing energy concerns.
    Industry should continue to invest in development of energy 
efficient technologies and government should help bring 
advanced technologies to market more quickly and cost-
effectively through policies that encourage early adoption and 
are providing incentives to make it more affordable to 
consumers.
    In regard to CAFE, it is been widely recognized that this 
is a complex issue, because many of the tradeoffs and conflicts 
involve Congress and the Energy Policy Act authorized, NHTSA to 
periodically review the standards. We believe that NHTSA has 
the required expertise and is appropriately positioned to 
consider existing standards on the maximum feasible truck CAFE 
levels.
    Looking at today's fuel economy data on a model-to-model 
basis, you will see very little difference in the fuel economy 
performance across the major manufacturers. Contrary to what 
you may have heard or believe, on an apples-to-apples basis, 
the fuel efficiency of domestic manufactured vehicles are 
comparable to imports.
    What is different is the model mix. Simply put, CAFE is the 
calculated average of all the vehicles a company sells. Some 
manufacturers, mostly domestic manufacturers like Ford, offer a 
full product line-up with sales of larger cars and trucks like 
the best-selling F-Series that can haul and tow while other 
manufacturers have higher sales and small vehicle segments. 
This has created what you could call a model mix loophole, 
where some manufacturers have been able to enter the larger 
vehicle segments unrestricted by CAFE for the past 10 years. 
Thus, the difference in CAFE performance is not vehicle-to-
vehicle differences, and we have shown in the attached table in 
our written testimony, but the differences in the segments in 
which the companies choose to compete.
    At the end of the day, any solutions to reduce fuel 
consumption or correct CAFE structure inadequacies must result 
in vehicles that customers can afford and that they are willing 
to and inclined to purchase.
    Ford has been in the business of making and selling 
vehicles for 98 years, and we know that when customers consider 
purchasing a vehicle, they are concerned with vehicle 
affordability, quality, reliability, safety, appearance, 
comfort and utility. From our perspective, no one factor can be 
ignored in the highly competitive U.S. marketplace.
    We have reviewed the National Academy of Sciences report on 
the Effectiveness and Impact of Corporate Average Fuel Economy 
(CAFE) standards. While we cannot endorse the cost of 
technology in the report or the methodology for estimated 
break-even pricing, the report has many findings and 
recommendations that were thoughtfully prepared. Among them, 
the panel recommends that consideration be given to an 
attribute-based system such as vehicle weight. We believe there 
is merit to investigating this further.
    A few years ago, Ford announced an approach we call 
cleaner, safer, sooner. This is part of a larger strategic 
vision to improve safety and fuel economy and reduce emissions. 
I would like to take a minute to share what we have done and 
plan to do to improve the fuel economy of our vehicles.
    First, we have pledged to improve the SUV fuel economy of 
our U.S. fleet by 25 percent. I would like to thank everyone 
for recognizing Ford's pledge to improve SUV fuel economy by 25 
percent in 2005. As was mentioned earlier, we are committed and 
on track to do so.
    It is a very challenging task made even more challenging in 
these present economic conditions, but I would like to clarify 
that this does not translate into a 25 percent truck CAFE 
increase, which is based on model mix--in other words, what 
people will be buying 4 years from now, as well as the other 
categories that are included in truck CAFE, including light 
trucks, minivans as well. So you have to remember CAFE is 
complex and it is not an average.
    Second, I would like to mention that Ford is the leader in 
offering clean running alternative fuel vehicles, and we make 
and sell 10 vehicle lines capable of running on fuels other 
than gasoline, including ethanol, natural gas, and propane.
    And third, we are leading the world's automakers by 
providing consumers with the broadest lineup of electric 
vehicles, including a new zero emissions brand and we are not 
stopping here. We continue to research other promising 
technologies, including hydrogen powered fuel cells. Our 
objective is simple. Give consumers more of what they want. 
Performance, driveability, and utility using less fuel, 
emitting lower emissions, and requiring less maintenance.
    In closing, we believe that policies that promote research, 
development, and deployment of advanced technologies and 
provide consumer incentives to accelerate demands for these 
technologies are two key elements of our coordinated strategy 
to reducing U.S. fuel consumption.
    Ford is committed to taking action to address societal 
concerns when we have the technology, when it can be done cost 
effectively, and introduced in sufficient volumes to make a 
difference.
    Thank you again for the opportunity to address the 
Committee.
    [The prepared statement of Ms. Cischke follows.]

 Prepared Statement of Susan M. Cischke, Vice President, Environmental 
               and Safety Engineering, Ford Motor Company

    Mr. Chairman and Members of the Committee: Thank you for inviting 
me to address the committee on this important issue. My name is Susan 
Cischke, and I am Vice-President of Environmental and Safety 
Engineering for Ford Motor Company. Ford Motor Company has 48 
manufacturing facilities located in North America employing 163,000 
people in the United States.
    I appreciate the opportunity to share with you Ford Motor Company's 
views on motor vehicle fuel efficiency and what role advance technology 
will play. These issues are of critical importance to our business, 
customers, shareholders, and the nation.
    We are committed to reducing energy consumption through development 
of fuel-efficient advanced technology and alternative fuel vehicles, 
and improving plant and facility energy use. To that end, a few years 
ago Ford announced an approach we call ``Cleaner, Safer, Sooner''. This 
theme actually is part of a larger strategic vision of where we are 
headed with technology as a company to improve safety and fuel economy 
and reduce emissions. I would like to take a few minutes to share what 
we have done and plan to do to improve the fuel economy of our 
vehicles.
     We have pledged to improve the fuel economy of our U.S. 
SUV fleet. This will be done through a combination of new vehicle 
introductions, significant powertrain and non-powertrain actions, and 
additional use of lightweight materials.
     Already, today, Ford is the leader in offering clean-
running alternative fuel vehicles. We make and sell ten vehicle lines 
capable of running on fuels other than gasoline, including ethanol, 
natural gas, and propane. One of the key hurdles to overcome in 
commercializing alternative fuel vehicles is the lack of fueling 
infrastructure. Incentives will help the distributors overcome the 
costs to establish the alternative fuel outlets and support 
distributors during initial lower sales volumes as the number of 
alternative fuel vehicles increases.
     We are leading the world's automakers by providing 
consumers with the broadest lineup of electric vehicles, including a 
new zero-emissions brand, TH!NK--dedicated to the development and 
marketing of alternative fuel powertrains and vehicles.
     Fuel cells are one of the most promising long-term 
technologies and offer the hope of breakthrough fuel economy 
improvements, zero emissions, and a shift away from petroleum-based 
fuels. Ford is working hard on this promising technology and has also 
recently announced a new direct hydrogen internal combustion engine 
research vehicle. We introduced our first drivable fuel cell vehicle in 
1998 and last year introduced the Ford Focus FCV. However, there are 
significant obstacles to overcome, including cost, infrastructure, and 
new technologies that need to be invented.
     We recognize that electronics that integrate electric 
drive with an internal combustion engine offer improvements in fuel 
economy. For example, we plan to have the Escape Hybrid Electric 
Vehicle on the road in 2003 that incorporates electric drive 
technology.
    As we work to improve the fuel economy of our vehicles, we keep 
several important objectives in mind. We must provide consumers with 
the vehicles they want to drive that provide the functionality they 
look for and the safety they demand. Vehicles that do not meet customer 
needs, do not sell, and will not improve the country's environmental 
performance. It is also important to set equitable tasks for all 
manufacturers and to provide adequate lead-time to accomplish these 
tasks. We have looked at the CAFE standards from a manufacturers 
perspective and we believe that as a policy tool, it does not measure 
up to these principles. The goal of the initial CAFE program was to 
improve the average fuel economy performance of three companies. This 
is a different objective than setting up a program that conserves 
energy for the nation.
    Contrary to what you may have heard or believe, on an apples-to-
apples basis, the fuel efficiency of vehicles from domestic 
manufacturers is comparable to those from import companies. Looking at 
today's fuel economy data, on a model-to-model basis, you will see very 
little difference in the fuel economy performance across the major 
manufacturers. What is different is the model mix. Simply put, CAFE is 
a calculated average of all the vehicles a company sells. Some 
manufacturers, mostly domestic manufacturers like Ford, offer a full 
product line-up with sales of larger cars and trucks like the best 
selling F-Series that can help with the chores on the farm, while other 
manufacturers have higher sales in small vehicle segments. This has 
created what you could call a ``model mix loophole'' where some 
manufacturers have been able to enter the larger vehicle segments 
unrestricted by CAFE for the past 10 years. Thus, the difference in 
CAFE performance is not vehicle-to-vehicle differences, as we show in 
the attached table, but differences in the segments in which a company 
chooses to compete.
    At the end of the day, any solutions to reduce fuel consumption or 
correct CAFE structure inadequacies must result in vehicles that 
customers can afford and that they are willing to and want to purchase. 
Ford has been in the business of making and selling vehicles for 98 
years and we know that when customers consider purchasing a vehicle, 
they are concerned with vehicle affordability, quality, reliability, 
safety, appearance, comfort, and utility. Automakers also must consider 
all competing regulatory challenges, not just reducing fuel 
consumption, but improving safety and reducing emissions. From our 
perspective, no one factor can be ignored in the highly competitive 
U.S. marketplace.
    In regards to CAFE, we agree with the National Academy of Sciences 
that ``understanding the impact of potential changes to CAFE standards 
is, indeed, a difficult and complex task.'' Because of the many 
tradeoffs and conflicts involved, Congress, in the Energy Policy Act, 
authorized the National Highway Traffic Safety Administration (NHTSA) 
to periodically review the standards, which requires expert and 
intensive review of competitive information and analysis of competing 
priorities. We believe that NHTSA is appropriately positioned to set 
standards at the ``maximum feasible'' truck levels as required by law. 
The regulatory process to do this is already in place and scheduled to 
begin shortly.
    We have reviewed the National Academy of Sciences report on ``The 
Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) 
Standards.'' While we cannot endorse the cost of technology in the 
report or the methodology for estimating breakeven pricing, the report 
has many findings and recommendations that deserve further comment:
    (1) NAS recommended that the government should be involved in 
setting fuel economy standards for societal reasons. We agree that 
government has an appropriate role to play in establishing national 
energy objectives and evaluating the tradeoffs between competing 
national objectives. We support the current regulatory process already 
in place to have the National Highway Traffic Safety Administration 
review the fuel economy standards and set responsibly crafted standards 
at maximum feasible levels that consider among other things the 
interactions between fuel economy and safety, economic concerns, and 
U.S. competitiveness. As I mentioned, this review process is already in 
place and scheduled to begin shortly.
    (2) NAS recommended that consideration should be given to an 
attribute based system, such as vehicle weight. We believe that there 
is merit to investigating this further.
    (3) NAS recommended that the CAFE system, or any alternative 
system, should include broad trading of ``Credits.'' We do not envision 
an inter-manufacturer trading system that would work since it would 
inevitably lead to a transference of wealth from full line 
manufacturers--who provide working class vehicles to working 
Americans--to foreign companies who provide small vehicles unless 
equitable tasks are developed for all manufacturers.
    (4) NAS recommended that the dual-fuel vehicle credits should be 
eliminated. Ford believes this recommendation should have been modified 
to add a phrase at the end ``or we should add additional incentives to 
build a fuel infrastructure to support alternative fueled vehicles.'' 
We believe that bio-fuels and renewables will play an important role in 
energy diversity. We should not be cutting off a fruitful path to get 
to a renewable market because the fuel infrastructure has not grown as 
fast as some critics would like. There should be additional incentives 
to build a fuel infrastructure to support alternative fueled vehicles.
    We can not emphasis enough the uncertainties in the NAS report, 
these ``Uncertainties include the cost of implementing existing 
technologies or developing new ones; the future price of gasoline; the 
nature of consumer preferences for vehicle types, performance, and 
other features; and potential safety consequences of altered standards. 
The higher the target for average fuel economy, the greater the 
uncertainty about the cost of reaching that target.'' (ES-7)
    In closing, we believe that policies that promote research, 
development and deployment of advanced technologies and provide 
consumer incentives to accelerate demand for these technologies are two 
key elements of a coordinated strategy to address reducing U.S. fuel 
consumption. Advanced Technology Vehicles hold great promise for 
increasing fuel efficiency without sacrificing the other vehicle 
attributes consumers desire. Just as important, the technology is 
transparent to the customer. Incentives will help consumers overcome 
the initial higher costs of advanced technology and alternative fuel 
vehicles during market introduction, bringing more energy efficient 
vehicles into the marketplace more affordably. Enabling consumers to 
make more effective fuel-efficient choices makes more sense to achieve 
the desired outcome.
    Ford is committed to taking action to address societal concerns 
when we have the technology and when it can be cost-effectively 
introduced in sufficient volume to make a difference.
    Thank you again for the opportunity to address the Committee.

    [GRAPHIC] [TIFF OMITTED] T9683.001
    
    [GRAPHIC] [TIFF OMITTED] T9683.002
    
    Senator Kerry. Thank you very much, Ms. Cischke.
    Mr. Cohen.

STATEMENT OF EDWARD B. COHEN, VICE PRESIDENT FOR GOVERNMENT AND 
            INDUSTRY RELATIONS, HONDA NORTH AMERICA

    Mr. Cohen. Thank you, Mr. Chairman.
    Good morning. My name is Ed Cohen. I am Vice President for 
Industry and Government Relations, Honda North America. With 
your permission, Mr. Chairman, I ask that our complete 
statement be included in the record.
    Senator Kerry. Without objection, it is entered.
    Mr. Cohen. Thank you, Mr. Chairman. Since its beginning in 
1948, Honda has been guided by our philosophy of providing 
clean, efficient and high performance products of the highest 
quality, yet at reasonable prices that customers are willing to 
pay. We believe Honda's products are the purest expression of 
Honda's commitment to the environment and so we have set out to 
ensure that Honda's fleet has not only set the standard for 
cleaner emissions, but also that it is one of the most 
efficient in our Nation.
    Our combined CAFE average for cars and trucks, based on the 
NHTSA 2001 mid-model year report was 30.3 miles per gallon. And 
our vehicles are either at the top or close to the top of each 
segment in which we choose to compete. Also, 100 percent of the 
cars that we manufacture in 2002 will be low emission vehicles 
or better. In excess of 40 percent of those vehicles will be 
ultra low-emission vehicles (ULEV). While fuel efficiency is a 
high priority for Honda, we also must produce vehicles that our 
customers will want to buy. The challenge for all of us is 
finding the critical balance between society's environmental 
priorities and the needs of our customers.
    The report of the National Academy of Sciences provides a 
good foundation for the Committee's inquiry into the fuel 
economy issue. While we do not agree with all the findings and 
recommendations, the National Academy does point out that there 
are policies other than CAFE that could accomplish the same 
ends at a lower cost and provide more flexibility to 
manufacturers. However, you have asked us this morning to focus 
on CAFE and I will do so now.
    We encourage the Committee in focusing on CAFE that close 
attention be paid to the importance of providing sufficient 
lead time to design and introduce new technology to meet future 
standards. The NAS panel focuses on a 10 to 15-year timeframe. 
While CAFE does create market distortions, they can be 
mitigated if manufacturers can design in fuel economy 
attributes during the initial design stages, rather than as a 
process of retrofits or weight reductions. Certainly, this has 
been Honda's experience as we incorporate fuel efficiency goals 
into the base concept of new model development. The NAS 
endorsed establishing fuel economy targets based on vehicle 
attributes such as size or weight.
    The NAS panel seems to have opted for weight adjustments 
because of its belief that it is important to eliminate 
influences toward small cars due to safety considerations.
    However, we agree with the view of panel members David 
Green and Mary Ann Keller, who in dissenting, expressed their 
belief that existing safety data is inadequate to reach 
different conclusions about fuel economy related safety issues. 
Significant existing studies do not address the safety impact 
of using lightweight materials without reducing size, 
especially with vehicles with advanced safety technology.
    Mr. Chairman, you have asked us to focus on ways to adjust 
CAFE or alter CAFE. Let me offer one that you should not use, 
and that is a proposal that some have mentioned that CAFE 
increases should be based on a fixed percentage applied against 
each manufacturer's own CAFE average.
    As the NAS pointed out, such an approach would be unfair, 
shortsighted and unwise. It would impose a higher burden on 
those manufacturers that have already done the most to help 
energy consumption. It would reward those who have done the 
least, or as the NAS puts it, ``it conveys a moral lesson that 
it is better to lag than it is to lead.''
    It is bad public policy. It creates a strong disincentive 
for any manufacturer to ever exceed a standard in the future. 
No good deed will go unpunished for that manufacturer. But most 
importantly, it harms consumers and it harms American workers. 
It would reduce competition and keep the most efficient 
manufacturers out of product classes that they might not yet 
have entered by locking them into their current market 
positions.
    It also would hurt American workers. Three-quarters of the 
cars that Honda sells in the United States are made in North 
America. 94 percent of the steel that goes into those cars are 
made in U.S. factories. The great proportion of parts, the 
preponderance of parts that go into those cars, come from 
suppliers here in the U.S. made by American workers in over 35 
States.
    Just 2 days ago, I was in Alabama to dedicate the opening 
of our new Honda Odyssey plant. That plant represents a $580 
million investment and employs 1,500 Americans. We will be 
making 120,000 Odysseys. At the same time we dedicated the 
plant, we also announced that we were going to expand it. We 
are going to hire a total of 2,300 Americans. This also will 
increase production for the U.S. suppliers that supply parts 
for those vehicles.
    Mr. Chairman, we appreciate the opportunity to testify this 
morning. At Honda, we have always adopted a can-do approach to 
building cars that exceed our customer's expectations while 
achieving levels of emission and fuel efficiency that are 
compatible with the needs of the environment.
    We look forward to working with the Committee as it 
considers the current CAFE program.
    [The prepared statement of Mr. Cohen follows:]

 Prepared Statement of Edward B. Cohen, Vice President for Government 
              and Industry Relations, Honda North America

    Good morning. My name is Edward B. Cohen. I am Vice President for 
Government and Industry Relations, Honda North America. We are 
delighted to once again appear before the Committee. As you will 
recall, we were pleased to testify on automotive fuel efficiency and 
technology before the Committee at its hearing on July 10, 2001. The 
focus of today's hearing and of our testimony is the various issues 
associated with the regulation of motor vehicle fuel economy. The 
recent report of the National Academy of Sciences (NAS) entitled 
``Effectiveness and Impact of Corporate Average Fuel Economy 
Standards'' provides the Committee with a good point of departure for 
considering this complex technological, economic and public policy 
issue.
    Since its beginning in 1948, Honda has been guided by its 
philosophy of providing clean and efficient products of the highest 
quality at a reasonable price to its customers worldwide. In 1974, the 
founder of our company, Soichiro Honda, said, ``I cannot overstate the 
importance of continuing to cope with the pollution problem.'' In this 
spirit, we believe Honda's products--more than mere words--are the 
purest expression of Mr. Honda's commitment to the environment. And it 
is this commitment that has led to the can-do approach that has been 
the hallmark of Honda's efforts to meet the environmental challenge--
while still meeting the needs of our customers.
    In this coming year, for example, every vehicle that we sell in the 
United States will be categorized as a low emission vehicle (LEV) or 
better, and 40 percent are ultra-low emission vehicles. Every Civic we 
make is ULEV, the first complete ULEV model line to be sold in all 50 
states. The 2000 Accord meets California's Super Ultra Low Emission 
Vehicle standard, emitting 96 percent less hydrocarbons than a typical 
car. The 2000 Honda Insight, which achieves an EPA rating of 61 mpg 
(city) and 68 mpg (highway), was the first gasoline-electric hybrid 
vehicle introduced in the United States. And this spring, we will 
introduce the all new Civic Hybrid--the first regular production 
vehicle that will be available with three different powertrains--
conventional gasoline, compressed natural gas and hybrid engines.
    In this same light, Honda's fleet has always been one of the most 
efficient in the nation. Our combined car and light truck CAFE average 
for 2001, based on NHTSA's mid-model year report, is 30.3 mpg . While 
fuel efficiency is a high priority for us, we know from our long 
experience with this issue that we must produce vehicles that our 
customers will want to buy. The challenge for all of us is finding the 
critical balance between overall societal needs (reduction of 
greenhouse gas emissions and reduced reliance on petroleum) with the 
individual needs and demands of our customers. We look forward to and 
believe it is time for a constructive discussion about motor vehicle 
fuel efficiency. The goal must be to develop requirements that are fair 
and equitable for all manufacturers and that improve energy efficiency 
and resource conservation.
    We commend the NAS on its report on fuel economy. While we do not 
agree with all the findings and recommendations, the Panel had a 
formidable task, which it completed on an extremely tight timeframe.
    As we will discuss, a number of the recommendations of the NAS on 
any future increase in CAFE parallel our thinking. The report 
recognizes the importance of providing adequate lead-time to design and 
introduce new technology to meet future standards. The report focuses 
on a 15-year timeframe. Certainly, the more significant the increase in 
the standard, the longer the lead-time needed. The report also 
discusses alternatives to the current CAFE program. We concur in the 
Panel's observation that some of these alternatives have the potential 
to reduce the nation's fuel consumption without the market distortions 
created by the CAFE system. We also note the report is not unanimous on 
its position with regard to safety. We have more to say about this 
critical issue later, but we concur that more research is warranted.
    We believe that any future fuel economy requirements should be 
stated in terms of performance and be technology neutral. Standards 
should be set with due consideration of the challenges faced by 
manufacturers to offer consumers the mix of vehicles and vehicle 
attributes they desire. For these reasons, we believe that specific 
CAFE standards should be set by an expert agency, such as the National 
Highway Traffic Safety Administration, with direction and oversight 
from Congress.

                             POLICY CHOICES

    The NAS stated that it is appropriate for the Federal Government to 
set fuel economy levels in order to achieve the twin goals of reducing 
greenhouse gas emissions and decreasing the level of petroleum imports. 
However, the NAS also pointed out that fuel economy standards alone are 
not sufficient to guarantee achievement of these twin goals. Consumer 
behavior, as reflected in vehicle miles traveled, fuel substitution, 
incentives and consumer demand for various makes and models also are 
critical factors. Similarly, the availability and price of gasoline 
(including the level of gasoline taxation) also directly influence 
consumers' purchasing decisions. When gasoline prices rose to close to 
$2.00 per gallon earlier this year, customer demand for our fuel-
efficient Insight also increased. The current system of CAFE standards 
does little, if anything, to influence these consumer-based factors.
Alternatives to CAFE
    The structure of any fuel economy requirement has significant 
impacts on how the program operates and its influence on the 
marketplace. One critical choice facing policymakers in designing a 
fuel economy program is whether the fuel economy improvement will be 
certain or whether the costs of the program will be certain. Costs 
include not only dollar and cents impacts on the price of vehicles, but 
also tradeoffs such as vehicle performance and convenience factors. The 
current CAFE structure fixes the fuel economy improvement, but its 
costs are very uncertain as it depends on future market choices, fuel 
prices and the rate of technology development. It cannot be predicted 
with much accuracy. If the CAFE level is set too high, the costs 
increase rapidly and may force sales of unwanted vehicles. If the CAFE 
level is set too low, cost effective technology may not be used, as 
there is little incentive to do more than the absolute minimum.
    The NAS recognized this policy conundrum and observed that there 
are ``. . . policies [other than CAFE that] could accomplish the same 
end at a lower cost, provide more flexibility to manufacturers, or 
address inequities arising from the present system.'' (Finding 10). 
While the NAS was asked only to examine CAFE policies, alternatives to 
the current system, that warrant closer scrutiny by Congress, include 
tradable credits for fuel economy improvements, as well as feebates, 
higher fuel taxes, and standards based on vehicle attributes.
Attribute-Based Systems
    Among the alternatives evaluated by the NAS are fuel economy 
targets based on vehicle attributes such as size class or weight. This 
approach would make the vehicle mix each manufacturer offers in the 
marketplace less significant for the purposes of fuel economy 
compliance. At the same time, a weight-based system has a significant 
negative side, as manufacturers would get no credit for substitution of 
lightweight materials or better packaging efficiency. There simply 
would be no reward for such changes, and in fact, if not properly 
structured, there may even be an incentive for increasing weight. 
Significantly, these disincentives would not exist for a system based 
on size or vehicle class.
    The NAS Committee seems to have opted for weight rather than size 
adjustments because of its belief that--due to safety considerations--
it is important to eliminate influences toward small cars. It is 
significant that these safety considerations are the only issue that 
produced a dissenting opinion in the report. And Honda concurs with 
that dissenting opinion expressed by committee members David Greene and 
Maryann Keller that the data is insufficient to conclude that safety is 
compromised by smaller cars. The level of uncertainty about fuel 
economy related safety issues is much higher than stated in the 
majority report. Significantly, existing studies do not address the 
safety impact of using lightweight materials without reducing size, 
especially for vehicles with advanced safety technology.
    As the dissenters state, ``[t]he relationship between vehicle 
weight and safety are complex and not measurable with any degree of 
certainty at present.'' We believe it is important to understand the 
differences between size and weight. We have demonstrated through the 
use of sophisticated engineering and advanced lightweight materials 
that smaller cars can be made increasingly safer. For example, Honda's 
2001 Civic Coupe, with a curb weight of 2502 pounds, was the first 
compact car to receive a five star safety rating in the NHTSA crash 
results for the driver and all passenger seating positions in frontal 
and side crashes. The fuel economy of the Civic HX coupe with a 
continuously variable automatic transmission (CVT) and a gasoline 
engine is 40 mpg (highway) and 35 mpg (city). In addition, there are 
many ways to increase fuel efficiency that do not affect weight 
including power train technology and the efficient use of space.
    Thus, vehicle design and size, and not just vehicle mass, must be 
considered when studying the relationship between fuel economy and 
safety. There are accident scenarios where less weight may actually be 
an advantage in some vehicle accidents. In others, it is a 
disadvantage. But, there is much we do not know. For example, to what 
extent can advanced crash avoidance technologies, such as forward 
collision warning/avoidance, lane keeping and road departure 
prevention, and lane change collision warning/avoidance systems, be 
employed to make weight considerations less relevant? To what extent 
can new, lightweight materials and sophisticated engineering provide a 
level of crash protection comparable or even superior to vehicles with 
traditional materials and designs? Honda supports the NAS 
recommendation that NHTSA undertake additional research to clarify the 
relationship of weight and size in the context of newly evolving 
advanced materials and engineering techniques in the array of accident 
scenarios that are encountered on American roads. There have been too 
many assumptions made in terms of the factors influencing fuel 
efficiency and safety. But there simply has not been the detailed 
analysis of the various crash dynamics and crash scenarios on vehicles 
with modern safety designs to draw any definitive conclusions.
The Introduction of Fuel Efficient Technologies and Importance of 
        Leadtime
    There is a popular misconception that vehicle manufacturers have 
not introduced fuel-efficient technologies since the mid 1980s. This is 
understandable, as the car and light truck CAFE have remained 
relatively constant for the last 15 years. However, the reason for this 
flat line is not a lack of technological progress. The combined fleet 
has gone down due to increasing light truck market penetration--and due 
to the increasing array of features demanded by customers. There has 
been a substantial amount of efficiency technology introduced by the 
industry in that time period. As EPA has reported in its 2000 Fuel 
Economy Trends Report, penetration of lock-up torque converters 
increased from just under 30 percent in 1980 to 100 percent in 2000. 
Similarly, the use of port fuel injection increased from 5 percent in 
1980 to 100 percent in 2000. From its introduction in 1985, penetration 
of 4 valves per cylinder reached 40 percent in 2000. The dilemma facing 
manufacturers is that consumers may not value using these technologies 
to improve fuel economy given the relatively low price of gasoline.
    These new technologies have been employed more to respond to 
vehicle attributes demanded by the marketplace than to increase fuel 
economy. Over the past two decades, consumers have insisted on such 
features as enhanced performance, luxury, utility, and safety without 
decreasing fuel economy. Although vehicle weight increased 12 percent 
from 1987 to 2000, the 0-60 time improved by 22 percent in the same 
time period. This is because average horsepower increased by 70 percent 
from 1982 (99 hp) to 2000 (170hp). In addition, the proportion of 
manual transmissions, which are more fuel-efficient than automatic 
transmissions, decreased from 32 percent in 1980 to 14 percent in 2000. 
It is clear that technology has been used for vehicle attributes which 
consumers have demanded and value more than fuel economy.
    If the current car fleet were still at 1981 performance, weight and 
transmission levels, the passenger car CAFE would be almost 36 mpg 
instead of the current level of 28.1 mpg. The trend is particularly 
pronounced since 1987. Based on EPA's data, technology has gone into 
the fleet from 1987 to 2000 at a rate that could have increased fuel 
economy by about 1.5 percent per year, if it had not instead focused on 
other vehicle attributes demanded by the market. There is no reason why 
this technology trend of improved efficiency (as opposed to fuel 
economy) should not continue.
    This pace of potential improvement is significant in the context of 
the NAS finding that ``[t]technology changes require very long lead 
times to be introduced into the manufacturers' product lines.'' 
Accelerated mandates that are met through piecemeal modifications to 
existing vehicle designs rather than through integration of fuel-
efficient technologies from the inception of a new vehicle design can 
have disruptive and undesirable effects. The NAS notes that the 
downweighting and downsizing that occurred in the late 1970s and early 
1980s, may have had negative safety ramifications. But the ability to 
``design in'' fuel economy from the beginning--through the use of 
aerodynamic styling, enhanced use of lightweight materials, and 
incorporation of the newest drivetrain technologies--can produce 
significant fuel savings with little sacrifice of other vehicle 
attributes that consumers desire. And I can say unequivocally that this 
has been Honda's experience.
   other policy options for modification of the existing cafe program
Two Fleet Rule
    The NAS report raises a number of other critical issues about the 
current CAFE system that should be reexamined by Congress. For example, 
the NAS recommends abolition of the import/domestic split or two fleet 
rule. Honda agrees with this recommendation. Regardless of what the 
original purpose of the rule may have been, circumstances in the auto 
industry have markedly changed since the original statute was enacted 
more than 25 years ago. Significantly, a number of manufacturers have 
begun production in the United States. Honda, for example, now produces 
more than 75 percent of its cars for the U.S. market in North America. 
Just 2 days ago, we dedicated a completely new engine and motor vehicle 
manufacturing facility in Lincoln, Alabama where we will produce the 
Honda Odyssey--it is our 8th major plant in America. Depending on the 
formula used--and there are many--these vehicles contain between 70 and 
90 percent domestic content. Over 90 percent of the steel used in these 
vehicles is domestic. Equally important, over 20,000 Americans are 
employed directly by Honda to design, develop, assemble, and sell these 
vehicles (This employment figure does not include the many tens of 
thousands employed by our U.S. suppliers and dealer network.)
    The NAS believes the two fleet rule may act as a disincentive for 
manufacturers to increase the domestic content of their U.S.-built 
vehicles. Depending upon a manufacturers' global production plan, their 
more efficient vehicles may be made in the U.S. and thus are needed to 
be averaged with import vehicles to meet their CAFE obligations. 
Further, under CAFE, Canadian vehicles are treated as domestic, and 
soon as a result of the North American Free Trade Agreement, Mexican 
vehicles will be counted as domestic as well. The two fleet distinction 
already has been eliminated for trucks. It has outlived whatever 
usefulness it may ever have had.
The Distinction Between Cars and Light Trucks
    Another question inherent to the discussion of fuel economy policy 
is the viability of the current distinction between passenger cars and 
light duty trucks. When the CAFE statute was originally drafted, 
minivans were virtually nonexistent and SUVs were bought only by a 
small group of people who intended to use them off-road or for 
commercial uses. At that time, a distinction was needed for vehicles 
used for commercial and consumer purposes. Today, most light duty 
trucks are used as passenger vehicles and companies are building 
crossover vehicles that may fall in either a manufacturer's car or 
truck fleet. Thus, we caution that if cars and trucks are combined into 
a single fleet with a single standard, or if the same standard is 
adopted for both cars and light trucks, then there must be sufficient 
lead-time. Technology will help, but the lead-time must be sufficient. 
Timeframes reflected in the NAS report appear to be more reasonable. 
But we know of no technology or imminent breakthroughs that can take 
CAFE to 39 or 40 miles per gallon as some have proposed in a decade or 
so without severe marketplace disruptions.

                   UNIFORM PERCENTAGE INCREASE (UPI)

    Before concluding, we wish to highlight another important 
conclusion of the NAS report. The report unambiguously denounced an 
approach to CAFE that would require each manufacturer to improve its 
own CAFE by a specific target percentage. This is known as uniform 
percentage increases, or UPI. The NAS observes that such an approach 
would impose a higher burden on those manufacturers that have already 
done the most to help reduce energy consumption. Among its negative 
consequences, the NAS noted that UPI is generally the most costly way 
to meet an environmental standard, it locks manufacturers into their 
relative positions, thus reducing competition, and rewards those who 
have met only the minimum requirement. Most significantly, the NAS 
found that it punishes those who have done the most to help the 
environment and ``seems to convey a moral lesson that it is better to 
lag than to lead.'' In short, the NAS found that such a system provides 
a strong incentive for a manufacturer not to exceed regulatory 
standards for fear this will lead to tighter regulations. As one 
company that would be particularly aggrieved by an UPI approach 
precisely because we have worked proactively and tirelessly to meet or 
exceed all requirements, Honda strongly endorses the NAS's position in 
condemning UPI. Similarly, an approach that allocates to each 
manufacturer total gallons to be saved would have many of the same 
negative implications as UPI. And, like UPI, it would freeze market 
share of each manufacturer at current levels. How ironic it would be to 
effectively exclude from a new market a manufacturer like Honda that 
sells some of the most fuel-efficient cars in America.

                               CONCLUSION

    There are several basic rules that should apply to any approach to 
address fuel economy that Congress ultimately adopts:
     Any future fuel economy mandates must be equitable to all 
manufacturers;
     Those mandates must provide adequate lead time;
     They should reflect a basic understanding that technology 
is ever evolving;
     They must be applied fairly to all automakers; and
     They must ensure that manufacturers will be able to offer 
consumers the vehicles with the attributes they demand.
    In short, this is a major challenge that will require all of us to 
work together. But for those of us at Honda, it is a challenge we will 
embrace with our can-do spirit--for the benefit of our customers and 
society.
    Thank you.

    Senator Kerry. Thank you very much, Mr. Cohen. We 
appreciate it.
    Ms. Mesnikoff.

           STATEMENT OF ANN R. MESNIKOFF, WASHINGTON 
 REPRESENTATIVE, SIERRA CLUB GLOBAL WARMING AND ENERGY PROGRAM

    Ms. Mesnikoff. Thank you, Mr. Chairman.
    My name is Ann Mesnikoff. And I thank you and the Members 
for the opportunity to testify today on behalf of Sierra Club's 
more than 700,000 members nationwide on the issue of automobile 
fuel economy standards. I would similarly request my full 
written testimony be submitted for the record.
    Senator Kerry. Without objection, so ordered. Let me just 
alert you. I am not sure if we could get the two testimonies 
in. There is a vote on, and then I could go and vote and come 
back and engage in the questioning. It would be helpful.
    Ms. Mesnikoff. I will try to be brief. It has been a little 
more than a year since I last represented Sierra Club before 
this Committee on solutions to global warming and much has 
changed since that last testimony in support of raising CAFE. 
The national debate on energy policy is now focused on energy 
security and the issue of oil dependence is central to that 
debate. The tragedy of September 11th heightens the need to act 
now to raise fuel economy and reduce our dependence on oil.
    The biggest single step the U.S. can take to save oil is to 
raise CAFE standards. New standards will save millions of 
barrels of oil every day, will keep billions of dollars in our 
economy that consumers can reinvest rather than sending them 
overseas. And more importantly, they will also slash carbon 
dioxide emissions. As this Committee develops new standards to 
be included in balanced and responsible energy legislation, it 
has the opportunity to ensure real oil savings for the Nation.
    Cars and light trucks guzzle 8 million barrels of oil every 
single day in this country and emit 20 percent of our 
CO2. The Sierra Club urges this Committee to call 
for a 40-mile-per-gallon CAFE standard to be phased in over the 
next 10 years for a combined fleet of cars and light trucks. 
This should include closing the light truck loophole. This will 
put the Nation on the path to saving nearly 2 million barrels a 
day by 2012 and nearly 4 million barrels a day by 2020.
    When you contrast that to the 8 million barrels of oil we 
are using a day in cars and light trucks, those are real 
savings that will have an impact on our oil imports. The U.S., 
as pointed out by previous testimony, just 3 percent of the 
world's oil reserves, yet we use 25 percent of the world's oil, 
so we cannot really drill our way out of this situation.
    The new standards will save far more than we import from 
the Persian Gulf and they will save far more than the 6 months 
worth of oil expected to come from the National Arctic Wildlife 
Refuge--oil that won't add to supplies for about 10 years. In 
contrast, a cumulative savings from raising CAFE standards to 
40 miles per gallon over the next 10 years will be nearly 3 
billion barrels of oil.
    Consumer savings in the billions of dollars a year will be 
a helpful to our economy. They will generate jobs as consumers 
invest the dollars they save at the gas pump into this economy 
rather than sending them overseas to pay for oil. In 1990, this 
Committee adopted and sent to the floor a bill to update CAFE 
standards. Had that bill passed, we would be saving more than a 
million barrels of oil a day now, well on the way to saving 3 
million barrels a day.
    I would like to make a few points about the NAS report 
issued in July.
    I think importantly, the report concludes that CAFE 
standards have worked to save nearly 3 million barrels of oil 
every day and that auto manufacturers can use technology to 
significantly improve fuel economy over the next 10 to 15 years 
to generate greater savings and further pollution reductions.
    The key issues to consider in setting new standards are the 
technologies available and the timeframe for moving forward. 
The July report provided there is some guidance on these 
issues, we certainly urge this Committee to look at other 
reports; for example, one issued by the Union of Concerned 
Scientists ``Drilling in Detroit,'' as well as reports by the 
American Council for an Energy Efficient Economy, and by MIT.
    All of these studies look at a broader range of 
technologies beyond the primarily drive-train-related 
technologies looked at in the NAS report. Better engines, 
better transmissions, integrated starter generators, better 
tires, better aerodynamics and appropriate weight reductions 
all combined can improve fuel economy. And again, I would 
refer, as Representative Boehlert did, to the Automotive News 
image right up there which lists all of these technologies that 
can be used over the next 5 years to improve fuel economy, and 
these technologies are cost-effective.
    Consumers will save far more than the cost of these 
technologies at the gas pump. As for timeframe, we need to 
ensure that fuel economy standards ramp up over the next 10 
years. We cannot wait for another 10 or 15 years to see further 
backsliding.
    I think the NAS report identifies the ranges of fuel 
economies but does not say what can happen in the short term. 
And I would refer to Ford's pledge to improve the fuel economy 
of their SUVs by 25 percent and other auto manufacturers 
following suit as an example that the auto manufacturers can 
move forward in the short term with technology. Further, I 
think history does show that when the industry is given a 
target, they can meet that target with technology. Eighty-five 
percent of the fuel economy improvements we saw from the 
existing CAFE standards came from technology.
    We would agree that the CAFE system is not perfect, but 
before looking at reforming it, again it is important to 
recognize that the NAS says it worked. The two major reforms 
the Sierra Club would support are closing the light truck 
loophole that has been discussed by both Senators Feinstein, 
Snowe, and Representative Boehlert. And again, we would also 
support, strongly support, phasing out the dual fuel vehicle 
program. Each of these programs substantially increases 
gasoline consumption. I would be happy to discuss those further 
when time permits.
    The Sierra Club strongly agrees with the National Academy 
of Sciences that we can move forward to improve fuel economy 
safely using technology and putting technology to work. We 
would also agree to the point you raised earlier that we need 
to deal with the testing system now in place that does not 
accurately reflect what is going on in the real world when it 
comes to fuel economy. So we would like to see reforms in that 
program as well.
    Last, I would like to make a quick point about global 
warming. As you pointed out, this is a very serious issue that 
we need to address. One of the important benefits we can get 
from raising fuel economy standards is reducing global warming 
pollution. It is the biggest single step we can take to curb 
global warming. As I have mentioned, American cars and light 
trucks spew out 20 percent of our carbon dioxide pollution. 
That is more than only four other countries in the world emit. 
The U.S. has failed to act domestically to substantially reduce 
our emissions and we have abandoned our role in the 
international process, but that does not mean we should abandon 
our obligation to reduce our emissions domestically. We have 4 
percent of the world's population. We emit 25 percent of the 
world's CO2.
    In conclusion, the Sierra Club would urge this 
Committee to raise CAFE standards to 40 miles per gallon over 
the next 10 years. This new standard would ensure substantial 
oil savings for the Nation. It will help reduce our dependence 
on oil. It will slash CO2 pollution and it will save 
consumers billions of dollars at the gas pump. National energy 
legislation must include oil savings and there are no other 
policy option that will do what new CAFE standards can. Thank 
you very much.
    [The prepared statement of Ms. Mesnikoff follows:]

  Prepared Statement of Ann R. Mesnikoff, Washington Representative, 
             Sierra Club Global Warming and Energy Program

Introduction

    Thank you Mr. Chairman and members of the Committee for the 
opportunity to testify today on behalf of Sierra Club's more than 
700,000 members nationwide on the issue of automobile fuel economy 
standards.
    It has been a little more than one year since I represented the 
Sierra Club at a hearing on solutions to global warming. Much has 
changed since this last testimony in support of raising Corporate 
Average Fuel Economy (CAFE) standards. The national debate on energy 
policy is now focused on energy security, and the issue of oil 
dependence is central to that debate. The tragedy of September 11 
heightens the need to act now to raise fuel economy standards for cars, 
SUVs and other light trucks. The biggest single step the U.S. can take 
to save oil is to raise CAFE standards. Strong new standards will save 
millions of barrels of oil every day--more than we import from the 
Persian Gulf--and will keep billions of dollars in the economy as 
consumers save money at the pump. In addition, they will slash CO2 
emissions that cause global warming.
    As this Committee develops new CAFE standards to be included in 
comprehensive energy legislation, it has the opportunity to ensure real 
oil savings for the nation. In determining appropriate new standards 
and possible reforms to the CAFE system, the Sierra Club urges the 
Senate to review the National Academy of Sciences CAFE Report issued on 
July 31, 2001. This Report says we can move forward to raise fuel 
economy and that the technologies already exist to meet new standards 
safely. In addition, the Committee should consider other studies on the 
issue, including the Union of Concerned Scientists' (UCS) report, 
``Drilling in Detroit,'' that look at a broader range of technologies 
for improving fuel economy. We can and must have new standards. The 
Sierra Club urges the Senate to ensure that new standards take full 
advantage of fuel-saving technologies in an appropriate timeframe.

Energy Security: Raising Cafe Standards to 40 Miles Per Gallon

    The Sierra Club believes that raising CAFE standards is an 
essential part of a balanced and responsible energy plan. Cars and 
light trucks guzzle 8 million barrels of oil every day--40 percent of 
the oil used in the U.S. every day--and emit 20 percent of U.S. 
CO2 that causes global warming. The U.S. now imports 55 
percent of the oil we use, a level projected to rise steeply.
    The Sierra Club supports raising CAFE standards to 40 miles per 
gallon (mpg) over the next 10 years for a unified fleet of cars and 
light trucks. This new standard is achievable with existing 
conventional technologies and will lead us toward oil savings that 
approach 4 million barrels of oil every day and reduce CO2 
by 600 million tons every year. The Union of Concerned Scientists' 
``Drilling in Detroit'' report provides a blueprint for achieving a 40 
mpg standard.
    The fuel economy of cars and light trucks peaked in 1987 at 22.1 
miles per gallon (mpg) but has dropped to 24 mpg--a 20-year low. 
Congress set the current 27.5 mpg standard, still in place for cars, in 
1975 based on the technology outlook of the 1970s. Automakers met the 
27.5 mpg standard in the mid-1980s. The fuel economy standard for light 
trucks, 20.7 mpg, has stagnated for nearly 20 years. Light trucks, now 
50 percent of the new vehicle market (up from 20 percent in 1975), are 
largely to blame for the decline in overall fuel economy. With the 
slide in fuel economy comes an increased demand for oil, more global 
warming pollution, and increased pressure to drill for oil in special 
places like the Arctic National Wildlife Refuge.
    The U.S. has just 3 percent of the world's oil reserves yet 
consumes 25 percent of the world's oil. We cannot drill our way out of 
oil dependence, but we can go a long way toward oil independence by 
making cars and light trucks go further on a gallon of gas. Raising 
CAFE standards to 40 miles per gallon for cars and light trucks would 
save far more than the 2.5 million barrels of oil per day we now import 
from the Persian Gulf. It will also save far more than the estimated 6 
months of oil in the Arctic National Wildlife Refuge--oil that would 
not add to U.S. supplies for 10 years. In contrast, the cumulative oil 
savings from phasing in a 40 mpg standard over the next 10 years would 
be nearly 3 billion barrels of oil. By 2012, the daily savings would 
near 2 million barrels per day, and approach 4 million barrels per day 
in 2020. If new cars and light trucks averaged 40 miles per gallon, we 
would save 1,507 gallons of gasoline per second.
    Annual consumer savings from a 40 mpg standard would hit $16 
billion in 2012 and continue to rise as the efficiency of the fleet 
continued to improve. The cumulative savings over 10 years would be $45 
billion. Each dollar saved at the pump can be invested in the U.S. 
economy instead of spent on foreign oil. In 2000, Americans spent $186 
billion at the gas pump for 121 billion gallons of gasoline. Overall, 
the U.S. sends $200,000 overseas every minute to pay for oil products. 
Studies have consistently shown that re-investing the billions of 
dollars from oil savings will generate jobs economy-wide, including 
40,000 new jobs in the auto industry alone.
    As outlined in ``Drilling Under Detroit,'' conventional 
technologies now exist to achieve a 40 mpg standard over 10 years. A 
combination of better engines, transmissions, aerodynamics, appropriate 
weight reductions and other technologies can be used to improve the 
fuel economy of all vehicles, from cars to the largest SUVs.
    This is the first time since 1990 that this Committee and the 
Senate have looked at raising CAFE standards. In 1990 the Senate 
Commerce Committee adopted and sent to the floor a bill that would have 
raised the CAFE standard for cars to 40 mpg and for light trucks to 34 
by last year. This bill gained the support of 57 Senators. Had these 
standards passed we would be saving more than a million barrels every 
day on the way to saving 3 million barrels a day and the cumulative 
savings over the past past 10 years would have been 1.2 billion 
barrels.
    This Committee and the Senate should act now to raise fuel economy 
over the next 10 years to 40 mpg--a level that reflects the 
technologies now available. The country cannot afford another 10 years 
of backsliding on fuel economy.

The National Academy of Sciences Report on Fuel Economy Standards

    On July 31, 2001, the National Academy of Sciences (NAS) released 
its report, ``Effectiveness and Impact of Corporate Average Fuel 
Economy (CAFE) Standards'' [Report]. According to the Report, CAFE 
standards save nearly 3 million barrels of oil every day and automakers 
can use technologies to significantly improve fuel economy over the 
next 10-15 years to generate greater savings.
    The 2001 report is the second NAS report on fuel economy in less 
than 10 years. The 1992 NAS report on CAFE standards, ``Automotive Fuel 
Economy: How Far Should we Go?'' focused on identifying achievable 
levels of fuel economy over the course of the 1990s while meeting 
existing and pending environmental and safety standards. The 1992 
report provided ranges of fuel economy improvements the auto industry 
could achieve between 1996-2006 from a low range of 30-39 mpg for cars 
to 26-29 mpg for light trucks and a high range of 33-44 mpg for cars 
and 29-32 mpg for light trucks. The 1992 Report was closely followed by 
a 6-year freeze on new fuel economy standards imposed through the 
Transportation Appropriations bills.
    Instead of being well down the road to higher fuel economy for 
America's cars and light trucks, automakers produced a fleet of new 
vehicles in 2001 with an average fuel economy of 24 mpg. This is a 
twenty-year low, according to the Light-Duty Automotive Technology and 
Fuel Economy Trends Report from 2001.
    In light of the debate on national energy security and oil 
dependence, the 2001 Report must serve as a platform for action on fuel 
economy.

The 2001 NAS CAFE Report

    The NAS Report concludes that CAFE standards save oil. While the 
auto industry continues to argue that CAFE standards have not worked, 
the Report finds that the standards save 2.8 million barrels per day, 
or 43 billion gallons, of oil every year. The Report also identifies 
the direct connection between oil consumption in cars and light trucks 
and global warming. The Report's conclusion is clear: reducing both oil 
consumption and pollution are key reasons to move forward with new 
standards. The Sierra Club encourages the Committee to consider the NAS 
study, but also look for guidance from other studies that look at a 
broader range of strategies and timeframe.

Technologies for Achieving Higher Fuel Economy

    The debate about higher CAFE standards has always hinged on 
quantifying the ability of automakers to redesign their vehicles with 
improved technology. The question is one of how much improvement can be 
made in what kind of timeframe. The 2001 NAS Committee's approach to 
fuel economy was to identify ranges of fuel economy improvements for 
both cars and trucks while holding acceleration, performance, size, in 
terms of functional capacity, accessories, amenities, the mix of 
vehicle types, makes, and models sold constant. The Report focused on a 
limited set of primarily drive train related technologies. The Report 
concludes that fuel economy can be safely improved. The Path 2, or mid-
range projection in the NAS report is consistent with a 40 mpg 
standard.
    The NAS Report, however, must be viewed in context of other recent 
studies on the potential for fuel economy improvements that can be made 
in all classes of vehicles, affordably while improving safety, and 
retaining utility and performance. In addition to the UCS study, the 
NAS Report refers to the DeCicco-An-Ross study, prepared for the Energy 
Foundation and published by American Council for an Energy Efficient 
Economy, and the Massachusetts Institute of Technology study by Weiss-
Haywood-Drake et al. These deserve particular attention for assessing 
how much car and light truck fuel economy can be improved by looking at 
a fuller range of technologies. Even Automotive News has provided a 
view of the technologies automakers can employ to improve fuel economy 
over the next 5 years (Attachment).
    Each of these studies comes to nearly identical conclusions on the 
ability of the auto industry to redesign cars and light trucks using 
improved conventional technology to achieve a 40 mpg combined standard. 
For the $1000-$1500 investment--the average cost across all vehicle 
types--in technology, consumers would save several times that at the 
gas pump. This level of fuel economy improvement does not include the 
greater efficiency boost that will come from the use of hybrid 
gasoline-electric vehicles like the Toyota Prius and Honda Insight now 
selling in the U.S.
    Similar to the NAS Report, the above studies looked at technologies 
that include: high-efficiency, lightweight, low-friction, precision-
controlled gasoline engines; improved transmissions, such as continuous 
variable timing, depending on vehicle type; integrated starter-
generator (ISG) with 42-volt system; and aerodynamic streamlining, 
reduced tire rolling resistance, and accessory improvements.
    These other studies, however, show the fuel economy benefits of 
mass reduction, particularly from the heavier vehicles in the fleet. 
Using advanced high-strength lightweight materials and other strategies 
these vehicles can safely shed weight. Further, improvements in the 
design of SUVs and other light trucks to make them more compatible with 
cars will improve overall traffic safety. The NAS Report recognized the 
benefits of reducing weight, particularly in SUVs, but did not 
incorporate this strategy in setting fuel economy ranges.

Timeframe for Improving Fuel Economy

    New fuel economy standards must be phased in over the next 10 years 
to ensure progress and begin oil savings in the near-term. While the 
NAS Report identifies ranges of fuel economy improvements that can be 
achieved in 10-15 years, it fails to recognize that the automakers can 
improve fuel economy in the short term. The auto industry itself has 
pledged to make short-term changes. Ford led the way with its pledge to 
improve the fuel economy of their SUVs by 25 percent between 2000 and 
2005. General Motors and Daimler/Chrysler have also pledged to make 
fuel economy gains by 2005. While each company's commitment is slightly 
different, their pledges show that we do not need to wait 10-15 years 
to see fuel economy rise.
    A ramp up in fuel economy standards is essential to steering the 
auto industry in the direction of incorporating fuel saving 
technologies into their vehicles. If the automakers are not directed to 
move forward in the short term, they will continue to produce gas-
guzzlers, locking in high oil demand, and fail to plan ahead for 
changes.
    What is too often lost in this debate is that automakers can and do 
make changes to their vehicles in short timeframes. For competitive 
reasons automakers are continuously updating their designs. Every year 
automakers introduce a host of new products and improvements. An 
automaker whose market share slips responds with ambitious schedules of 
redesign and new product announcements. There is no question about the 
auto industry's capacity and skill to make changes. New fuel economy 
standards will determine how much of this capacity and skill are 
applied to reduce oil consumption, save consumers money at the pump, 
and cut pollution.
    Currently, automakers tout changes such as more horsepower, extra 
seating, and extra comforts. Since CAFE standards for cars have not 
changed in more than a decade and the light truck standards have 
stagnated for nearly 20 years, automakers have made substantial changes 
each year in vehicle attributes other than fuel economy, or eat away 
possible fuel economy gains with more power. There is no reason why we 
couldn't see year-to-year improvements to fuel economy under regulatory 
guidance, as under the original law.
    After Congress passed the CAFE law in 1975, new passenger car fuel 
economy nearly doubled and the combined car plus light truck fleet saw 
an 82 percent improvement overall. That corresponded to an average 7.5 
percent annual rate of increase (from 1974-85). Department of Energy 
analysis shows that 85 percent of that improvement was technology 
based. So taking 85 percent of the 7.5 percent annual rate indicates 
that the industry achieved an average 6.4 percent rate of technical 
efficiency improvement. During this same period the industry also 
improved safety through better body structures and other measures and 
phased in tighter emissions standards as well. Affordability was not 
compromised and sales started to rebound as the country climbed out of 
the recession and stagflation that was caused in large measure by the 
oil shocks.
    A new fuel economy goal of 40 mpg over 10 years can be achieved 
within the industry's normal product upgrade cycles. All that is needed 
is the guidance to begin applying technology to make steady forward 
progress. Contrary to industry claims that they cannot make any changes 
for years to come, minor modifications to existing product plans can be 
made with the 18 months of lead time required for rules under existing 
CAFE law. The fuel economy improvements that the industry achieved in 
the late 1970s when the CAFE law first came into play show that they 
can act if they are required to do so. New standards will ensure that 
the industry moves out of the 1980s and into the 21st century.

NAS Recommendations for Reforming the CAFE System

    Before the Senate engages in a debate over changing the current 
CAFE system, it is essential to recognize that CAFE standards have 
worked. They are the most successful energy savings measure Congress 
has ever adopted, saving some 3 million barrels of oil every day. And, 
because CAFE standards save oil they are an essential element in a 
strategy to reduce U.S. global warming pollution. The current standards 
keep approximately 600 million tons of carbon dioxide, the primary 
global warming pollutant, out of the atmosphere.
    As the NAS Report confirms, we can effectively raise standards 
under the current system. According to the Report, the current system 
yields ``much certainty'' in the magnitude of fuel economy increases 
and therefore the oil savings and pollution reductions that follow. The 
Sierra Club recognizes that the current system, however, is not 
perfect. The NAS makes several recommendations on reforming CAFE. The 
Sierra Club would support the following changes to the current system:
    Closing the Light Truck Loophole: The Sierra Club strongly supports 
a reform to the CAFE law that would close the light truck loophole. 
SUVs, minivans and pickup trucks are all considered light trucks. The 
NAS Report finds that closing the light truck loophole would provide 
more certainty of the magnitude of oil savings from the fuel economy 
increase than even the current system provides. The NAS found that 
``the car/truck distinction has been stretched well beyond the original 
purpose.'' The ``poster'' vehicle to make this case is the PT Cruiser. 
For fuel economy purposes this 4-passenger vehicle that cannot tow a 
trailer is a light truck (EPA considers it a car for emissions 
purposes). Automakers are producing vehicles that are used as passenger 
cars, but escape the more stringent car standard. Cars and light trucks 
should be combined into a single fleet of passenger vehicles.
    The fuel economy standard for light trucks, 20.7 mpg, has stagnated 
for nearly 20 years. The market share of these vehicles, however, has 
jumped from 20 percent in the 1970s to nearly 50 percent of new vehicle 
sales in 2000. As a result, these vehicles are driving demand for oil 
to an all time high, and driving up emissions of global warming 
pollution. As of last year, the explosive growth in light truck sales 
had already brought the average fuel economy of all the nation's new 
vehicles to its lowest point since 1980, according to EPA's 1999 Fuel 
Economy Trends Report. Light trucks alone spew more than half a billion 
tons of CO2 into the atmosphere each year.
    The Sierra Club has documented the importance of addressing the 
issue of SUV fuel economy in a report entitled ``Driving up the Heat: 
SUVs and Global Warming.'' (Attachment 2) In this report, we educate 
the public about how much energy is being wasted by today's SUVs. For 
example, switching from an average new car to a 13 mpg SUV wastes more 
energy than leaving a refrigerator door open for 6 years. Further, 
while a 13-mile-per-gallon SUV emits more than 130 tons of carbon 
dioxide over its lifetime, the average new car emits 74 tons. A new 
Honda Insight will emit only 27 tons.
    The technology is available to ensure that tomorrow's SUVs are more 
efficient, and therefore pollute less. According to the Union of 
Concerned Scientists, the best-selling Ford Explorer, which gets only 
19 mpg, could be a 34 mpg vehicle by putting today's technology to 
work. The cost of the technology is made back by the consumer in just a 
few years from savings at the gas pump.
    The Sierra Club applauds Senators Feinstein and Snowe for taking 
their leadership in introducing S. 804, The Automobile Fuel Economy Act 
of 2001. This bill would close the light truck loophole by requiring 
light trucks to meet the 27.5 mpg current passenger car standard by 
2007 and then combine the passenger car and light truck fleets. S. 804 
also takes the additional step of bringing the heaviest SUVs, those 
weighing between 8,500 and 10,000 pounds, into the CAFE program. As the 
program is now administered, CAFE standards only apply to vehicles up 
to 8,500 pounds. This weight cutoff has encouraged manufacturers to 
increase the weight of their largest SUVs in order to remove them from 
the CAFE system. Some Chevy Suburbans and the Ford Excursion are 
examples of vehicles sold as passenger cars that are exempt from CAFE 
standards. S. 804 is a critical first step in moving forward with new 
fuel economy standards.
    Reforming the Gas Guzzler Tax: The Sierra Club agrees with the NAS 
Report's criticism of the Gas Guzzler Tax that it does not include 
light trucks. The Sierra Club does not, however, agree with the remedy 
in the Report of reducing or eliminating the Tax. The Gas Guzzler Tax 
applies to cars with a fuel economy below 22.5 mpg. The Tax appears on 
the stickers of new cars and serves to highlight that a vehicle's fuel 
economy is substantially lower than the 27.5 mpg average. Because the 
Tax does not apply to light trucks, the Report concludes that this 
creates an incentive to classify vehicles as light trucks that might 
otherwise be subject to the tax as cars. To remedy this problem, the 
Gas Guzzler Tax should be applied to light trucks. A similar structure 
for light trucks would add a cost to light trucks associated with poor 
fuel economy and create an incentive for manufacturers to improve light 
truck fuel economy. The Tax could also be applied to a combined fleet 
of cars and light trucks.
    Ending the Dual Fuel Vehicle Program: The Sierra Club strongly 
supports ending the dual fuel vehicle program. This program rewards 
automakers with credits toward meeting CAFE standards for producing 
vehicles that can, but in fact rarely do, run on alternative fuel. 
While this program was intended to increase use of alternative fuels by 
cars and light trucks, the auto industry has turned this program into 
an enormous loophole, exploiting it to help them meet CAFE standards. 
Under the existing law, automakers can now use a 1.2 mpg credit toward 
meeting CAFE standards and the program can be extended at a lower 0.9 
mpg level after 2004. The NAS Report recognizes that this program does 
not generate benefits and should be eliminated.
    The NAS points to the Energy Information Administration analysis, 
which shows that less than 1 percent of the fuel used in these vehicles 
is ethanol. Out of the 176,000 gas stations across the nation, only 101 
offer the alternative fuel. Despite this fact, manufacturers are 
getting much needed help in meeting the standards. Currently, Ford 
Motor Company applies a 0.7 mpg credit toward meeting the 20.7 mpg 
standard for light trucks and Daimler/Chyrsler uses a .95 mpg credit. 
General Motors now uses the least amount of credits, .35 mpg, but is 
ramping up production of dual-fuel Yukons, Tahoes and Suburbans--
vehicles that will drive up demand for gasoline.
    A Department of Transportation (DOT) analysis, as reported in The 
New York Times on June 21, 2001, shows that the dual-fuel vehicle 
program actually increases gasoline consumption. According to the DOT 
report, the program increased gasoline consumption by 473 million 
gallons in 2000 because manufacturers can sell more gas-guzzlers. The 
Report is currently at DOT awaiting final decision on extending the 
program. Continuing the program will further increase consumption and 
pollution. This program should be phased-out.
    Feebates: The Sierra Club would support a feebate system 
implemented as a compliment to the current CAFE system. Structured 
properly, a feebate system would provide consumers with incentives to 
buy more efficient vehicles while costing consumers for buying less 
efficient vehicles. This would be a revenue neutral program.
    Truth in Testing: The Report does not recommend reforming the 
system now in place for testing vehicles to determine each vehicle's 
fuel economy for CAFE purposes. The Sierra Club would strongly support 
this step.
    Under the current testing program, vehicles are given a fuel 
economy value that is 15-20 percent above their real world performance. 
These inflated values are what the Department of Transportation uses to 
determine the average fuel economy of each manufacturer's fleet and 
whether that manufacturer is meeting, exceeding or below the 27.5 mpg 
standard for cars or the 20.7 mpg standard for light trucks. According 
to the DOT, the average fuel economy of new cars and light trucks sold 
in 2000 was 24 mpg, but in fact it is about 15-20 percent below that. 
Testing reform would require manufacturers to actually meet the 
standards now in place. Even this modest step would yield oil savings 
and pollution reductions.
    The Sierra Club opposes the following changes to the fuel economy 
system:
    Tradable Fuel Economy Credits: The Sierra Club would strongly 
oppose a system that would allow manufacturers to trade fuel economy 
credits. Even the NAS Report finds that this system would provide less 
certainty of fuel economy increases than the current system. The 
trading program suggested in the Report recommends a ``safety valve'' 
if the cost of fuel economy credits were to rise above a pre-determined 
level. This type of system would ensure manufacturers that the costs of 
non-compliance would be limited by the availability of credits from the 
government. This would weaken the system.
    The automakers have proven adept at gaming the current credit 
program under which a manufacturer essentially trades credits with 
itself to meet the current standards. Automakers can apply credits from 
future years to meet the standard in any given year, or borrow from a 
past year if they exceeded the standard. Despite years of not meeting 
the standards, as reported in both BusinessWeek and The Detroit News 
(4), automakers have not been fined under the CAFE law. The credit 
system has become a smokescreen which the industry successfully 
exploits and hides behind. Expanding it will provide more opportunities 
for gaming and deception.
    Under a trading regime the benefits of oil savings and pollution 
reductions afforded by the fuel economy leader (i.e. Honda) would be 
lost because those credits would be sold to a fuel economy laggard.
    The Report's support for a CAFE trading scheme is in part based on 
the panel's belief that the trading program now in place to reduce 
sulfur emissions from power plants has been ``highly successful.'' 
Under the sulfur trading scheme, however, little of the reductions are 
attributable to trading but rather resulted from falling rail prices to 
bring low-sulfur coal to power plants. With the technologies now 
available to all manufacturers to cost-effectively meet higher 
standards, a trading system would not provide the certainty the current 
system provides.
    Attribute-Based Targets: The Sierra Club would oppose a reform that 
would base fuel economy standards on vehicle weight or other 
attributes. The Report describes a system in which vehicles less than a 
selected weight, such as 4,000 pounds, would be subject to a fuel 
economy target determined for by weight. Vehicles above that weight 
would be required to meet a set standard similar to the current 
program.
    Under a weight-based program, manufacturers would be given an 
incentive to add enough weight to a vehicle to move it into the heavier 
class where it might meet or exceed the standard set for that weight 
without having to apply fuel saving technologies.

The Dingell-Tauzin Provision in H.R. 4

    The House of Representatives took up the issue of fuel economy as 
part of their energy bill. The House approach to updating fuel economy 
standards is severely flawed. The bill the House passed on August 2, 
2001, H.R. 4, contains a provision which Representatives Dingell and 
Tauzin crafted. The Dingell-Tauzin provision directs the Department of 
Transportation to set new standards for light trucks--SUVs, minivans 
and pickup trucks--at a level that will save at least 5 billion gallons 
of gasoline between model years 2004 and 2010. Five billion gallons of 
oil amounts to a savings of less than one day's worth of oil per year 
and can be achieved by increasing light truck fuel economy by less than 
1 mpg. The Automotive News described the Dingell-Tauzin provision as a 
``smokescreen.'' The Dingell-Tauzin provision in H.R. 4 also extends 
the dual-fuel vehicle credit program at the 1.2 mpg level, instead of 
the 0.9 mpg level that the program could be extended at under existing 
law. Because of the impact of the extended dual-fuel vehicle program in 
H.R. 4 it is questionable whether the House provision would actually 
yield any oil savings.
    The Dingell-Tauzin provision could also be construed to weaken the 
current CAFE law by focusing on achieving a minimal oil savings rather 
than meeting the four requirements for new standards contained in the 
law: technological feasibility, cost effectiveness, other standards, 
and the need of the Nation to conserve oil.
    The Senate should reject the House approach. But, the Senate must 
factor it into the Senate's approach to updating fuel economy 
standards. Any Senate action on fuel economy must take into account the 
weakness of the House provision as well as the fact that a Senate 
provision will be conferenced with the House and runs the risk of being 
weakened.

Fuel Economy and Safety

    Fuel economy can be increased safely while continuing to provide 
consumers with a full range of vehicles. The auto industry met existing 
CAFE requirements while providing consumers with a full range of cars 
and light trucks. In fact, when Congress passed the CAFE law, America 
had the industrialized world's least efficient fleet of vehicles. The 
CAFE law spurred the development of technology and improved the 
competitiveness of our auto industry. Eighty-five percent of efficiency 
improvements came from technologies such as more efficient engines and 
transmissions, and better aerodynamics.
    History shows that the rate of traffic fatalities decreased by 50 
percent over the same time that fuel economy doubled under the existing 
standards. Yet, the auto industry has consistently opposed the CAFE law 
using a flawed size/safety argument. In 1974, Helen Petrauskas, a Ford 
representative, argued before Congress that CAFE would result in a 
``product line consisting of either all sub-Pinto-sized vehicles or 
some mix of vehicles ranging from a sub-sub-compact to perhaps a 
Maverick.'' Of course, this dire prediction proved to be untrue. The 
NAS report concludes that ``CAFE regulations have not impeded the 
implementation of safety regulations, and safety regulations have not 
prevented manufacturers from achieving their CAFE requirements.'' (p. 
2-16).
    The Sierra Club agrees with the recent NAS Report that we can move 
forward to safely achieve fuel economy improvements, however, the 
Sierra Club strongly disagrees with the Report's conclusions about the 
safety impact of the current standards. The August 2000 Government 
Accounting Office report, ``Automobile Fuel Economy: Potential Effects 
of Increasing Corporate Average Fuel Economy Standards,'' came to a 
similar conclusion about moving forward safely. The Government 
Accounting Office report notes that safety experts and automakers agree 
that ``as long as there is sufficient lead time to meet higher CAFE 
standards, auto manufacturers could use fuel-saving technologies (such 
as continuously variable transmissions or lean burn engines) instead of 
simply building smaller, lighter cars.'' David Greene and Maryann 
Keller's analysis (included as the dissent to the NAS Report) of the 
safety issue reveals that conclusions regarding the relationship of 
fuel economy and highway safety looking back over time are flawed.
    In the safety debate, it is important to understand that design, 
not size alone determines safety. Many smaller vehicles outperform many 
larger cars and SUVs, proving that automakers make safe and unsafe cars 
of all sizes. Small cars are excelling in crash tests. The 2-door Honda 
Civic scores five stars on each element of the government's crash 
tests. The car weighs 2,502 pounds. The Volkswagen Beetle also 
performed extremely well in government and Insurance Institute of 
Highway Safety tests. In a standard head-on barrier crash test, the 
driver of a 1997 Saturn subcompact will fare better than the driver in 
a 1997 Ford Expedition. In addition, SUVs perform poorly in rollover 
tests, many scoring only two stars.
    The fact that each of the Big 3 has pledged to make fuel economy 
improvements in the light truck sector between 2000 and 2005, and that 
GM have pledged to improve SUV fuel economy by 25 percent over 5 years, 
is evidence that they can move forward safely. These pledges were not 
simply to downweight their SUVs to achieve fuel economy gains, although 
in the case of SUVs, lighter vehicles would help to restore some 
balance to the fleet.
    Research by both the Center for Auto Safety on cars, and by the 
Union of Concerned Scientists on SUVs, demonstrates that higher fuel 
economy standards can be achieved using existing technologies, while 
also reducing occupant deaths and injuries without altering the vehicle 
mix. The Union of Concerned Scientists' ``Drilling in Detroit,'' fully 
analyzes the fuel economy and safety connection and concludes that the 
standards have not and do not impinge on safety. Cost-effective 
technologies such as improved engines and transmissions and new 
materials are the keys to achieving higher fuel economy in both cars 
and light trucks. Appropriate weight-reductions, focused on the 
heaviest light trucks, will further improve vehicle safety. These 
technologies will also help the American automotive industry face an 
increasingly competitive future. Further, roof crush and rollover 
standards and improving car/truck crash compatibility will improve 
vehicle safety.
    The current system of separate standards for cars and trucks, which 
has allowed manufacturers to move heavily into SUV production, 
compromises traffic safety. Light trucks pose safety dangers to their 
owners and occupants. SUVs are four times more likely to roll over in 
an accident. Rollovers account for 62 percent of SUV deaths, but only 
22 percent in cars. Yet automakers fought new standards protecting 
occupants in rollover accidents. According to a study by the National 
Crash Analysis Center, an organization funded by both the government 
and the auto industry, occupants of an SUV are just as likely as 
occupants of a car to die once the vehicle is involved in an accident. 
This is in part because of their higher rollover rates. National 
Highway Traffic Safety Administration (NHTSA) tests announced in July 
1999, as reported in the New York Times (July 15, 1999) showed that the 
rollover issue is a major problem for light trucks:
    ``Because it is taller, heavier and more rigid, an SUV or a pickup 
is more than twice as likely as a car to kill the driver of the other 
vehicle in a collision. Yet partly because these so-called light trucks 
roll over so often, their occupants have roughly the same chance as car 
occupants of dying in a crash.'' Keith Bradsher, The New York Times, 
``Light Trucks Prone to Tip, Safety Tests Find,'' July 15, 1999.
    Light trucks, particularly heavy SUVs and pickups, are 
fundamentally incompatible with cars on the road. According to the 
NHTSA, collisions between cars and light trucks account for more than 
half of all fatalities in crashes between light duty vehicles. Nearly 
60 percent of all fatalities in light vehicle side impacts occur when 
the striking vehicle is a light truck. SUVs are nearly three times as 
likely to kill drivers of other vehicles during collisions than are 
cars. Finally, these vehicles pose excessive risks to pedestrians 
because of their design, weight and historically weaker brake 
standards. The same technologies that will help to improve light truck 
fuel economy can help to improve their safety.
    Even Ford has identified these problems. In its ``Connecting with 
Society'' report, Ford noted that ``SUVs can raise safety concerns for 
drivers and passengers in other vehicles because of the height, weight 
and design differences between cars and SUVs, as well as the reduced 
visibility for cars in traffic with trucks of any sort.''
    The NAS Report recognizes that weight reductions in the heaviest 
vehicles can improve overall vehicle safety by creating greater 
compatibility between vehicles on the road. According the K.G. Duleep, 
who served as a consultant to the NAS Committee, had the NAS 
incorporated appropriate weight reductions into the ranges of possible 
fuel economy improvements, these would have been greater by 20 percent 
than the mostly drivetrain related fuel economy improvements. Further 
safety improvements such as reducing differences in bumper height, 
stiffness and weight would save thousands of lives each year. Finally, 
instead of resisting fuel economy standards, automakers should be 
implementing safety improvements such as better seat belts, stronger 
roofs and crash avoidance.

Global Warming

    The biggest single step the U.S. could take to curb global warming 
is to raise fuel economy standards for cars and light trucks. America's 
cars and light trucks alone spew out 20 percent of U.S. global warming 
pollution. As the NAS Report points out this amounts to 5 percent of 
global carbon dioxide pollution. This is true despite the fact the U.S. 
has less than 4 percent of world population. The impact of cars and 
light trucks on global warming is enormous. Ford Motor Company alone--
production and vehicles--would be the 10th largest emitter in the 
world. As the world's leading polluter, the need for the U.S. to take 
action to reduce global warming pollution is pressing. By saving oil as 
part of national energy goals, a 40 mpg standard would yield 
significant cuts in CO2.
    The most recent projections of the United Nations-sponsored 
Intergovernmental Panel on Climate Change (IPCC) are that the Earth's 
temperature will rise as much as 10.4 degrees F by 2100 and concluded 
that man-made global warming pollution has ``contributed substantially 
to the observed warming over the last 50 years.'' By comparison, the 
Earth is only 5 to 9 degrees Fahrenheit warmer today than it was 10,000 
years ago, during the last ice age. Throughout history, major shifts in 
temperature have occurred at a rate of a few degrees over thousands of 
years. They were accompanied by radical changes, including the 
extinction of many species. Human-induced global warming is occurring 
much faster; faster in fact than at any other time in human history. 
Unless we slow and ultimately reverse the buildup of greenhouse gases, 
we will have only decades, not millennia, to confront major changes in 
weather patterns, sea levels, and serious threats to human health.
    The U.S. has failed to act domestically to reduce global warming 
pollution and abandoned the international process. The Senate should 
consider raising fuel economy standards for cars and light trucks as a 
key part of a strategy to reduce U.S. global warming pollution. Taking 
this step will show the world that the U.S. is taking action and will 
be a leader in curbing this enormous environmental threat.

Public Support for Raising Fuel Economy Standards

    Historically, overwhelming majorities of Americans support raising 
CAFE standards for automobiles. A recent poll of labor union households 
showed that 61 percent of these voters endorsed a statement that 
``increasing fuel efficiency is the single most effective action that 
could reduce national dependence on foreign oil. A Gallup poll 
conducted in November had 77 percent of Americans supporting raising 
vehicle efficiency.
    Polling conducted during the spring, at the height of the debate 
over whether the Nation was experiencing an energy ``crisis'' showed 
strong support for CAFE. A CBS/New York Times poll released in June 
revealed that 81 percent of Americans ``Approve of the government 
requiring car manufacturers to meet higher fuel efficiency standards 
than they do now?'' And 66 percent supported higher standards if it 
would increase the cost of the car (66 percent GOP and 70 percent Dem). 
Similarly, an ABC/Washington Post poll also released in June showed 
that 81 percent of Americans strongly support more fuel efficient 
vehicles.
    An August 1999 World Wildlife Fund poll of light truck owners 
showed that 73 percent believed light trucks should be cleaner, and 
two-thirds would pay significantly more for their next truck if it 
polluted less. Significantly, 70 percent believed automakers will not 
clean up their trucks if they are not required to do so. Another August 
1999 poll, by Zogby International, of predominately Independent and 
Republican voters in New Hampshire revealed that 75 percent favor 
increasing fuel economy to address global warming, even at an extra 
cost of $300.
    The results of these polls are consistent with polls dating back to 
the early 1990s. A 1991 poll conducted for the Union of Concerned 
Scientists demonstrated overwhelming public support, exceeding 80 
percent, for requiring 40 to 45 miles per gallon fuel economy 
standards.

Conclusion

    A 40 mile per gallon fuel economy standard for cars and trucks is a 
critical component of energy legislation. New standards are the key to 
delivering the oil savings necessary to reducing our dependence on oil. 
Given a 10-year timeframe with appropriate interim goals, automakers 
could achieve a 40 mpg standard with technologies now available. Hybrid 
gasoline-electric systems, now in use in Toyota's Prius and Honda's 
Insight, could also be used to move fuel economy forward.
    As this Committee crafts an approach to updating fuel economy 
standards and possible reforms to the current CAFE system, the Sierra 
Club urges this Committee to consider the fact that CAFE standards have 
been enormously successful at saving oil and reducing global warming 
pollution. Further, the current system affords certainty in the amount 
of oil savings new standards could achieve. The Sierra Club would 
support appropriate reforms to the CAFE system, such as closing the 
light truck loophole, ending the dual-fuel vehicle program, and truth-
in-testing.
    There is no other policy option that will lock in the oil savings 
that new CAFE standards can. Savings that near 2 million barrels of oil 
per day in 2012 and ramp up to 4 million barrels will put the U.S. on 
the road toward oil independence. While the CAFE system could use some 
reforms, such as closing the light truck loophole and ending the dual-
fuel vehicle program and truth-in-testing, new standards would work. 
The auto industry will strongly oppose new standards. For example, 
General Motors claims that even a 3 mpg increase in light truck fuel 
economy could force them to eliminate their larger and most profitable 
SUVs--assuming the company chose this course of action to meet the 
higher standard. Yet, GM has announced that its new engine for these 
vehicles will improve their fuel economy by 2 mpg. The industry has 
better engines and other technologies, but without new fuel economy 
goals we will not see progress. No one is asking that the industry make 
34 mpg SUVs tomorrow or next week, but we cannot afford to let the auto 
industry continue to drag fuel economy down. The consequences of oil 
dependence on our national security, economy and environment are too 
great.
    The Sierra Club urges this Committee to support a 40 mile per 
gallon CAFE standard as a key part of responsible national energy 
legislation.

                                 ______
                                 

                  [From Automotive News, Oct. 8, 2001]

                      Excerpts on New Technologies

     Supply and Demand: Parts Builders Once Served as Order Takers.

 Now, Car Companies Are Spurring Suppliers to Create Full Menus of New 
                               Technology

                          (By Richard Truett)

     Drive-by-wire: The Chevrolet Corvette and Lexus LS 430 are 
two of a growing number of cars with electronically controlled 
throttles that rely on sensors and computers, not cables, to change 
engine speed. Drive-by-wire technology will help enable such advances 
as cylinder deactivation, variable compression and electronically 
controlled valves.
     Steer-by-wire: Automakers and suppliers have started down 
the road toward replacing the mechanical connection between the driver 
and the front wheels. Electronic power steering increases fuel economy 
by as much as 5 percent.
     Brake-by-wire: Today virtually all automobile brakes are 
hydraulic, using a master cylinder and a series of pipes to deliver 
hydraulic pressure to each wheel. But a number of technical hurdles 
have to be overcome before brakes go fully electronic. Engineers must 
first perfect the 42-volt electric systems that are needed to power the 
energy-intensive electric brakes. Then they have to design an 
electromechanical brake caliper that fits into the small area inside 
the wheel.
    In the meantime electrohydraulic brakes, scheduled to appear next 
spring for the first time on the 2003 Mercedes-Benz SL roadster, use an 
electronically powered master cylinder that determines the correct 
braking pressure for each wheel. Fully electronic brakes could be on 
the road by 2005.
     Diesel technology: Big advances have been made in diesel 
technology in the last 5 years. The diesel is no longer the smelly, 
smoky, chattering engine most Americans remember from the 1970s, when 
GM rushed hastily designed versions onto the market in response to a 
sharp drop in the supply of imported oil.
     Common-rail injection: In which diesel fuel is injected 
into the cylinders under very high pressure, combined with advanced 
turbocharging and more efficient combustion chamber design has enabled 
lean-burning diesels to run smoother, quieter and cleaner. Fuel economy 
on some cars, such as the subcompact Volkswagen Lupo and Audi A2 sold 
in Europe, deliver highway fuel economy of around 90 mpg.
    Another promising technology is direct injection, in which diesel 
fuel is blasted straight into the cylinders under high pressure and in 
a target area for more complete combustion.
     Starter-generators: The integrated starter-generator, 
first used on hybrids such as the Honda Insight and Toyota Prius, is a 
fuel-saving and pollution-cutting device that combines the starter and 
alternator in one unit.
     42-volt systems: It's going to take a lot of juice to 
power the cornucopia of electronic gizmos, such us integrated starter-
generators and by-wire technology, and today's 12-volt systems--in use 
since the mid-1950s--can't keep up. Starting in the 2004 model year, 
42-volt batteries and alternators will provide the power.
     Cylinder deactivation: Cadillac had a good idea back in 
the early 1980s for variable-cylinder operation, but lacked the 
technology to make it work. The technical problems with Cadillac's V-8-
6-4 engine sullied the image of the concept.
     Continuously variable transmissions: The no-shift 
transmission, used by Subaru in the early 1990s, is returning. Honda 
offers it on the Civic and has added it to the Insight. Audi and Saturn 
will use the gearbox on the A4 sedan and Vue sport-utility. The chief 
advantage of a continuously variable transmission is that it enables 
the engine to run at peak efficiency during acceleration, which results 
in fuel economy gains of between 5 percent and 10 percent. The 
limitation is the transmissions are unreliable when engine torque is 
greater than 200 pounds-feet, which makes it ideal for small- and 
medium-sized cars, but not light trucks.
     Clutchless manual transmissions: Instead of the driver 
engaging the clutch, it's done either electronically or hydraulically 
while the driver changes gears by pressing a button or moving a shift 
lever.
     Fuel cells: This technology has the potential to change 
everything. If engineers and scientists can adapt the clean energy-
creating system to the automobile, the internal combustion engine will 
be history in most vehicles; automotive pollution will be practically 
nonexistent; and the country's dependence of imported oil will be 
diminished.
     Active suspension: By continually adjusting the firmness 
of the shock absorbers, through a process called variable damping, 
drivers can better manage a car as it rounds a corner or curve. This is 
accomplished in a number of ways. A less complex system debuting on the 
2002 Cadillac Seville STS uses shocks filled with silicon fluid that 
contains minute metal filings. When a magnetic field is applied to the 
shock, the fluid becomes much thicker, which increases the firmness of 
the shock.
     Tire pressure monitoring devices: A 2000 law, passed in 
response to the massive Ford-Firestone tire controversy, requires that 
all 2004 model-year vehicles must have systems to monitor tire 
pressure. General Motors will introduce rear-wheel steering on its 
full-sized pickups in 2002. The system, created by Delphi, reduces the 
turning radius from the current 44 feet to about 37 feet--about the 
same as that of a mid-sized sedan.
    Chevrolet's Duramax V-8 diesel is the first U.S. truck engine that 
uses common-rail direct fuel injection, which makes it run smoother and 
quieter than previous diesels.
    Electric power steering from Delphi eliminates the power steering 
pump and all hydraulic lines. It's the first step toward steer-by-wire.
    Continuously variable transmissions keep engines running at peak 
efficiency and improve fuel economy 5 percent to 10 percent.
    Electronically controlled valve lifters, shown at left detached 
from the valve cover, turn off unneeded cylinders to save fuel in 
Delphi's cylinder deactivation system.
    Lord Corp.'s electronic shock absorbers, part of an active 
suspension system, will make vehicles handle more predictably on curves 
and rough roads.
                                 ______
                                 

                    GM Plugs Into Electric Steering

                          (By Richard Truett)

    DETROIT.--General Motors is set to begin high-volume production 
later this year of vehicles equipped with electric power steering 
systems, the largest commitment so far to a new technology that 
eventually will become commonplace.
    GM plans to install the new 12-volt steering system in several 
high-volume vehicle lines in the next few years, starting this fall 
with the 2002 Saturn Vue sport-utility. Electric power steering also is 
slated for the replacements for the Chevrolet Malibu and Pontiac Grand 
Am, due in the 2004 model year.
                                 ______
                                 

                 The Latest Cool Thing: Carbon Dioxide

                            (By Amy Wilson)

    Carbon dioxide, long considered a culprit in the global warming 
debate, is being touted as a remedy for the ozone-depleting flaws of 
current auto air conditioning systems.
    A decade ago, automakers and suppliers redesigned air conditioning 
systems to switch from chlorofluorocarbon-laded R12 refrigerant, which 
damaged the ozone layer, to the more environmentally friendly R134a 
refrigerant.
    But while the new refrigerant did not do as much damage as R12, 
commonly known by the trade name Freon, it, too, could damage the 
atmosphere if released. This forced auto suppliers to redesign air 
conditioning sytems with new hoses and couplings to reduce leakage. Now 
suppliers are promoting a refrigerant that drastically lowers 
greenhouse gas emissions, improves system performance and could boost 
fuel economy.
    What promises to deliver such benefits? Ironically, a substance 
closely associated with global warming and the greenhouse gas effect: 
carbon dioxide.
    Compressing the naturally occurring gas into a refrigerant to 
replace today's R134a will not put additional CO2 back into 
the atmosphere, backers of the new technology say. But suppliers still 
have to prove its cooling power and affordability to customers.
                                 ______
                                 

     Additive May Clean Diesel; Group Studies Whether Ammonia Cuts 
            Emissions; Distribution Could Prove Problematic

                          (By Richard Truett)

    ONTARIO, Calif.--The Big 3 and diesel engine makers Caterpillar, 
Detroit Diesel and Cummins have formed a team to explore the use of 
urea, an ammonia-water solution, to reduce diesel engine emissions.
    The technology, if made production-ready, would give automakers 
another fuel-efficient powertrain option for the U.S. market. Strict 
limits on particulates and oxides of nitrogen, or NOx, set by 
California for 2007 are cited by automakers as one of the primary 
obstacles to using diesels in cars and light trucks. Diesels can 
improve fuel economy by up to 30 percent compared with gasoline 
engines. They also offer a quicker and less expensive alternative to 
gasoline-electric hybrids.
                                 ______
                                 

                            [March 26, 2001]

                 Cheaper Catalyst Debuts with Honda Van

                          (By Richard Truett)

    A new technology for catalytic converters enables automakers to 
save up to $200 per converter and helps insulate them from the volatile 
price swings of precious metals such as platinum.
    Honda Motor Co. Ltd. will be the first to use the less-expensive 
catalytic converter, on a small Japan-market van named the StepWGN, in 
April.
    Delphi Automotive Systems Corp., the world's largest auto supplier, 
says it will produce a similar converter in 2002 for a U.S. vehicle. 
The catalytic converter is one of the most expensive parts of a 
vehicle. The high-temperature device cleans the exhaust of carbon 
monoxide and other gases through chemical reactions.
    At the heart of catalytic converters are expensive platinum group 
metals--platinum, palladium or rhodium. The metals are expensive 
because supplies are found in remote areas of the world or in 
politically unstable countries, such as Russia, which makes it hard to 
guarantee a steady supply.
    Honda worked with Catalytic Solutions Inc., a small company in 
Oxnard, Calif., to develop an internal coating for the converter that 
cuts the use of precious metals by as much as 70 percent. Honda owns 10 
percent of Catalytic Solutions.
                                 ______
                                 

                            [March 12, 2001]

                  SAE Gizmo Gurus Show Off Smart Parts

                          (By Richard Truett)

    The exposition at the SAE World Congress is a cornucopia of 
automotive engineering. Products run the gamut from plastic connectors 
and grommets to integrated starter alternators.
    The annual trade show, held last week in Detroit, also is a place 
for companies to entice auto engineers with technologies and devices 
that push the envelope in performance or convenience. Here are things 
that caught our eye this year while prowling the exposition:
    1. Built-in beverage heating and cooling systems should be optional 
on some domestic and imported sport-utilities starting in 2002, said 
Charles Cauchy, president of Tellurex Corp. of Traverse City, Mich. The 
company uses a thermoelectric semiconductor to generate temperatures 
ranging from 38 degrees to 120 degrees. The low-voltage semiconductor 
is mounted underneath the vehicle's console and conducts heat or cold 
by transfer to a metal plate or by a small electric fan. A center 
console for a Lincoln Navigator, for instance, could hold a six-pack of 
soda and keep it as cold as a refrigerator. The price to consumers is 
expected to be between $120 and $150.
    2. NGK aims to outdistance its competitors with a line of Iridium 
IX spark plugs. The gold-colored spark plug, which retails for $15, is 
designed to reduce emissions, increase fuel economy and last longer 
than 100,000-mile platinum-tipped spark plugs. NGK officials say 
iridium is harder than platinum and provides a better spark for more 
thorough fuel burning in the combustion chamber.
    3. The SmartBar from American Axle and Manufacturing Holdings Inc. 
enhances the handling performance of sport-utilities and off-road 
trucks by electronically sliding a metal collar that breaks the 
connection between the left and right sides of the sway bar. The system 
can be used on both front and rear sway bars. Uncoupling the sway bar 
lets each wheel move over bumps independently without causing a rocking 
motion in the vehicle body. The SmartBar debuts on the Hummer H2, which 
will be built on General Motors' full-sized truck platform. It is 
expected in late 2002.
    4. Even the least expensive Hyundai and Kia models have highly 
polished and classy looking taillight lenses. They are not so much for 
safety purposes as for styling. The designs molded into the plastic are 
called reflexes. They not only reflect light but also make a design 
statement. Starting with the 2002 Ford Explorer, reflexes will get 
larger and more ornate, said Michael Beale of DBM Reflex in Tecumseh, 
Ontario.
    5. If diesel engines find their way back into light vehicles in the 
United States, they likely will need to be equipped with a particulate 
matter filter, such as the Metalit from German catalyst supplier 
Emitec. The Metalit uses layers of perforated metal to trap the soot in 
the exhaust created by the combustion of diesel fuel. A supply of 
nitrogen dioxide from an earlier catalyst sets up a chemical reaction 
in the Metalit that heats it up, burning away the trapped soot. But for 
the Metalit system to meet durability requirements, the sulfur content 
of the diesel fuel must be below 10 parts per million.
                                 ______
                                 

              Driving Up the Heat: SUVs and Global Warming

    Switching from driving an average car to a 13mpg SUV for one year 
would waste more energy than if you . . .
    Left your refrigerator door open for 6 years
    Left your bathroom light burning for 30 years or
    Left your color television turned on for 28 years

Background

    When it comes to wasting energy, SUVs are unrivaled. Built with 
outdated, gas-guzzling technology, many SUVs get just 13 miles per 
gallon. And the higher gas prices are, the more money they waste.
    Auto-industry advertising portrays SUVs as the ticket to freedom 
and the great outdoors. Commercials depict them climbing massive snow-
capped mountains or tearing through desert sand dunes, taking their 
owners into the wild. In reality, the only off-road action many of 
these vehicles see is accidentally driving through a flower bed next to 
the driveway.
    Missing from these ads are other contributions from SUVs--the brown 
haze of air pollution hanging over many of our national parks, images 
of weather disasters linked to global warming or the oil derricks and 
tankers needed to feed gas-guzzling SUVs. In contrast to Detroit's 
carefully crafted image, SUVs have a dark side. They spew out 43 
percent more global-warming pollution and 47 percent more air pollution 
than an average car. SUVs are four times more likely than cars to roll 
over in an accident and three times more likely to kill the occupants 
in a rollover. They also cost the owner thousands more on gasoline.
                                 ______
                                 

                 Worsening the Threat of Global Warming

    Because the government classifies SUVs as ``light trucks'' rather 
than cars, SUVs have a license to guzzle more gas and pollute more than 
cars. In 1975, when fuel-economy standards were first adopted, ``light 
truck'' referred to a vehicle used to haul hay on the farm or gravel at 
a construction site. At that time, light trucks comprised only 20 
percent of the vehicle market. Today, SUVs, mini-vans and other light 
trucks make up nearly half of new vehicles sold. They are far more 
likely to haul lattes home from Starbucks than lumber from the yard. 
Even though Detroit has technology that could make them both cleaner 
and safer, SUVs and other light trucks are still held to low 
environmental standards, roll over more than cars and pose greater 
danger to other vehicles than cars do.
    The world's leading climate scientists have warned that there is 
now 30 percent more carbon dioxide--the primary global-warming gas--in 
the atmosphere than a century ago. The burning of fossil fuels is the 
primary source of this CO2 pollution. Over the same period 
of time, the average surface temperature of the earth has risen more 
than 1 degree Fahrenheit.
    Due to these changes, we are already seeing signs of global 
warming. The 1990s was the hottest decade on record and the 11 hottest 
years on record have all occurred in the past 13 years.
    Extreme drought conditions and changing rainfall patterns have 
occurred across the country, setting the stage for wildfires, which 
decimated areas from Florida to California. Record heat waves have 
killed hundreds in Chicago and infectious-disease outbreaks linked to 
global warming have sickened or killed hundreds from Texas to New York, 
shut down Disney World and re-introduced Americans to dengue fever, 
malaria and encephalitis. Sea levels have risen between four and 10 
inches and glacial ice is rapidly retreating on five continents.
    The world's leading scientists warn that over the 21st century, 
CO2 levels are expected to double, raising sea levels two 
feet or more, worsening smog and leaving our children to cope with a 
more hostile climate.
    America's cars and light trucks alone produce nearly 20 percent of 
U.S. CO2 pollution. That's more than all but four countries 
worldwide! And transportation is the fastest-growing sector of global-
warming pollution in the nation. Popular light trucks pump out 237 
million tons of global-warming pollution into our atmosphere each year. 
That's because every gallon of gas burned emits 28 pounds of CO2 
into the atmosphere.
                                 ______
                                 

                 SUVs Emit More Air Pollution Than Cars

    Nearly 117 million Americans live in areas where the air is 
unhealthy to breathe, according to the American Lung Association. Light 
trucks, which can spew up to three times more smog-forming pollution 
than cars, magnify this growing health threat. The increased air 
pollution can lead to more asthma, bronchitis and other health 
problems.
    U.S. autos emit more CO2 than all but four countries.

Top 5 Global-Warming Polluters:

    1. U.S.
    2. China
    3. Russia
    4. Japan
    5. U.S. autos
    Air pollution is not exclusively an urban problem. National parks 
from Maine's Acadia to Virginia's Shenandoah and North Carolina's Great 
Smokey Mountains all have severe air-pollution problems that match 
major metropolitan areas. Pollution monitors are now installed at some 
trailheads in Mt. Rainier National Park to warn hikers when smog 
reaches unsafe levels.
    The U.S. Environmental Protection Agency adopted new ``Tier 2'' 
tailpipe pollution standards in 1999 to cut smog (but not 
CO2) from cars and SUVs. However, these rules will not go 
into effect until 2004 and the auto industry has until 2009 to clean up 
its largest SUVs.
                                 ______
                                 
               the more you guzzle, the more you pollute
    Represented below is the total tonnage of CO2 produced 
by SUVs and other vehicles over a 124,000-mile lifetime.
    Ford Excursion (13 mpg)
    Jeep Grand Cherokee (18 mpg)
    Ford Taurus (23 mpg)
    Honda Civic HX (36 mpg)
    Honda Insight (65 mpg)
                                 ______
                                 

  SUVs Increase Our Oil Addiction, Threaten Our Wilderness and Coasts

    A hidden cost of SUVs is the price we pay with our natural 
resources. To keep these gas guzzlers running, oil companies seek to 
drill in new areas--including some of our nation's most sensitive 
wilderness habitats. As the number of gas guzzlers on the road grows, 
so does the pressure to drill in Alaska's Arctic National Wildlife 
Refuge--one of the last remaining pristine ecosystems. Fragile 
coastlines in California and Florida, and lands surrounding Yellowstone 
National Park are also targets for drilling.
    The Exxon Valdez disaster serves as a powerful reminder that 
transporting oil also threatens our environment. Smaller spills and 
leaks occur daily, putting waterways and wildlife at risk.

Worsening Our Energy Security

    Every day America consumes 18 million barrels of oil. We import 
nearly half of this oil (the same amount guzzled by cars and light 
trucks) from politically volatile regions. Our oil imports add $50 
billion to the U.S. trade deficit annually. Due to the increasing 
number of gas-guzzling vehicles, America is more dependent on foreign 
oil now than we were at the height of the 1973 energy crisis.
    Congress passed the Corporate Average Fuel Economy (CAFE) standards 
in 1975 to reduce our dangerous oil dependence. This doubled the fuel 
economy of America's vehicle fleet, saving 3 million barrels of oil per 
day. However, the oil savings from CAFE standards are being eroded by 
people driving farther and the rising proportion of inefficient SUVs 
and other light trucks. In fact, the average fuel economy of new 
vehicles has sunk to the lowest level since 1980. Raising the CAFE 
standard for light trucks to equal that of cars (27.5 mpg) would save 1 
million barrels of oil per day. We can do even better. Raising the 
average for cars to 45 mpg and light trucks to 34 mpg would save 3 
million barrels of oil per day.

Lowest Fleet Fuel Economy Average Since 1980

    The fuel economy average for both cars and trucks is at its lowest 
pint since 1980. (U.S. EPA Light-Duty Automotive Tecnology and Fuel 
Economy Trends Through 1999, Spet. 1999)
    Available technology and higher mileage standards could make the 
popular Ford Explorer a 34.1 mpg vehicle, rather than a 19.3 mpg 
guzzler, without compromising performance or safety. This ``improved'' 
Explorer could emit 43 percent less global-warming pollution and 76 
percent less smog-forming pollution and cost only $935 more. Consumers 
would save several times this at the gas pump over the life of the 
vehicle.

Industry Foot-Dragging and Excuses

    History shows that automakers won't improve the environmental 
performance of their products unless they are required to put 
technology to work. Raising CAFE standards is the key to cleaning up 
SUVs and other light trucks.
    In 1974, a Ford official testified before Congress that CAFE 
standards would ``result in a Ford product line consisting of either 
all sub-Pinto-sized vehicles or some mix of vehicles ranging from a 
sub-sub-compact to perhaps a Maverick.'' Today, automakers use similar 
arguments against improving CAFE standards for SUVs. The claim wasn't 
true then; it isn't true today. Eighty-six percent of the fuel-economy 
improvements for cars have resulted from improved technologies such as 
more efficient engines and transmissions and better aerodynamics.
    In July 2000, Ford promised to use technology that will improve its 
SUVs' fuel economy by 25 percent over five years. General Motors 
pledged to exceed Ford's light-truck fuel economy. Keeping these 
promises will begin the process of cleaning up SUVs.
    But Detroit continues to fight higher CAFE standards for light 
trucks and cars, which would guarantee these and other improvements. 
The auto industry has taken its fight to Congress, getting its friends 
to fight legislation that would increase fuel economy. Beginning in 
1995, Congress froze CAFE standards at levels set decades ago.
                                 ______
                                 

        Americans Deserve Vehicles That Are Both Safe and Clean

    Detroit opposes CAFE standards, claiming that they cannot make a 
safe, clean SUV. Contrary to the auto industry's arguments, CAFE 
standards don't dictate automobile size or safety. Design, not weight, 
is the key to both safety and fuel economy. Engineering and safety 
features like airbags and crush-resistant roofs can ensure that 
vehicles absorb crash forces so occupants don't. Crash-test results 
show that automakers are making safe and unsafe cars of all sizes. In a 
standard head-on crash test into a wall, occupants of a 1997 Ford 
Expedition faced greater risk of injury or death than occupants of a 
1997 Saturn subcompact. This is because the Saturn has crashworthiness 
designed into it and the Expedition does not.
    ``Ford Motor Company, which depends on sport utility vehicles for 
much of its profit . . . sad that the vehicles contribute more than 
cars to global warming, emitted more smog-causing pollution and 
endangered other motorists.''--New York Times, May 12, 2000.
    The same industry claimed the original CAFE law was a threat to 
highway safety, battled automotive safety improvements from seatbelts 
to airbags and continues to fight a rollover standard. The fact is that 
since 1975 CAFE standards doubled fuel economy and the rate of highway 
fatalities fell by 50 percent.

The SUV Safety Story: Rollovers and Dangers to Others on the Road

    Here's what the New York Times said about SUV safety (July 15, 
1999): ``Because it is taller, heavier and more rigid, an SUV or a 
pickup is more than twice as likely as a car to kill the driver of the 
other vehicle in a collision. Yet partly because these so-called light 
trucks roll over so often, their occupants have roughly the same chance 
as car occupants of dying in a crash.''
    SUVs give a false impression of safety. With their height and 
comparatively narrow tire-track width, SUVs handle and maneuver much 
less effectively than cars. Emergency swerves to avoid a crash can 
themselves lead to rollover accidents in SUVs, which are four times 
more likely to roll over in an accident. Rollovers account for 62 
percent of SUV deaths but only 22 percent in cars. Yet automakers 
continue to fight new standards that would protect occupants in 
rollover accidents.
    Because SUVs are built on high, stiff frames, their bumpers ride 
above the occupant-protecting frame of cars. When an SUV and a car 
collide, this height difference, combined with the stiff battering-ram 
frame and greater mass, create a lethal weapon.
    According to a government study, in 1996 ``at least 2,000 car 
occupants would not have been killed, had their cars collided with 
other cars instead of trucks of the same weight.'' And SUVs are also 
more deadly to pedestrians, bicyclists and motorcyclists than cars, in 
part because existing braking standards for SUVs are weaker than for 
cars.
                                 ______
                                 

      Take Action! The Biggest Single Step to Curb Global Warming

    Beginning in 1995, friends of the auto industry in Congress 
attacked CAFE standards with an anti-environmental ``rider'' in the 
Department of Transportation's funding bill. The rider forbids the 
administration from setting new CAFE standards. While technology exists 
to safely improve fuel economy and protect our environment, the CAFE-
freeze rider allows the auto industry to remain stuck in reverse.
    It is time for action. Please urge your public officials to support 
cleaning up our cars and light trucks. Ask them to help take the first 
step of closing the loophole that allows SUVs and other light trucks to 
guzzle more gas than cars. Tell them our children have a right to a 
safe and healthy environment. It's time to take the biggest single step 
to curb global warming. See the Sierra Club Take Action page.
    For more information please contact: Sierra Club, 408 C Street, 
N.E. Washington, DC 20002 (202) 547-1141; 5 Second St., 2nd Floor, San 
Francisco, CA 94105 (415) 977-5500.

    Senator Kerry. Thank you very much.
    You know, because we are on the back end of the vote here, 
Mr. Reuther, I do not want to shortchange your testimony. I 
think it would be best to recess at this point in time and then 
we will pick up with your testimony. So we will stand in 
recess.
    [Recess.]
    Senator Kerry. The hearing will come back to order, please. 
Thank you all very much for bearing with us. I think we will be 
able to proceed without further interruption, if we can get 
everybody quieted down.
    Mr. Reuther, thank you for waiting and we look forward to 
your testimony.

STATEMENT OF ALAN REUTHER, LEGISLATIVE DIRECTOR, INTERNATIONAL 
UNION, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT 
                    WORKERS OF AMERICA (UAW)

    Mr. Reuther. Thank you, Mr. Chairman. My name is Alan 
Reuther. I am Legislative Director for the UAW. The UAW 
welcomes the opportunity to testify before this Committee on 
the subject of reforming the CAFE program. The UAW is obviously 
very concerned about the impact of any changes in the CAFE 
program on the jobs of our members. To avoid any adverse 
impact, we believe increases in CAFE standards must be 
technologically and economically feasible for the auto 
companies. This means that the magnitude of any increases must 
not be excessive and there must be sufficient lead time for the 
companies to make the necessary investments and changes in 
product plans.
    Equally importantly, the UAW believes the structure of any 
CAFE increases is crucial. In particular, any changes in the 
CAFE standards must not place full-line domestic manufacturers 
at a competitive disadvantage relative to the companies that 
historically have specialized more in the production and sale 
of small vehicles.
    At the same time, we believe any changes in CAFE must not 
enable the full-line domestic manufacturers to shift production 
of small cars to other countries. To achieve these structural 
objectives, the UAW strongly believes that any mandated 
increases in CAFE standards should take the form of a uniform 
percentage improvement in average fuel economy for each company 
and for each fleet, domestic and imports. Under this approach, 
all companies must improve their fuel economy regardless of 
their current status. That should reduce any CAFE-related 
competitive disadvantage that may exist for full-line 
producers. Companies that have been able to exceed the standard 
based on vehicle mix alone would now be forced to adopt widely 
used technologies.
    Moreover, companies would risk falling short of the new 
standard if they move increasingly into high-performance 
niches. Opponents of the uniform percentage increase approach 
as has occurred today have incorrectly argued that this would 
unfairly penalize technology leaders. The truth is the current 
differences in average fuel economy of the fleets sold by the 
domestic full line manufacturers and some foreign companies are 
due mostly to the product mix, not due to differences in 
technology. The addition of ceilings and floors to the uniform 
percentage increase approach would ensure that all companies 
fairly contribute to improvements in fuel economy.
    A number of alternative proposals for reforming CAFE 
standards have been offered. We are deeply concerned that these 
alternative proposals could cause substantial dislocation in 
the automotive industry. Alternatives such as the Feinstein-
Snowe bill or the Markey-Boehlert amendment propose that the 
standard for light trucks be harmonized upwards to the 
substantially higher level established for passenger cars.
    In our judgment, the implementation of such proposals would 
impose severely disparate impacts on domestic full-line 
manufacturers with serious adverse effects on the jobs of our 
members. Domestic full-line manufacturers have responded to 
strong consumer preferences for light trucks by dramatically 
shifting their U.S. capacity to meet that demand. As a result, 
today the U.S. production and sales of domestic full-line 
automakers are much more oriented to light trucks, compared to 
foreign companies that have historically focused on the 
passenger car segments of the market. Upward harmonization of 
the light truck CAFE standard to meet the car standard would 
thus place domestic full-line manufacturers at a strong 
competitive disadvantage relative to foreign companies. This 
would put at risk the jobs of our members who work in light 
truck assembly plants and associated supplier operations.
    Another alternative that has been advanced would simply 
apply a flat MPG increase to the current standards. This 
approach also has a discriminatory impact on domestic full-line 
producers due to the nature of their product mix. This 
disparate impact would be exacerbated if the flat MPG increase 
approach were combined with the upward harmonization approach 
for light trucks.
    A third alternative that has been advanced would allow the 
CAFE structure to be changed to an unspecified weight-based 
structure through rulemaking. UAW's concern is that such open-
ended authority would permit a shift from the fleetwide average 
approach that the auto industry has used for a quarter of a 
century, an alternative that could further jeopardize U.S. 
small car production and possibly have a disparate impact on 
full-line producers.
    In conclusion, the UAW appreciates the opportunity to 
present our views on the subject of reforming the CAFE 
standards. We look forward to working with you, Mr. Chairman, 
and the other Members of this Committee on this important 
issue. Thank you.
    [The prepared statement of Mr. Reuther follows:]

Prepared Statement of Alan Reuther, Legislative Director, International 
    Union, United Automobile, Aerospace and Agricultural Implement 
                        Workers of America (UAW)

    Mr. Chairman, my name is Alan Reuther. I am the Legislative 
Director for the International Union, UAW. The UAW welcomes the 
opportunity to testify before the Commerce Committee to provide our 
union's views on reforming the Corporate Average Fuel Economy (CAFE) 
program.
    The UAW represents more than 1.3 million active and retired workers 
in several major U.S. manufacturing industries, as well as in 
technical, office and professional sectors. The largest portion of UAW 
membership is involved in the manufacture of transportation equipment. 
This includes motor vehicles that cover the complete range of vehicle 
types and uses from passenger cars to light, medium and heavy-duty 
trucks, as well as motor vehicle parts covering all vehicle component 
systems. UAW members therefore have a strong interest in the CAFE 
program.
    Of course, the UAW is particularly concerned about the impact of 
any changes in the CAFE program on the jobs of our members. Sales in 
the U.S. automotive industry are down this year, and are forecasted to 
drop again next year. The recession in the overall economy is likely to 
have a continuing negative impact on automotive sales and production. 
We have already seen substantial layoffs in the automotive industry, 
and are concerned about additional dislocation in the coming year. 
Against this backdrop, the UAW strongly believes that any changes in 
the CAFE program must not aggravate the difficult economic 
circumstances of the auto companies and their suppliers and result in 
additional job loss for American workers.
    The UAW supported the fuel efficiency measure enacted into law as 
part of the Environmental Policy and Conservation Act of 1975 because 
we viewed it as wise public policy. CAFE standards have helped to make 
our nation's light vehicle fleet more fuel-efficient, thereby 
generating real benefits to the nation. As a trade union we are 
concerned about our members' jobs; but a clean environment and energy 
conservation are also workers' concerns. In the past, we have supported 
policies that achieved environmental goals without undue dislocation. 
Today, I want to share with you our views on reforming CAFE in ways 
that offer environmental benefits to society without jeopardizing the 
jobs of our members, disrupting communities or causing unnecessary 
dislocation in the domestic automotive industry--an industry vital to 
our nation's economic health.
    The UAW has supported the principle of mandatory fuel economy 
standards for motor vehicles to help achieve the goals of energy 
conservation and reduced dependence on imported oil. We continue to 
support that principle today. The CAFE program has provided 
environmental benefits to society, without causing excessive 
dislocation in the domestic auto industry or reductions in the array of 
domestically built vehicles. We are committed to the U.S. remaining the 
production site for all types and sizes of vehicles for this market. 
The requirement for separate averaging of domestic and foreign fleets 
contributes to maintaining such full-line domestic production and is an 
important part of the current structure of the program. If increases in 
CAFE standards are technically feasible and economically practicable, 
and applied as a uniform percentage increase to each fleet average, we 
believe further progress on fuel economy could be achieved without job 
dislocation or disparate impacts on manufacturers.
    We also know that vehicle fuel economy standards alone cannot 
satisfy the nation's energy conservation and environmental protection 
needs. Measures to improve energy conservation, provide clean fuels and 
reduce emissions are required throughout the U.S. economy. The Federal 
Government's continued commitment to fund R&D on advanced vehicle 
technologies is also needed, as are tax credits for advanced, highly 
fuel-saving vehicles. The Nation needs a comprehensive and balanced 
strategy to achieve energy conservation, environmental and public 
health protection, and economic growth.
    U.S. energy conservation needs are even more critical now than they 
were in 1975. Scientists have concluded that gasses emitted when fossil 
fuels are burned accumulate in the stratosphere creating a greenhouse 
effect, which causes a long-term, gradual global warming trend. While 
there is no consensus about the timing and degree of the warming trend, 
there is little disagreement that it will occur. As an imperative for 
fuel conservation, we now add the problem of global warming to the 
problems of finite fossil fuel reserves and growing dependence on 
foreign oil. We also recognize the nation's interest in improving the 
fuel economy of vehicles sold and operated in the U.S. without 
sacrificing other important objectives, such as high levels of 
employment, safety and environmental standards, the financial viability 
of the automotive industry and the affordability of vehicles for 
consumers.

                           FLEETWIDE AVERAGES

    The UAW has supported the approach that requires the fuel economy 
of each company to be averaged across the entire fleet and to be at or 
above a minimum standard. This approach guarantees that progress in 
fuel economy will be made, but allows manufacturers sufficient 
flexibility to meet standards efficiently and without dislocation. 
Since it is not always possible to raise the fuel efficiency of all 
models simultaneously, continued use of a fleetwide average for 
calculating compliance provides manufacturers the flexibility they need 
to introduce fuel-saving technologies for a specific range of vehicles 
at any given time.
    Our view is that a fleetwide average allows companies to build an 
adequate range of vehicles to satisfy consumer tastes and the needs of 
the market. As long as vehicles in most size classes are making steady 
progress toward improved fuel economy, the requirement of energy 
conservation can be met. At the same time, manufacturers require the 
flexibility to focus technological improvements and redesign efforts on 
a limited range of vehicles at any given time in each design cycle 
rather than instituting sweeping changes across the entire fleet. The 
fleet average approach thus tends to be less costly for American 
consumers who have to absorb the cost of new technology in higher 
vehicle prices--a cost recouped over time in lower fuel costs per mile.
    We believe that fleetwide averaging offers an incentive to 
manufacturers to focus production, engineering and sales efforts on 
small vehicles, which can be used to offset the lower fuel economy of 
more profitable, larger vehicles. In our judgment, it is important that 
domestic manufacturers be encouraged to continue putting effort into 
the design and development of domestically produced smaller vehicles in 
order to be competitive with manufacturers focused more on the low end 
of the market. It is our hope that maintaining the fleetwide averaging 
in the CAFE program can slow or reverse the loss of jobs in small car 
production and provide an incentive to shift the sales mix toward more 
fuel-efficient vehicles.
    Finally, we note that in the past decade, as the inflation-adjusted 
price of gasoline fell, demand for higher performance vehicles 
increased. Companies already having difficulty meeting fuel economy 
standards because of the number of large vehicles in their sales mix 
could not meet the increased demand for high performance models as 
readily as manufacturers exceeding the standards due to their 
historical focus on small vehicles. Thus, the UAW believes it is 
particularly important that any future changes in the CAFE standards 
should ensure that full-line manufacturers are not placed at a 
competitive disadvantage relative to companies that historically have 
specialized more in the production and sale of small vehicles.

              SEPARATE DOMESTIC AND IMPORT FLEET AVERAGES

    In 1975, we supported the approach to CAFE standards that required 
the fuel economy of each company to be averaged across separate 
domestic and foreign fleets. We endorsed this provision because we were 
concerned that domestic manufacturers, comparatively inexperienced in 
small vehicle production, would try to meet the fuel economy standards 
by importing small vehicles. Since U.S. firms would need small vehicles 
in their domestic CAFE fleet to offset the low fuel economy of larger 
vehicles, we viewed separate averaging as discouraging the sourcing of 
small vehicles abroad and encouraging production of such models in this 
country.
    The UAW is aware that the positive impact of separate fleet 
averaging has narrowed over time. The two-fleet requirement has applied 
only to passenger cars since model year 1996, after the Department of 
Transportation eliminated the requirement for light trucks, a change 
the UAW opposed. Even with the growing popularity of trucks, passenger 
cars still account for half of total U.S. light vehicle sales. In 
addition, NAFTA has expanded the definition of ``domestic content'' to 
include Mexican value-added. This makes it easier for a company to 
concentrate more small car production in Mexico, while retaining such 
models in the calculation of its domestic fleet average to offset 
larger U.S.-built car models. Finally, companies have been able to game 
the two-fleet requirement by shifting car models from their domestic to 
import fleets by adjusting domestic content.
    Nevertheless, the UAW opposes elimination of the requirement that 
each firm comply with the fuel economy standards separately for its 
domestic and foreign sales. The UAW is very strongly committed to the 
U.S. remaining the production site for all types and sizes of vehicles 
for this market. The two-fleet requirement contributes to maintaining 
this full-line production. We would welcome proposals to strengthen its 
role if they ensure enhanced domestic production and jobs, maintenance 
of full-line U.S. manufacturing and an increased amount of U.S. 
content. On the other hand, the UAW will oppose attempts to weaken the 
impact of the two-fleet requirement.
    The UAW continues to be deeply concerned about the outsourcing of 
small car production. While our main concern is the thousands of jobs 
this trend has cost our country, small car outsourcing is more than a 
jobs issue. It also threatens our automotive base in the long run. U.S. 
firms have taken a shortsighted approach to the challenge of foreign 
competition in the subcompact market, and we fear they will take a 
similar shortsighted approach in the compact market. If the compact 
market goes as the subcompact market has gone, before too long there 
will be no U.S. designed and built subcompact or compact vehicles. If 
the trend toward fuel conservation and self-reliance continues, as it 
should, small cars may again be the vehicle of choice for many 
consumers. Unless we retain domestic sourcing of small car production, 
consumers would be forced to purchase foreign-made vehicles.
    Some foreign companies have claimed the two-fleet requirement 
constrains their ability to increase the domestic content of their 
vehicles, thereby restricting job growth in the U.S. The UAW has long 
observed the relatively lower domestic content of vehicles that foreign 
companies have sold in the U.S., which is the result of structural 
trade-related imbalances, not the two-fleet requirement. The UAW 
continues to urge the U.S. Government to effectively address our 
nation's structural trade problems. We also have long urged foreign 
companies to increase domestic sourcing of automotive components from 
long established, high-quality U.S. suppliers. Such actions would lower 
the excessive U.S. auto parts trade deficit, create jobs in the 
domestic industry and increase the U.S. content of both imports and 
those vehicles produced in the U.S. plants of foreign companies.

         TECHNOLOGICAL FEASIBILITY AND ECONOMIC PRACTICABILITY

    The UAW does not oppose an increase in the fuel economy 
requirements for motor vehicles, but we do oppose increases that would 
place the jobs of our members and other workers in serious jeopardy. We 
believe the manufacturers will be making fuel economy improvements in 
the future. But it is essential that any increases that may be required 
by Federal law be technologically feasible. Increases that are not 
technologically feasible would force significant changes in the kinds 
of automobiles and light trucks the manufacturers produce. If, for 
example, the product mix had to change in a way that would cause 
production of family sized, larger and less fuel-efficient vehicles to 
be phased out, plant closings and permanent job loss for workers in 
those plants and in related industries would inevitably result.
    Motor vehicles produced in this country and those imported into 
this country should be more fuel-efficient. We need improvement--
especially now, given our need to develop more effective energy 
conservation programs, our need to confront the uncertainties of future 
energy supplies, our need to become more energy-independent and our 
need to address environmental concerns. At the same time, Federal 
mandates in the areas of safety and emissions must be given full weight 
in setting fuel economy standards. These areas of public policy are no 
less important than fuel conservation, and advances must be made 
together, recognizing how each impacts the others.
    How fuel-saving technologies are implemented is an important 
element in determining what is technologically feasible. It is 
important to recognize that the rate of market penetration of different 
technologies varies. There may be technical, financial, regulatory, 
organizational, and marketing limitations to deploying them. Moreover, 
the existence of new technologies does not mean that their full 
potential to raise fuel economy will necessarily be realized. The 
setting of standards cannot, therefore, assume full implementation of 
all technologies capable of being commercialized without 
qualifications. Lead-times needed to design, engineer, test and build 
new models in the automotive industry are often underestimated. It is 
important that lead times and other practical limitations on deployment 
of technologies be taken into consideration when setting standards.
    Economic practicability is another factor that needs careful 
consideration in determining feasible standards. We strongly believe 
that the potential impact of fuel economy standards on industry 
employment must be considered. The Nation would be poorly served if 
fuel economy gains were achieved at the cost of the loss of thousands 
of high productivity, high wage jobs that cannot be replaced. The 
current U.S. recession has contributed to sizable losses in the 
domestic automotive industry, thereby lessening the near-term ability 
of the corporations to undertake the necessary investments to raise 
fuel economy. The financial condition of the auto companies must be 
taken into account in the standard-setting process. Economic 
practicability must also include consideration of the cost 
effectiveness of the various means available to raise fuel economy. 
Achieving mandated higher fuel economy standards for new vehicles 
relies on consumers buying the new vehicles. If the cost of the 
vehicles is beyond the means of consumers, or puts new cars at a 
disadvantage relative to used cars, little will have been accomplished. 
The standards must also not assume the implementation of technologies 
that have excessive payback periods.
    Finally, we also believe it is important to retain the existing 
administrative discretion to relax or strengthen standards. It is 
impossible to anticipate all events in the short- and long-term that 
may prevent manufacturers acting in good faith from complying with the 
law.

                  UNIFORM PERCENTAGE INCREASE APPROACH

    The UAW strongly believes that any future mandated increase in 
standards should take the form of a uniform percentage improvement in 
average fuel economy, for each company and for each fleet, domestic and 
import, from a designated base period. This reform of the CAFE program 
directly addresses some of the problems in the existing standards.
    First, if compliance is measured by a percentage improvement in 
fuel economy averages, all companies must improve their fuel economy 
regardless of their current status. That should reduce any CAFE-related 
competitive disadvantage that may exist for full line producers. 
Companies that have been able to exceed the standard based on vehicle 
mix alone would now be forced to adopt widely used technologies. 
Moreover, companies would risk falling short of the standard if they 
move into high performance niches. It is our hope that if all firms 
face a common risk in moving upscale that all will be reluctant to do 
so. At the very least, it will be more difficult for the Department of 
Transportation to accept the argument that the standard should be 
relaxed because it puts some firms at a competitive disadvantage. In 
contrast to the current statute, we are more likely to see fleetwide 
improvements in fuel economy since all companies would be discouraged 
from moving into higher performance vehicles.
    Second, in contrast to the current approach, the percentage 
improvement requirements would make it difficult to raise the fuel 
economy average of the domestic fleet by shifting low fuel economy 
vehicles into the import fleet, since the company would be required to 
achieve improvements in both fleets. Because the principle of fleetwide 
averaging is preserved, the companies would still have the flexibility 
to develop new technologies for a limited range of vehicles at any one 
time.
    For these reasons, the UAW believes that requiring separate import 
and domestic fleetwide average uniform percentage increases in fuel 
economy would be an effective improvement over the existing standards.
    Opponents of the uniform percentage increase approach have 
incorrectly argued that it would unfairly penalize ``technology 
leaders.'' But the truth is the current differences in the average fuel 
economy of the fleets sold by the domestic full-line manufacturers and 
some foreign companies are due mostly to differences in their product 
mix, not to differences in technology. The addition of ceilings and 
floors to the uniform percentage increase approach would ensure that 
all companies fairly contribute to improvements in fuel economy.

          FAIR AND BALANCED ENERGY AND ENVIRONMENTAL POLICIES

    We recognize that automotive fuel economy standards alone are not 
an adequate solution to the need for energy conservation and 
environmental protection, and that more needs to be done. Promising 
technologies with the potential to improve fuel economy and reduce auto 
emissions require ultra-clean fuels. The UAW strongly supports national 
controls that would reduce sulfur content in gasoline and diesel fuels 
to nearly zero. Clean fuels will not only increase the effectiveness of 
current vehicle technologies, but also enable advanced vehicle 
technologies under development that offer significant future 
environmental benefits. Gasoline direct injection (GDI) engines and 
fuel cell propulsion systems, for example, promise such benefits, but 
both are highly sensitive to sulfur. For the American automotive 
industry to stay technologically competitive, and for our country to 
gain the environmental and economic benefits associated with new 
technologies, it is vitally important that they be developed, 
manufactured and sold in the United States.
     The Federal Government has played a crucial role in funding 
research and development of advanced vehicle technologies for more than 
25 years. The UAW supports a continuation and strengthening of this 
Federal commitment. To achieve such goals and thereby gain broad 
benefits, a sustained, well-funded and coordinated Federal involvement 
is necessary, including collaborative efforts with domestic auto 
manufacturers and suppliers. Such efforts not only will help promote 
the development of advanced conventional technologies that offer 
improved fuel savings of vehicles powered by today's internal 
combustion engines. In addition, sustained federally funded R&D efforts 
centered on leapfrog technologies, such as fuel cell and electric-
powered vehicles, present opportunities to make dramatic improvements 
in the environmental performance of future automobiles. Whether for 
advanced conventional or leapfrog technologies, such development 
efforts are needed to keep the domestic auto industry at the forefront 
of global vehicle manufacturing.
    If the United States takes the lead in developing energy-efficient 
products and new energy-saving technologies that are domestically 
produced and used here and around the world, we will create more jobs 
for American workers, while bettering public health and environmental 
protections. To accelerate the introduction and penetration of advanced 
vehicles into the U.S. light vehicle market, the UAW supports Federal 
tax credits for the sale of fuel-efficient, advanced vehicles. These 
include electric, fuel cell and qualified hybrid vehicles. Our view is 
that the sale of vehicles qualifying for Federal tax credits should not 
only possess specified advanced vehicle technologies, but that such 
vehicles should also provide environmental benefits through substantial 
fuel economy improvements.
    Another enhancement of domestic employment opportunities would flow 
from expanded investment in our nation's transportation infrastructure 
to reduce congestion and improve efficiency. A broad national 
transportation plan should embrace creative, community-based 
approaches. This avenue recognizes the important role of affordable 
public transit systems and other energy-saving alternatives to private 
motorized modes of transportation.
    The UAW also has advocated the establishment of a Federal agency to 
coordinate research on fuel economy and emissions technology and we 
have called for a comprehensive energy and transportation policy to 
promote other approaches to fuel conservation. To ensure that workers 
adversely affected by fuel-economy related actions do not suffer unduly 
from these policies, we also support a full range of job retraining, 
job search and income support programs for any dislocated workers. 
Unfortunately, these proposals were not included in the law enacted in 
1975 and have not been added since.

 STANDARD HARMONIZATION, FLAT MPG APPROACH, WEIGHT-BASED STRUCTURE AND 
                             CREDIT TRADING

    Several alternative proposals on reforming or changing CAFE 
standards have been offered. These include an upward harmonization of 
the light truck standard to that for passenger cars; applying a flat 
mpg increase to the current standards; a shift from fleetwide averaging 
to an unspecified weight-based structure; and a system of credit 
trading. The UAW is deeply concerned that these proposals could cause 
substantial dislocation in the domestic automotive industry and result 
in the loss of thousands of jobs for American workers.
    One approach to reforming CAFE (such as the Feinstein-Snowe bill or 
the Markey-Boehlert amendment) proposes that the standard for light 
trucks be harmonized upward to the substantially higher level 
established for passenger cars. The implementation of such proposals 
would impose severely disparate impacts on domestic full-line 
manufacturers with serious adverse effects on the jobs of our members. 
The UAW therefore strongly opposes such proposals. Domestic full-line 
manufacturers have responded to strong consumer preferences for light 
trucks by dramatically shifting their U.S. capacity to meet that 
demand. As a result, today the U.S. production and sales mix of 
domestic full-line automakers are much more oriented to light trucks 
compared to foreign companies that have historically focused on the 
passenger car segments of the market. Upward harmonization of the light 
truck CAFE standard to meet the car standard would thus place domestic 
full-line manufacturers at a strong competitive disadvantage relative 
to foreign companies that are more specialized in cars. This would put 
at risk the jobs of our members who work in light truck assembly plants 
and at associated supplier operations.
    Another approach to changing CAFE would be to simply apply a flat 
mpg increase to the current standards. This approach also has a 
discriminatory impact on domestic full-line producers due the nature of 
their product mix relative to the other producers that have 
historically focused on smaller automobiles. This disparate impact 
would be exacerbated if the flat mpg increase approach were combined 
with the upward harmonization approach for light trucks. The UAW 
strongly opposes such proposals because they could cause serious 
dislocation among our members.
    A third approach to reforming CAFE would allow the CAFE structure 
to be changed to an unspecified weight-based structure through 
rulemaking. The UAW is concerned that this approach would give 
regulatory authorities excessive latitude over how the fuel economy 
standards would be structured in the future. Such open-ended authority 
would permit a shift from the fleetwide average approach that the auto 
industry has used for a quarter century--an approach that balances 
effectiveness and flexibility, and helps ensure continued domestic 
full-line production--to an unknown alternative that could further 
jeopardize U.S. small car production and possibly have a disparate 
impact on full line producers. The UAW therefore opposes open-ended 
regulatory authority to change CAFE to an unspecified weight-based 
structure.
    Finally, proposals have also been advanced that would allow 
companies to trade credits earned by exceeding the fuel economy 
standards between classes of vehicles and between firms. We cannot be 
certain how this trading would work, as there has been no similar 
experience to demonstrate its effect. We can easily foresee 
circumstances, however, in which domestic full-line producers would end 
their U.S. production of small cars, fail to reach the fuel economy 
standards for their domestic fleet and purchase credits from their own 
foreign fleet or from other producers to achieve compliance. In this 
case, the U.S. industry would lose much of its small car production 
capability, with potentially serious consequences for domestic output 
and employment, and with no overall improvement in fuel economy. As 
previously indicated, the UAW is deeply concerned about the long term 
threat this would pose to our automotive base.
    In conclusion, the UAW appreciates the opportunity to present our 
views on the subject of reform the CAFE program. We look forward to 
working with you, Mr. Chairman, and the other Members of this Committee 
on this important issue. Thank you.

    Senator Kerry. Thank you very much, Mr. Reuther. Thank you. 
I was looking for your prepared testimony, and I appreciate the 
in-depth detailed discussion of a number of different issues. 
Let me try to deal for a moment, if I can quickly, while it is 
fresh, with this question of the uniformity.
    And Mr. Cohen, let me get you involved in this, obviously.
    In principle, I would agree with your comment that you do 
not want to penalize people for having taken positive steps, 
and if they are industry leaders in a particular sector, you 
would be rewarding lag. You would be encouraging people in the 
future not to do something. But what Mr. Reuther is suggesting 
is that if you look at, say, SUVs across the panoply of those 
offerings in each industry--not each industry, excuse me, in 
each manufacturer, you will find a really close approximation 
between them in terms of size, engine and fuel efficiency. 
There is not that great a sort of technological gain by one or 
the other. But in effect, the overall CAFE advantage that one 
manufacturer may have over another, particularly say, you, 
versus one of the Big Three here, is that you have a different 
whole product mix, and since the CAFE standard reflects the 
overall product mix, you sort of could claim a pass, if you 
will, on what is required with respect to your SUV, while one 
of the domestic manufacturers would have to make advances that 
could disadvantage them economically. Now, what do you say to 
that?
    Mr. Cohen. Well, I think there are several points. First of 
all, I have not seen the data that show manufacturers being so 
close in the technology they employ. I would note that we are 
the leader, or close to the leader in almost every class of 
vehicle in which we compete. This data does not make sense to 
me because the sum of the parts should equal the whole. So I 
would be surprised--if you were to compare our cars on a 
segment-by-segment basis, I think you would find ours have 
higher fuel economy, and that is because we have already 
integrated into a lot of those vehicles advanced technology 
such as variable valve timing; lightweight materials, and the 
like. The point is that with a UPI approach, we would have to 
go out and invent new technology, because a lot of today's 
advanced technology already is in our vehicles.
    I think as far as the point that Mr. Reuther makes, 
however, there is one way to ameliorate the bad effect, if you 
think that effect is there, and that is by having an attribute-
based standard. In other words, you would have different 
standards based either upon size or weight. We prefer size over 
weight. For example, there would be a separate standard for the 
very large cars, a different standard for the next size down, 
and so forth. That way, manufacturers would be competing 
directly against each other within the attribute class, be it 
size or weight.
    With UPI, if a company like Honda, which currently is not 
in the large SUV market, wanted to enter that market, it 
probably could not do so. With an attribute-based approach, 
however, we could enter into that segment as long as we met the 
target for that segment.
    Senator Kerry. What do you say to that, Mr. Reuther?
    Mr. Reuther. Well, I think there was an important admission 
there, that they do not compete in all segments. So the fact 
that they may be at or near the top in the segments where they 
do compete, that does not mean that they have superior 
technology. The bottom line is if you compare apples to apples, 
the same size, weight class of cars----
    Senator Kerry. Let me just interrupt you for a minute. I 
think this is a component of the Ford testimony and I am not 
sure that it is complete. But within the context that we have 
here in the SUV categories, in the manual transmissions, you 
have the Ford and Toyota. I am not sure that that is all-
inclusive, so I do not know why others were left out. But let 
us come down to, you have the Ford Explorer, the Jeep Grand 
Cherokee, the GM Blazer, the Honda Passport, the Toyota 
Forerunner and they are all at 15 and 16 in the city. They are 
all at 20 and 19 on the highway. With the combined, 17, one of 
them is at 18, and they are all at about the same engine size. 
Actually, the Honda and Toyota, no surprise, are slightly 
smaller, but no 6-cylinders.
    So if we were to wind up creating a size-based category 
standard, how does that fit? How does that work out in the 
context of what Mr. Reuther has been saying?
    They do seem fairly similar. The point being made here is 
that the gain you are talking about, the advantage, really 
comes from the overall smaller cars. This raises another issue. 
I am not going to let this issue slide by, but it does suggest 
that you cannot necessarily approach it that way because there 
is not an evenness in measuring what is to be gained in either 
fleet.
    Mr. Cohen. Well, if the goal here is fuel economy, again, I 
question the data. That data did not, for example, talk about 
our Honda CR-V small SUV, and I am not sure which class you are 
reading, but our CR-V----
    Senator Kerry. It is incomplete. I have acknowledged that, 
and I have asked my staff to put together a complete list of 
everything in the marketplace.
    Mr. Cohen. And our Acura MDX, which is a mid-size SUV. We 
do make a SUV, we make a mid-size SUV, it is a VLAV on 
emissions and it is best in class for its fuel economy. So I go 
back to the question about whether we are all at the same 
place. The point is we are already putting a lot of this 
technology in cars.
    If Honda already meets a future standard, then I think that 
achieves Congress' purpose. We should not be penalized for 
doing that early. But to go back to the issue, if this 
disparity is one that is of great concern to the Committee, an 
attribute-based system will negate that.
    Senator Kerry. Let me ask the other side of that question, 
Mr. Reuther. Most of the American cars do tend to be bigger, 
with bigger engines, more muscle-oriented, more amenities, 
etcetera in different ways that do appeal to Americans. I am 
not going to suggest to you the market does not ask for it. The 
question is whether or not, following up on what Senator 
Bingaman and Senator Snowe talked about, whether we have a 
responsibility to try to set as a matter of policy, the 
framework within which your competition is going to take place.
    In other words, we are not going to tell you what kind of 
car to make specifically, but we are going to create a 
framework as a matter of public policy about emissions and 
about fuel usage that then forces you to respond before the 
market demands it, in effect. Particularly given the price 
issues that Senator Ensign and Senator Breaux raised, if fuel 
prices continue to go down. Although that is questionable, 
since some geologists predict that world production is going to 
go down by about 2004, and if demand increases, we do not know 
what will happen to price, but that all depends on the rate at 
which you really begin to supplant your current dependency.
    Mr. Reuther. We believe the uniform percentage increase 
approach directly addresses that point. It would require the 
Big Three to improve the fuel economy of their entire fleets, 
the truck fleet as well as the car fleet. If they try to keep 
moving more and more upscale, it would be very difficult for 
them to meet the higher percentage increase standards. So there 
is an incentive, if you have fleet wide averaging, but you have 
a uniform percentage increase approach, there is an incentive 
not to keep going upscale.
    In contrast, if you went to the weight-based system that 
Honda has suggested, then it would be wide open to gaming the 
system, and keep saying ``oh, you are really are in a higher 
classification,'' and you would wind up with no improvement in 
fuel economy.
    Mr. Cohen. Mr. Chairman, if I may, I think there are ways 
to structure attribute-based systems, whether it is weight or 
size, to structure those attribute-based systems so that there 
is not an incentive to game the system.
    Senator Kerry. That might well be. I am not particularly 
excited about weight, but I think there might well be.
    Mr. Cohen. Those are obviously very sophisticated and----
    Senator Kerry. What about the concept of the floor and 
ceiling that we had discussed?
    Mr. Reuther. If people are concerned that a uniform 
percentage increase approach would produce too great extremes 
at either end, we could support establishing a minimum floor. 
In other words, you would say everyone has to increase by a 
certain percentage, but in no event less than a certain MPG and 
in no event more than a certain MPG. That would cushion the 
extremes on either end, but it would require all the companies 
to start using the technology that is available. It would put 
the same pressure on all the companies not to keep moving 
continually upward into more high performance, bigger vehicles.
    Senator Kerry. What is your reaction to that, Mr. Cohen?
    Mr. Cohen. I think it has all the negatives of UPI, only 
slightly reduced, depending upon the devil in the details. It 
still punishes the leaders. It still sends a terrible 
regulatory message from the Congress to companies, that you 
exceed standards at your peril.
    Senator Kerry. Mr. Reuther, what if you accept the National 
Academy of Sciences judgments? Do you?
    Mr. Reuther. Not all of their judgments.
    Senator Kerry. Do you accept their judgment when they find 
that: ``Technologies exist to significantly reduce fuel 
consumption of passenger cars and light duty trucks within 15 
years without affecting vehicle weight?''
    Mr. Reuther. We definitely accept the judgment that the 
technologies can be brought in to increase fuel economy 
substantially.
    Senator Kerry. So if we were to look at something different 
from the current Feinstein-Snowe proposal in its timeframe, 
which some may find difficult to meet, and created a system in 
which you have the SUV component tied to the overall average, 
and we sort of work through what kind of average structure we 
are going to strike, maybe with some targeting in the way that 
has just been discussed, is it then more important to have a 
timeframe that is realistic?
    I think in your testimony, Mr. Cohen, you talk about that; 
you say very specifically that the timeframe is critical. If 
you are looking at 15 years, is that a more reasonable 
framework within which we could work and perhaps demand a 
little more?
    Mr. Reuther. Certainly, the longer the lead time, the 
easier it is for the companies to make the changes, and we 
support longer lead times. We still have concerns about an 
approach that simply says well, let us bring the trucks up to 
the car level because we think that disproportionately has an 
impact on the Big Three auto companies. We think there should 
be improvements in the light truck segment. We think there 
should be improvements in the car segment, but a simple 
harmonization or ``close the SUV loophole'' approach we think 
has a discriminatory impact. Our concern is that our light 
truck plants will be forced to close or curtail production, 
whereas the Japanese, because of their current position, will 
be able to continue to move upscale.
    Senator Kerry. What is different? That is a very important 
consideration. What is different in the current Japanese 
position as you describe it, versus what Detroit and the Big 
Three are marketing?
    Mr. Reuther. Because of the product mix, it is easier for 
them to move upscale.
    Senator Kerry. OK. But when you say to move upscale, 
approximately 50 percent of the vehicles being sold in Detroit 
today are SUVs. Correct?
    Mr. Davis. No. It is not correct.
    Senator Kerry. What is the correct----
    Mr. Davis. Light trucks would be that category.
    Senator Kerry. Light trucks. And SUVs proportion is what?
    Mr. Davis. Slightly less than half.
    Senator Kerry. Slightly less than half of that. OK. So, but 
50 percent fit into the light truck category?
    Mr. Davis. Right.
    Senator Kerry. Within which category SUVs also fall. So 
light trucks were always meant to be what they are, light 
trucks. SUVs--and Congress in its wisdom created a lesser 
standard there, understanding the impact on farmers, certain 
kinds of businesses, etcetera. We used to make station wagons. 
We do not make them; we make SUVs. By and large: we still have 
a few, but they are all mid-size, I understand.
    The question is, is there a way for Detroit to remain 
competitive, and rethink both size of engine and perhaps some 
of the offerings that have been made to create that market, if 
you will, in response to the fact that it has been available as 
a loophole. Is there a way to do that?
    Mr. Reuther. We think you can have improvements in the fuel 
economy of the light truck segment, and we support a uniform 
percentage increase for that segment so they will be forced to 
bring in the technologies to make the light trucks more 
efficient. But if you simply say light trucks have to meet the 
same flat MPG as cars, or a higher flat MPG, that is not 
treating all the companies the same, that is hitting the Big 
Three much harder.
    Senator Kerry. I understand that. I understand that. Let me 
come back then to a couple of the manufacturers here if I can.
    If we were to embrace--and I am not sure how to do this 
yet, and I am partly thinking out loud. First of all, let me 
ask this threshold question. How do you view the technology 
that was talked about earlier, the hybrid, particularly 
something like Paice Corporation's Hyperdrive? Or some other. I 
know Ford particularly is moving down its own road.
    Ms. Cischke. Well, Ford is going to be introducing the 
hybrid Escape in 2003. And this will be the first hybrid SUV, 
and we believe that the market acceptance of that will also 
depend upon how many we will be able to sell, because obviously 
there is a lot of componentry involved in differentiating a 
hybrid SUV from the conventional gas engine, and we are 
exploring whenever that technology would make sense.
    There were comments earlier and references to the chart 
here, and this happens to be a Ford Explorer, and one of the 
comments here was an integrated starter generator, which is a 
mild hybrid, another form of hybrid. We recently decided to 
drop the ISG on Explorer. It indicates here there was a fuel 
economy gain of 15 to 25 percent, when we found in our whole 
development process it was significantly less than that, and at 
a pretty expensive cost between $300 and $1,000 a vehicle.
    So while we believe there is an area of market opportunity 
for hybrids, you have to apply it to the right vehicle size, 
and we believe the Escape was probably much more effective, and 
we will continue to look at ways of adding new technology. That 
is what our SUV commitment is all about, is adding new 
technologies as well as reducing weights and changing our model 
mix, too.
    Senator Kerry. Well, I know that obviously corporations, 
particularly when they are innovative, in the innovation 
business and are trying to gain a foothold, that sometimes 
there can be some exaggeration to what is offered. And I am not 
suggesting that these are. I am just saying I know that 
sometimes that can occur.
    On the other hand, here you have Paice, a company that has 
former auto industry executives and others involved, saying we 
cannot dictate customer choice, nor should we try to, and so, 
they are going to try to produce a vehicle that does everything 
that the customer really wants. It gives consumers the power. 
It gives them the comfort. It gives them the same safety, but 
does so with a hybrid power train.
    Now, according to the indications that I have read about, 
Paice has the ability, on a standard SUV, to gain fuel 
efficiency improvements of roughly 50 percent, depending upon 
the size of the vehicle. The smaller, I suppose, the better. In 
their modeling of various vehicles, they come up with a compact 
car exhibiting an increase of 31 to 45 miles per gallon, which 
is a 45 percent improvement; a full size car, an increase from 
27 to 39 miles per gallon, which is a 44 percent improvement; 
and the large SUV exhibits an increase from 16 to 26 miles per 
gallon, which is the 62 percent improvement.
    Now, why is that power train not exciting the industry? Or 
is it not something that you all find similar modeling 
capacity?
    Mr. Davis. Well, let me try and address this, Senator.
    We have had some interaction with the company that you are 
talking about over time, and we continue to talk to them, and 
will continue to talk to them. We have not substantiated those 
numbers with the work we have done.
    Candidly, we have not done any work for a couple of years 
on that subject. But we have had a number of applications that 
we are making that do apply the hybrid technology; in fact, we 
have announced we are putting the hybrid technology in 
production in our full size trucks in 2003, with every 
intention of getting that done on time and in a significant 
volume.
    Senator Kerry. But if this hybrid goes into production, and 
you do well at the hybrid and the marketing of the hybrid is 
adequate, why should we not believe, building upon what Senator 
Feinstein was saying, that it would be reasonable for us within 
10 years to 15 years to establish a standard? Where we already 
know that if you did the hybrid now, you would be achieving 
what that standard sets out to do?
    Mr. Davis. Well, as we said in our testimony, there is a 
number of things that we are applying that provide particular 
benefits. In fact, it is not just a future application of 
technology. If you look at our mid-sized utilities we brought 
out this year, variable valve timing, line six engine, hundreds 
of millions of dollars in investment to bring our mid-size SUV 
up and improve the fuel efficiency associated with that. As I 
said, variable valve timing, aluminum line six. Hundreds of 
millions of dollars of investment. The same thing with the 
hybrid on the full size pickups targeted at improving. Now, 
when you look at the hybrid on a full size pickup, we will be 
subsidizing that particular application of technology by the 
thousands of dollars per vehicle in terms of getting that done, 
and we are prepared to go ahead and do that.
    In addition, consistent with some of the comments made by 
the National Academy of Sciences, we are taking the predominant 
volume of our full size engines, our V-8s and our V-6s and 
switching to displacement on demand which, in fact, 
considerably improves the pumping efficiency of the engine.
    We are doing that; we have said we will do that; we are 
announcing it; we are moving forward on it. But in no way from 
a mix standpoint does it drive the kind of numbers that we are 
talking about here from a CAFE standpoint.
    We are more than willing to look at the work that has been 
done by Paice and others and have continued to do that over 
time, but have not seen cost-effective solutions that drive 
those kind of numbers.
    Senator Kerry. Why would you not have looked at it for 2 
years?
    Mr. Davis. I have not been contacted, nor am I aware of 
people at our company. I am not saying we have not been, but I 
am not aware of a contact that has taken place within the last 
2 years.
    Senator Kerry. Let me ask you, and I do not mean to do 
this, I do not do this pejoratively at all. But I want to try 
to understand. When we sit here, we policymakers, and try to 
wade through this, we obviously have to look at the science. We 
make some judgments; we look at the public policy issues, we 
make some judgments; we look at the track record and make some 
judgments.
    And one of the difficulties is that back in the original 
go-around in 1975 when we did this, the auto industry came to 
us and said, quote, and this was the original proposal: ``This 
proposal would require a Ford product line consisting of either 
all sub-Pinto sized vehicles or some mix of vehicles ranging 
from a sub-subcompact to perhaps a Maverick.'' At the same time 
General Motors was saying: ``This legislation would have the 
effect of placing restrictions on the availability of 5 and 6 
passenger cars, regardless of consumer needs or intended use of 
vehicles. It is not only an unjustified interference with 
individual freedom, but an extreme and unusual way for a free 
society to achieve its goals.''
    Yet obviously, neither Ford nor GM eliminated either of 
those lines. We are doing wonderfully. We are producing 
significantly different vehicles. How do we sit here and listen 
to the Sierra Club come in, and scientists come in, and the 
National Academy of Sciences say, this technology is available 
in 10 to 15 years; that we know if we create a framework where 
we push the technology curve, we always accelerate in this 
country?
    We heard the same arguments on sulfur dioxide and the Clean 
Air Act. The industry said ``This is going to cost us $8 
billion. Do not do it.'' The government sources said: ``It is 
going to cost $4 billion and we can do it.'' And it wound up 
costing $2 billion because nobody factored in the impact of the 
push of technology and the rapidity with which, once you had to 
do something, technology met the curve faster than we thought. 
How do we weigh all of that against what you are saying today 
and against the other testimony we are hearing?
    Mr. Davis. Two points I would make. In our testimony we are 
very clear on the technologies that we not only think should be 
brought on near-term, but we are bringing on near-term. And 
those include variable ratio transmissions, they include 
hybrids and they include displacement on demand, which 
basically makes a gasoline engine act more like a diesel. We 
think there are a number of alternatives that improve from a 
consumption standpoint where we want to be.
    Certainly, when we look at what we are doing with urban 
buses, you know, if you look at urban buses, 13,000 hybrid 
urban buses is the equivalent of 500,000 hybrid small cars, 
13,000; and most of those are subsidized by the U.S. 
Government. We mentioned the fleet that is currently in place 
in the marketplace today, and that has to be addressed as well. 
But the overriding issue that we think is important is that we 
believe fuel cell technology is the technology that is going to 
take us where we want to go, and it does not make sense to 
orchestrate or legislate marginal improvement. It makes much 
more sense to put our resources in bringing that fuel 
technology on quicker.
    Senator Kerry. Well, what if we set a pretty strict goal 
and gave you some fairly generous incentives for developing the 
hydrogen fuel cell technology? That would make it easier to do 
that.
    Mr. Davis. I think that would be a well-focused and well-
thought-out viewpoint.
    Senator Kerry. But I am saying set a fairly strict goal 
simultaneously.
    Mr. Davis. We have to have more discussion on what is a 
fairly strict goal, certainly. But I think the marginal, what 
we are talking about----
    Senator Kerry. So you will take the candy but you will give 
back the rest of the meal, right?
    Mr. Davis. Well, you know, the progress that has been made 
in fuel cells in the last 5 years, I think has changed the 
position of many in the industry, based upon the technology 
improvements we have made. And I also think that we can bring 
that on at a very measured and intelligent way, for instance, 
stationary devices in terms of developing the capability of the 
system makes sense before mobile devices. But clearly, we would 
welcome engagement in that kind of discussion.
    Senator Kerry. Let me ask you this. Is there a way to 
embrace clean diesel technology and meet the standards? Could 
you bring in some of the advances that have been made in Europe 
with respect to that diesel and perhaps move more rapidly?
    Mr. Davis. Well, both ourselves and other people in the 
industry are very familiar with that because we do it on a day-
to-day basis and our colleagues in Europe are in continuous 
discussion with them. We would have to address the same issues 
that they address in Europe on fuel standards, and on emission 
control systems in order to bring on clean diesels. But 
certainly, clean diesels offer us another alternative to talk 
about and an alternative that most of the rest of the world is 
using to address CO2.
    Senator Kerry. Ms. Mesnikoff, you make the statement 
in your testimony quite declaratively: ``As outlined in 
Drilling Under Detroit, conventional technologies now exist to 
achieve a 40 mile per gallon standard over 10 years. A 
combination of better engines, transmissions, aerodynamics, 
appropriate weight reductions and other technologies can be 
used to improve the fuel economy of all vehicles and cars and 
the largest SUVs.'' You have heard these folks sort of contest 
that. They do not think they can do that in 10 years. What 
gives you the certainty of the declaration in that statement?
    Ms. Mesnikoff. Well, you certainly read one of my favorite 
lines or several lines from the 1970s. The manufacturers will 
say they do not have the technology. If you set the goal, they 
will put the technologies that I have identified, and that my 
colleague David Friedman from the Union of Concerned Scientists 
can discuss further. They will put those technologies to work 
in the near term to get us moving in the right direction.
    I think in terms of testimony about fuel cells or 
otherwise, I think the manufacturers have had a free ride on 
fuel economy standards. For light trucks the standard has 
stagnated for essentially 20 years, and the standard for cars 
in place now was set in 1975 based upon a technology outlook 
then. And they have not done better when it comes to fuel 
economy.
    So I think that if we sit around and wait for some great 
technologies to come forward, and fuel cells may come in the 
next 10 years or so, but in the near term, let us put the 
technologies identified there, that they have talked about, but 
let us make sure we are seeing fuel economy gains when they put 
those technologies to work.
    You know, I hate to point it out, but I understand in the 
Toyota testimony, they essentially make the point that there is 
a big difference between fuel efficiency and fuel economy. You 
can put technologies to work and not necessarily improve the 
fuel economy of that vehicle. What we need to do is see these 
technologies actually improve the fuel economy of the vehicles 
sold to consumers so that we can save oil. If we do not put the 
new standards out there, we may not see the fuel economy gains 
that we actually need to see to reduce our dependence on oil 
and to reduce the emissions of CO2.
    Senator Kerry. Is there something in your production 
structure that makes it harder to achieve what Ms. Mesnikoff 
just said, in the sense that there will be, there is something 
in the American manufacturing process that adds cost to the 
consumer that makes it an undesirable choice for you in terms 
of the marketplace?
    Ms. Cischke. No, I would just like to comment that we have 
improved the fuel efficiency of all of our vehicles over the 
last 20 years or so, and we have done that in light of ever-
increasing safety improvements, as well as emissions 
improvements, so it is not a one-horse race here. There are a 
couple of different things that we are trying to balance, and I 
think technology has been the enabler to do that and certainly 
tax incentives to encourage advanced technology would help even 
more. But as far as anything different, we have the 
technologies that the other manufacturers are offering. It 
comes to a matter of choice in terms of cost issues and that if 
you have a hybrid engine, for instance, you have two power 
trains versus one power train so you have got to figure out if 
volume can eventually reduce those costs, the same as the fuel 
cells.
    But there is nothing in our structure that inherently 
drives the cost up.
    Mr. Davis. There is still an overriding issue, too, that we 
have talked about a lot, but I think we need to come back to on 
this. And that is that there are 50 offerings in the market 
today that have a fuel economy number of over 35 miles per 
gallon and they account for 1 percent of the sales of vehicles 
in the United States. Nine of those happen to be GM vehicles, 
but the market speaks very clearly on the issue.
    Senator Kerry. I understand, but the market is distorted to 
some degree. I have talked to countless parents and countless 
people, just trying to get the person on the street opinion 
about this. And a lot of people have been bullied into a 
position of feeling that they are just not safe if they are not 
driving an equally combative, large vehicle on the road. That 
is the way they feel. Now, a lot of families also want to be 
able to get the dog and the three kids and do the car pool and 
put people in it and I understand that. That is a very 
legitimate need. The question is, do they need a vehicle that 
does 140 miles an hour to do it? And do they have to be sold 
the upper level of things that are not really offered in some 
other places, in other markets?
    And so we have conditioned our own market to a degree, you 
have conditioned our own market, and now to a degree you are a 
victim of the market. It is not unlike the 1960s and 1970s when 
Volkswagen came along and introduced the Beetle and everybody 
in Detroit laughed at them. And we wound up learning that there 
could indeed be a market for a different kind of vehicle. Now 
we have manufacturers sort of appealing to both. But there are 
a lot of ingredients in the marketplace right now which are 
dictating consumer behavior, some of which I think need to be 
changed, and you all are not going to take the lead in changing 
them in a way that adversely impacts you, and I understand 
that. I completely understand that.
    At Ford you are doing a good job of trying to bring in this 
hybrid piece. You are going to kind of sneak in under the wire 
there. But you are going to sell the others for as long as 
people are going to buy them, and take the cushion that comes 
with that. What we have to make a decision about is whether we 
want to affect that marketplace over all, and affect all of you 
simultaneously, so that there are a different set of choices 
available to consumers that gas prices are not creating in and 
of themselves.
    This goes back to what other Senators have said about what 
moves the market in the interest of public policy. Now, I am 
for as much choice as possible. I am for the freedom of the 
marketplace. I am for competition. I do not want to adopt 
something that runs against the grain in those things, but we 
have got a couple of big things looming at us here. The biggest 
of all is global warming, the impact on the environment, the 
quality of the air that we are breathing and the combination of 
oil use, oil dependency and where it is going to come from in 
the long haul. It is in our interest from the public policy 
point of view to push the curve on the development of hydrogen, 
of hybrid, of alternatives that significantly alter this 
marketplace. And of course, and I say this to Mr. Reuther and 
others, we do not want to do it in a way that puts people out 
of work. Obviously we do not.
    So we have a difficult needle to thread here and we are 
trying to find a way to do it that is reasonable.
    Mr. Cohen. Mr. Chairman, I think you make very good points. 
It is important, as you deliberate, to keep in mind what the 
NAS said about lead time and about cost. Honda, too, is in the 
hybrid business. In fact, we brought the first hybrid to the 
United States, and in just 6 months we will be offering the 
Civic as a hybrid. We will have three types of motors in the 
Civic. Come April we will have a compressed natural gas, an 
internal combustion engine and a hybrid.
    The key point to remember, however, is that hybrid 
technology is expensive, and I do not know exactly how we are 
going to price it, but hypothetically, say in the $3- to 
$4,000-dollar range price differential. It is expensive 
technology. When gasoline is 95 cents a gallon, consumers are 
going to look at the gasoline Civic and they are going to look 
at the hybrid Civic and they are going to ask can they make up 
that differential in price over the life of their car?
    So in addition to lead time, the price of these 
technologies is very important in terms of achieving consumer 
acceptance.
    Senator Kerry. That is why Senator Rockefeller and I and 
others have a bill that tries to mitigate against that 
differential by creating an incentive for people to buy it with 
a tax credit.
    Mr. Cohen. And we are an original and enthusiastic 
supporter of the CLEAR Act.
    Senator Kerry. I hope that those policies can also be a 
part of the mix, in how we try to deal with this transition 
with the least negative impact, and I emphasize that. We want 
the least negative impact we can create. But the mix of cars 
remains, and means this is not going to be resolved by CAFE 
standards, but it is an interesting discussion to talk about, 
America's mix of offerings versus other people's mix of 
offerings. And it needs to be noted, it needs to be part of the 
overall fabric.
    It is one of the reasons why I think there is such a 
reliance among our domestic manufacturers, particularly of 
SUVs, on not changing the current dynamic because uncertainty 
is always scary in the marketplace, and nobody quite knows how 
they come out with respect to that competition. And right now 
there is a very nice niche there for these larger, more 
consumer-appealing, vehicles that do things that nobody needs 
to do, in some respects. I mean, people are driving around 
cities with cars that are advertised for climbing over mountain 
chasms. And to the best of my knowledge, most of the people 
never take them off-road. There is a mindlessness in what's 
going on. I know it is great marketing. But we have to measure 
how we begin to address some of that in the long term, and we 
have to find a thoughtful way to do it.
    Let me ask a couple of other things with respect to that. 
In the National Academy of Sciences report, I ask this of you, 
Mr. Davis and Ms. Cischke, they point out as of a few months 
ago. That it is their judgment that fuel economy can be 
improved by 8 to 11 miles per gallon, just using existing 
technologies at a net savings to consumers over the life of the 
vehicle. Do you accept that finding?
    Mr. Davis. Not that particular finding. No. And the issue 
there from our perspective is that although----
    Senator Kerry. That is without taking into account hybrid.
    Mr. Davis. Right. What they talked about there was a lot of 
different technologies that potentially can improve the fuel 
economy and will improve the fuel economy. Where we take issue 
with is having all of those to be additive. Now, I do think 
there are some issues that they talk about in there.
    Senator Kerry. What are they missing there? Why do they 
come up with 8 to 11 and you say no? What are the scientists 
missing? What is their misjudgment?
    Mr. Davis. Incrementally, in our position, incrementally as 
they went through and did the work associated with the 
incremental improvements, we would support their conclusions. 
The issue comes up to when you add all those together, what is 
the additive? And we have been continuing to dialog with NAS on 
that particular issue. The vast majority of the NAS report we 
clearly agree with and we think it makes a lot of sense and are 
moving forward in a number of those areas. And when they talk 
about pumping losses, we fully support the displacement on 
demand as I mentioned, and investigating the issue of clean 
diesels as well, so there is a lot of excellent work in the 
report. That particular area we are concerned about.
    Senator Kerry. Do you agree with that, Ms. Cischke?
    Ms. Cischke. Yes. I think it is difficult, just like this 
board shows here, and not all these things can be added 
together. And there are ranges in terms of the overall fuel 
economy improvement. And so it is easy to--it is a very complex 
set of calculations, and we met with the NAS panel and shared 
our concerns in certain issues.
    Senator Kerry. And what did they say? Did they accept your 
dissent or did they say we disagree with you?
    Ms. Cischke. I think that there has been an agreement to 
disagree, that there is not maybe the same view, that there 
certainly are different ways to look at it, but we have not 
reached consensus on that.
    Senator Kerry. Is there a level of fuel economy increase 
the industry would support?
    Ms. Cischke. Certainly, we are looking at ways to reduce 
fuel consumption and looking at all these new technologies, and 
because the system we have today has so many problems, CAFE had 
so many problems and it is so complex, that we really believe 
it is NHTSA that should take a look at that with help from 
industry and others, to really come up with something that 
could be effective.
    Senator Kerry. Do I interpret that to mean no, there is no 
figure?
    Ms. Cischke. There is no figure that I could----
    Senator Kerry. There is no figure you would accept? Well, I 
mean, are you operating under the notion that the CAFE standard 
is going to be abolished?
    Ms. Cischke. No. I know that we need to improve fuel 
efficiency.
    Senator Kerry. So you are accepting the notion that even 
NHTSA is probably going to come up with some increase?
    Ms. Cischke. Well, NHTSA will either come up with an 
increase or an alternative method as we talked about, maybe an 
attribute-based system. The devil really is in the detail of 
all of that, and so we need to really explore what it means. 
The overall goal is to reduce fuel usage and we need to make 
sure that whatever we do does that.
    Senator Kerry. I assume you are not going to sit here and 
tell this Committee that the industry cannot, that the industry 
believes that zero increase is the number that CAFE ought to be 
imposed. Is that, am I----
    Ms. Cischke. We have indicated that we believe that there 
would be an appropriate increase in CAFE. Just what that number 
is, is what is going to be difficult to come to.
    Senator Kerry. And you are not prepared as an industry to 
suggest in the next weeks a level that you think would be 
reasonable and acceptable?
    Ms. Cischke. I think it will take a lot of work to make 
that happen.
    Senator Kerry. Well, we are going to do that work. Do you 
want to do it with us?
    Ms. Cischke. We certainly do.
    Mr. Cohen. Mr. Chairman, our company, Honda, is not a 
member of the Alliance, and our perspective is that as we said, 
the NAS report is in the ballpark. I do agree with the 
testimony from Ford that the devil is in the details. Some of 
the reticence you probably are seeing comes from not knowing 
the details. What is the timeframe? Are we talking about an 
attribute-based system? What is the test methodology? We have 
heard some discussion about that.
    From Honda's perspective, the key elements are the 
standards should be equal for all manufacturers and the lead 
time should be reasonable.
    Senator Kerry. Honda wouldn't be driven by any notions that 
that might advantage them competitively with any of the other 
industry, would it?
    Mr. Cohen. Mr. Chairman, it is a very tough industry. We 
intend to compete in every sector. We do it reasonably well.
    Senator Kerry. Including at the witness table.
    [Laughter.]
    Mr. Cohen. I try.
    Senator Kerry. I accept that. Good try.
    Each of the Big Three has already made a pledge to improve 
fuel economy by 2005, particularly in the SUV fleet. You have 
already discussed, Ms. Cischke, what you are doing. And Mr. 
Davis, I think you did, too. What is the prime motivation for 
moving voluntarily to do that, or spontaneously within the 
market? Is it because you think the market is demanding it or 
you see us coming down the road?
    Mr. Davis. Well, as you are very well aware, when we make 
these decisions, we make these decisions on large amounts of 
money and capital. And so for instance, I will use a number of 
examples that are already in production rather than talk about 
the future. I mentioned the mid-sized SUV in which we 
completely changed over our engine technology to a line six 
with variable valve timing. That is in production in high 
volume.
    We are in production today with CVT transmissions in SUVs 
in high volume, or will be in high volume within the next year. 
And in my testimony, there is a number of things that are 
coming. I think as was indicated by Honda, this is a very 
competitive industry and we vote with our capital and we vote--
all of us vote to have the most competitive product. Those 
decisions and others were driven by those types of 
considerations and we will continue to do that as time goes by.
    Ms. Cischke. I would just like to comment, too, that it is 
customer-desired. We decided to focus on SUVs because they had 
indicated that was an area there that they would like to see 
improvement. And for instance, the SUV Escape will get 40 miles 
per gallon. That is a pretty significant improvement for that 
type of vehicle.
    Senator Kerry. I must say to you that I think if you can--I 
am not in the business, but if I were, boy, I would be moving 
as fast as I could to an SUV that compromised a little bit. In 
certain places.
    I think the compromises are fairly obvious, but still 
providing people with space and ability to get from here to 
there and do so with much better mileage. I drove--well, it 
does not have to be named, but I drove one of them until 
recently, and I loved it. It is a terrific car. But the mileage 
was just horrendous, and I gave it up because I just could not 
excuse driving a car with that low a mileage.
    And I think if you could provide any option--I wanted to 
buy a hybrid. I would have bought a hybrid, if it had been 
manufactured in that car, because of the comfort and the basic 
design of the car. But there is no hybrid. So I think you are 
missing something. I really do. I think the faster people move 
into that market, boy, the American consumer would love to save 
that money and put it into other things. Disposable income is 
cherished these days. And so I encourage you to do it and I 
hope we can come up with a reasonable way to help encourage you 
without doing more harm than good.
    Does anybody feel compelled to add anything before we 
liberate this panel?
    Ms. Mesnikoff. I would actually like to make a quick point. 
The attribute-base system has come up numerous times. The 
Sierra Club feels very strongly against that kind of a 
proposal, because it could potentially encourage manufacturers, 
or would encourage manufacturers to essentially focus their 
attention on perhaps the heaviest SUVs. And as long as they 
improved the fuel economy of those vehicles, they could perhaps 
dump production of much more efficient cars or other vehicles 
in their lines, so that the goal of achieving overall oil 
savings or over pollution reductions would not be achieved 
because of the amount of gaming that could go on.
    Manufacturers could, you know, again improve the fuel 
economy of a Suburban or an Expedition by 2 or 3 miles per 
gallon, whatever the new standard was--we think it should be 
higher. But unless you keep an overall average and ensure 
forward progress, you could see a migration toward those 
vehicles, achieve some incremental improvement there, but not 
get the overall gains we need to see.
    And again, one more point on consumer choice. The 
manufacturers point to the 30 or so models that might be over 
30 miles per gallon, but again, as you have pointed out, when 
you go to the marketplace and the consumers have decided that 
they are going to buy an SUV, for whatever needs that they 
have, their choice is very limited. The EPA trends report 
points out that the majority of light trucks, and I do not 
remember the exact percentage, are all within 4 miles per 
gallon of the average. Similarly for cars, 50 percent or more 
of cars are all within 4 miles per gallon of each other.
    And so the actual choice is not in the marketplace. And in 
fact, yesterday a marketing representative from a national 
company called me and said ``we are trying to come up with the 
sustainability program for our company to address environmental 
issues, and one of the big issues is vehicles that we drive to 
bring our products to trade fairs, et cetera. Where we have a 
big load, we are using minivans right now, but we are 
overloading them, and we have done all this research, but there 
is no choice for us. If we need an SUV, there is no fuel 
economy that actually achieves our environmental goals. What is 
your advice?''
    And there was not much I could give, because the 
manufacturers really are not giving consumers choice within 
vehicle categories. And I think that is what we really need to 
see. New standards phased in over the next 10 years will give 
consumers that choice.
    Senator Kerry. Well, that is a very good point. Half, that 
is 50 percent of the new trucks built since 1999, are all 
within 4 miles per gallon of each other. So that is not an 
enormous selection, obviously.
    Well, this has been helpful. I think it certainly has 
helped outline some of the parameters of what we need to slog 
through. And we are going to try to do it. We have another 
panel coming up to test some of what has been said here. I 
really thank you very, very much. I look forward to working 
with all of you within the next weeks.
    Thank you very much.
    Could we bring the next panel up if we could right away? 
Thank you. We expect brilliance because of what has gone 
before. You can just tear it all apart and add it and build it 
back up.
    Mr. Ditlow, we are going to begin with you and we will run 
down the table if we can from there. If you are ready to roll, 
thank you for being with us.

  STATEMENT OF CLARENCE M. DITLOW, DIRECTOR, CENTER FOR AUTO 
                             SAFETY

    Mr. Ditlow. Thank you, Mr. Chairman. I will summarize my 
testimony and ask the full testimony be included in the record.
    Senator Kerry. It will be, without objection.
    Mr. Ditlow. The Center for Auto Safety's position on safety 
and fuel economy has been consistent over time. Technology 
exists to improve both safety and fuel economy.
    When CAFE standards were enacted in 1975, the vehicle fleet 
had dismal safety and fuel economy. Government regulations 
changed all that. Overall, the inherent safety of passenger 
cars built to meet the 27\1/2\-mile-per-gallon CAFE standard is 
twice that of the older, heavier more gas guzzling cars of the 
1970s.
    The government regulations forced the auto companies to 
redesign their fleet and the public benefited in both increased 
safety and fuel economy. There were a large number of small 
unsafe vehicles on the road in 1975. They are gone. Replaced by 
larger, safer and more fuel efficient vehicles.
    Prior to CAFE, there were many models that weighed less 
than 2,000 pounds. The 1,800 pound Honda Civic of the mid-1970s 
now weighs 2,600 pounds and gets 40 miles per gallon versus 32. 
That Civic went from failing NHTSA's crash test to passing with 
flying colors and in both front and side crash tests at 35 and 
38 miles per hour, the chance of serious injury in the Civic is 
less than 10 percent, but the disparity of weights and vehicles 
is much more important to occupant safety than the average 
weight of all vehicles sharing the road.
    Specific design features that affect the inherent safety of 
individual vehicles and their compatibility when they collide 
can play a more important role than the weights of the 
individual vehicles. By that I mean things like the stiffness 
and the height of the vehicle.
    Since adoption of CAFE, small passenger cars got heavier 
while large passenger cars got lighter with the biggest growth 
in new car fleet coming in the middle with 3,500-pound cars 
going from 12 percent to 15 percent. Cars with inertia weights 
less than 2,500 pounds made up 11 percent of the 1975 fleet, 
but only 2.6 percent of the 2000 fleet. In contrast, passenger 
cars over 4,500 pounds made up 50 percent of the fleet, and now 
they are only 1 percent.
    What has happened is we have homogenized the fleet and the 
fleet has gotten safer. As the General Accounting Office 
pointed out in 1991, every car in the fleet got safer, even the 
biggest cars that got downgraded by 1,400 pounds. That car, the 
down-weighted car, was safer than its gas guzzling predecessor.
    It is simply a myth to suggest that the vehicle fleet 
itself got less safe because of CAFE standards. Even more 
aggressive SUVs have been introduced. Passenger car safety and 
fatalities continue to improve. For example, in 1979 to 1999, 
when passenger cars increased by 24 percent to 124 million 
vehicles on the road, their fatalities went down by 7,600, 
while at the same time, the number of light trucks and vans on 
the road including SUVs had a threefold increase. So if this 
disparity had a tremendous effect on safety, we would have seen 
it. Instead, we have fewer fatalities.
    The major increase in light trucks and vans, though, used 
to substitute for passenger cars in the vehicle fleet has kept 
the number of light vehicle occupant fatalities from falling as 
much as other crash statistics. We have 2,000 additional 
fatalities each year due to rollovers of light trucks and vans.
    What we need to do when we look at the vehicle fleet today 
is do the same thing in the truck fleet that we did in the 
passenger car fleet. We dropped the weight of the heaviest 
vehicle. We need to drop the weight of the heaviest SUV. Today, 
an SUV, the average SUV weighs, large SUV weighs 5,400 pounds. 
In 1975, the average large car weighed about 5,200 pounds. It 
lost 1,400 pounds.
    The SUV could lose weight and maintain its size and its 
horsepower and by the example of a Suburban which went down 500 
pounds in weight. An example of the Suburban that went down in 
engine size went up in transmission efficiency and got about a 
4-mile-per-gallon increase in fuel economy.
    We can use technology to improve both vehicle safety and 
fuel economy and the other aspect, though, is the introduction 
of SUVs because they are stiff, heavy and high, has increased 
the adverse effect on lighter cars. In a collision, we have 
about 1,000 additional lives lost each year that we could save 
if these vehicles were made lighter, lower and softer.
    The answer to the SUV is not to take the SUV to take the 
SUV away from anyone, it is to make it a better SUV that is 
safer for its own occupants because it's lower, less rollover 
prone and because it will, in fact, be more crashworthy and 
absorb energy in a crash with a fixed object.
    Now, given the extent that the auto companies have concerns 
over auto safety, there are a number of real simple measures we 
could adopt in the future that would save 10- to 18,000 lives 
per year. They are stronger roofs for rollover protection, 
improved safety belt design, advanced crash avoidance 
technology, reduced aggressivity of light trucks and vans and 
more effective seatbelt use in distance.
    If we do this, we can do exactly the same thing in the 
future that we did in 1975. We can use technology to make the 
cars safer and more fuel efficient and that is the challenge 
for the auto industry and the government and absent government 
regulation, if we do not see cars of tomorrow being safer and 
more fuel efficient in the light truck market, which is where 
we need the improvements.
    Thank you.
    [The prepared statement of Mr. Ditlow follows:]

          Prepared Statement of Clarence M. Ditlow, Director, 
                         Center for Auto Safety

    Mr. Chairman and members of the Committee, thank you for the 
opportunity to testify on the safety aspects of Corporate Average Fuel 
Economy (CAFE) standards for passenger cars and light trucks. The 
Center for Auto Safety (CAS) is a consumer group founded in 1970 that 
works to improve motor vehicle safety, fuel economy and quality.
    CAS has supported and testified in favor of stringent motor vehicle 
fuel economy standards since the first hearings held by Congress in 
1974 on what became the Energy Policy and Conservation Act (EPCA). Our 
position on safety and fuel economy has been constant over time: the 
technology exists to improve both the safety and fuel economy of motor 
vehicles.
    In 1971, CAS criticized the original VW Beetle as one of the most 
unsafe vehicles ever built and pointed out that it didn't have to be 
that way. It no longer is. The 2001 new Beetle is about 25 percent more 
fuel efficient than the old Beetle and is dramatically safer in both 
NHTSA frontal and IIHS offset crash tests.
    The Beetle is not alone. Prior to CAFE, there were many models that 
weighed less than 2,000 pounds. The only vehicle under 2,000 pounds 
today is the Suzuki Vitara, which is an SUV. The 1,800 pound Civic of 
the mid-1970s now weighs 2,600 pounds and gets 40-mpg versus 32-mpg. 
The Civic went from failing NHTSA 35-mph crash tests to getting 5 
stars. The Pinto got replaced by the Escort; the Chevette by the Nova. 
All get better fuel economy and all are safer.
    Overall, except for rollover performance, the inherent safety of 
passenger cars built to meet the 27.5 mpg CAFE standard is twice that 
of the older, heavier, more guzzling cars of the 1970s.\1\ Yet, despite 
the talk about the possibility that fuel economy might compromise 
safety, neither the auto industry nor the government has made safety a 
real priority then or now. We were not pushing the safety technology 
envelope in the mid-1970s and we are not pushing it now.
---------------------------------------------------------------------------
    \1\ The fatality rate of passenger cars in crashes with other cars 
or in single vehicle, non-rollover crashes in 1999, per registered 
vehicle, is half that of passenger cars in 1979. Rollover safety is a 
function of a vehicle's handling and stability, its roof strength, and 
its restraint performance, not its weight.
---------------------------------------------------------------------------
    When one considers road transportation generally, the disparity in 
the weights of vehicles is much more important to occupant safety than 
the average weight of all vehicles sharing the road. Furthermore, 
specific design features that affect the inherent safety of individual 
vehicles and their compatibility when they collide, often play a more 
important role than the weights of the individual vehicles. In the 
passenger car fleet, the disparity in vehicle weight has decreased 
dramatically.
    Cars with inertia weights less than 2,500 pounds made up 10.8 
percent of the 1975 new car fleet but only 2.6 percent of the model 
year 2000 cars. In contrast, passenger cars over in the 4,500 pound 
weight class and above made up 50 percent of the 1975 new car fleet but 
only 0.9 percent of the 2000 model new cars.
    The decline in full-size car weight is not due to introduction of 
SUV's since the market share of 4,500 pound and heavier passenger cars 
had dropped below 1 percent by 1985. Since adoption of CAFE, small 
passenger cars got heavier while large passenger cars got lighter with 
the biggest growth in the new car fleet coming in the middle with 3,500 
pound cars going from 12.5 percent of the new car fleet in 1975 to 51.9 
percent in 2000. The net effect has been a safer passenger car fleet, 
particularly when one considers improved safety technology built into 
passenger cars.
    Advances in fuel economy technology have lead to a gain in overall 
fleet from 1980-2000 from 22.5 to 24.0 even though the average weight 
of the fleet went up from 3,227 pounds to 3,868 pounds during that 
timeframe. Improvements since 1980 are particularly significant since 
the easy technology gains of going from carburetors to fuel injection, 
from engine modifications to catalysts for emissions control, from 3-
speed to 4-speed transmissions, and the down weighting of the large 
cars had already occurred. Attached to my testimony are examples of 
particular vehicles since 1980 that have used more technology to 
improve fuel economy or maintain fuel economy while upsizing. For 
example, the Toyota Corolla had a 25 percent improvement despite a 10 
percent gain in weight despite going from 5,000 to 5,500 pounds, the 
GMC Suburban increased its CAFE by 27 percent from 14.3 to 18.1 mpg 
through modest drivetrain improvements including going from a 3-speed 
automatic to a 4-speed lockup. Despite going from a 5.7L to a 5.3L 
engine, the Suburban's horsepower went from 165 to 265.
    Over the last two decades, highway fatalities have gone down nearly 
20 percent while travel has increased by more than 40 percent. This is 
a reduction of more than 50 percent in fatalities per mile traveled 
over 20 years. During the same period, pedestrian fatalities went down 
by one-third, and motorcycle fatalities went down by half. There were 
no particular safety innovations or design changes that would have 
affected these fatalities, but motorcycle registrations decreased from 
5.4 million in 1979 to 3.8 million in 1999. Increased helmet use 
accounts for some of the reduction in motorcycle fatalities. Passenger 
car and LTV occupant fatalities were down about 10 percent. That 
reduction was mostly in single-vehicle, non-rollover crashes and in 
crashes between two passenger cars. The following Table shows some 
basic motor vehicle fleet and crash statistics.

 Table--A Comparison of Selected U.S. Motor Vehicle Statistics Over the
                              Last 20 Years
------------------------------------------------------------------------
Some Basic U.S. Motor Vehicle Statistics       1979            1999
------------------------------------------------------------------------
Registered Motor Vehicles...............            144M            212M
    (Percent Passenger Cars/Percent            (72%/20%)       (59%/35%)
     LTVs)..............................
    (No. Passenger Cars/No. LTVs).......        104M/28M        125M/74M
Vehicle Miles Traveled..................            1.5B            2.7B
People Killed as Passenger Car Occupants          27,788          21,164
People Killed as Light Truck and Van               7,119          10,647
 Occupants..............................
Pedestrians and Pedalcyclists Killed....           9,021           5,981
Heavy Truck (> 10,000 lbs.) Occupants              1,087             936
 Killed.................................
Motorcycle Riders Killed................           4,679           2,284
------------------------------------------------------------------------

    The reduction in light vehicle occupant fatalities is a result of a 
number of factors including a substantial increase in safety belt use, 
the almost universal installation of airbags in recent model light 
motor vehicles, and the implementation of the dynamic side impact 
standard. Rollover fatalities have decreased modestly in passenger 
cars. Rollover fatalities have increased dramatically in pickup trucks 
and SUVs, consistent with the comparative growth in the number of these 
vehicles in the fleet. Overall, fatalities in rollovers of pickups and 
SUVs have more than doubled.
    These data suggest several conclusions that will help in 
considering the potential impact of future changes in vehicle fuel 
economy on safety. The major increase in LTVs used as substitutes for 
passenger cars in the vehicle fleet has kept the number of light 
vehicle occupant fatalities from falling as much as other crash 
statistics. The increased use of LTVs as substitutes for private 
passenger vehicles has produced at least 2,000 additional rollover 
fatalities annually.
    The greater number of LTVs in the U.S. fleet has increased 
passenger car occupant fatalities in crashes with LTVs by more than 50 
percent while passenger car occupant fatalities in crashes with other 
passenger cars decreased by nearly 50 percent. The consequence is that 
light vehicle occupant fatalities in two-vehicle crashes went down only 
about 10 percent while fatalities in single-vehicle crashes went down 
more than 25 percent from 1979 to 1999. This reduction was driven by a 
45 percent reduction in passenger car single-vehicle crash fatalities. 
Two-vehicle crashes would have killed nearly 1,000 fewer people without 
the major increase in LTVs as passenger car substitutes.
    More even-handed regulation of LTVs used as passenger vehicles, in 
relation to passenger cars, should slow or even reverse these trends in 
increased occupant fatalities.
    If the disparity in weights between passenger cars and light trucks 
becomes wider, either because of the design and marketing practices of 
the auto makers or because of continuing regulatory policies that 
differentially affect cars and light trucks, fatalities in these types 
of two-vehicle crashes will continue to increase relative to other 
types of automotive casualties. Reducing this weight disparity will 
have a salutary impact on casualties in two-vehicle crashes.
    No more than one out of four light vehicle occupant fatalities 
would be influenced by changes in vehicle weight to improve fuel 
economy. Furthermore, the effect on weight disparity on these 
fatalities is marginal--almost certainly less than the effect on 
fatalities of the major increase in LTVs in the fleet. Had light 
vehicle occupant fatalities in two-vehicle crashes decreased to the 
same degree as single vehicle crash occupant fatalities (other than 
from rollovers), the effect would have been roughly 2,000 fewer 
fatalities (less than 5 percent of the total in 1999).
    Some crash losses are fundamentally dependent on the weights of the 
vehicles involved while others are not. Clearly, in two-vehicle 
crashes, occupants of the lighter vehicle are at a disadvantage. This 
effect has been seriously exacerbated with the introduction of large 
numbers of LTVs into the U.S. vehicle fleet, not only because of the 
LTVs' greater average weight, but because of their stiffer structure 
that is higher off the ground than passenger car structures. Just like 
large cars posed more of a hazard to small cars until they were down 
sized, so do large SUV's pose a hazard to small SUV's and pickups as 
well as small cars. In the 2000 model year, large SUV's weighing an 
average 5,439 pounds comprised 5.5 percent of the new passenger vehicle 
(cars, trucks and vans) while small SUV's were nearly 1,800 pounds 
lighter at 3,670 pounds with 2.3 percent of the new passenger vehicle 
fleet. Just as large cars lost nearly 1,400 pounds in weight from 5,142 
pounds to 3,792 pounds between 1975 and 2000, large SUVs should go on a 
diet to lose a similar amount of weight with a net resultant gain in 
fleet safety.
    Light trucks, vans and SUVs pose a significant safety hazard to 
their own occupants, to passenger car occupants and to pedestrians.
     In crashes between cars and all types of LTVs, the 
fatality rate for car occupants is four times higher than for LTV 
occupants.
     On the other hand, LTVs have up to a four times higher 
rate of involvement in fatal rollover crashes.
     The stiffness of LTVs results in more intrusion into their 
occupant compartment in crashes into fixed objects as shown by IIHS 
offset crash tests.
     For vehicles of the same weight, LTVs have a higher 
fatality rate than passenger cars.
     Because of their height and broad front ends, LTVs are 
more likely to kill or seriously injure pedestrians than are passenger 
cars.
     NHTSA has not even begun to seriously address the two 
primary safety consequences of using LTVs as passenger vehicles: their 
propensity to rollover and their aggressivity in collisions with cars 
and people. A few crash tests and some colored stickers are not in any 
way adequate responses.
     Introduction of LTVs has degraded safety overall because 
of their excess weight, stiffness and height that makes them very 
aggressive in collisions and because of their propensity to rollover 
and seriously injure their own occupants. Making LTVs ``lighter, lower 
and softer'' would increase the safety of their own occupants while 
making them safer for others on the road.
     LTVs will pose an increase threat to passenger cars as 
they get older and are passed on to younger and more accident prone 
drivers.
    Given the extent auto makers profess concern about auto safety in 
the debate over CAFE, they should take safety more seriously 
independent of fuel economy requirements. Until they do, arguments 
about the nexus between safety and fuel economy have a hollow ring. A 
number of simple, inexpensive designs and technologies that could have 
a major impact on safety, independent of fuel economy, remain to be 
broadly implemented. These include:
     Effective safety belt use inducements. Currently, 18,000 
people die who were not wearing safety belts: 6,000 to 10,000 could be 
saved by effective belt use inducements.
     Stronger roofs for rollover protection. Although a 
majority of casualties of rollovers are still unbelted and ejected, 
2,000 belted occupants die annually, mostly because of roof crush. With 
increased belt use, the number of casualties from roof collapse and 
buckling will increase. SUVs that have a GVWR over 6,000 pounds need 
not even meet the inadequate roof strength standard for passenger cars. 
A GMC Suburban will not support its own weight if gently lowered onto 
it's a-pillar without its windshield.
     Improved safety belt design and performance. This includes 
belt pre-tensioners that trigger on rollover as well as on frontal and 
side crashes. An additional 3,000 to 5,000 could be saved by an 
effective rollover protection system: a strong roof, belt pre-
tensioners that trigger on rollover, the interior padding required by a 
new Federal standard, and window curtain airbags.
     Advanced crash avoidance technologies. This includes smart 
cruise controls, yaw control systems, non-pulsing anti-lock brakes, and 
drowsy driver warnings. New computer and communications technologies 
should provide major opportunities to reduce the probability of 
crashes.
     Reduced aggressivity of light trucks and vans. More energy 
absorbing and less rigid front ends, lower heights and reduced weight 
would save 2,000 lives per year.
     Reduced rollover propensity. Light trucks and vans can be 
made safer by lowering their center of gravity, increasing track width 
and using yaw control systems.
    The numbers of actual lives that could be saved by auto 
manufacturers adopting these technologies and counter measures range 
from 10,000 to 18,000 per year or far in excess in the number of 
hypothetical lives lost through adoption of stronger CAFE standards.
    Policy makers must recognize that the desirability of increased 
fuel economy--lower vehicle operating costs, reduced pressure for oil 
imports and drilling in inappropriate places, and a lesser global 
warming threat--should not be considered as antithetical to safety. The 
automobile companies have the capability, if not the will to improve 
both as they did with automobiles after the first gas crisis. Just as 
Congress changed the auto industry in 1975 from a can't do industry to 
a can do industry with the fuel economy standards of the Energy Policy 
and Conservation Act, Congressional action is once again needed to 
force fuel economy improvements from an industry that has reverted to 
can't do. A 40 mpg fleet corporate average fuel economy standard for 
all passenger vehicles under 10,000 pounds will save fuel and lives by 
forcing the auto companies to put new technology for safety and fuel 
efficiency into the vehicles of tomorrow.
[GRAPHIC] [TIFF OMITTED] T9683.003

    Senator Kerry. Thank you very much.
    Mr. Olson.

 STATEMENT OF JAMES OLSON, SENIOR VICE PRESIDENT, TOYOTA MOTOR 
                      NORTH AMERICA, INC.

    Mr. Olson. Good afternoon. One of Toyota's founding 
principles was the avoidance or elimination of waste, a 
principle that still permeates our products. In the 1980s, 
Toyota began to use engines with 4 valves per cylinder, 
overhead cam shafts and multiport fuel injection.
    Today all of our engines incorporate these fuel saving 
technologies and most also now have lightweight aluminum blocks 
and heads, variable valve timing--62 percent have variable 
valve timing--and increased compression ratios.
    As a result, in 2001, the EPA rated 6 Toyota vehicles--more 
than any other brand--as most fuel-efficient. They range from 
small to large and from SUV to passenger car to pickup.
    Our new models usually are more fuel efficient than their 
predecessors. For instance, the 1990 Corolla achieved 28.6 
miles per gallon, while the 2000 Corolla improved to 32.6. The 
world's first hybrid electric gasoline vehicle, the Toyota 
Prius, is even more fuel-efficient, boasting EPA fuel economy 
ratings of 52 city, 45 highway and 48 combined. Furthermore, it 
is certified to California's super ultra low emissions 
standard. Toyota will continue to increase fuel efficiency 
while striving to give customers the performance and utility 
they demand. Fuel cells, for example, show great promise but we 
do not expect this technology to be available in any 
significant quantity for at least a decade.
    All of our sales and marketing data indicate that fuel 
economy ranks low with most American vehicle buyers. This is no 
surprise. Despite this, because of our corporate culture, we 
always have exceeded the car and truck CAFE standards. And we 
have done so without using credits accumulated under the 
existing CAFE program and while becoming a full-line 
manufacturer. For example, 45 percent of our sales year to date 
fall into the light duty truck category.
    Camry is a good example of our philosophy. 75 percent of 
Camrys sold have fuel-efficient 4-cylinder engines that provide 
performance matching competitor's 6-cylinder engines and Camry 
is America's best-selling car. Its combination of high volume 
sales and fuel efficiency is the gold standard of how to 
improve fuel economy.
    Although automakers improve product-by-product fuel 
efficiency, consumers determine the aggregate fuel economy of 
the 16 million new vehicles sold here each year by what they 
choose to buy. Therefore, in shaping future energy policy, the 
challenge of addressing fuel economy should not be placed 
solely on manufacturers. We have a very large role to play, but 
Congress can help by passing legislation to send consumers a 
signal that buying a fuel-efficient vehicle is the right thing 
to do.
    For example, if Americans are rapidly to embrace fuel 
efficient but expensive hybrid technology in high volume, 
incentives such as tax credits and single occupancy access to 
HOV lanes will be required. Fortunately, the CLEAR Act already 
incorporated an H.R. 4 would provide consumer tax credits.
    Toyota looks forward to working with this Committee, the 
Administration and others to develop a sound approach in this 
process. I emphasize the need for fairness, effectiveness and 
engineering lead time. The NAS report says that ``any changes 
to the current CAFE system should not,'' and I quote, and this 
also was noted by Honda's Ed Cohen, ``impose higher burdens on 
those manufacturers who had already done the most to reduce 
energy consumption.''
    Specifically, NAS said that to require each manufacturer to 
improve its own CAFE by a defined percentage, the so-called 
uniform percentage increase approach, quote, ``punishes those 
who have done the most.'' In my presence, at our meeting with 
them one NAS panel member even called UPI unwarranted 
punishment of innovation.
    More importantly, the discrimination inherent in UPI would 
frustrate effective energy conservation and environmental gains 
by causing higher fuel economy vehicles to be replaced by lower 
mileage vehicles from producers with lower fuel economy 
targets. This would create an environmental loophole that would 
dwarf the so-called SUV loophole by allowing some manufacturers 
to meet a lower standard with their entire product line.
    If you support the progress clearly delivered over the last 
20 years by competition, you must be against UPI.
    In addition to fairness and effectiveness, any future 
program must recognize the many years required to develop new 
technology and incorporate it into vehicles and bring them to 
market. A process cannot be turned on a dime without severe 
consequences from both consumers and industry.
    Thank you for the opportunity to testify. We at Toyota look 
forward to working constructively toward even more fuel-
efficient vehicles.
    [The prepared statement of Mr. Olson follows:]

       Prepared Statement of James Olson, Senior Vice President, 

                    Toyota Motor North America, Inc.
    Toyota appreciates the opportunity to submit its views on Corporate 
Average Fuel Economy.
    One of Toyota's founding principles was the elimination of waste. 
This principle still permeates our corporate philosophy and is, 
therefore, quite evident in our processes and products.
    Toyota always has recognized and pursued our responsibility to 
improve the fuel efficiency of our products. Most importantly, we 
believe that achieving real environmental gains and fuel use reductions 
requires wide consumer acceptance of our vehicles. For this to happen, 
vehicles must offer expected performance, be convenient, affordable and 
use a readily available fuel so that their utility is not hobbled by 
insufficient infrastructure. Toyota believes the next core powertrain 
technology that meets these criteria is the hybrid electric, addressed 
in greater detail below.
    This testimony will first address Toyota's North American 
operations and then will focus on the technology Toyota has used and 
will use to improve the fuel efficiency of our vehicles. Finally, it 
will describe some of the challenges associated with increasing fuel 
efficiency while meeting the demands of a market, which--
unfortunately--does not value it highly.

                   TOYOTA'S NORTH AMERICAN OPERATIONS

    With total North American investment of $12 billion and sales last 
year of more than 1.7 million new vehicles, Toyota is the fourth 
largest motor vehicle manufacturer in North America. We directly employ 
over 31,000 associates. We produce more than one million cars and 
trucks a year at our plants in Kentucky, Indiana, California and 
Ontario, Canada. We manufacture 4- and 6-cylinder engines in both West 
Virginia and Kentucky. The West Virginia facility also produces 
automatic transmissions.
    In addition, Toyota has parts manufacturing facilities in Missouri, 
California and British Columbia and has begun construction of a $220-
million V-8 engine plant in Huntsville, Alabama, to supply our Indiana 
truck plant.
    These and other Toyota facilities in the U.S., Canada and Japan 
purchased nearly $15 billion in U.S. parts and materials last year. 
Toyota's U.S. retail sales force is comprised of more than 1400 Toyota 
and Lexus dealers, who employ 95,000 Americans and have a total U.S. 
investment of nearly $9 billion dollars.

     TOYOTA'S USE OF ADVANCED TECHNOLOGY TO IMPROVE FUEL EFFICIENCY

    Toyota will continue to be a leader in automotive technology. In 
the 1980s and early 1990s, Toyota began widespread use of engines with 
4 valves per cylinder, overhead cam and multi-port fuel injection to 
improve fuel efficiency. Today, 100 percent of our fleet is equipped 
with multi-port fuel injection and 4 valves per cylinder. In addition, 
much of our engine line-up has been reengineered since 1990 in our 
efforts to improve fuel efficiency and reduce emissions. Most of our 
engines also now have lightweight aluminum blocks and heads, variable 
valve timing and increased compression ratios.
    Likewise, Toyota has developed and is now introducing a new 
generation of lightweight, compact and highly efficient automatic 
transmissions. In the future, Toyota also plans to offer energy-saving 
technologies such as electric power steering.
    All these technologies boost fuel efficiency while simultaneously 
providing our customers the performance and utility they demand.
    As a result of our investment in this technology, in 2001, EPA 
rated six Toyota vehicles as ``most fuel-efficient'' in their class--
the Prius, ECHO, Avalon, RAV4, Tacoma and Sienna. This is more than any 
other automotive brand. These vehicles range from small to large, from 
SUV to passenger car to pickup to minivan. They all incorporate most of 
the best available fuel economy technology.
    Even Toyota's Lexus division, which competes in the high-end 
performance market--and in 2000 was the luxury market's sales leader--
has never produced a car subject to the gas-guzzler tax. In large part, 
this is because of our aggressive application of fuel-efficient 
technology, even in a market segment where it ranks very low as a 
purchase reason.
    Consistent with Toyota's philosophy of continuous improvement, each 
new generation of vehicle generally is more fuel-efficient than its 
predecessor. In 1990, for instance, the fuel economy of our Corolla was 
28.6 mpg. In 2000, with the application of variable valve timing, 
sequential fuel injection, weight reduction and other technologies, 
Corolla's fuel economy improved to 32.6 mpg. But make no mistake, 
squeezing ever-greater fuel efficiency out of each succeeding 
generation of vehicle is extremely difficult, when married with the 
marketplace demands for performance, utility, safety and affordability.
    Some of the most promising engine technologies from a fuel 
efficiency perspective are lean-burn gasoline and diesel engines. 
Toyota currently offers these engines in Japan and Europe. However, 
Federal Tier II and California LEV II emission standards make their 
future use in the U.S. questionable.
    For example, Toyota has developed a lean-burn catalyst system for 
gasoline vehicles and a diesel particulate and NOx reduction system to 
control emissions from these engines. Although we are continuing to 
work on them, they will need to be further improved before they can be 
certified for use in the United States. The availability of low-sulfur 
gasoline and diesel fuel will be critical to any possible U.S. future 
for these technologies.
    In 1997, Toyota introduced the world's first mass-market hybrid 
gasoline-electric vehicle--the Prius--in Japan. The second-generation 
Prius introduced in the United States and Europe in 2000 incorporates a 
number of improvements in an effort to accommodate customer demands--
including improved performance, fuel efficiency and reduced emissions. 
The U.S. version, for example, has an EPA fuel economy rating of 52 mpg 
city, 45 mpg highway and 48 mpg combined. In addition, Prius is 
certified to California's Super Ultra Low Emission Vehicle (SULEV) 
standard.
    The improvements made to the second-generation Prius also have 
enabled it to have greater driving distance on electricity, and a much 
smaller battery pack, which reduces weight and increases cargo 
capacity.
    Looking to the future, Toyota will continue to develop and apply 
technology that increases fuel efficiency while giving customers the 
performance and utility they demand.
    New conventional technologies like those previously mentioned will 
be developed, refined and utilized. We also will continue to improve 
the Toyota Hybrid System (THS) and incorporate it into a wider range of 
vehicles as rapidly as possible. For example, Toyota just introduced a 
limited-volume four-wheel-drive hybrid minivan in Japan called the 
Estima. Initial sales have met expectations and we are hopeful they 
will continue at an acceptable rate.
    Finally, Toyota has recently introduced two fuel cell concept 
vehicles--the FCHV4 and FCHV5. The base body for both vehicles is the 
mid-sized Highlander SUV we sell here in the U.S. The FCHV4 runs on 
pure hydrogen, while the FCHV5 runs on a clean hydrocarbon fuel 
reformed on-board into hydrogen. Both vehicles are called fuel cell 
hybrid vehicles because they use a fuel cell in place of a conventional 
engine in conjunction with the Toyota Hybrid System. But we do not 
expect fuel-cell hybrids to be available in any significant quantity 
before 2010 at the earliest.

         INCREASING FUEL ECONOMY WHILE MEETING CONSUMER DEMAND

    As the Committee can see, Toyota has aggressively developed and 
applied technologies that increase fuel efficiency while providing the 
types of vehicles consumers demand. The element of consumer demand is 
critical to the marketplace success, in fact, the existence, of any 
manufacturer. All of us must meet demand or suffer the consequences.
    Through the application of technology, we believe we have been able 
to successfully balance these two competing demands. The key question 
is whether, even with our planned technology, we can continue to meet 
this challenge in the future without losing some of our customers 
because of high prices.
    Although it varies by segment, all our sales and marketing data 
indicate that fuel economy is low on the shopping list of the typical 
American vehicle purchaser. Despite this, because of our corporate 
culture, over the years Toyota has always exceeded the car and truck 
CAFE standards. We have done so without using any of the credits we 
have accumulated under the existing CAFE program and while becoming a 
full-line manufacturer.
    Looking to future energy policy, Toyota believes that any program 
designed to improve vehicle fleet fuel economy cannot focus solely on 
the vehicle manufacturer. The demand side of the equation also must be 
addressed--as it is in countries such as Japan--if policymakers are 
going to send consumers the proper signal that fuel economy is an 
important attribute to consider when purchasing a vehicle.
    There is a crucial distinction among fuel efficiency, fuel economy, 
and fuel usage. The automaker is the primary driver of product-by-
product fuel efficiency. In this effort, automakers face a complex 
combination of product tradeoffs including vehicle size, cargo and/or 
towing capacity, the technical challenges inherent in new technology, 
desired price-positioning, the often conflicting demands of safety, 
emissions and fuel regulations, and the how-much/how-soon calculation 
imposed on us by the limited capacity of our product-development 
workforce.
    In contrast, the aggregate fuel economy of the approximately 16 
million new vehicles sold each year in the United States is determined 
by the mix of vehicles consumers choose to buy.
    And finally, the total amount of fuel usage each year is determined 
by the first two factors plus how much and in what way customers choose 
to use their vehicles.
    In our efforts to continue to improve fuel efficiency, Toyota is 
looking to a new generation of advanced technologies, such as gasoline/
electric hybrids and fuel cells. Looking at the customers purchasing 
our Prius and Honda's Insight, tells us that it will be a big challenge 
to move these advanced technologies from niche to mass market.
    The primary difficulty in moving from conventional to hybrid 
powertrain technology is increased cost. The Toyota Hybrid System has 
the highest degree of hybridization and benefit of any system now 
available or proposed. If we are to spread this fuelefficient 
technology to other body styles and reach high-volume segments as 
rapidly as possible, some form of incentives will be required to reduce 
its price premium.
    Ongoing development may further improve the benefits of the Toyota 
Hybrid System and reduce its cost. And we can expect some level of 
savings if higher levels of mass production can be achieved. However, 
incentives will be necessary to get us past the early years and lower 
volumes. In Japan, for example, Prius buyers are eligible for both 
national and local incentives, which can total over $2,800. Yet, there 
is no such incentive at the Federal level in the U.S.
    The CLEAR Act, presently pending before the Senate Finance 
Committee and which also has been amended and passed by the House as 
part of H.R. 4, provides consumer tax credits for advanced technology 
vehicles in an effort to narrow their price premium. Indirect 
incentives, such as the provision in the House-passed bill, which 
clarifies that states are allowed to grant single occupant hybrids the 
use of HOV lanes, are another way to help enhance the attraction of 
these new-technology vehicles to consumers.
    Given the success of the Prius, the Committee may ask why 
incentives are necessary. The answer is that the typical Prius buyer is 
very different from the typical compact buyer. Prius purchasers are 
older, wealthier, more educated and more interested in technology than 
typical compact buyers. Therefore, to reach the typical buyer of a 
vehicle in the compact or any other high-volume market segment, 
something must be provided to encourage buyers to purchase an 
advancedtechnology vehicle or the most fuel-efficient vehicle in that 
segment. In shaping future energy policy, the challenge of addressing 
fuel economy should not be placed solely on manufacturers. Clearly, and 
inescapably, we have a large role to play and Toyota will do its part. 
But Congress can help by passing incentive legislation to bring the 
consumer into the fuel-economy equation. A one-sided program is likely 
to lead to less than optimum energy savings.
    Toyota appreciates the opportunity to work with this Committee as 
well as others and with the Administration to help develop a sound 
approach to fuel economy. We believe this process should begin with a 
thorough examination of the NAS Report by the agency with the greatest 
expertise on this issue, NHTSA, as it begins its rulemaking to set 
future fuel-economy standards.
    The NAS Report demonstrates the complex set of issues that must be 
addressed in establishing a fuel economy program for the future. 
Product cycles, safety tradeoffs, the time needed for technological 
advances, and issues related to the structure of any program (e.g. 
credit trading across cars and trucks and among manufacturers, 
attribute or weight-based programs) make the task of developing the 
appropriate policy difficult.
    With respect to the current CAFE system, the NAS Report and its 
predecessor Report in 1992 make it clear that the existing import/
domestic fleet distinction for passenger cars is counter-productive in 
today's industry and should be eliminated. The NAS could find no 
analysis or research to justify the fleet distinction, but did find 
that the requirement was increasing costs to consumers and perversely 
providing an incentive for manufacturers to use less domestic content 
in their vehicles. Toyota supports the NAS findings.
    The NAS panel also makes clear that any change in the structure of 
the existing program should not ``impose higher burdens on those 
manufacturers who had already done the most to help reduce energy 
consumption.'' Specifically, NAS said that to require each manufacturer 
to improve its own CAFE average by a defined percentage ``punishes 
those who have done the most to improve the environment,'' increases 
the cost of environmental compliance, reduces competition and ``seems 
to convey a moral lesson that it is better to lag than to lead.'' 
Commonly referred to as the Uniform Percentage Increase (UPI) approach, 
such a policy would be a huge disincentive for future technological 
innovation and development and would provide a strong incentive for 
manufacturers not to exceed regulatory standards. Some industry experts 
have summed up the UPI concept by saying that it stands for Unwarranted 
Punishment of Innovation.
    Most importantly, to the extent that the discrimination inherent in 
the UPI approach causes higher fuel economy vehicles to be replaced by 
lower mileage vehicles from producers with lower fuel economy targets, 
energy conservation and environmental goals would suffer as 
improvements in overall fleet fuel economy and CO2 reduction 
goals would not be met.
    UPI or UPI-like approaches which seek to impose higher standards on 
one company compared with another based on an arbitrary base year or 
vehicle attribute fail on both policy and environmental grounds. The 
UPI approach has been highly discredited in the past and the NAS again 
heavily criticized and strongly cautioned against such an approach. 
Toyota strongly agrees.
    Another point that is crystal clear in the NAS Report is the need 
for adequate lead time. It took years to develop many of the advanced 
technologies previously mentioned. These technologies then had to be 
applied in conjunction with new product and capital investment cycles. 
The new Toyota Camry recently introduced will be sold for several 
years, yet work on its replacement already has begun. The product cycle 
typically is longer for trucks and even longer for powertrains. Thus, 
any future program involving manufacturers must take into account the 
time required to develop new technology, incorporate it into vehicles, 
and bring them to market at a competitive price. This process cannot be 
turned on a dime without severe consequences.
    Toyota again thanks the Committee for the opportunity to submit 
this testimony for the hearing record.

    Senator Kerry. Thank you, Mr. Olson.
    Mr. Robertson.

          STATEMENT OF BERNARD ROBERTSON, SENIOR VICE 
            PRESIDENT, ENGINEERING TECHNOLOGIES AND 
        REGULATORY AFFAIRS, DAIMLER/CHRYSLER CORPORATION

    Mr. Robertson. Good afternoon, thank you, Mr. Chairman.
    I am Bernard Robertson, Senior Vice President of the 
Daimler/Chrysler Corporation with responsibility for technology 
and regulatory affairs. I also appreciate the opportunity to 
provide comments to the Committee about improving fuel economy 
of light duty vehicles, CAFE and the recent study of the 
program by the National Academy, but I will be as brief as I 
can. I have deleted a number of comments.
    Daimler/Chrysler manufactures a full line of vehicles, 
including passenger cars, minivans, sports utility vehicles and 
pickup trucks. We also made Senator Nelson's Jeep Grand 
Cherokee and Senator Dorgan's 25-year-old Dodge and the big 
black Mercedes that he ran into.
    [Laughter.]
    Mr. Robertson. We are leaders in developing new fuel 
economy technology such as internal combustion engines, hybrid 
drive trains and fuel cells and we are ready to do our part in 
helping the Nation achieve its energy goals. At the risk of 
sounding like an echo, let me begin by saying that a 
government-mandated fuel conservation program, whether it is 
the current CAFE program or a substitute for CAFE will be most 
effective when the preference of customers is considered along 
with the availability of new fuel efficiency technology.
    If customers are convinced of the value of high fuel 
economy, then they will choose to purchase new vehicles that 
deliver high fuel economy. In today's market, however, 
customers base their purchase decisions largely on other 
vehicle attributes as you have heard from many other witnesses. 
Consequently, while we and other manufacturers currently offer 
products with a wide range of fuel economy, it's ultimately the 
consumers, through their actions in a free market, not the 
automaker, that determine which of these vehicles will be 
purchased.
    The NAS report correctly concludes that the application of 
advanced technology can lead to improvements in fuel efficiency 
and I want to stress that point. I don't think anyone argues 
that technology either is there or is coming. Indeed, some of 
the technologies described in the report such as cylinder 
deactivation, or displacement on demand as Tom Davis was 
calling it, and advanced automatic lockup torque converters are 
already in our production vehicles today, while others are 
ongoing development work to establish their performance, 
reliability, cost and consumer acceptance.
    We plan to introduce them as rapidly as the development 
status and business case permit, and I would add that our plans 
to introduce hybrid electric vehicles in 2003 and 2004 and our 
initial fuel cell vehicles in 2004 are very well documented. 
They remain in place. I would note that we would be subsidizing 
those vehicles very heavily.
    We will make another fuel cell announcement next week at 
the environmental vehicle conference. We are the largest 
producer today of electric vehicles. By next spring, we will 
have built over a million alternate fuel vehicles of one form 
of another, electric, ethanol, methanol, or compressed natural 
gas. And I might add there, every one of those vehicles except 
the CNG vehicles were subsidized in the marketplace.
    The NAS report recognized the need for providing adequate 
lead time to develop and bring new fuel savings technology to 
market. The report also acknowledges the adverse financial, 
employment, competitive, and safety effects if the lead time 
was not adequate and there have been a number of comments here 
about lead time so I will skip my other comments on lead time.
    With regard to the Committee's request to address possible 
alternative means to reduce petroleum consumption, I would note 
that the CAFE program is only partially successful in 
accomplishing that. As an earlier NAS study, the 1992 study 
makes clear, the CAFE program has, and I quote, ``Defects that 
warrant careful examination and chief among these is the fact 
that the CAFE system has been increasingly at odds with market 
signals and thus manufacturers are required to sell vehicles 
with higher fuel economy regardless of consumer interest in 
purchasing such vehicles.''
    The NAS report correctly described the many, often 
conflicting, factors that need to be addressed in determining a 
responsible energy conservation policy. Not only fuel 
consumption, but also occupant safety, emissions, consumer 
acceptance and demand, industry employment and the health of 
the auto industry are all potentially affected by CAFE 
standards. While we do have concerns over the effectiveness of 
the current program, it is nevertheless a program that the 
industry understands and we at Daimler/Chrysler have made long-
term product decisions that comply with the program's 
requirements.
    While we and others have examined alternatives to CAFE, 
they all tend to be either politically unacceptable or as the 
NAS said about a weight based approach, require additional 
analysis, which we are very happy to participate in, I might 
add.
    To best accomplish reductions in light duty automotive 
consumption, we believe the best venue is to review and act on 
these complex issues within the regulatory structure of NHTSA. 
The process has already been established in Congress through 
the Energy Policy and Conservation Act which set up CAFE in the 
first place to do that.
    We expect NHTSA to soon propose new light truck CAFE 
standards as Dr. Runge indicated this morning, and we pledge to 
both provide the agency with the necessary information for it 
to perform its work and to work with the agency to develop 
multiyear objectives. Again, as Dr. Runge noted, the agency 
must set new standards at the maximum feasible levels.
    We believe that the agency has a historical perspective and 
expertise to deal with those complex issues and as you noted, 
they have 6 years of thinking about it to draw on.
    In closing, I would like to emphasize that it is not within 
the capability of just the manufacturer to achieve future CAFE 
levels. It is ultimately the customer who will decide through 
the marketplace and based on individual needs whether any fuel 
economy program is successful.
    Thank you for your attention.
    [The prepared statement of Mr. Robertson follows:]

    Prepared Statement of Bernard Robertson, Senior Vice President, 
Engineering Technologies and Regulatory Affairs, Daimler/Chrysler Corp.

    Good morning, Mr. Chairman, and distinguished Senators. I am 
Bernard Robertson, Senior Vice President of Daimler/Chrysler with 
responsibility for Technology and Regulatory Affairs. I appreciate the 
opportunity to provide comments to the Committee about improving the 
fuel economy of light duty vehicles, the Corporate Average Fuel Economy 
program and the recent study of the program by the National Academy of 
Sciences (NAS).
    The tragic events of September 11th have again raised debate on the 
need for the Nation to have a sound energy policy, one that provides 
for energy security and independence and that contains elements of 
energy production as well as conservation. The congressional debate 
over the balance between increased production and conservation of 
energy, and the most effective means to achieve each, has often been 
heated. At Daimler/Chrysler, we recognize our responsibility to 
minimize any potential adverse effects of our products, whether they be 
in the area of safety, air quality, or fuel consumption. In the latter 
area, we believe the best way to reduce petroleum consumption in the 
automotive sector is to focus on technological advances in energy 
efficiency and for government and industry to send the correct signals 
to the market to value that increased efficiency. Our billions of 
dollars of investment in advanced technology vehicles is evidence of 
our strong and continued commitment in this area. Daimler/Chrysler is a 
technology leader, with research and development that encompasses fuel 
cells, hybrid drivetrains, cylinder de-activation, lightweight 
materials and advanced, clean diesels.
    Daimler/Chrysler manufactures a full line of products, including 
passenger cars, minivans, sport utility vehicles, and pick-up trucks. 
One hundred years of experience in the auto industry have taught us 
that America is a mobile society, that vehicle ownership is associated 
with personal freedom, that industry competes fiercely for customers, 
and that only those companies that satisfy market demands, while 
simultaneously supporting shareholder value, will succeed in the long 
term. Customers want vehicles that have an exciting design, high 
quality, durability, an affordable price that translates to good value 
for the money spent, and the utility to meet all the consumer's 
transportation needs--be they transporting the family, hauling 
materials for home improvement, or moving one's child into a college 
dormitory. Our customers want safe vehicles, a certain level of 
performance and handling, and somewhere on the list of desirable 
attributes is fuel economy.
    The NAS study specifically refers to the importance of market 
demand. However, while Americans clearly desire to reduce their 
gasoline expenditures, fuel economy, as a new vehicle attribute, even 
with recent spikes in fuel prices and the subsequent events to the 
September 11th tragedy, tends to rank low compared to the vehicle 
characteristics just mentioned. Thus, while we offer a range of fuel 
economy in our vehicles, consumers tend to select other options/
vehicles at the expense of fuel economy. Indeed, they often spend more 
money--in terms of choices of engines, transmissions, and other 
features--that result in lower fuel economy than provided by the base 
vehicles. In a competitive free market, we can not dictate how the 
customer sets his or her priorities and selects a specific vehicle with 
unique attributes. All we can do is offer vehicle choices that 
hopefully will draw a new vehicle buyer to our product rather than 
those of a competitor. Therefore, any government mandated fuel economy 
program must recognize that manufacturers by themselves can not achieve 
a specific level of fleet fuel economy and must consider these aspects 
of the customer purchase decision in order to be successful.
    Similarly, how people actually use their vehicle will have a role 
in determining the fuel consumption of the vehicle. Excessive speeds, 
jack-rabbit starts, poor vehicle maintenance, unnecessary cargo, and 
the number of miles traveled, all influence the amount of gasoline 
consumed. Consumers are not irrational when it comes to fuel 
consumption. When gasoline prices rose last year, consumers traveled 
less, the first time in 20 years that total vehicle-miles of travel 
decreased. But while the use of gasoline in existing vehicles declines 
when prices rise, the price of gasoline has not reached levels that 
dramatically affect the purchase decisions of new vehicle consumers. 
Indeed, today's low prices signal to the consumer that gasoline is a 
commodity that can be consumed in quantity and has relatively little 
national value. The consumer must play a more prominent role if reduced 
fuel consumption is to become a national priority.
    One aspect of fuel economy within the auto manufacturers' control 
is the technology we incorporate in our vehicles. This is where we 
compete vigorously, and you see evidence of such a contest today for 
advanced technology vehicles, specifically hybrid power trains and fuel 
cell vehicles. We are all working hard to bring these revolutionary 
advances to market at an affordable price as we're enticed by their 20-
100 percent better fuel efficiency, but evolutionary changes to 
conventional internal combustion engines and transmissions also hold 
great and more near-term promise. There is no question that the fuel 
efficiency of individual new cars and trucks will increase. The 
industry achieved significant gains during the past 25 years, 
increasing both passenger car and light truck fuel efficiency--the 
amount of gasoline needed to move a given weight of vehicle a specified 
distance--by 2 percent per year on average. This trend will continue in 
the future. The challenge being discussed today is whether the customer 
will decide to apply the efficiency gains to fuel economy or to 
attributes such as safety or other features.
    The National Academy of Sciences report highlighted the need for 
providing industry adequate leadtime. The NAS recognized the 
complexities in bringing new technologies to market, and portrayed the 
adverse financial, employment, competitive, and safety effects, if 
sufficient leadtime is not provided. I would like to concentrate today 
on this point, explaining how new fuel-efficient technology is 
developed, demonstrated, brought to production, and spread across the 
fleet. In addition, my testimony will address the NAS report's 
discussion of the capital constraints on the simultaneous adaptation of 
numerous technologies.
    The mantra of ``speed to market'' is heard loud and clear within 
the walls of the Daimler/Chrysler Technology Center. Unfortunately, 
sometimes the way this is portrayed in the media is not aligned with 
the business and engineering world. A 12-18 month new product cycle 
time and a customer order filled within 2 days of placement on the 
internet are exciting possibilities, but far from the world that exists 
today. Starting with an ``off-the-shelf'' powertrain, the development 
cycle for a new vehicle will likely start several years before launch. 
If the vehicle is to include a new engine and transmission, for 
instance the all-new 4.7L V-8 engine and multi-speed automatic 
transmission in our new Jeep Grand Cherokee, the development of these 
powertrain components begins 2 years earlier, stretching the full 
system development time even longer.
    Finally, the product, for example, the Jeep Grand Cherokee, is 
launched with this new fuel efficient powertrain combination that 
achieves 10 percent better fuel economy than the vehicle it replaced, 
even though significant emissions, safety and product content features 
were added which increased the weight of the vehicle. We invested more 
than $2.5 billion to develop this new powertrain and to build the plant 
in Detroit, Michigan to manufacture it. Not only was significant 
capital required for this venture, but also tremendous human resources 
had to be devoted to the effort. To get the best return on this 
investment, the same family of engine/transmission combinations will be 
adapted to other products consistent with their renewal cycles, 
everything from the new Jeep Liberty, to the Dodge Durango sport 
utility and the Dodge Ram pickup truck. This rollout to the other 
products can easily take another 4-5 years. And, the financial 
capability and the staffing limitations of the manufacturer can limit 
this rate of technology diffusion. Hence, the best case timeline 
requires about 10 years of development for new technology to reach all 
the products of a full line manufacturer.
    Two other issues immediately arise. What if the technology is not 
proven and still must be invented and refined? And, is there commercial 
acceptance of the technology? A case in point is the fuel cell. 
Although the technology has been around for decades in spaceship and 
satellite applications, its use in powering vehicles remains in 
development with significant challenges remaining for affordability, 
range, fueling infrastructure, service, and repair, to name a few. 
Daimler/Chrysler has several demonstration fuel cell projects that 
serve to advance our knowledge on this emerging vehicle technology and 
test the market acceptance, such as the California Fuel Cell 
Partnership, and a multinational demonstration of fuel cell powered 
urban buses.
    In this case, where the invention of new technologies is needed, 
the timeframe is stretched considerably. Inventing is not amenable to a 
specific timetable, but let's assume a system can be invented in 3 
years. The next 2 years will involve adapting the technology to a 
specific product. A year or two before production will be needed for 
testing the product design. Spreading this technology across a product 
line will take several more years. Several recent examples, including 
electronic fuel injection and airbags, demonstrate that 10-15 years is 
required to introduce a feature that customers demand.
    Having adequate leadtime to develop new technologies and products 
is not our only timing concern. Given the billions of dollars required 
to launch new products, it is essential that a manufacturer be able to 
recoup those investments. We have recently invested $3 billion in St. 
Louis, Missouri, to launch a new version of our popular Dodge Ram Pick-
up. About $2 billion was invested to convert a plant in Newark, 
Delaware, to build the Dodge Durango. The NAS report recognized that 
fuel economy standards that required premature retirement of engines, 
drivetrains, or entire vehicles, could have serious adverse effects on 
companies' employment and financial conditions. At Daimler/Chrysler, we 
have, over the past year, launched two new versions of our most popular 
vehicles--the minivan and our Dodge Ram pickup truck--both of which are 
manufactured in Missouri. We would expect these vehicle programs to 
have a life of about 8 years, during which their essential design and 
performance will not change significantly. New fuel economy standards 
that do not consider such investments will have the severe adverse 
financial and employment effects cited by the Academy.
    The Committee's invitation letter also asked that alternatives to 
the current CAFE program be addressed. The CAFE program is not the most 
effective means to reduce petroleum consumption. As an earlier NAS 
study (1992) makes clear: the CAFE program has ``defects that warrant 
careful examination, and [chief among these] is the fact that the CAFE 
system. . .has been increasingly at odds with market signals. . .[and 
thus] manufacturers are required to sell vehicles with higher fuel 
economy regardless of consumer interest in purchasing such vehicles.'' 
This can best be illustrated by the situation in Europe and Japan, 
where gasoline prices--essentially due to government taxes--are nearly 
three times higher than in the U.S. As a result, small cars have two to 
three times the market share that they have in the U.S. and through 
more flexible policies regarding diesel engines (which have 20-40 
percent higher fuel economy than an equivalent-sized gasoline engine), 
diesel penetration has risen to 30 percent in Europe, and is expected 
to increase further, compared to less than 1 percent here.
    Nevertheless, with all its flaws, CAFE is a program that we 
understand and we have made long-term product decisions to comply with 
the program's standards. While we and others have examined alternatives 
to the current CAFE system, they turn out to be either politically 
unacceptable or have significant ``unknowns'' or problems that prevent 
us from endorsing them at this time. While a weight-based approach to 
fuel economy has been much discussed, we concur with the NAS report 
which notes that ``additional analysis will be required'' before it can 
be seriously viewed as a viable alternative to CAFE. It is premature to 
enact legislation in this area given the uncertainties on how such a 
program would work and what the competitive and fuel savings effects 
might be.
    Likewise, I wish to point out that because of the complexity of the 
fuel economy issue and its tradeoffs of fuel savings with employment in 
the U.S. auto industry, differential competitive effects, and possible 
serious safety consequences, the Academy refrained from advocating a 
``CAFE number.'' While there are a wide range of fuel economy numbers 
in the report, the Committee wisely, we believe, stated that they ``are 
NOT recommended fuel economy goals'' and NAS Committee Chairman 
Portney, in testimony at a joint hearing of this Committee and the 
Energy and Natural Resources Committee, stated that ``the committee 
does not recommend whether, or by how much, government should raise 
standards.''
    Nevertheless, I also note some problems with the methodology and 
potential mis-application of information in certain sections of the NAS 
report. For example, on engine gas exchange efficiency losses, the 
report suggests that an efficiency improvement of up to 39 percent is 
available. Yet the total loss in efficiency through these processes in 
a typical gasoline engine is less than half this value. These and other 
issues lead to overestimates of improvements in fuel economy cited in 
the report and we have discussed them with the Academy in a public 
meeting this past October.
    In addition, several of the fuel economy bills and proposals we 
have seen in the Congress cause us great concern. We have seen 
proposals that would require truck CAFE to increase by 30 percent in 
the next 5 years and the combined car/truck fleet to achieve a 39 mpg 
CAFE within 10 years. We can find no scientific basis for such numbers; 
nor are they contained within the NAS report that the Congress 
commissioned.
    The complexity of any fuel economy program was adequately 
highlighted in the NAS report and leads to our belief that future CAFE 
standards can best be addressed by the legislation already enacted by 
the Congress--the Energy Policy and Conservation Act--which created the 
CAFE program. This legislation, enacted in 1975, established a 
regulatory process to address the level and form of the standards. We 
believe that the National Highway Traffic Safety Administration is 
poised to consider new light truck CAFE standards, once Congress lifts 
the prohibition on such rulemaking. Those standards, by law, must be 
set at the ``maximum feasible'' level. We believe the regulatory 
process is the best venue to address fuel economy issues. It is an open 
process in which everyone from manufacturers, to the environmental 
community, to Members of Congress, can make their views known. And, we 
believe NHTSA has the experience to best balance the conflicting 
tradeoffs addressed in the NAS report. Daimler/Chrysler looks forward 
to working with NHTSA to establish the ``maximum feasible'' fuel 
economy levels for future trucks.
    In closing, Daimler/Chrysler takes pride in being a leader in 
technological innovation and we are committed to introducing new 
technologies that minimize the environmental impact of our vehicles. We 
believe the best way to reduce petroleum consumption is to focus on 
technological advances--such as in the areas of hybrid and fuel cell 
power sources--and through sending the correct signals to consumers on 
the value of energy. If customers do not demand high fuel economy, then 
any technology developed by the auto industry and any CAFE standard and 
timing established by regulation will not be optimally effective in 
reducing fuel consumption. Given all that we know about industry 
timelines, capital requirements, technology development, and other 
considerations, no CAFE or other fuel consumption program will work in 
2001, 2011, or 2021 if the customer is not part of the equation, and 
values the attribute of fuel economy.
    Thank you for your attention and I would be pleased to answer any 
questions you may have.

    Senator Kerry. Thank you, Mr. Robertson.
    Mr. Friedman.

  STATEMENT OF DAVID FRIEDMAN, SENIOR ANALYST, CLEAN VEHICLES 
             PROGRAM, UNION OF CONCERNED SCIENTISTS

    Mr. Friedman. Thank you, Mr. Chairman, and thank you for 
this opportunity to speak to this Committee.
    My name is David Friedman. I am a Senior Transportation 
Analyst with the Union of Concerned Scientists. For anyone not 
familiar, the Union of Concerned Scientists is a non-profit 
partnership of scientists and citizens that has been working at 
the intersection of science and policy for over 30 years. I 
myself am trained as an engineer, so my testimony will 
basically be from the perspective as an engineer looking at 
these issues.
    Today I would like to summarize my testimony and request 
the full testimony appear.
    Senator Kerry. Without objection, everybody's testimony 
will be put in the record in full as if read.
    Mr. Friedman. Thank you. I think we are all here because 
everyone recognizes how serious the problems are associated 
with our dependence on oil. Whether those problems are 
associated with environmental problems or energy security 
problems or the financial problems that price spikes in 
gasoline and oil prices produced in our country.
    I think that one of the most important things in a recent 
study that we released this summer drilling in Detroit shows 
that raising fuel economy standards to 40 miles per gallon over 
the next decade is the fastest, least expensive and single most 
effective thing that we can do to reduce our dependence on oil.
    Every automaker here has the technology to do this. We have 
heard conflicting views on automakers saying we have the 
technology. Other automakers say we do not have the technology. 
Every day, whether in magazines like Automotive News or in 
research papers or in the newspapers, we see examples of how 
these car companies have the technologies to improve fuel 
economy.
    One of the dangers that we face if we do not increase fuel 
economy standards is that we will lose these technologies 
because fuel economy standards are not increased, these 
technologies will instead go toward making vehicles larger, 
more powerful, higher top speeds and we will lose the 
opportunities that we have today. And it is actually a very 
large opportunity.
    If we could reach 40 miles per gallon over the next decade 
in 2012 alone, we would be saving more oil than we imported 
last year from Saudi Arabia. We would be saving about 1.9 
million barrels of oil per day. Over that 10-year period, we 
would have accumulated about 3 billion barrels of oil saved. 
That is about equal in 10 years to what we could get from the 
Arctic National Wildlife Refuge in 50 years. I would say that 
is a pretty good bargain to be able to get 50 years worth of 
oil in 10 years instead.
    One of the things I would like to bring up is the chart 
that I prepared that compares some of the results from our work 
as well as the National Academy of Sciences and what this is is 
the first set of columns for the National Academy of Sciences, 
we can see their path to technologies and the average vehicle 
and the average case for the past two technologies, they showed 
that within 10 years, you could reach 34 miles per gallon.
    In our study, we showed that you could actually do a little 
bit better: 36 miles per gallon if you shaved some weight off 
of the heavy sport utility vehicles and pickup trucks and the 
heavier vehicles out there in the market. That is less than 10 
years using existing technologies.
    In 10 to 15 years, the average case in Path 3 from the 
National Academy of Sciences study showed you could reach 39.8 
miles per gallon as a fleet average fuel economy, 40 miles per 
gallon is possible. It is technically achievable with existing 
and emerging technologies. We showed that again if you add on 
weight savings, you could go even further. You could get close 
to 42 miles per gallon.
    None of this was achieved using advanced technologies like 
hybrids or fuel cells. This was all done using technologies 
that again, as I said, the car companies we have here have 
today, for example, as was mentioned, General Motors showed the 
cutoff on displacement on demand systems or Honda's advanced V 
tech engines or lightweight aluminum parts that were developed 
in Ford's aluminum intense vehicle program, or even high-
strength low wage steels that have been developed by the 
American steel industry.
    The technology is out there and if we start off by closing 
the light truck loophole by 2007 and then reaching 40 miles per 
gallon by 2012, we can be saving consumers $13 billion per year 
in 2012 and that is a number that is only going to grow to 
about $30 billion by 2020, so raising fuel economy standards is 
possible and it is also good for consumers.
    Senator Kerry. When you give that figure, does it take into 
account the added cost of the vehicles for these technologies?
    Mr. Friedman. Yes, it does. That is a net savings value so 
the vehicle costs varying anywhere from $1,000 to $3,000, 
depending on the vehicle, but they pay for themselves over 4 to 
5 years, and then consumers are saving money after that. So if 
you are financing a vehicle for 4-5 years, you are actually 
going to start saving right away.
    Our study also shows that we could see an increase in 
40,000 jobs in the automotive industry alone due to increased 
fuel economy and vehicles.
    This is due to two things.
    One, the automakers will have to make investments to 
achieve these fuel economy standards, but investment is a good 
thing. I think we all see that in our economy. Investing means 
creating jobs. It means advancing technology which is also 
going to create jobs. Also the savings that consumers are going 
to see on these more fuel efficient vehicles means they are 
going to have more money to spend in the economy, which means 
jobs are going to be created everywhere.
    I see my time is running low, so I would like to make one 
quick final note on safety and this is a lot of people have 
made the point--or tried to make the point--that the length 
between fuel economy and safety is a simple relationship in 
physics and I would contend that it is not a simple 
relationship in physics. It is a questioning of engineering. It 
is a question of design; making safe vehicles is a question of 
designing them to be safe vehicles.
    We have the technologies to achieve 40 miles per gallon 
without compromising safety, without compromising performance, 
without compromising comfort of these vehicles and, in fact, if 
we focused the weight savings on the heaviest vehicles, we can 
improve safety.
    So again, I would like to thank you for this opportunity to 
testify and also if you have any questions about issues of fuel 
cells versus conventional vehicles, I did spend the last 4 to 5 
years before joining UCS on fuel cells and where they can bring 
us, and I think I can add some comments on that as well.
    [The prepared statement of Mr. Friedman follows:]

 Prepared Statement of David Friedman, Senior Analyst, Clean Vehicles 
                 Program, Union of Concerned Scientists

    Thank you, Mr. Chairman and members of the committee for the 
opportunity to testify before you today. My name is David Friedman and 
I am a Senior Analyst in the Clean Vehicles Program at the Union of 
Concerned Scientists. UCS is a nonprofit partnership of scientists and 
citizens that has been working at the intersection of science and 
policy for over 30 years.
    I am the lead author of the report ``Drilling in Detroit: Tapping 
Automaker Ingenuity to Build Safe and Efficient Automobiles,'' in which 
we provide a comprehensive assessment of both the technical and 
economic potential of achieving a safe and fuel-efficient fleet of 
passenger vehicles. Prior to my time at UCS I have been involved in 
several projects related to fuel economy, including modification of a 
Ford Taurus to reach 65 mpg and various analysis and support in 
assessing fuel economy potential in the early stages of the Partnership 
for a New Generation of Vehicles.
    Today I would like to summarize some of the results from our fuel 
economy study as well as comment on several parts of the recent 
National Research Council (National Academy of Sciences) report on the 
``Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) 
Standards.''

                     THE IMPORTANCE OF FUEL ECONOMY

    U.S. drivers consumed 121 billion gallons of gasoline in 2000 at a 
total cost of $186 billion. This level of consumption represents 40 
percent of the oil products that the nation consumes. This number 
places these vehicles at the heart of the growing debate over oil 
supplies.
    Today, U.S. oil dependence is greater than it has ever been as we 
import a record 10 million barrels of oil and petroleum products each 
day. These imports represent over half of U.S. oil product consumption, 
and as demand increases the proportion of imports will rise. About 25 
percent of this imported oil comes form the politically unstable Middle 
East \1\--for example in the year 2000 we imported 1.7 million barrels 
of oil per day from Saudi Arabia and another 0.6 million barrels per 
day from Iraq. The cost of imported oil exacts a toll on our 
international balance of trade, as the United States currently sends 
about $200,000 overseas each minute to buy oil products and is 
estimated to spend $20 to $40 billion per year to defend oil resources 
in the Middle East.\2\
---------------------------------------------------------------------------
    \1\ Based on EIA 2000a import values.
    \2\ Overseas payments is a UCS estimate is based on the EIA 2000a 
import cost figure of $106 billion in 2000. Oil defense expenditures 
from Delucchi and Murphy 1996.
---------------------------------------------------------------------------
    In recent years, the Organization of Petroleum Exporting Countries 
(OPEC) has regained its ability to substantially influence the price of 
oil throughout the world.\3\ OPEC's market power can be expected to 
grow as its production approaches half of all world oil output in the 
next two decades. In the United States, our dependence on imported oil 
from OPEC and other foreign sources is expected to grow to 64 percent, 
making us even more susceptible to supply shortages and rapid rises in 
world oil prices. Historically oil price shocks and periods of 
inflation have coincided, resulting in significant harm to the U.S. 
economy and our balance of trade.
---------------------------------------------------------------------------
    \3\ OPEC is composed of the following countries: Algeria, Gabon, 
Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the 
United Arab Emirates, and Venezuela.
---------------------------------------------------------------------------
    Transportation is also the source of roughly one-third of all the 
heat-trapping gases (greenhouse gases) linked to global warming that 
are released in the United States every year (EIA 2000a). Greenhouse-
gas emissions from the U.S. transportation sector amount to more than 
most countries release from all sources combined.\4\ The production, 
transportation, and use of gasoline for cars and light trucks resulted 
in the emission of 1,450 tons of greenhouse gases by the United States 
in 2000--over one-fifth of U.S. global warming emissions that year.\5\
---------------------------------------------------------------------------
    \4\ Only China, Russia, and Japan have higher total emissions 
(based on Marland et al. 1996).
    \5\ This UCS estimate is based on EIA 2000a. Each gallon of 
gasoline burned emits nearly 19 pounds of carbon dioxide, the primary 
pollutant responsible for global warming. The production and delivery 
of gasoline are responsible for another five pounds per gallon of 
global warming pollutants for a total of 24 pounds of carbon dioxide 
per gallon of gasoline used (Wang 1999).
---------------------------------------------------------------------------
    Cars and trucks are the second largest single source of air 
pollution in the country, second only to electricity generation. As 
tailpipe standards are tightened, pollutants from passenger vehicles 
are falling to near the level of those produced in refining and 
distributing gasoline. As a result, transportation's impact on air 
pollution will soon approach an equal split between the tailpipe and 
the amount of fuel a vehicle uses. In the case of toxic emissions, 
pollutants that may be linked to cancer, the upstream emissions from 
fuel refining and distribution are the dominant source. The production 
and distribution of gasoline is also linked to many other negative 
environmental impacts including oil spills and groundwater pollution
    Assuming current fuel use, the production and distribution of 
gasoline alone results in the emission of 848,000 tons of smog-forming 
pollution and 392,000 tons of benzene-equivalent toxic emissions in the 
United States each year.\6\ Reducing these numbers significantly 
through improvements in fuel economy can mean great strides in 
protecting human health.
---------------------------------------------------------------------------
    \6\ The production, refining, and delivery of each gallon of 
gasoline in the United States emit an estimated 6.4 grams (0.014 
pounds) of smog-forming pollution (Wang 1999). Upstream activities also 
release harmful toxic pollution into the air that poses a major health 
hazard near refineries, along distribution routes, and at gasoline 
stations. For every gallon of gasoline delivered, 2.9 grams (0.0065 
pounds) of benzene-equivalent toxic emissions are produced (Winebrake, 
He, and Wang et al. 2000; Wang 1999).
---------------------------------------------------------------------------
    The effect our cars and light trucks have on our economy, our oil 
use, and our environment is only expected to get worse due to rising 
vehicle travel, a changing vehicle fleet, the impacts of vehicle 
emissions and fuel use under actual driving conditions, and stagnant 
fuel economy standards. Together these factors have led to a 24 mpg 
fleet average fuel economy in 2000, the lowest level in over twenty 
years: \7\
---------------------------------------------------------------------------
    \7\ Heavenrich and Hellman. Light-Duty Automotive Technology and 
Fuel Economy Trends 1975 Through 2000. An Arbor, MI. U.S. Environmental 
Protection Agency. 2000
---------------------------------------------------------------------------
     Rising Travel. There are now more vehicles in the United 
States than people licensed to drive them. Combined with increasing 
travel rates per vehicle, the number of miles that Americans are 
driving continues to rise. Vehicle travel is expected to increase 
nearly 50 percent over the next 20 years,\8\ a trend that will help 
drive up passenger vehicle fuel use.
---------------------------------------------------------------------------
    \8\ Energy Information Administration. Annual Energy Outlook 2001. 
Washington, DC: U.S. Department of Energy.
---------------------------------------------------------------------------
     Shifting Markets. SUVs and other light trucks are allowed 
to use one third more fuel than cars under current CAFE requirements. 
This ``Light Truck Loophole'' caused consumers to use about 20 billion 
more gallons of gasoline in 2000 and cost consumers about $30 billion 
dollars more than if the fuel economy standards of light trucks was set 
to the same as that of cars. The light truck market has risen from 19 
percent to 46 percent since 1975 and is expected to grow to at least 50 
percent of the passenger vehicle market, driving fuel economy lower in 
the coming years.
     Real World Fuel Economy. Testing for CAFE standards is 
based on a pair of simulated driving cycles established in 1975. At the 
time it was unclear if these cycles represented real world driving 
conditions, but today it is quite clear that they do not. Estimates 
show that real world fuel economy is about 17 percent below tested 
values and this shortfall is expected to increase over the next two 
decades.\9\
---------------------------------------------------------------------------
    \9\ Ibid.
---------------------------------------------------------------------------
     Stagnant Fuel Economy Standards: CAFE standards for cars 
and light trucks have not changed in more than a decade. The original 
schedule called for an increase in car fuel economy to 27.5 mpg by 
1985. While this goal was delayed for a few years, the standard has 
been at that level since 1990. The light truck standard reached 
approximately today's level in the late 1980s while separate standards 
existed for 2 and 4-wheel drive vehicles, and, like passenger cars, was 
stalled for a short period until reaching today's 20.7 mpg requirement.
    We estimate that these factors, along with continued stagnant fuel 
economy standards, would lead to an increase in passenger vehicle fuel 
use over the next two decades of 56 percent, to 189 billion gallons per 
year, by 2020. The result would be fuel costs to consumers of $260 
billion dollars at a gasoline price of $1.40. Total oil demand would 
rise from today's 20 million barrels per day to over 27 million barrels 
per day by 2020, 64 percent of which would be imported form outside the 
U.S. In addition, annual greenhouse gas emissions from the passenger 
vehicle sector would rise to 2,260 million tons of carbon dioxide 
equivalent while emission of 1,320,000 tons of smog-forming pollutants 
and 612,000 tons of benzene-equivalent toxic emissions would be 
produced in the United States each year.
         reforming regulations to reduce the impacts of driving
    The U.S. is not locked into the predictions noted above. A 
systematic approach to reducing fuel use would address all of the key 
factors noted above: stagnant fuel economy standards, shifting markets, 
real world fuel economy, and rising travel. Within this systematic 
approach, increasing fuel economy standards to 40 mpg by 2012 is the 
single most effective, fastest and least expensive path to reducing our 
future dependence on oil.
Fuel Economy Standards
    The 2001 National Research Council study has identified the CAFE 
standards enacted in 1975 as a key factor in the near doubling of new 
passenger car fuel economy (15.8 mpg in 1975 rising to a peak of 28.5 
in 1998) and the 50 percent increase in the fuel economy of new light 
trucks (from 13.7 mpg in 1975 to today's 20.7 mpg). In addition, this 
study notes that CAFE standards have played a leading role in 
preventing fuel economy levels from dropping as fuel prices declined in 
the 1990s. UCS estimates that current fuel economy levels maintained by 
CAFE saved consumers over $90 billion in 2000. The NAS report estimates 
that in the year 2000 alone, increased fuel economy reduced gasoline 
use by 43 billion gallons, or about 2.8 million barrels of oil per day 
(UCS estimates the figure to be about 60 billion gallons of gasoline, 
or 3.9 million barrels of oil per day).
    These savings put to rest concerns over the effectiveness of 
improved fuel economy. While fuel use has risen by 30 percent since the 
CAFE law was passed, this is primarily due to an increase in the amount 
of travel by Americans each year--which would have resulted in an even 
large increase in fuel use had vehicle fuel economy not improved.
    Savings of same magnitude as seen in the past can be achieved in 
the future if fuel economy standards are again increased. UCS analysis 
has shown that cost-effective technologies for near-term and longer-
term improvements in vehicle efficiency exist today. If these 
technologies are used to increase fuel economy over the next 20 years, 
our passenger vehicle oil use could be turned around (i.e. we could 
stop the growth in fuel use and even turn back the clock to 1990 levels 
if standards are raised sufficiently), the amount of money consumers 
spend on gasoline could be substantially reduced, and the impact our 
driving has on the environment could be cut in half. Below is a short 
list of conventional technologies that have already been developed by 
automakers that could significantly increase the fuel economy of 
today's cars and light trucks, many of which are already in some cars 
today.
 existing conventional technology options for fuel economy improvement.
Vehicle Load Reduction
     Aerodynamic Improvements
     Rolling Resistance Improvements
     Safety Enhancing Mass Reduction
     Accessory Load Reduction
Efficient Engines
     Variable Valve Control Engines
     Stoichiometric Burn Gasoline Direct Injection Engines
Integrated Starter Generators
Improved Transmissions
     5- and 6-speed automatic transmissions
     5-speed motorized gear shift transmissions
     Optimized shift schedules
     Continuously Variable Transmissions
    Estimates from a study released by the American Council for an 
Energy Efficient Economy, by DeCicco et. al., indicate that a 
combination of these technologies, along with mass reductions targeted 
at the heaviest vehicles, can produce a fleet of cars and trucks that 
averages over 40 miles per gallon. The table below shows the costs and 
net savings associated with these improvements in fuel economy. The 
result is an increase in fuel economy of over 70 percent and a net 
saving to the average consumer of over $2,000. Increasing fuel economy 
standards results in a win-win situation where consumers and the 
environment are both better off. In this case, fuel economy standards 
result in a net cost of carbon dioxide reduction of -$49/ton of carbon 
dioxide avoided, in other words, consumers are paid to reduce their 
impacts on the environment while at the same time we are reducing our 
oil dependence.

                                       Fuel Economy and Lifetime Savings from Existing Conventional Technologies.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Fuel
                                                        CAFE      Real      Economy      Cost of    Lifetime            Greenhouse   Avoided      Smog
                                                        Rated     World   Improvement      Fuel       Fuel       Net        Gas       Toxic    Precursor
                                                        Fuel      Fuel        vs.        Economy      Cost     Savings    Savings   Emissions   Savings
                                                       Economy   Economy    baseline   Improvement   Savings              (tons)      (lb.)      (lb.)
                                                        (mpg)     (mpg)       (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small car...........................................      48.4      38.7          57       $1,125     $2,595    $1,470         30          16         35
Family car..........................................      45.8      36.6          75        1,292      3,590     2,298         42          23         49
Pickup..............................................      33.8      27.0          61        2,291      3,964     1,673         46          25         54
Minivan.............................................      41.3      33.0          85        2,134      4,534     2,400         53          28         61
SUV.................................................      40.1      32.1          98        2,087      5,346     3,259         62          34         72
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fleet Average.......................................      41.8      33.4          74        1,693      3,900     2,207         45          24         53
--------------------------------------------------------------------------------------------------------------------------------------------------------
a Source: DeCicco, An, and Ross. Technical Options for Improving the Fuel Economy of U.S. Cars and Light Trucks by 2010-2015. Washington, DC. American
  Council for an Energy Efficient Economy. 2001.
b CAFE fuel economy reduced by 20 percent.
c Assumes a 15-year, 170,000-mile vehicle lifetime and a 5 percent discount rate. Average life based on scrappage rates from Davis 2000. Vehicle mileage
  based on 1995 National Personal Transportation Survey (NPTS) data.

    We have compared the UCS/ACEEE fuel economy results with those from 
the recent National Research Council report and we find that the costs 
and improvements in fuel economy are very similar. Using the results 
from NRC Path 3 technologies (NRC 2001, page 3-24) we estimate that a 
fleet fuel economy of 33 to 47 mpg could be reached at a retail price 
increase of about $1,700 to $3,800 per vehicle. This compares favorably 
to UCS/ACEEE estimates of a fleet fuel economy of 36-49 mpg at retail 
price increase of about $1,200 to $3,900. (Friedman et. al, pages 84-
87) In both cases, consumers would be saving thousands of dollars at 
the gas pump. In most cases, this would be more than enough to pay for 
the cost of the fuel economy improvements, resulting in a net savings 
to consumers.

[GRAPHIC] [TIFF OMITTED] T9683.004


    The figure shows the results of the NAS work for Path 2 and Path 3 
technologies as well as comparable UCS and ACEEE analyses. The 
combination of both the UCS and the NRC results indicate that it is 
clearly feasible to reach a fleet average fuel economy of 40 mpg. We 
feel that such a standard could be phased in over 10 years, while the 
NRC analysis shows that similar fuel economy levels could be achieved 
within 10-15 years if weight reduction is not prominently used to reach 
improved fuel economy. In less than 10 years, both the NAS and UCS 
results agree that a fleet average of close to 35 mpg is technically 
feasible and cost effective.
    The benefits to reaching a 40-mpg fleet by 2012 are quite 
significant. By 2012, we would have accumulated savings of 125 billion 
gallons of gasoline, this is about one full year's worth of gasoline 
and is 25 times the savings sought though the House energy bill, H.R. 
4. In that same year, we would be saving about 1.9 million barrels of 
oil per day. This is more than the 1.7 million barrels per day we 
imported form Saudi Arabia last year and over three times the amount of 
oil we imported from Iraq. Consumers would also see significant 
benefits, with the U.S. economy seeing net savings of 12.6 billion 
dollars in 2012 alone. On top of these financial benefits, over 40,000 
new jobs would be created in the auto industry and close to 70,000 
would be created in the U.S. economy as a whole. In the end, increasing 
the average fuel economy of cars and trucks would both aid us in 
reducing our dependence on oil and help stimulate the economy.
    Before the 40-mpg standards are phased in, UCS analysis indicates 
that average light truck fuel economy could be raised well above 
today's 20.7 mpg standard to that of cars (28.1 mpg) for about $670 in 
mass production. This increase in fuel economy could be achieved within 
5 years using technologies available in cars today. By 2010, this 
increase in fuel economy would save 35 to 40 billion gallons of 
gasoline, more than seven times the meager savings offered in the 
existing House Energy Bill, H.R. 4. The overall benefit to consumers 
would be $7 billion dollars per year in 2010 alone and would be 
accompanied by significant reductions in greenhouse gas, toxic, and 
smog forming pollutants.

                            SHIFTING MARKETS

    The NRC report (page 5-11) identifies ``economic incentives for 
manufacturers to assure that their vehicles are classified as trucks.'' 
These are the ``light truck loophole'' and the ``gas-guzzler tax.'' The 
fact that the fuel economy standard for light trucks is set at 20.7 
mpg, lower than the 27.5 mpg for cars, means that automakers have to 
spend less money on the fuel economy of trucks. The resulting lower 
price combined with the current strong demand for light trucks means 
that automakers can make more money from light trucks and therefore 
have an incentive to classify more vehicles as light trucks. In 
addition, the gas-guzzler tax, which applies to cars below 22.5 mpg, 
does not apply to light trucks, creating yet a further incentive to 
make sure vehicles are classified as light trucks.
    Together with lower tailpipe emissions and safety standards, these 
loopholes have and will continue to enable the sales of more vehicles 
with lower fuel economy, increasing fuel use and air pollution. The 
tailpipe air pollution loophole for light trucks will be phased out by 
2009 under EPA's Tier 2 regulations. The vast majority of these ``light 
trucks'' are no longer used for commercial purposes and are instead 
used as passenger vehicles. The NRC report (page 5-10 and page 5-11) 
indicates that ``The car/truck distinction has been stretched well 
beyond the original purpose.'' and that redefining the car/truck 
classification or reducing economic incentives for manufacturers to 
define their vehicles as trucks could alleviate the problems.
    Since the existing loophole no longer serves its intended purpose 
and is enabling increased fuel use and increased costs to consumers, 
the light truck loophole in CAFE should be closed by 2007 as a first 
step in fleet-wide increases to fuel economy standards. Once this is 
done, all cars and light trucks can be classified as passenger vehicles 
and the gas-guzzler tax can be applied to all such passenger vehicles.

                        REAL WORLD FUEL ECONOMY

    Given that current data shows real world fuel economy to be 17 
percent lower than CAFE certified fuel economy, CAFE reform should also 
include a shift in fuel economy measurement towards more realistic 
driving cycles. This has been pursued for emissions through the 
incorporation of the SC03 and US06 driving cycles. The SC03 cycle 
includes the use of air conditioning, which is not included in standard 
CAFE testing. The US06 driving cycle is more akin to modern urban 
driving with harder accelerations and higher speeds. Incorporating 
these driving cycles or some other measure to ensure ``truth in 
testing'' could serve to provide a more certain increase in fuel 
economy.\10\
---------------------------------------------------------------------------
    \10\ While it will improve the certainty of the fuel economy 
achieved, ``truth in testing'' will not, by its self, lead to an 
increase in fuel economy.
---------------------------------------------------------------------------

                             RISING TRAVEL

    The increase in total vehicle miles traveled in the U.S., due 
partly to increases in individual travel, cannot be addressed by 
increased fuel economy standards.\11\ One determinant of the amount of 
individual travel is the cost of gasoline. Increasing gasoline taxes or 
instituting a tax on the amount of carbon in a fuel (to account for 
global warming effects associated with the emissions of carbon from 
burning the fuel) would likely result in some decrease in daily travel. 
Estimates are that a 100 percent increase in the cost of gasoline would 
result in about a 10 to 20 percent reduction in the amount each vehicle 
travels (Greene et. al., 1999), though estimates of this value vary 
widely. Significant increases in the price of gasoline alone, or 
smaller increases along with increases in the CAFE standards, would 
result in a reduction in gasoline use--however, a reform option that 
relies on large increases in gasoline costs would face substantial 
political obstacles.
---------------------------------------------------------------------------
    \11\ In fact, increased fuel economy standards without increased 
gasoline or carbon taxes would reduce the cost of driving. This could 
lead to an increase in driving on the order of 1 to 2 percent per 10 
percent increase in fuel economy.
---------------------------------------------------------------------------
    To put this into perspective, if we consider an increase in fleet 
fuel economy to 40 mpg, accounting for a rebound effect, fuel use would 
be reduced by about 40 percent compared to today. Long term elasticity 
fuel use price elasticity estimates range from -0.5 to -0.9,\12\ 
indicating that a gasoline price increase of 44 percent to 80 percent 
would be required above today's values. Assuming last year's average of 
$1.54 per gallon, this translates into a $0.68 to a $1.23 per gallon 
tax. However, this assumes a baseline fuel economy at today's level, 
which is influenced by existing CAFE standards. If we add in the tax 
that would be required today if CAFE did not exist, estimated at $1.12 
per gallon,\13\ the total increase could be as much as $1.80 to $2.35 
per gallon. That would have required bringing 2000 gasoline prices up 
to as much as $3.89 per gallon.
---------------------------------------------------------------------------
    \12\ The -0.5 high end value from Patterson, Transportation's 
Contribution to Global Climate Change. U.S. Department of Energy 
presentation. 1999. The -0.2 value from Agras and Chapman, 1999, and 
falls near the high end of elasticities from Niovella and Crandall, 
1995.
    \13\ Present value of $0.80 estimate for 1989 from, Kaoujianou. The 
effects of Corporate Average Fuel Efficiency Standards in the U.S.. 
Journal of Industrial Economics, 1998.
---------------------------------------------------------------------------
                                 SAFETY

    I will discuss the topic of safety and fuel economy further in a 
moment, however, I would like to address some key reforms that can take 
place under CAFE to improve vehicle safety. The key issue that can be 
addressed through CAFE is the danger that the ``not-so-light'' light 
truck class imposes on other drivers. Because these trucks are heavy, 
stiff and have high bumpers, they represent a greater risk to car 
drivers, pedestrians, bicycle and motorcyclists.
    This is a fact that seems to be agreed upon by the entire NRC/NAS 
panel in their recent report (both the majority opinion and the dissent 
opinion point to reductions in fatalities from decreasing the size of 
light trucks). While we do not agree with the magnitude of the life 
savings in the report, we believe the direction is correct--we feel the 
magnitude is actually larger--and therefore can accept them for 
demonstrative purposes. The clear message is that any policy that 
creates an incentive for light trucks to get lighter will save lives. 
Closing the light truck loophole would create such an incentive and 
would therefore provide an increase in safety.
    An additional measure to achieve similar ends is the addition of 
means for controlling the ``Crash Aggressivity (CRAGG) index'' as 
introduced in the House Energy Committee. This is an index that 
evaluates the stiffness, structure height, and mass of a striking 
vehicle. Use of the CRAGG index would highlight the safety hazards of 
light trucks which are very stiff, high and heavy. Regulated reductions 
in the fleet-wide CRAGG index could produce an opportunity for the 
Senate to save lives.
commentary on the national academy of science/national research council 

                                 REPORT

    The following are brief comments on some of the key sections of the 
NAS/NRC fuel economy panel report. This is not intended to be an 
exhaustive analysis and critique of the report, but instead highlights 
issues of key concern to UCS.

Rational for Regulation of Fuel Economy
    The NAS/NRC panel report provides clear justification of the value 
of regulating fuel economy. In their first recommendation it is stated 
that, ``Because of concerns about greenhouse gas emissions and the 
level of oil imports, it is appropriate for the federal government to 
ensure fuel economy levels beyond those expected to result from market 
forces alone.'' (page 6-6).\14\ UCS firmly agrees with this statement. 
Based on our assessment of the available technologies and the impacts 
of their use, we believe that a near term goal of closing the light 
truck loophole by making light truck fuel economy standards the same as 
cars by 2007 provides significant net benefits to society. In the 
longer term, we believe that a goal of 40 mpg by the middle of the next 
decade is both technically achievable and also provides significant net 
benefits to society through consumer savings at the gas pump, reduced 
oil use, reduced global warming and other pollutant emissions, and 
reductions in highway fatalities.
---------------------------------------------------------------------------
    \14\ Alternatively, the report also states that, ``Regulations such 
as the CAFE standards are intended to direct some of industry's efforts 
toward satisfying social goals that transcend individual car buyers' 
interests.'' (page 2-16)
---------------------------------------------------------------------------
Fuel Economy Assessment
    Overall, UCS analyses agree with the general results for potential 
fuel economy improvements and associated costs using what the NAS/NRC 
terms existing and emerging technologies. Under some specific 
comparisons, UCS estimates of fuel economy are somewhat higher than 
those of the NAS/NRC. One key reason for this is that our estimates are 
based on detailed vehicle modeling that ensures inclusion of the 
synergistic effects between technologies that the NAS/NRC menu approach 
can miss. Another key reason for the difference is that in our analysis 
we rely more heavily on safety enhancing weight reductions for the 
light truck class, which enables higher levels of fuel economy to be 
reached at lower costs.
    One significant exclusion from the NAS/NRC analysis is an 
evaluation of the consumer savings of improved fuel economy. The panel 
chose a potentially misleading name for their summary analysis. This 
analysis was termed a ``break-even fuel economy analysis for 14-year 
payback''. This might seem to imply that the savings on gasoline costs 
is just equal to the added cost of the fuel economy improvements, 
resulting in no net savings. In fact, as described in their report on 
page 4-4, this analysis looks at the point where the marginal savings 
on gasoline is equal to the marginal cost of fuel economy improvements. 
In other words, the analysis sought to find the point where the last 
dollar spent on improving fuel economy saved exactly one more dollar on 
gasoline cost over the vehicle lifetime. This is a classic economic 
analysis that is more appropriately termed an ``economically efficient 
analysis'' and actually finds the point where the net savings over the 
life of the vehicle is at its maximum. Thus, the analysis performed by 
the NAS/NRC panel theoretically identifies the fuel economy levels 
where consumers save the most money. In public testimony, the NAS panel 
has noted that this is the case and has attempted to clarify the issue 
(I believe the NAS has submitted such a clarification to this 
committee). I have included an attachment to this testimony, which 
shows the NAS/NRC report Table 4-2 but also includes the savings that 
would accrue from these vehicles.
    I have performed an additional analysis using the results for the 
Path 3 technologies as identified in the NAS/NRC report on page 3-24. 
The results for the average cost/average fuel economy level in Path 3 
are presented below assuming a discount rate of 5 percent (this 
discount rate corresponds to an 8 percent new car loan, corrected for 
inflation).

[GRAPHIC] [TIFF OMITTED] T9683.005


    Here we see that consumers are saving between $360 and $2,500 above 
the cost of the fuel economy improvements for different vehicles. The 
average fleet fuel economy is 39.8 mpg with an average cost of $2,765. 
UCS estimates predict a higher fuel economy at this cost, however, the 
NAS/NRC results still demonstrate the ability to save money while 
achieving a fleet-wide average fuel economy of 40 mpg. Thus, when using 
a discount rate of 5 percent, NAS/NRC numbers show that the cost of a 
40 mpg fleet will pay for itself over a vehicle's life, even saving 
consumers nearly $1,000.
    One final issue related to the fuel economy assessments in the NAS/
NRC report is the inclusion of their calculated externality values. The 
panel identifies the externalities associated with the oil market and 
the environmental impacts of gasoline use valued at $0.26 per gallon of 
gasoline. While we feel that this value is low, even this amount would 
show a net increase in savings to society from improved fuel economy 
standards. For example, in the average Path 3 example above, the 
societal savings of a 40-mpg fleet fuel economy would be $1,573 per 
vehicle and would vary between $775 and $3500, depending on the 
vehicle.

Safety
    We disagree strongly with the majority of the assertions made by 
the majority panel regarding vehicle safety and fuel economy 
improvements. The key to making a vehicle safe is in its design. Proper 
design techniques, use of powerful computing resources and high 
strength materials enable designers to reduce the weight of vehicles 
while simultaneously including efficient crush space to absorb the 
impact in a crash and therefore reduce the forces experienced by the 
vehicle occupants. Existing crash data does not provide the ability to 
differentiate between vehicle weight, physical dimensions, and vehicle 
design and therefore statistical analysis based on this data cannot 
evaluate the direct relationship between changes and weight and changes 
in vehicle safety.
    On the other hand, we agree generally with the findings of the 
panel minority in the dissent chapter on safety and note that 
significantly more analysis would need to be done before adequate 
quantification of the impacts on fuel economy changes on safety could 
be produced.
    In addition to the key problems raised in the dissent chapter, I 
would like to point out at least one conspicuous assertion that was 
made in the safety analysis. One of the key reasons why we reject the 
use of past data to assess current and future safety impacts of weight 
reduction is that vehicle technology is changing over time. On page 2-
27 of the NAS/NRC report, an assertion is made that ``the ratio of 
fatality risk in the smallest vehicles of a given type compared to the 
largest remained relatively similar.'' However, this ratio is never 
presented to the reader. Calculating this ratio for the data in the 
NAS/NRC Table 2-2 produced the following results:

[GRAPHIC] [TIFF OMITTED] T9683.006


    All of the data above, other than the last columns labeled `` 
percent change in ratio over time'' are the original data from the NAS/
NRC report. The added columns above indicate that the ratio of 
fatalities in the smallest vehicles to the largest ones in each class 
changed during each 10 year period, with these changes being as high as 
a 64 percent increase for SUVs and a 40 percent decrease for pickups. 
Clearly the ratios did not remain either relatively similar over time, 
or among the classes. Even without the existing disagreements relative 
to the past safety data, this seriously threatens the validity of using 
the data to predict current or future safety impacts.

[GRAPHIC] [TIFF OMITTED] T9683.007


    Further eroding their analysis is the fact that the type of 
vehicles in the fleet have changed drastically over time. The figure 
below shows how the weight distribution of cars has changed since CAFE 
was first passed. The key feature that stands out is that we used to 
have a lot of cars of many different weights with an overall high 
average weight. Now we have a lower overall average weight and the 
weight distribution is less spread out. This means that changing the 
weight of today's vehicles has a much different effect than it would 
have in 1975 or even 1990 and therefore past data simply cannot be used 
to predict current safety performance.
    This issue of changing safety relationships over time brings to the 
fore another important issue, that of improved safety technology. Some 
of the differences above are likely attributable to improvements in the 
design of the vehicles as well as incorporation of improved safety 
technologies and/or better use of existing technologies. In our report, 
we have estimated the potential reductions in fatalities from simply 
increasing seat belt use from today's 70 percent up to 90 percent and 
found that 6,000 to 10,000 lives could be saved through increased 
seatbelt use. Improved safety belt design could save an additional 
3,000 to 5,000 lives, for a total of 15,000 lives saved by safety belts 
alone. These potential life saving methods completely outweigh any 
negative safety impacts associated with weight/size reduction even if 
the majority analysis is accepted.
    As noted above, however, we do not agree with the majority 
analysis. In our report, we demonstrate that it is the disparity in 
weight that is the key influence on safety and that influence is a 
negative one--the more you mix heavy and light vehicles, the less safe 
the highways will be. This fact is accentuated by the presence of light 
trucks that are heavy, stiff and have high bumpers. These three factors 
combine to make these vehicles very aggressive in crashes.
    Analysis by Joksch et. al. indicates that in a front end collision, 
light trucks produce an increase in fatality risk by a factor of 3 to 
5.6 when striking a car compared to a car striking a car.\16\ In front-
driver-side collisions light trucks pose risk factor 2 to 4.5 times 
that of a car when striking another car on the driver-side.\17\ Further 
demonstrating the risks imposed by light trucks, recent analyses done 
by Ross and Wenzel shows that the top four selling cars in 1995-98 \18\ 
impose less of a risk in 2-vehicle crashes on other vehicles on the 
road than do SUVs and pickup trucks. For vehicles 2- to 5-years old, 
there were 79 percent more deaths per vehicle caused by the SUVs than 
by cars and more than four times as many deaths caused by pickups than 
by cars.\19\ Correcting for the influence of age does not significantly 
alter these effects.\20\
---------------------------------------------------------------------------
    \15\ Joksch, Massie, Pichler. Vehicle Aggressivity: Fleet 
Characterization Using Traffic Collision Data''. NHTSA. 1998. No 
vehicles had airbags. Data used was for 1991-1994.
    \16\ Ibid.
    \17\ The Taurus, Accord, Civic and Camry. Wards's Motor Vehicle 
Facts & Figures 2000 for model years 1997 and 1998.
    \18\ The Ford F Series, Chevy C/K pickup/Silverado, Explorer, and 
Ram Pickup. Wards's Motor Vehicle Facts & Figures 2000 for model years 
1997 and 1998.
    \19\ Risk by drivers for cars and light trucks provided in personal 
communication with Marc Ross and Tom Wenzel, September 7, 2001.
---------------------------------------------------------------------------
    Even more important are the findings by Ross and Wenzel that the 
risk of death in all crashes to the person driving one of the four best 
selling cars is lower than the same risk associated with driving one of 
the four best selling light trucks which are all heavier than the 
cars.\20\ These results indicate that for modern vehicle designs with 
their associated size and weight, not only are the most popular cars 
less dangerous to others on the road, they are also safer for the 
driver compared to the top selling light trucks.
---------------------------------------------------------------------------
    \20\ Risk by drivers of top four selling SUVs is 26 percent higher 
than the risk to drivers in the top four selling cars and the risk to 
drivers of the top four selling pickups is 68 percent higher than that 
in the top four selling cars.
---------------------------------------------------------------------------
    The NAS/NRC panel findings agree that reducing the weight and 
historically associated characteristics of light trucks could reduce 
the fatalities on our highways, however, in most of their fuel economy 
assessments they did not include weight reductions. In Path 3 where 
they did include some weight reduction, it was only 5 percent and was 
only in 3 of the 10 vehicles investigated, thus providing a very small 
benefit to safety. Our analysis indicates that a 10 percent weight 
reduction along with streamlining and an efficient variable valve 
controlled engine would enable light trucks to have the same fuel 
economy standard as cars. As indicated by Green and Keller, this would 
conservatively have saved 176 lives in 1993. Reaching higher fuel 
economy levels could require a 20-30 percent reduction in weight, 
implying a fatality reduction of 352 to 528. We feel that if more 
accurate assessments of the negative impacts of today's aggressive 
light trucks were developed, these fatality reductions would be further 
increased, especially since they can be achieved using high strength 
materials that maintain occupant safety while reducing aggressivity.

Weight Based Standards
    The NAS/NRC report presents an altered fuel economy standard system 
termed E-CAFE, for Enhanced CAFE. A summary of the key impacts of this 
system is as follows:
     The weight based system creates incentives to add weight 
to smaller vehicles.
     As a result, this system creates a disincentive to adopt 
one of the most cost-effective fuel economy strategies (weight 
reductions) for many vehicles, one which PNGV has been working on for 
years.
     The weight based system also does not guarantee a specific 
fuel economy level and market shifts could still keep fuel economy on 
the decline.
     The NAS/NRC panel only provided an example of how the 
standards should be set. Evaluating and comparing the different impacts 
of various forms of the standard would be very complicated and leads to 
significant difficulty in setting fuel economy levels.
    This system is predicated on a fuel economy standard that is based 
on a vehicle's weight. The heavier the vehicle the lower the required 
fuel economy, up to a weight cap, above which the fuel economy standard 
becomes constant (i.e. independent of weight as we have today). The cap 
creates an incentive for the heaviest vehicles to shed weight, which we 
agree seems like a positive step as it would improve overall vehicle 
safety, however it is, in essence, not very different from simply 
modifying the current flat light duty truck standard. The only 
difference is that some of the lightest trucks would not be included, 
they would instead be replaced by the heaviest cars.
    For the vehicles below a weight cap (4,000 pounds in their 
example), there is no mathematical advantage to adding or reducing 
weight. As a result automakers have no incentive to make the vehicles 
near the cap somewhat lighter and therefore safer for the overall 
fleet. Further, automakers actually have an incentive to increase the 
weight of the vehicles below the cap thus creating a very large 
loophole similar to the current light truck loophole. This incentive is 
not created by the proposed standard, but instead by the existing 
market forces. Automakers can make larger profits on heavier vehicles 
today, therefore, there is an inherent financial incentive to increase 
sales of the heavier vehicles that are more profitable, as we have seen 
with SUVs. This shift in sales would increase the overall size and 
weight of the fleet at no penalty to a company's ability to meet the 
weight based fuel economy standards because the standards drop as the 
vehicle becomes heavier. Therefore, economic pressures turn the weight 
neutral slope into an incentive to increase weight, likely producing a 
fleet of vehicles that all move towards the 4000 lb. mark set in the 
NAS/NRC example, with an overall reduction in fleet fuel economy. A 
fleet that minimizes the variations in weight is good for overall 
safety, however, the cap set in the standard would effectively become 
an imposed fleet weight. Lower fleet weights could be just as safe, if 
not safer and would produce larger oil savings. A flat average 40 mpg 
standard across all car and light truck classes would instead encourage 
the heaviest vehicles to get lighter and therefore create a fleet that 
is both safer and more efficient.
    The next concern is that, even if we ignore the first issue, the 
exact fleet fuel economy under this method is quite uncertain. As we 
have seen with the rise in light truck sales eroding fuel economy, a 
potential rise in vehicle weights could produce a net drop in fuel 
economy, even with the example 4000 pound limit. Further, the 
uncertainties of the political process create the risk for an even 
higher limit passing, which could further erode fuel economy levels.

Dual-fuel Vehicle Credits
    The NAS/NRC panel, in their fifth recommendation on page 6-6 
suggests the elimination of the dual-fuel vehicle credit system. UCS 
agrees that this system has not functioned as intended and automakers 
have received credit for their vehicles using alternative fuels they 
have never consumed. One solution is to eliminate these credits as 
suggested by the NAS/NRC panel, which we would find acceptable. Another 
alternative is to tie the amount of credit received by the automakers 
to the actual amount of each alternative fuel used in the previous 
year. Such a system would ensure that extra fuel economy credit is only 
given to the degree that the sales of these vehicles enhances the 
actual use of alternative fuels and would thus preserve the intent of 
the credit without the current pitfalls.

Availability of Higher Fuel Economy Vehicles
    One assertion made by in the NAS/NRC report that is often put 
forward by automakers is that, ``consumers already have a wide variety 
of opportunities if they are interested in better gas mileage.'' (page 
1-3) While it is strictly true that there are a number of models on the 
U.S. market that achieve more than 30 mpg, all of them force the 
consumer to give up some feature or some amount of performance to 
obtain the improved fuel economy. They cannot, however, accept in a 
very few cases, elect to pay more for a vehicle with the same features 
and performance, but with higher fuel economy. The result is that 
consumers do not truly have a choice to express a desire for improved 
fuel economy, all else being equal.
    Our analysis and that done by the NAS/NRC panel indicate that the 
fuel economy of passenger vehicles can be increased while maintaining 
the size, performance and the various features consumers expect. Our 
analysis also indicates that consumers can purchase these vehicles 
without sacrificing and likely increasing overall crash safety. These 
improvements in fuel economy do come at a cost, but were these vehicles 
to be offered, consumers would have a true choice of getting all they 
expect from a car or light truck today, but with higher fuel economy 
and the associated net savings.

Conclusion

    Raising fuel economy standards is the fastest, least expensive and 
most effective thing Congress can do to reduce our future dependence on 
oil. The oil savings associated with reaching an average fuel economy 
of 40 mpg by 2012 for all new cars and light trucks would be 1.9 
million barrels per day in that year alone--this is four times the 
expected peak output from the Arctic Refuge at today's oil prices and 
over three times the oil we imported from Iraq last year (and more than 
we imported from Saudi Arabia). The cumulative oil savings would be 
about 3 billion barrels of oil or 125 billion gallons of gasoline. That 
means that in 10 years we would save almost as much oil as is 
recoverable at today's oil prices from the whole Arctic Refuge in its 
50-60 year lifetime. That is also 25 times the oil savings called for 
in the House energy bill, H.R. 4. At the same time we are significantly 
cutting our oil dependence, consumers are saving 12.6 billion dollars 
in 2012 and close to 100 billion dollars per year by 2015, while the 
auto industry will see a growth of over 40,000 jobs in the U.S.
    We feel that between our work, the most recent NAS/NRC fuel economy 
study as well as a wealth of other literature available today, it is 
clear that the technology exists to cost effectively increase fuel 
economy with resulting benefits to oil use, consumers and the 
environment. These significant improvements in fuel economy can be 
achieved with existing technology, enabling us to achieve progress in 
fuel economy in the near term as we watch the market for hybrid 
electric and fuel cell vehicles grow. We can see both near and longer 
term increases in fuel economy and these increases can be accompanied 
by the same safety, comfort and performance consumers expect today and 
could even improve the overall safety of America's highways if the 
light truck loophole is closed.
    Thank you for the opportunity to testify before the Committee 
today. I would be happy to answer any questions you may have.

Attachment--Analysis of Savings in the NAS 14-Year ``Break-Even'' Study

    The assessment performed by the NAS panel in chapter four of their 
report finds the point where the financial benefits to a consumer are 
maximized, ignoring the financial impacts of externalities. This is 
done through a process where the last dollar spent on improving fuel 
economy is just offset by an additional dollar saved from that same 
improvement in fuel economy. This identifies an equilibrium point 
associated with significant savings that were not reported in the NAS/
NRC report. Below I have re-created Table 4-2 from the NAS/NRC report 
and I have included the net savings consumers would experience using 
the NAS/NRC conservative assumption of a 12 percent discount rate. I 
have also included a summation of the vehicles into class and an 
overall fleet average fuel economy

[GRAPHIC] [TIFF OMITTED] T9683.008


    These results show that, even using the conservative discount rate, 
consumers would be saving $340 to $1,600 above the cost of fuel economy 
improvements under the average cost average fuel economy scenario. 
These results show the maximum net savings for consumers and the 
associated fleet fuel economy varies between 29 mpg and 33 mpg. If a 
more reasonable discount rate, based on current automobile loan rates 
of 7-8 percent, corrected for inflation to yield 5 percent, had been 
used, the average fuel economy levels would be higher and the costs 
would also be higher. The savings and fuel economy levels would further 
be higher if the value of externalities was included in the analysis.

    Senator Kerry. Thank you, Mr. Friedman, we appreciate it.
    Mr. Louckes.

 STATEMENT OF THEODORE LOUCKES, CHIEF OPERATING OFFICER, PAICE 
                          CORPORATION

    Mr. Louckes. Mr. Chairman, thank you for the invitation to 
address this Committee regarding fuel economy issues.
    I am Ted Louckes, Chief Operating Officer of the Paice 
Corporation. Paice is an American company. We have offices in 
Silver Spring, Maryland and Livonia, Michigan. Our management 
team and board of directors include engineers with more than 
200 years of experience in the automotive industries.
    My career has been in the automobile industry, including 40 
years with General Motors where I served as Chief Engineer of 
the Oldsmobile division. We are here today to present an 
American technology that can meet the challenge of improving 
fuel economy in passenger cars and light trucks.
    The Hyperdrive system, as we call it, is a unique power 
train that delivers a combination of fuel efficiency and 
vehicle performance that has not yet been achieved. Unlike 
hybrids in the market today, it is well suited for the wide 
range of vehicles that consumers choose to buy, including SUVs, 
minivans and light trucks.
    The Hyperdrive will work in any climate, climb steep hills 
and haul big loads. Most significant, our studies indicate that 
Hyperdrive can be produced at costs competitive to today's 
conventional power trains, largely because it uses similar 
technologies and the materials are the same as used today--
nothing new, nothing exotic or expensive. We are in the process 
of securing funding from automakers, automobile suppliers, 
financial investors and perhaps the U.S. Government to finalize 
the subsystem and component design, build demonstration 
vehicles and, therefore, accurately determine the cost of 
producing the hybrid system. We believe that ours is the only 
hybrid drive system available today that can be commercially 
produced in large volume and be successful in the marketplace.
    Based on high voltage, and high powered semiconductors, 
high horsepower electric motors and downsized internal 
combustion engines, the Hyperdrive is unique and superior among 
hybrid power trains. Our patented method of control, the 
selective use of all the on-board power sources for maximum 
efficiency under all driving conditions, is the key to its 
success.
    Our written testimony provides details of the system, our 
test data, and our engineering calculations of what Hyperdrive 
can achieve in terms of improving fuel economy through a 
complete range of vehicles. We have proven the concept of the 
Hyperdrive power train by testing a full size prototype system 
on a dynamometer.
    The prototype was built to replicate a large passenger car 
and operated on the EPA test cycles. And the result was a 
combined fuel economy of 44 miles per gallon. This compares to 
24 miles per gallon for the comparison car. Using this data, we 
are able to model and calculate the fuel economy and 
performance that can be expected from Hyperdrive and all sorts 
of vehicles.
    Our modeling results indicate that we can, on average, 
increase the fuel efficiency of the complete vehicle subject to 
CAFE regulation by roughly 50 percent.
    With potential fuel economy improvements of this magnitude, 
application of Hyperdrive and a large volume production vehicle 
would significantly reduce our Nation's total gasoline 
consumption.
    For the matter of possible government support, we and the 
auto industry would benefit from support of the national 
laboratories. We suggest that Argonne National Laboratory, 
which has substantial experience in the simulation and analysis 
of hybrid electric vehicles, should model the Hyperdrive power 
train to corroborate our conclusions regarding fuel economy and 
vehicle performance.
    We have been in contact with automakers in the United 
States, Europe, and Japan for more than a year. Several of 
these OEMs are evaluating the technology and its cost to 
justify the investment it will take to bring this to market.
    Mr. Chairman, we thank you for the opportunity to tell you 
about our technology and we will be very happy to answer 
questions.
    [The prepared statement of Mr. Louckes follows:]

   Prepared Statement of Theodore Louckes, Chief Operating Officer, 
                              Paice Corp.

    Thank you for the opportunity to testify before your Committee 
regarding Corporate Average Fuel Economy (CAFE) issues. I serve as 
Chief Operating Officer of Paice Corporation. We are an American 
company (our offices are in Livonia, Michigan and Silver Spring, 
Maryland) with an American technological solution to the challenge of 
increasing fuel efficiency in passenger cars and light trucks. Paice is 
an acronym for Power Amplified (battery and traction motors) Internal 
Combustion Engine. Paice Corporation has designed, patented 1, 
2, 3, 4, 5 and tested a hybrid electric vehicle 
(HEV) powertrain system called the Hyperdrive. I come before you today 
to explain how the Hyperdrive system works and to describe our 
estimates of its potential impact on fuel economy of automobiles 
subject to CAFE regulation.
    The Hyperdrive System, a unique series/parallel hybrid electric 
powertrain for automobiles and light trucks, delivers a previously 
unattainable combination of fuel efficiency and vehicle performance at 
cost premiums that are reasonable when compared to conventional 
powertrains. Moreover, the Hyperdrive is well suited for a wide range 
of passenger vehicles, including SUVs, light trucks, and minivans. 
While other HEV designs can improve fuel economy or reduce emissions, 
no such design can produce these benefits in as wide a class of 
vehicles or at costs as favorable as the Hyperdrive. For these reasons, 
Paice Corporation believes that it has developed the only HEV 
powertrain system, to date, capable of being profitably produced on a 
large scale.
    Paice Corporation has successfully demonstrated the benefits of the 
Hyperdrive System on a full-scale prototype powertrain on a dynamometer 
with funding from The Abell Foundation of Baltimore, Maryland, and is 
raising additional funding to incorporate the Hyperdrive into vehicles 
intended for large-scale production. The Company is currently in 
discussions with automakers throughout the world regarding production-
intent vehicle prototype programs.
    Paice is a small company that has attracted a unique group of 
highly experienced automotive industry officials for its development 
efforts. For example, Dr. Alex Severinsky, Chairman and Chief Executive 
Officer and founder of Paice Corporation, has been granted 21 U.S. 
patents, including three (3) on the Hyperdrive. He has unique technical 
knowledge of operations of electric motors, electronic power 
converters, electric storage batteries, and control of electro-
mechanical systems. As for myself, prior to joining Paice Corporation 
where I am the Chief Operating Officer, I was with General Motors for 
40 years, including a four-year military leave to participate in the 
Korean War, and retired as Chief Engineer of the Oldsmobile Division. 
Among other programs at GM, I was responsible for the development of 
the first overhead cam, 4-valve engine for American passenger cars and 
the introduction of the world's first airbag system.\6\ Another of our 
staff, Nathanael Adamson, Executive Vice President, served Ford Motor 
Company for 32 years and gained domestic and international experience 
in product development, program control, marketing, and business 
management of consumer and industrial products in the automotive 
industry. In addition, David Polletta, Vice President of Engineering, 
has 18 years of experience in engineering and management of EV and HEV 
projects and 12 years of experience at Ford Motor Company as a 
supervisory engineer in commercial truck engines and powertrain 
engineering.\7\
    On our board of directors, we have several former auto industry 
officials. For example, Robert Templin, a retired GM Executive, has 
over forty years of experience in the design, development, and 
production of automobiles and powertrains. Over the years, he has held 
such GM positions as Technical Director of the Research Laboratories, 
Chief Engineer of the Cadillac Motor Car Division, General Project 
Manager of Special Product Development, and Special Assistant (Engines) 
to the President of GM. In addition, George Kempton has over 40 years 
of management experience in automotive and industrial products, 
including powertrain components for commercial vehicles and most 
recently he left Kysor Industrial Corporation where he was Chairman and 
Chief Operating Officer. Finally, Robert Oswald who recently left his 
position as a member of the Robert Bosch GmbH's Board of Management, 
and Chairman, President and CEO of Robert Bosch's North American 
subsidiary Robert Bosch Corporation, after serving there for more than 
a decade.
    Our testimony today is divided into several topics: first, an 
overview of the characteristics of the Hyperdrive powertrain system; 
second, modeling results that demonstrate the Hyperdrive powertrain 
system's potential for reducing fuel consumption in three selected 
vehicles (a compact car, a full-size car, and a large SUV); third, a 
discussion of why the Hyperdrive powertrain makes it possible to 
profitably commercially mass produce an HEV (and thereby deliver the 
fuel economy and emissions results that HEVs make possible); and 
fourth, a discussion of the implications of the Hyperdrive system for 
fuel consumption. It is important to note that powertrain developments 
at Paice Corporation continue at a rapid pace. What we present here is 
a current overview of our development effort that will change as we 
make further improvements and refinements to our system.
    As will be discussed in greater detail below, the Hyperdrive system 
can increase fuel efficiency in the selected vehicles modeled for this 
testimony by approximately 50 percent. We encourage the Senate Commerce 
Committee to ask the Argonne National Laboratory to model our results 
to corroborate our conclusions regarding fuel economy and performance. 
We also encourage the Senate Commerce Committee to request that the Oak 
Ridge National Laboratory \8\ estimate what impact the Hyperdrive 
system would have on future fuel consumption, based on the modeling 
results from Argonne. In this regard, Paice Corporation would welcome 
the opportunity to work with automakers and/or the federal government 
to produce a demonstration vehicle that can be tested to reconfirm the 
conclusions discussed here today and to more precisely determine the 
cost of producing such a system.

I. The Paice Hyperdrive System

Fundamental Principles
    An auto industry executive was recently quoted as saying: ``we 
can't dictate customer choice, nor should we try to.\9\ This statement 
is widely accepted as a governing axiom in automotive marketing. To 
compete against current and future powertrains, any HEV system as well 
as the Hyperdrive must be at least equal, and even superior to existing 
powertrains in all respects. Only this will result in market forces 
choosing the adoption of fuel saving powertrain technology. 
Accordingly, our development of the Hyperdrive was guided by the 
following fundamental considerations:
---------------------------------------------------------------------------
    \9\ Fuel Targets for Sport Utilities Pose Difficulties for 
Automakers, The New York Times, November 23, 2001, p. C1.
---------------------------------------------------------------------------
     The system should run on readily available gasoline or 
diesel fuel.
     The internal combustion engine (ICE) should be used to 
convert liquid fuel chemical energy into mechanical energy, as it is 
the most efficient means yet discovered.

[GRAPHIC] [TIFF OMITTED] T9683.009


     The system should use the ICE only in its most efficient 
operating region; that is, under those load conditions in which Brake 
Specific Fuel Consumption (BSFC) is minimized. In Figure 1 we present 
graphically how the ICE is used in the Hyperdrive in comparison with 
current powertrains.
     Use of the ICE in this way will result in increased fuel 
efficiency as well as improvements (i.e. reductions) in exhaust 
emissions. Emissions can also be reduced by use of advanced computer 
control of the engine air-fuel ratio, catalyst preheating and a 
simplified engine operating cycle (eliminating ICE transients). While a 
number of current production vehicles are already meeting California's 
Ultra-Low Emission Vehicle (ULEV) requirements, the Hyperdrive can 
assist in achieving this level in the full range of vehicles and at 
lower cost.
     Sophisticated software control algorithms must be employed 
to control powertrain components, without any need for an increase in 
driver skills or driver awareness.
     Customer expectations must be satisfied without 
compromise. Present levels of acceleration, convenience of operation, 
and operating/ownership cost must be equal to or be better than those 
offered by present powertrains.
     Manufacturing raw material requirements must be satisfied 
by using the same readily available materials already used in present 
high-volume automotive production, i.e. iron, lead, copper, aluminum 
and silicon. Special material needs, such as catalytic agents, must be 
no more critical than they are today.
     System flexibility and cost must be applicable over a wide 
range of vehicle weights and sizes to allow the benefits to be achieved 
over the entire passenger vehicle market.
     Current restrictions imposed on design flexibility by 
vehicle space, weight, drag and architecture requirements should be 
reduced to allow more freedom for design variations.
     Physical size and arrangement of the drive components must 
be flexible enough to allow installation in existing body and chassis 
concepts to avoid the costs, lead times and investments in plants and 
equipment that radical new vehicle programs would require.
     Vehicle, powertrain and fuel system service requirements 
must be compatible with the skills, training and diagnostic capability 
available at the retail level.
Testing and Test Results
    Based on these principles, Paice Corporation built and tested the 
Hyperdrive system (Figure 2) on a dynamometer load representing a 
typical 4,250 lbs. large passenger car. In Figure 2, we present 
arrangements and rating of components in the Hyperdrive powertrain 
system as tested and in Figure 3 we present some photographs from the 
testing.

[GRAPHIC] [TIFF OMITTED] T9683.010


    Table 1 presents a summary of the fuel economy test results. To 
verify these results, we have measured energy losses in all parts of 
the Hyperdrive together with energy applied to the load, and compared 
this with the energy coming from the fuel. These results coincided 
within tolerances of measurements. This allowed us to calibrate our 
control software model, which we have used to determine the expected 
results of using the Hyperdrive system in other vehicles discussed 
below (a compact car, a full-size car, and a large SUV).

[GRAPHIC] [TIFF OMITTED] T9683.011


Key Technical Principle
    The key technical principle underlying the Hyperdrive system is 
that it employs a unique method of control (use of the engine) that 
optimizes the operation of the internal combustion engine in hybrid 
electric vehicles. 1, 2, 3, 4, 5 
This method of control results in the achievement of operational 
thermodynamic efficiencies1 of 32-34 percent as compared to 
the recognized maximal attainable efficiency of 35 percent for spark-
ignition internal combustion engines. By way of comparison, the 
internal combustion engine in conventional vehicles typically operates 
at overall efficiencies of around 20 percent. Our improved overall 
operating efficiency is supported by the configuration of components in 
the Hyperdrive, including a lead-acid battery system that stores the 
energy generated by the engine (and regenerated while braking), and 
high-power electric motors that propel the vehicle when the engine 
cannot be used in its most efficient operating region. Recent 
advancements in high voltage power semiconductors, coupled with 
extensive positive experience in new lead-acid battery applications, 
have provided the practical basis for the commercialization of our 
technology.

[GRAPHIC] [TIFF OMITTED] T9683.012


How the Hyperdrive System Works
    The internal combustion engine (ICE) of a conventional vehicle is 
required to deliver power under a wide range of loading as a function 
of driving condition. This is an inefficient way of producing 
mechanical power from the energy in gasoline or diesel fuel. If the ICE 
were allowed to operate only in its optimal operating region, fuel 
efficiency improvements of roughly 50 percent would be possible 
(depending on the size and type of vehicle and its intended 
application). This is the fundamental principle behind the Hyperdrive 
as is illustrated in Figure 1.
    Paice achieves this high level of performance and fuel economy by 
introducing a battery system that captures the energy output of the ICE 
(which is operated only in its most efficient range) and an electric 
motor that uses this electrical energy to power the vehicle when the 
ICE cannot be used efficiently or when power requirements are higher 
than can be delivered by the ICE alone. The motor also acts as a 
generator to recover energy from the vehicle during deceleration. 
(There are other significant features of the Hyperdrive, but the 
foregoing is illustrative of the basic concept that results in the 
dramatic improvements in fuel economy.)
    The operation of all of these components and their function is 
managed by the Paice Control Module, a multiprocessor with associated 
control software and embedded proprietary control algorithms. Through 
this patented method of control of the drive components, the Hyperdrive 
system improves powertrain efficiency by roughly 50 percent over 
conventionally powered vehicles (depending on vehicle type and 
application). Other than the Paice Control Module, the various hardware 
components in the Hyperdrive system already exist in one form or 
another in conventional vehicles. The differences lie in the relative 
sizes of components, their functional relationships and, most 
significantly, the software incorporating Paice's patented method of 
control, which enables the components to function as a highly efficient 
system. Thus, the Hyperdrive represents an evolutionary step in 
automobile technology, and does not require advanced development 
efforts or dramatic changes in manufacturing infrastructure.

Modes of Operation
    There are four typical modes of operation that illustrate the basic 
functionality of the Hyperdrive: city driving, recharging during city 
driving, acceleration, and cruising on the highway. In addition to 
these four, there are a number of other modes defined in the control 
algorithm.
    The Hyperdrive system includes a clutch--essentially a device that 
is either engaged or disengaged. The clutch must be engaged for the 
mechanical power from the engine to be delivered directly to the 
driving wheels. The most frequent condition controlling whether the 
clutch is engaged or disengaged is vehicle road load reflected on the 
engine shaft. If this load is sufficient for the engine to be used near 
its maximum efficiency, then the clutch is engaged. Otherwise, it is 
disengaged. Generally, the clutch is not engaged during low speed city 
driving and is engaged during rapid acceleration and highway driving.
    In Figure 4, below, the clutch is disengaged in low speed city 
driving. In part A of Figure 4, the battery is above its minimum state 
of charge and the traction motor drives the vehicle. At this point, the 
vehicle is operating like an electric car. The battery is used in a 
narrow range of the state of charge, normally in 50 percent to 70 
percent under partial state of charge (PSOC) condition, to assure long 
operating life. The amount of energy used in this electric-only mode is 
far below the PNGV definition of ``dual mode hybrid''. The Hyperdrive 
system operates like an electric car upon initial starting of the 
vehicle and during the intervals between times in which the battery is 
being charged.

[GRAPHIC] [TIFF OMITTED] T9683.013


    Part B of Figure 4, shows a time period in city driving after the 
battery has been used to power the traction motors. Once the battery 
has reached its minimum state of charge, 50 percent or so, the starter/
generator motor starts the engine. Upon starting the engine, a load is 
applied by the starter/generator motor (now operating as a generator) 
so that the engine runs close to its minimal BSFC operating condition. 
The power produced by the starter/generator is split. One part of it is 
delivered to the traction motor, making the Hyperdrive operate as a 
serial hybrid. The balance of the power is used to recharge the 
battery. Upon reaching the maximum level of battery charge, about 70 
percent, the engine is stopped.

[GRAPHIC] [TIFF OMITTED] T9683.014


    In Figure 5, the clutch is engaged to accelerate onto and cruise on 
the highway. When time-averaged road load on the Hyperdrive is 
sufficient to place the engine in a region close to its minimum BSFC, 
the clutch is engaged. If the engine was off, it is started and 
synchronized by the starter/generator motor. At this point the engine 
begins to provide the average power demands of the vehicle. In this 
mode, the Hyperdrive acts as a conventional powertrain with its 
transmission in the direct drive position. This is depicted in Part A 
of Figure 5.
    For vehicle acceleration or deceleration, all motors are used in a 
manner that minimizes energy loss in all electrical and electronic 
components. The Paice Control Module can assure this on a millisecond-
by-millisecond basis. Acceleration with only the traction motor is 
shown in Part B of Figure 5. This is parallel hybrid mode. Engine 
torque is controlled to lag motor torque to assure operation with the 
most efficient air/fuel mixture. This allows for material reduction of 
engine-out emissions, not only for EPA test purposes but also under any 
driving conditions. Because electric motors provide excellent torque 
response to the driver's command, optimized levels of car 
responsiveness become possible, even varying the shape of this response 
as a function of the driver history and driving condition.

II. Modeling of Selected Vehicles

Effect of the Hyperdrive System on the Fuel Economy of a Fleet of 
        Vehicles Subject to CAFE
    Paice Corporation has modeled three vehicles (a compact car, a 
full-size car, and a large SUV) to provide benchmark data on expected 
fuel economy improvements in vehicles that can be produced in large 
volumes utilizing the Hyperdrive. The selection is limited to vehicles 
subject to CAFE regulation; that is, with Gross Vehicle Weight (GVW) 
under 8,500 lbs.
    In Table 2* , we present a summary of composition of vehicles 
subject to CAFE regulation that were sold in year 2000, along with the 
fuel economy average for each class. By combining sales volumes with 
combined fuel economy values, we calculated the overall combined fuel 
economy to be 24.6 mpg.
---------------------------------------------------------------------------
    * This data is based on a study conducted by Oak Ridge 
Laboratories. Davis, SC 2001. Transportation Energy Data Book: Edition 
21, ORNL-6966, available at http://www.ornl.gov/webworks/cppr/y2001/
rpt/111858.pdf.

[GRAPHIC] [TIFF OMITTED] T9683.015


    On the following pages, we show the results of our modeling for 
three particular vehicle classes represented in Table 2. These are a 
compact car (page 10), a full-size (large) car (page 11), and a large 
SUV (page 12).
    Using the Hyperdrive system:
     a compact car exhibits an increase from 31 to 45 mpg (a 45 
percent improvement);
     a full-size car exhibits an increase from 27 to 39 mpg (a 
44 percent improvement); and
     a large SUV exhibits an increase from 16 to 26 mpg (a 62 
percent improvement).
    We believe that these modeling results represent the type of 
increase that all vehicles subject to CAFE can produce using our 
powertrain.
Compact Car
    In Figure 6, we present the configuration of components in the 
Hyperdrive in a compact car. Given this configuration, in Table 3, we 
present a comparison of performance between a conventional compact car 
and a similar car with the Hyperdrive. For this comparison, we 
specifically selected a top performer in both driving characteristics 
and fuel economy.

[GRAPHIC] [TIFF OMITTED] T9683.016


    It is important to note that combined fuel economy is improved from 
31 to 45 mpg, or 45 percent. The passing performance is better with the 
Hyperdrive, accelerating from 55 to 75 mph in 5 seconds versus 6.7 
seconds. Gradeability with the Hyperdrive on a continuous basis is 
better at 80 mph and otherwise meets requirements of the auto 
industry.*
---------------------------------------------------------------------------
    * As an illustration of the significance of gradeability standards, 
climbing even a 10 percent grade at 45 mph for 5 minutes will elevate 
the vehicle by approximately 2,000 feet, or as high as a 160-story 
building.

[GRAPHIC] [TIFF OMITTED] T9683.017


    While the Hyperdrive car is a little heavier than its conventional 
counterpart (125 lbs. in total), this difference is already factored 
into the fuel economy results. We believe that implementation of the 
Hyperdrive in a compact car will meet or exceed customer expectations 
for performance and provide 45 percent improvement in fuel economy.
Full-Size (Large) Car
    Next, in Figure 7, we present the configuration of components of 
the Hyperdrive in a full-size (large) car. Again, we specifically 
selected a top performer in fuel economy. In Table 4, we present a 
comparison of performance between a conventional full-size car and a 
similar car with the Hyperdrive.

[GRAPHIC] [TIFF OMITTED] T9683.018


    As shown here, combined fuel economy improves from 27 to 39 mpg, or 
44 percent. Again, passing performance is better: 4.4 seconds versus 
5.7 seconds. The weight of the Hyperdrive vehicle is 125 lbs. greater 
than its conventional counterpart and this has been factored into our 
findings. We believe that implementation of the Hyperdrive in a full-
size (large) car will meet or exceed customer expectations for 
performance and provide 44 percent improvement in fuel economy.
[GRAPHIC] [TIFF OMITTED] T9683.019

Large SUV
    Figure 8 shows the Hyperdrive modeled to represent a large SUV with 
the Gross Vehicle Weight of 8,500 lbs., the highest weight vehicle 
subject to CAFE regulations. In this configuration, the Hyperdrive 
replaces the mechanical 4x4 drive with an electrical component and, 
because of a large difference in load range, we use a two-speed 
automatic transmission. In Table 5, we present a comparison of 
performance between a conventional large SUV and one equipped with the 
Hyperdrive. Importantly, unlike other HEV designs that must compromise 
performance, with the Hyperdrive system there is no change in trailer 
towing capacity.

[GRAPHIC] [TIFF OMITTED] T9683.020


    Combined fuel economy is improved from 16 to 26 mpg, or 62 percent. 
Acceleration with the Hyperdrive SUV is markedly superior, accelerating 
from standstill to 60 mph in 7.7 seconds versus 9.6 seconds. Top speed 
is limited by tire rating. Gradeability meets the requirements of the 
auto industry in the conventional SUV. We believe that implementation 
of the Hyperdrive in a large SUV will meet or exceed customer 
expectations for performance and provide 44 percent improvement in fuel 
economy. Unlike other HEV designs, the Hyperdrive does not need to 
eliminate or greatly reduce trailer-towing capacity in order to provide 
the fuel consumption benefits desired.

[GRAPHIC] [TIFF OMITTED] T9683.021


III. Economics

    We believe that a Hyperdrive vehicle can be produced with the same 
as or better performance characteristics than conventional vehicles, 
and with improvements in fuel efficiency and emissions, without 
substantially increasing cost. For example, Paice Corporation believes 
that the Hyperdrive could cost approximately $1,700 more than the 
conventional powertrain that it would replace in the large SUV 
application. Sources of data for this estimate came from prior 
experience of auto industry suppliers, new components suppliers and 
from our own experience. To further refine our cost estimates we are 
currently establishing a program to build a demonstration vehicle with 
all of the components specifically designed for their intended use by 
qualified automotive suppliers.

[GRAPHIC] [TIFF OMITTED] T9683.022


    As an illustration of life cycle cost savings, the fuel economy 
benefit for the large SUV is 10 mpg. Thus, as a rough estimate, if the 
vehicle is driven 12,000 miles per year (average for American drivers) 
and has an expected life of 10 years, this fuel economy improvement 
will yield approximately 2,900 gallons in fuel savings.*
---------------------------------------------------------------------------
    * In its report ``Effectiveness and Impact of Corporate Average 
Fuel Economy (CAFE) Standards'', the Congressionally-authorized 
National Academy of Sciences (NAS) CAFE Study Panel evaluated break-
even fuel efficiency using two evaluation cases. Case 1 assumed that a 
vehicle is driven 15,600 miles in its first year of service, decreasing 
4.5 percent for each of the remaining years of its 14-year services 
life. This results in total mileage of 165.000 over the vehicle's 
assumed 14-year life. For Case 1, the CAFE Study Panel also assumed a 
current gasoline cost of $1.50 and applied a 12 percent discount rate 
to render a current year present value analysis. (The panel also 
applied an additional discount to the reported EPA mileage (15 percent) 
and assumed a penalty for future vehicle weight gains (3.5 percent)). 
Applying this analysis to the fuel economy improvements realized with 
the Hyperdrive-powered large SUV (16 mpg to 26 mpg), the present value 
of the fuel savings is $3,920. This compares favorably to the 
anticipated increase of $1,700 in system cost. (The panel also reviewed 
a simpler Case 2 in which fuel use over 3 years was evaluated, without 
discount. This case would yield savings over 3 years of $2,057, also 
greater than the anticipated increase in system cost.)
---------------------------------------------------------------------------
    The decision as to whether the fuel savings justify the increased 
manufacturing cost is, of course, not purely quantitative. Evaluation 
of the secondary effects, however, is not within the expertise of the 
Paice team.
    Building a cost competitive Hyperdrive system for large vehicles 
became possible only after commercial introduction of high voltage 
power semiconductors, specifically 1,400 Volt IGBTs. This occurred in 
1998, the year we started building a prototype of the Hyperdrive. In 
Fig. 9 we present the ``chain reaction'' of effects of high voltage 
power semiconductors.
    The existence of high voltage semiconductors offers the ability to 
make inexpensive and efficient DC/AC inverters. This in turn permits 
introduction of powerful traction motors. With powerful traction 
motors, elimination (or, in some cases, simplification) of the 
transmission is made possible. When using all these components, the 
Hyperdrive implements our new method of engine control to achieve near-
maximum thermodynamic efficiency of spark-ignition engines (32-34 
percent as compared to the maximum of 35 percent). There are also 
additional benefits of using lead-acid batteries at lower currents, 
such as increased operating life and lower cost.
    The Hyperdrive is essentially an evolutionary improvement of the 
conventional gasoline (or diesel) powertrain. It uses the same 
component technology, but in substantially different ratios. The engine 
is smaller. The transmission is either eliminated or reduced. The 
starter motor and alternator become more powerful and larger in size 
and weight. The lead-acid battery is increased in size and weight. 
There are more powerful electronic power controllers than just existing 
voltage regulators: the DC/AC inverters. However, these inverters 
employ the same basic type of components that exist in vehicles today. 
The operation of all of the components is coordinated through a highly 
sophisticated powertrain computer controller, similar in nature to 
existing engine control modules from a components viewpoint. Thus, the 
Hyperdrive relies on very similar components very similar to those 
currently in use and the resulting system weight is almost identical. 
Altogether, this leads to total cost that is modestly greater than 
present powertrain configurations.

IV. Potential for Improvements in Fuel Efficiency

    Based on the fundamental principles of thermodynamic efficiency, we 
believe that the fuel efficiency of our powertrain represents close to 
the practical limit of what is technically possible in passenger 
vehicles. We presented modeling results for three vehicles: a) compact 
car, b) full-size (large) car, and c) large SUV. Using the Hyperdrive 
system, a compact car exhibits an increase in combined fuel economy 
from 31 to 45 mpg (a 45 percent improvement), a full-size car exhibits 
an increase from 27 to 39 mpg (a 44 percent improvement), and a large 
SUV exhibits an increase from 16 to 26 mpg (a 62 percent improvement). 
We believe that these modeling results are representative of the type 
of increase that all vehicles subject to CAFE can produce using our 
powertrain.

[GRAPHIC] [TIFF OMITTED] T9683.023


    To provide a more complete picture of the improvement in fuel 
economy that could be expected in other classes of vehicles, we 
identified the relevant characteristics of all of the vehicle 
categories listed in Table 2 (the categories defined in the Oak Ridge 
Transportation Energy Data Book and currently subject to CAFE 
regulation) and designed the Hyperdrive system for a representative 
vehicle in each category. A summary of our modeling results showing the 
original fuel economy of each representative vehicle, the fuel economy 
that results from incorporation of the Hyperdrive system, and the 
percentage improvement from such incorporation is provided in Table 6.* 
With potential fuel economy improvements of the magnitude shown here, 
application of Hyperdrive to a large volume of production vehicles 
would significantly reduce total gasoline consumption and consequently, 
the requirements for oil imports.
---------------------------------------------------------------------------
    * The three Hyperdrive vehicles modeled and presented in section 2 
above were chosen to represent the Hyperdrive system as compared to the 
top performing vehicles for compact and full size (large) cars and the 
heaviest SUV subject to CAFE regulation. In Table 6, the Hyperdrive was 
modeled to be representative of the class as a whole. As a result, the 
fuel economy results for the categories ``Compact Automobile'', ``Large 
Automobile'' and ``Large SUV'' in Table 6 differ somewhat as compared 
to the results for the three specific vehicles selected and described 
above in section 2.
---------------------------------------------------------------------------
    All of the fuel economy improvements presented herein are based 
only on the use of the new Hyperdrive power train. Further small 
improvements are still possible, such as through ICE engine 
optimization, but such improvements will be subject to the law of 
diminishing returns as the Hyperdrive is operating the engine within 1-
3 percent of its possible maximum thermodynamic efficiency. 
Furthermore, improved fuel economy from the use of lighter materials, 
smaller aerodynamic drag, and lower resistance tires (those potential 
improvements discussed by the report of the Union of Concerned 
Scientists.
    4. United States Patent Application number 09/822,866, Severinsky 
and Louckes, Hybrid Vehicles, published November 8, 2001. Available at 
http://www.paice.com/patents/.
    5. World Intellectual Property Organization PCT Patent Application, 
PCT/US99/18844. Published March 23, 2000. International Publication 
number WO 00/15455. Title page available at http://www.paice.com/
patents/.
    6. Louckes, Ted and Timbario, Tom, The Hybrid: A Challenge and an 
Opportunity for IC Engines, Proceedings of the AVL International 
Congress on Internal Combustion Engine versus Fuel Cell--Potential and 
Limitations as Automotive Power Sources, Graz, Austria, September 2001. 
pp. 145-160. Available at http://www.paice.com/library.html.
    7. Polletta, David, Fuel Economy and Performance Impact of Hybrid 
Drive Systems in Light Trucks, Vans, and SUVs, presented at the SAE Bus 
and Truck Conference, Chicago, IL, October, 2001. SAE paper number 
2001-2826. (c) 2001 Society of Automotive Engineers, Inc. Available 
(with permission of SAE) at http://www.paice.com/library.html. are not 
included in our analysis and would potentially result in additional 
improvements in fuel efficiency.
    Of course, any HEV can only reduce overall fuel consumption in a 
meaningful way if it is commercially mass-produced. As discussed above, 
we believe that the Hyperdrive system has the only cost effective 
configuration of HEV that is fully scalable and is not cost prohibitive 
to mass-produce. As a first step toward the mass production of a 
Hyperdrive vehicle, our projections for cost will have to be 
substantiated through a manufacturing cost analysis of actual 
components in an actual vehicle that exhibits the performance and fuel 
economy advantages described above. Once cost projections are verified 
in the prototype vehicle, we would expect that participating automakers 
will begin the process of preparing for large-scale production of 
vehicles with the Hyperdrive system. If a development program were to 
begin now, automobiles with the Hyperdrive could be commercially 
introduced into the U.S. market within five years. We are hopeful that 
this process will commence in the near future in view of the level of 
interest being demonstrated by several leading automakers and key 
component suppliers.
    It should be noted that such a transition will take substantial 
time to complete. To begin with, it will take Paice Corporation two 
years to deliver a complete demonstration vehicle and two additional 
years for the automakers to test and evaluate the vehicle and go 
through the expensive process of preparing for production. Once a 
vehicle with the Hyperdrive system appears on the market, subject to 
the level of customer acceptance and commitment on the part of the 
automaker, it will then take a number of years for the transition of 
the full range of the automakers vehicle lines.
    While the Hyperdrive system can deliver fuel economy improvements 
of roughly 50 percent across the full range of automobiles and light 
trucks, an additional question is in which vehicles is it most 
appropriate to begin implementing the Hyperdrive powertrain. We believe 
that the greatest fuel savings can be realized by introducing the 
Hyperdrive system into the SUV/light truck class of vehicles. To 
understand why this is the case, one must evaluate the issue of fuel 
efficiency under a gallons per mile analysis, as well as the 
traditional miles per gallon analysis.
    As illustrated by Figure 10, under a miles per gallon (MPG) 
analysis, introduction of Hyperdrive technology results in an increase 
from 31 to 45 mpg for a compact car (a 14 mpg increase) as compared to 
an increase from 16 to 26 mph for a large SUV (a 10 mpg increase). 
Thus, from a MPG standpoint, it appears that greater value is added by 
incorporating the Hyperdrive powertrain into a compact car.
    However, under a gallons per mile (GPM) analysis, those same 
increases in fuel efficiency result in dramatically different amounts 
of gallons used over 12,000 miles (one year of driving). As Figure 10 
illustrates, using the Hyperdrive system in the same compact car yields 
a savings of 120 gallons per 12,000 miles. Conversely, using the 
Hyperdrive system in the same large SUV yields a savings of 290 gallons 
per 12,000 miles--more than double the fuel savings from the compact 
car.
    While other factors bear on fuel economy, we feel that it is 
logical to focus on the number of gallons consumed for a specific 
distance traveled. Moreover, it makes sense that the Hyperdrive 
technology will yield the greatest per vehicle fuel savings when 
introduced into the SUV/light truck class of vehicles, because 
passenger cars are already more fuel-efficient than SUVs and light 
trucks and, therefore, don't have as much room for improvement. 
Consequently, if the goal is to yield the greatest fuel savings in the 
categories of vehicles currently on the road, the Hyperdrive system 
should be introduced first in the SUV and light truck vehicle class.

[GRAPHIC] [TIFF OMITTED] T9683.024


    Additionally, we recommend that the Senate Commerce Committee ask 
Argonne National Laboratory to use its modeling software to corroborate 
our technical data and modeling. Their software is designed 
specifically for hybrid-electric vehicles and is able to match 
performance of physical models within 1-2 percent accuracy. It will 
allow the Government to corroborate our technical results without 
spending millions of dollars for physical prototypes, and will take 
weeks instead of years to complete. We also recommend that the Senate 
Commerce Committee take ANL's data and ask Oak Ridge National 
Laboratories, the originator of the report referenced in this 
testimony, to do a detailed analysis of the impact of the Hyperdrive on 
oil uses in the future. Paice Corporation is prepared to work with 
these national laboratories in performing such studies and to meet with 
the Senate Commerce Committee or other parties to discuss the results.

Conclusion

    The Paice Corporation has designed and developed a hybrid electric 
powertrain, which results in ICE fuel efficiencies in the range of 32-
34 percent, approaching the limit of thermodynamic efficiency for 
spark-ignition engines. Current automobile ICEs operate at around 18-22 
percent, so the Hyperdrive has a potential to deliver significant gains 
in fuel economy.
    We have successfully demonstrated fuel economy improvements in a 
full-scale prototype of the Hyperdrive on a dynamometer and used the 
data derived from such tests to model three selected vehicles, a 
compact car, a full-size car, and a large SUV. As compared to their 
conventional counterparts, the vehicles powered by the Hyperdrive 
exhibited an increase in combined fuel economy as follows:
    Compact car--from 31 to 45 mpg (a 45 percent improvement)
    Full-size car--from 27 to 39 mpg (a 44 percent improvement)
    Large SUV--from 16 to 26 mpg (a 62 percent improvement)
    The Hyperdrive is suitable for all vehicles covered by current CAFE 
regulations, and we believe that the modeling results presented are 
generally representative of the type of increases in fuel economy that 
can be realized in all vehicles subject to CAFE.
    Regardless of the type of regulations imposed, Paice believes that 
national fuel consumption can only be meaningfully reduced in the long 
term if the auto industry can produce cars at acceptable cost that suit 
the needs and desires of consumers and that are at the same time highly 
fuel-efficient.
    Hyperdrive cars will match or better the performance of existing 
vehicles. They will also have conveniences and features not feasible in 
present day cars. Hyperdrive cars will be more heavily dependent on 
real-time control software and other more advanced technologies than 
present ones and do things we can't even imagine now, as cell phones 
did just a few years ago. In a truly American way, they will save gas, 
and they will be better products.
    We are confident that the Hyperdrive can be a valuable tool in 
enhancing fuel economy, improving our environment and reducing our 
dependency on foreign oil. We look forward to working together with the 
Government and the auto industry in achieving these goals.

References

    1. United States Patent number 5,343,970, Severinsky, Hybrid 
Electric Vehicle, issued September 6, 1994. Available at http://
www.paice.com/patents/.
    2. United States Patent number 6,209,672, Severinsky, Hybrid 
Vehicle, issued April 3, 2001. Available at http://www.paice.com/
patents/.
    3. United States Patent Application number 09/392,743, Severinsky 
and Louckes, Hybrid Vehicles Incorporating Turbochargers, allowed 
October 12, 2001. A copy of this patent will be made available at 
http://www.paice.com/patents/ once it is published by the U.S. Patent 
and Trademark Office.
    4. United States Patent Application number 09/822,866, Severinsky 
and Louckes, Hybrid Vehicles, published November 8, 2001. Available at 
http://www.paice.com/patents/.
    5. World Intellectual Property Organization PCT Patent Application, 
PCT/US99/18844. Published March 23, 2000. International Publication 
number WO 00/15455. Title page available at http://www.paice.com/
patents/.
    6. Louckes, Ted and Timbario, Tom, The Hybrid: A Challenge and an 
Opportunity for IC Engines, Proceedings of the AVL International 
Congress on Internal Combustion Engine versus Fuel Cell--Potential and 
Limitations as Automotive Power Sources, Graz, Austria, September 2001. 
pp. 145-160. Available at http://www.paice.com/library.html.
    7. Polletta, David, Fuel Economy and Performance Impact of Hybrid 
Drive Systems in Light Trucks, Vans, and SUVs, presented at the SAE Bus 
and Truck Conference, Chicago, IL, October, 2001. SAE paper number 
2001-01-2826. (c) 2001 Society of Automotive Engineers, Inc. Available 
(with permission of SAE) at http://www.paice.com/library.html.
    8. This data is based on a study conducted by Oak Ridge 
Laboratories. Davis, SC 2001. Transportation Energy Data Book: Edition 
21, ORNL-6966, available at http://www.ornl.gov/webworks/cppr/y2001/
rpt/111858.pdf.

    Senator Kerry. Thank you very much, Mr. Louckes.
    I guess any sort of non-expert layperson's reaction to the 
testimony is to quickly turn to the industry and say why not or 
where is this? What's your reaction to that particular 
technology and if it is as good as he says it is, why aren't 
the Big Three chasing these guys like bandits?
    Mr. Robertson. We have had dialog with Paice in the past. I 
have to say not recently. We, I think we all recognize that as 
we sit here, the potential for hybrids, we feel that we have a 
number of both proprietary and non-proprietary approaches to 
hybrids which can yield, depending upon how it is done between 
20 and 30 percent better fuel efficiency in and of itself, and 
the big challenge of course is doing it cost effectively.
    The last time we looked at the Paice system, it was a 900 
volt lead acid volt battery system with a diesel. There are a 
number of issues with that. We are very enthusiastic about the 
diesel. We would love to use diesel in this market like we do 
in Europe, but I think you know, there are some real 
impediments to that which we are all working hard on. 900 volts 
is a real challenge. I think the industry is trying to drive 
the voltage down as low as possible for all of the obvious 
reasons, and batteries, lead acid batteries are attractive from 
a low-cost point of view, but that is the end of the positives.
    Most of us are trying to get to lithium ion and probably 
starting out with nickel metal hydride and will go to lithium 
iron as soon as there is a supplier able to supply them.
    In a nutshell again, I would have to say we have not looked 
very recently and would be happy to do that. I have no basis to 
quarrel with the testimony, but for a variety of technical 
reasons, we think that the approach that we are taking and the 
approach we have already announced for 2003 and 2004 production 
will be more cost effective, more attractive and hopefully, 
equally effective.
    Senator Kerry. Do you want to comment also, Mr. Olson?
    Mr. Olson. Briefly. I am not aware of whether engineers at 
our parent corporation in Japan have talked to Paice. I know 
that we tend to be an intensely not-invented-here company. We 
like to do our work internally. We have three different types 
of hybrids already in Japan.
    It is a very, very promising technology. We think it is a 
core technology for the mid-and longer term and we intend to 
deploy it aggressively. We will have more announcements about 
that in the near future.
    Mr. Louckes. If I could just add something.
    Senator Kerry. I was going to come back to you.
    Mr. Louckes. Our technology is not based on diesel. The 
data I am speaking to you about, in a written submission, is 
based on spark ignition engines. However, we are doing a 
project for one of the overseas companies using a diesel engine 
and it is far better, of course, but it is not dependent on 
that.
    With regard to high voltage, that is one of the keys to the 
economies of this type of approach. And of course, we have been 
through a great deal of examination with Underwriters 
Laboratories as to the relative safety of this application as 
compared to a 200-and 300-volt application and it was found by 
them to be even safer.
    The key is that as you go to higher voltage, the cost of 
power electronics goes down as a square of the current and so 
one of the keys to getting low cost in hybrids is to get the 
cost of the electronics and power electronics and motors at 
lower levels. When you take it to higher voltage, that is 
possible.
    With regard to lead acid batteries, we have a tremendous 
background of experience. There is current testing going on 
that indicates that this application can use lead acid 
batteries very successfully, perhaps even more successfully 
than nickel metal hydride or lithium iron and in the sense that 
we use it very gently. It is very, very well proven to operate 
successfully in all climates, at extreme temperatures, both low 
and high. Lead acid batteries have been in the automotive 
industry for well over 50 years, as long as I have been in it.
    Senator Kerry. Where are you in the development and testing 
of this at this point?
    Mr. Louckes. Well, as I indicated, we have built a 
prototype system. We have tested it on a dynamometer according 
to the standard testing as well as random driving and we are in 
the process now of working with potential suppliers and 
automotive industry----
    Senator Kerry. How long does it take to get this into 
vehicle design?
    Mr. Louckes. We could get a complete prototype program done 
from 2 years from whatever day you start, and based upon my 
experience in the industry to take that to production 
successfully with due care and production reliability all 
established is probably another 2 to 3 years after that before 
you could be in volume. To be honest with you, perhaps it could 
be done sooner, but that is the prudent thing. I would say----
    Senator Kerry. What does your modeling suggest is the cost 
to the customer?
    Mr. Louckes. Well, for example, and we have, of course, a 
lot of experience of our own on the cost of these components. 
We have in-house in our own organization a very experienced 
cost analyst who has worked with the industry in the United 
States for many years. We see a large sports utility 4-by-4 at 
about plus-$1,700.
    Senator Kerry. Plus-$1,700 and the savings in fuel, so it 
would be 50 percent of the savings?
    Mr. Louckes. $1,700-plus for an improved performance and 
with a fuel economy that I indicated that went from 16 and 
combined to 26.
    Senator Kerry. So what's the lifetime? And I have not done 
the math on it.
    Mr. Louckes. Well, in 10 years, you will save about $3,000.
    Senator Kerry. 10 years. Most people do not keep their cars 
10 years.
    Mr. Louckes. No. But I am just talking about 12,000 miles a 
year. And it depends upon the cost of fuel. Of course, if you 
take today's fuel, that is what I am talking about.
    Senator Kerry. Have you discussed your technology with 
automakers in Europe and Japan?
    Mr. Louckes. Yes, I have.
    Senator Kerry. Is there a differential in the interest 
between domestic and foreign automakers?
    Mr. Louckes. There appears to be at this time.
    Senator Kerry. Meaning?
    Mr. Louckes. We seem to be getting a more ready acceptance 
from the suppliers, the automobile makers overseas. Of course, 
we are an American company and we hope that we can work with 
the U.S. auto industry to bring this technology to market 
because ours provides significant advantages over other hybrid 
technologies.
    Senator Kerry. Let me come back for a moment if I can to 
Mr. Robertson. Your comments a moment ago about NHTSA. I just 
want you to know for the record that I respect the industry and 
its uniformity in the industry. You all would prefer to have 
NHTSA handle this, and that is clear in the testimony today.
    But let me just make it clear to everybody that that is a 
wish that I am afraid cannot be farther to the fact in this 
situation. There is an energy bill that is going to come down 
the pike in January, whether this Committee moves or not, 
someone is going to introduce something on the floor of the 
Senate.
    What we are trying to do is address fuel economy in the 
most orderly and thoughtful way possible, which is through the 
committee process, but there is an inevitability to some kind 
of passage, a certainly, a confrontation, on the issue of CAFE 
standards. But I have to say to you that you have got to be 
sensitive to the politics that I discussed earlier, about the 
road we have traveled here, the kinds of comments that have 
been put on the table in prior years and particularly, with 
respect to NHTSA.
    Here is where credibility gets put to the test, 
unfortunately, in the flip-flop according to who's where, who's 
in power, and where, obviously, they think they are going to 
``do better,'' and better seems always to be not how do we find 
the best median here, but how do we just keep the status quo. 
And so in 1989 and 1991, both Chrysler and GM urged this 
Committee to defer to NHTSA and oppose the Committee's strong 
CAFE legislation because, of course, NHTSA was then regarded by 
the industry as being in friendly hands.
    In 1995, when NHTSA was poised to issue revised standards, 
Andrew Card, on behalf of the automakers, told a House 
Committee that NHTSA held too much authority over CAFE and 
urged Congress to take back CAFE policy responsibility, which 
as we know in 1995 it did through the detriment of this 6 years 
of thinking without any kind of fact gathering or genuine 
effort to make a change. So from my perspective, there has been 
such obvious forum shopping that it is hard to take your 
suggestion that it is anything more than a continuation of that 
and it is not going to have an impact on the Committee's need 
to try to find a way to work with you on this and so I know you 
stated it for the record. It is out there. But I am just saying 
for the record that the Committee is going to proceed forward 
to try to come up with something through the legislative 
process.
    I can't guarantee you it is going to be non-
confrontational, but I would like to be as non-confrontational 
as it could be. I'd like to find a way to see if we couldn't 
meld a combination of efforts here that makes for good policy, 
and I hope we will be able to do that in some way and perhaps 
we can.
    Mr. Robertson. Mr. Chairman, may I?
    I certainly respect those points, and the reality is as you 
cited it and with regard to your comments earlier this morning 
about forum shopping, I can't quarrel with that. I can't make a 
persuasive case otherwise.
    I would only say that I think you have conducted this 
hearing today in a very objective manner, if I may say so, and 
allowed people to bring out their views and have been very 
patient in that, and I commend that.
    In listening to it all, it is clear that it is a very, very 
complex subject and the deeper you dive into any element, 
whether it is an attribute-based system or has safety really 
been affected or not, just how do you interpret the National 
Academy results. It is a very, very complex subject and I can 
only say that we hope that however it is done and whether it is 
done in Congress or at NHTSA or in conjunction, we hope that it 
is done by all means quickly, but in the very thorough manner 
and I can only plead that the appeal of the NHTSA approach is 
that they have the staff and the technical people on the 
premises that we think can add to that analysis.
    Senator Kerry. Well, we will certainly reach out to them. 
Look, I want this to be objective. This is important stuff, and 
it has a serious impact on people. I think there are a lot of 
things to weigh and I found as one digs into it, there really 
are interesting, interesting and really fairly delicate 
balances between where the gains have been made.
    I think there was some cherry picking in the initial part 
of CAFE, and so the weight components and some of the 
carburetion and other kinds of gains that were there to be 
grabbed were much easier to grab. That having happened, there 
is an obvious hybrid option here and hybrid takes you way up in 
the 1960s, 1970s, 1980s of MPG, it depends on what the 
particular technology in vehicle is.
    But clearly, if consumer choice is going to be one of the 
things we are trying to measure, in the current marketplace, it 
is hard to find what's going to drive consumers toward that, 
unless it is really equal in performance. I mean, some salesman 
is going to have to be able to sit here and say ``Hey, let me 
see this car.'' It has got the same acceleration, exact same 
comfort level, the same driving characteristics and so forth 
and if it doesn't, I can see how a buyer is going to say, 
``Well, that is kind of new and I am not sure about it yet, and 
this is all tried and true and that is where I want to go.'' So 
you know, we have got to think through all of these kinds of 
things. There are also some inherent, and I say this nicely, 
but I think some deficiencies. I am not in the auto industry.
    If I had been in the business 30 or 40 years ago, I would 
have driven my company in a very different direction. I think 
Europe has taught us that through the years. We have seen their 
products and the influence they have had on our market, but we 
still always tend to kind of push the extreme of the 
marketplace and there is an American culture about it, too. We 
all grew up thinking differently about the automobile than 
people in other countries and culture is part of your 
marketplace and you have to obviously appeal to that.
    So I am aware of this, and I am trying to find a way to get 
the parameters of the realities here, what is the reality of 
the NAS review? What is the reality of the technology? What is 
the reality of what we could gain if there is some cherry 
picking left, how much does that amount to in terms of miles 
per gallon gained, and how fast can we push the envelope and 
what incentives should we appropriately use to push that 
envelope and maybe we can be creative about this and think 
about it as a mix and match a little bit. I am not sure of the 
answer to that yet. But we are open to looking at that as 
thoughtfully as possible.
    Mr. Friedman, let me just ask you, you have listened to the 
industry and I found again with all due respect, often people 
can sit on the outside of the industry itself and look at the 
technology and say these are ready available, but then you run 
into the kinds of complications that Mr. Robertson or others 
have tried to describe.
    Is the lead acid battery perhaps more dangerous or is not 
it more dangerous? You have different points of view about 
these things. How sure are you when you talk about the 
technological feasibility, and the prior panel said they had 
agreed to disagree with the National Academy of Sciences. We 
have not made a judgment yet, but how sure are you of the 
notion that outside of hybrid, there are these miles per gallon 
to be gained from current level of technologies.
    Mr. Friedman. I would have to say that I am very sure. I 
think the analogy you made earlier to cherry picking is a very 
good one. We did have a lot of cherries to pick in the late 
1970s and early 1980s to improve fuel economy, but the great 
thing about cherry trees is the cherries grow back and 
technology is a lot like that, technology progress keeps moving 
forward.
    And in the last 15 years, where fuel economy standards have 
basically stayed stagnant, many technologies have come on line 
that are now just like the cherries that we were able to pick 
before.
    Senator Kerry. Such as?
    Mr. Friedman. Such as, for example, one of the technologies 
General Motors mentioned, cylinder cutoff systems. Such as 
continuously variable transmissions.
    Senator Kerry. But they are using them.
    Mr. Friedman. They are using them. They are starting to 
bring them into vehicles.
    Senator Kerry. What percentage of vehicles? Does anybody 
know?
    Mr. Olson. Do you mean CVT? CVTs are very low usage yet.
    Senator Kerry. And what kind of gains are available in 
them?
    Mr. Friedman. The gains from continuously variable 
transmission can be quite significant, especially when combined 
with an advanced engine. One of the really impressive things 
about a lot of the technologies is that actually in a lot of 
cases the benefits can add between the two.
    Continuously variable transmissions can easily give you 
anywhere between 5 to 10 percent increase in fuel economy 
depending upon the vehicle and efficient engines such as 
advanced versions of variable valve technology engines that are 
some versions of which are on the road today can get you 
another 10 to 15. Together they can get you a little bit more 
because they work off each other to increase the benefits. And 
there is a lot of examples of where those synergies do exist.
    Senator Kerry. You are suggesting that in the stagnation of 
the last years without any impetus from NHTSA, without any 
enforcement, with the sort of permissive decline as well as 
with the cost of fuel, there has been an open season on 
retrenchment, if you will.
    Mr. Friedman. We are in an ironic position that the policy 
that was brought up earlier to take all vehicles off the road 
and replace them with new cars would actually decrease the fuel 
economy of the fleet.
    The cars we are selling today are lower in fuel economy 
than they were 10 to 15 years ago. These cars are more fuel 
efficient but their fuel economy is lower. A lot of the 
technologies, we have lost some technologies because of that 
stagnation, but at the same time, technology progress as you 
were saying and summarizing is not stopped, and there is a lot 
of technologies out there and I think the automotive news 
picture that was shown previously shows some additional 
examples of that and that is what the National Academy of 
Sciences study focuses on is all existing and emerging 
technologies.
    This is not rocket science. These are not brand new 
technologies. These are things the automakers have been looking 
at for quite a while.
    Senator Kerry. How about that, Mr. Olson?
    Mr. Olson. One of my colleagues just tapped me on the 
shoulder and said to remind you again of what I said in my 
testimony. Sixty-two percent of our engines now have variable 
valve technology.
    Senator Kerry. That is what I thought I heard you say.
    Mr. Olson. I should have said it again.
    Senator Kerry. That is all right. I thought I heard 62 
percent now, but what is the Chrysler story?
    Mr. Robertson. We have a relatively small number of engines 
right now that have variable valve timing. We have----
    Senator Kerry. Could you gain much from it?
    Mr. Robertson. In and of itself, there is a small potential 
improvement. Obviously we are trying to do a variety of these 
things, cylinder deactivation was mentioned. We have one engine 
with that. We will have another one next year. The cylinder 
deactivation is really only applicable to 8-cylinder or 10- or 
12-cylinder engines, simply because when you shut off half the 
engine, obviously you are down to 4 cylinders in the case of an 
8; or 3 in the case of a 6-cylinder. You then start to run into 
some of these other sort of subjective issues like will the 
customer accept a V-6 that feels like a 3 cylinder when it is 
in deactivation mode?
    Those are the kind of day-to-day challenges that obviously 
we all deal with. The other comment I wanted to make though, 
and frankly one of the areas in which we agreed to disagree 
with the National Academy as Ms. Cischke indicated, is to what 
extent you can add these things together. And again, as a 
member of the Academy, I am not inclined to dump on the 
Academy, but where we disagreed probably more than anything 
else.
    Senator Kerry. How cumulative they are?
    Mr. Robertson. Yes. Can you add a CVT at 5 to 10 percent on 
top of an efficient engine on top of this, that, and the other?
    Senator Kerry. What about that, Mr. Friedman? Is that fair?
    Mr. Friedman. Well, that was a point that was brought up at 
the National Academy of Sciences meeting and, in fact, it 
produced some very strong reactions from the panel members on 
the National Academy of Sciences. The automakers accused the 
National Academy of Sciences of violating the laws of 
thermodynamics. That is not jaywalking. That is a felony to a 
scientist, I mean, this is serious.
    [Laughter.]
    Mr. Friedman. And yet, they later retracted that and said 
no, well, we actually wouldn't talk about it that way. The 
engineers on the National Academy of Sciences panel are 
confident. I am confident that they did the best job that they 
could. There is some potential on the very, very high end for 
some double counting. I did not even show those numbers. Those 
numbers showed that you could get to 46 miles per gallon.
    Senator Kerry. So the conservative low end median is what 
level?
    Mr. Friedman. The median range from Path 3 technologies is 
what I have up there. That is the average range is 38.9 miles 
per gallon from Path 3. From Path 2----
    Senator Kerry. Over what period of time?
    Mr. Friedman. That is 10 to 15 years. Path 2, which is 
within 10 years, is 34.2 miles per gallon and that is without 
using weight savings. All of these vehicles are either the same 
weight as vehicles are today.
    Senator Kerry. Do any of those things, Mr. Ditlow, 
compromise safety?
    Mr. Ditlow. No, they do not. I mean, for example, if you go 
to weight savings, you can use higher strength, lower weight 
materials, as a substitute.
    Senator Kerry. What does that do to cost?
    Mr. Ditlow. It will raise the cost, but it will not raise 
the cost significantly.
    One of the dilemmas within the automobile industry, though, 
is the cost philosophy is if you have a dollar additional cost 
per vehicle spread over 15 million vehicles, that's $15 
million, so if it is $10, that is $150 million and so any time 
you deal with the automobile industry, you are dealing with big 
numbers and so, but what the automobile industry is not looking 
at is the cost savings to consumers because their cost 
accounting ends at the sticker price and so the savings to the 
consumer in terms of reduced gasoline consumption don't get 
reflected into the cost accounting of the automobile 
manufacturers.
    I want to add one thing about NHTSA. As an observer of 
NHTSA over the years, the ability of that agency to do 
analytical work in fuel economy today is 1/10th of what it was 
in 1980. I mean they have just dramatically cut back the number 
of staff and the amount of resources in that budget.
    Senator Kerry. We're not sure they remember how to do it. 
It has not been in the forefront of their work and I do not 
mean to be snide about it, but that is a question I do not know 
the answer to.
    What is the lead time? Mr. Robertson, and Mr. Olson, what 
sort of lead time is reasonable to assume here and I am looking 
at the manufacturing cycles, design cycles. I mean, I know you 
do not want to accept the notion of any particular figure, but 
if there were some mix and match here that we do decide to do, 
what is the most reasonable lead time that you think we ought 
to try to embrace even as perhaps a very, very, varied span of 
time X, minimum X maximum.
    Mr. Robertson. There are two major components to lead time. 
One is just simply the development, the more ``stretch,'' the 
technology, obviously, the longer it takes to develop it and to 
prove that it is reliable and so on under all conditions, then 
the other aspect of it is the extent to which we have already 
gotten invested and have a cycle plan for turning over 
products. If we have to replace a transmission plant, for 
example, that we just spent the billions of dollars to tool.
    We have a schedule for retooling those things and retooling 
models which is in the sort of eight to 10-year range, so when 
the Academy said 10 to 15 years to populate technologies across 
the whole fleet, that from our point of view, that is probably 
a reasonable amount of time, that doesn't mean it takes 10 to 
15 years to develop a particular technology, but if you look at 
some of the significant turnovers that we have seen before the 
shift from carburetors to fuel injection, that took about 15 
years to convert the whole fleet and so on. In that case, there 
was a certain amount of customer pull to facilitate it.
    Senator Kerry. Well, I think Mr. Friedman, let me just 
check with you on this. In this ``Drilling in Detroit'' report, 
you estimate that the automobile equipment sector could provide 
the creation of 40,000 jobs by 2010 and over 100,000 jobs by 
2020. The auto companies, on the other hand, are clearly 
arguing that this requirement would result in the loss of jobs.
    How do we reconcile these two approaches?
    Mr. Friedman. Well, I think part of it is that if you look 
at a lot of the analyses by the auto industry on the impacts of 
raising fuel economy standards, one of the strongest 
assumptions that is made there is that any plants that make 
vehicles that do not meet that standard would have to shut down 
and that is equivalent to giving up and I think it is clear 
what National Academy of Sciences results, the technology is 
there that they do not have to give up. They can modify the 
vehicles over time and improve their fuel economy, so there is 
no reason for these jobs to be lost unless they give up on 
trying to compete in that market segment with those vehicles.
    Senator Kerry. What happens to the niche that they have 
created now? Particularly General Motors is making money 
through the significant sale of the SUVs. It sells other cars 
at a loss, and that niche is a critical niche to the 
profitability and ability of the company to keep the people 
employed who are working there. Who knows what the economic 
impact might be on that particular division. What is your 
attitude about that?
    Mr. Friedman. Well, I believe that they have the technology 
to ensure that they are not going to lose that niche. They can 
make these vehicles more fuel efficient, but just as 
comfortable and just as safe as what they have today. They are 
competing well in those markets. They have the technology to 
ensure that they can continue to competing in those markets.
    Senator Kerry. Do you agree with that, Mr. Louckes? I mean, 
some of the things that other designs have put onto those 
vehicles have added weight, or altered the entire 
configuration, or the safety that they provide, or decreasing 
performance, and so forth. I mean, if they scale back on 
performance, is the vehicle still as marketable and still as 
interesting to the consumer?
    Mr. Friedman. Our analysis shows you can reach the fuel 
economy levels, as does the National Academy of Sciences 
analysis say that you can reach these levels without giving 
those things up. Without changing the overall design of the 
vehicle, without changing or reducing the performance of the 
vehicle; in fact, in some cases you can improve the performance 
of the vehicle.
    Senator Kerry. Do you agree with that, Mr. Louckes?
    Mr. Louckes. Well, we do, based upon what we are trying to 
implement.
    Senator Kerry. If your engine worked and if you could 
implement it, it works to the modeling.
    Mr. Louckes. There is nothing unique about our engines, of 
course, but this is a complicated system and it will take a 
significant technical development program.
    Senator Kerry. Your particular system, will it add weight? 
The lead batteries?
    Mr. Louckes. Typical applications had a very small 
additional weight in a large sport utility, it is probably 
going to be a neighborhood of 250 pounds net. It depends upon 
the application. Where you have a passenger car, a typical 
passenger car, we eliminate the automatic transmission 
completely. We downsize the engine by about nearly half the 
size. That is offsetting weight to the added weight for the 
battery system. The power electronics are all very light. That 
doesn't really add up to much because----
    Senator Kerry. What is the impact, Mr. Ditlow, of 250 pound 
add-on in terms of SUV in terms of what you were talking about?
    Mr. Ditlow. In terms of reducing--well, you need to find 
some other weight substitutions, materials to reduce the weight 
of the SUV, but we are much more concerned about the stiffness 
of the SUV than we are about the weight of the SUV. Because if 
you have an SUV of the same weight, but it crumples very nicely 
in the front like a passenger car, that is going to be a safer 
SUV for its occupants than the occupants of the vehicle it 
strikes, regardless of whether the weight stays the same or 
not.
    Mr. Louckes. Our calculations are based upon those added 
weights for the fuel economy that our modeling demonstrates. I 
have had a lot of experience on the safety side, too.
    I was responsible for the first airbag systems in General 
Motors back in the early 1970s, and we are not going to change 
the basic structure of the vehicle with this technology at all. 
As a matter of fact, it may allow you to improve in certain 
areas in terms of crush space.
    Senator Kerry. Just a final question for both of the 
manufacturers. Mr. Olson and Mr. Robertson.
    What do you believe happens in terms of that sort of niche 
in the current marketing structure with a mandate to meet a 
higher standard?
    Mr. Olson. I am not sure I understand the question.
    Senator Kerry. Well, if all of a sudden the CAFE standard 
goes up and you have X number of years to meet it, you are 
currently, you have got, there is a pretty good market out 
there with respect to these larger, more powerful, more capable 
cars with all of the creature comforts that have been put into 
them that add weight and so forth, and did not affect fuel 
consumption.
    In your judgment, what happens to the Big Three in terms of 
their current domination, if you will, of that component of the 
market, which incidentally, foreign producers are now attacking 
a little more aggressively anyway?
    Mr. Olson. I made the point in my testimony that we are a 
full line manufacturer. And to give you an example, I looked at 
the sales year to date through November, 45 percent of our 
sales are LDT, light duty trucks; 48 percent of GM sales are in 
the light duty truck category. Ford is much more dependent on 
that category, I will point out in all honesty.
    If any CAFE changes are structured to be effective and they 
are structured to be fair and they are structured to better 
rely on the market with policy goals, we are confident in 
whatever race you set under way because we are confident in our 
technology. I will leave it at that. I do not know whether that 
answers your question.
    Senator Kerry. Well, it underscores to me why some other 
people are concerned.
    Let me just thank all of you for taking the time. I know 
this has been a long haul, but I think it is been very helpful 
and helped us lay an initial record. I am not sure when the 
next hearing will be. We will have an additional hearing to try 
to go further with some of these issues, working off of sort of 
this threshold than the prior hearing.
    We may be in touch with some of you privately and 
personally just to sort of talk through some of this. We look 
forward to following up.
    Thank you all very much. We stand adjourned.
    [The hearing adjourned at 2:10 p.m.]

                            A P P E N D I X

      Prepared Statement of William C. Duncan, General Director, 
               Japan Automobile Manufacturers Association

    Mr. Chairman and Members of the Committee: On behalf of the Japan 
Automobile Manufacturers Association, I want to thank the Committee for 
the opportunity to submit this statement for the record in this hearing 
on fuel economy standards.
    JAMA is the trade association of Japan's motor vehicle 
manufacturers, representing a significant number of the companies 
directly affected by the Corporate Average Fuel Economy (CAFE) 
standards, and in particular by the CAFE ``fleet split'' or ``2-fleet'' 
rule. JAMA has long taken the position that the CAFE fleet split rule; 
represents a regulatory burden on auto manufacturers that should be 
eliminated, without adversely affecting the goal of fuel efficiency.
    In addition, JAMA notes that in the National Academy of Sciences 
(NAS) study entitled, ``Effectiveness and Impact of Corporate Average 
Fuel Economy Standards,'' requested by Congress, the study's Finding 3 
stated, ``The committee could find no evidence that the `2-fleet rule' 
distinguishing between domestic and foreign content has had any 
perceptible effect on total employment in the U.S. automotive 
industry.'' Accordingly, the study made Recommendation 4: ``Under any 
system of fuel economy targets, the 2-fleet rule for domestic and 
foreign content should be eliminated.'' We concur with this 
recommendation.
    In March 2000, JAMA submitted. a paper on the fleet split issue to 
the National Highway Traffic Safety Administration. Since this paper 
provides substantial detail and analysis supporting JAMA's position on 
eliminating the fleet split rule, I would like to submit it as part of 
my statement for the record.
    If the Committee has any questions or would like additional 
information on any aspect of JAMA's position, I would be pleased to 
respond.
    Thank you.
                                 ______
                                 
    Attachment

Corporate Average Fuel Economy Fleet Split Requirement: The Need for 
                    Deregulation; Japan Automobile Manufacturers 
                    Association

    Introduction

    On June 19, 1997 the Governments of Japan and the United States 
agreed to an Enhanced Initiative on Deregulation and Competition 
Policy. The Enhanced Initiative is a dialog intended to address 
regulatory measures which have the effect of unnecessarily distorting 
trade, raising costs and limiting choices for consumers. The ultimate 
objective of the Enhanced Initiative is the removal of sectional and 
structural impediments to expanded international trade and investment 
flows.
    At its inception, the Enhanced Initiative recognized that the 
United States and Japan are part of an increasingly integrated world 
economy. Nowhere is this fact more evident than in the automotive 
industry, which is at the forefront of globalization, and is made up of 
multinational competitors with manufacturing operations throughout the 
world. Aspects of the Corporate Average Fuel Economy (``CAFE'') regime 
exist in stark contrast to this reality, imposing restrictions and 
requirements that cut against the grain of a global automotive 
industry.
    Specific provisions of the CAFE law and regulations are preoccupied 
with what is ``domestic'' and what is ``foreign,'' an increasingly 
irrelevant, distinction in light of the automotive industry's 
development over the last 20 years, and particularly over the last 2 
years. Unfortunately the distinction as imposed under CAFE is not 
trivial in terms of its burden on trade costs, and consumer choice, 
which is why the regulatory scheme is an appropriate topic of 
discussion under the Enhanced Initiative.
    Simply put, the CAFE ``fleet split'' rule imposes artificial 
bureaucratic restrictions that increase costs, do not serve arty useful 
purpose, distort normal market-based decisions by multinational 
companies, and undermine other, equally desirable goals of U.S. policy. 
The ``fleet split'' should be eliminated.

Relevant Statute

    As part of the U.S. response to the fuel shortages of the early 
1970s, Congress enacted the Energy Policy and Conservation Act of 1975 
requiring manufacturers of passenger cars and light trucks to meet 
specific fuel-efficiency (miles-per-gallon) standards that would be set 
by the Federal Government, through NHTSA. The Environmental Protection 
Agency (``EPA'') also has a role in the testing and verification of 
fuel efficiency for vehicles. These Corporate Average Fuel Economy 
(``CAFE'') standards were ostensibly designed to require the auto 
industry to produce increasingly more fuel-efficient vehicles in order 
to conserve energy.
    The Act set a CAFE standard for passenger cars that has increased 
several times. Since Model Year 1986, the standard has been 27.5 miles 
per gallon for cars. The current standard for ``light trucks,'' a 
category which includes sport utility vehicles (``SUVS''), mini-vans, 
and pickup trucks is 20.7 miles per gallon. These standards are applied 
on a fleet-wide basis for each manufacturer, requiring the numerical 
average of the fuel economy ratings for a manufacturer's entire line of 
vehicles to equal or exceed the appropriate standard for its category.
    NHTSA is authorized to raise or lower the truck standard for a 
particular model year to achieve the ``maximum feasible average fuel 
economy,'' taking into account technological feasibility, economic 
feasibility, the effect upon fuel economy of other Federal motor 
vehicle standards, and the need of the Nation to conserve energy. For 
the last several years, Congress has amended DOT appropriations acts to 
prohibit NHTSA from preparing, proposing, or promulgating any new fuel-
economy requirement. Under the Act, a manufacturer that fails to meet 
the CAFE standard is liable for a monetary penalty. However, a 
manufacturer may offset its shortfall in meeting the CAFE standard 1 
year with credits it has earned by exceeding the standard in other 
years.
    A manufacturer's passenger car fleet must be divided into two parts 
for CAFE purposes, depending on content: its ``domestic'' fleet 
consisting of vehicles with 75 percent or more U.S./Canadian cuntent; 
and its ``import'' fleet of vehicles with less than 75 percent U.S./
Canadian content. If a manufacturer produces both domestic and import 
fleets, each fleet must separately comply with the CAFE standard. The 
term ``fleet split'' has been applied to this arrangement. No such 
requirement exists with respect to light trucks, where the import and 
domestic fleets are combined.
    The North American Free Trade Agreement (``NAFTA'') Implementation 
Act of 1993 provided that the value added to a passenger automobile in 
Mexico will be considered to be domestic value as of January 1, 2004 
and in all subsequent model years. This provision is being implemented 
in phases, with certain manufacturers currently permitted to elect the 
model year for which Mexican content in their automobiles will be 
treated as domestic content.

Artificial Bureaucratic Restrictions

    The regulatory structure established to implement the CAFE fleet 
split is cumbersome. It does not reflect the actual conditions in the 
auto industry, nor is it sufficiently flexible to allow for changes in 
those conditions. Moreover, substantial record of questions and agency 
responses has grown up around these regulations. In short, the U.S. 
Government, through NHTSA, has become a ``micro-manager'' in the 
economic decisions of U.S. and foreign automakers involving where 
production and procurement are to be located.
How Fleet Split Works
    The rules governing the separation of domestic and foreign 
passenger car fleets for CAFE purposes, found at 40 C.F.R. 600.511-80, 
establish the following requirements.
    A manufacturer that produces passenger cars with both domestic and 
imported content is required to divide its fleet into two content-based 
sections. For CAFE purposes also, the U.S. and Canada have been treated 
as one country and cars with 75 percent or more U.S./Canadian content 
are considered ``domestics.'' Cars with less than 75 percent ``domestic 
content'' are classified as ``imports.'' Each of the two parts of this 
``split fleet'' must comply separately with the CAFE standard.
    Pursuant to NAFTA, cars produced in Mexico are now becoming 
``domestic'' for CAFE calculations when at least 75 percent of the cost 
to the manufacturer of the vehicle can be attributed to value added in 
NAFTA. This new requirement will be completely phased in by January 1, 
2004, although manufacturers already assembling cars in Mexico may 
elect to be included sooner.
    Under CAFE, an automobile is considered to be domestically 
manufactured if at least 75 percent or more of the cost to the 
manufacturer is attributable to value added in the U.S., Canada, or 
Mexico (if the manufacturer has already elected coverage for vehicle 
assembly there), inclusive of labor and other overhead costs such as 
advertising and depreciation on plant and equipment.
    Where content levels are close to the 75 percent threshold, the 
regulations require manufacturers to trace individual components to 
their raw material sources to attain an accurate measure.
    Light trucks are not subject to the fleet split requirement.
Why CAFE Fleet Split Does Not Match Real World Conditions
    Requiring the creation of two car fleets, on the basis of a 
legalistic, bureaucratically applied formula, is neither realistic nor 
practicable.
    CAFE fleet split requirements disrupt and distort market-based 
decisions by auto manufacturers. The automobile industry is global. 
Auto companies need to be able to meet consumer demand, increase 
productivity, and keep costs low to succeed in a highly competitive 
climate where there is pressure to maintain price stability. They need 
to be free to make market-based choices about sourcing of parts and 
components and the selection of the most appropriate location of 
assembly. The benefits of globalization and flexibility are passed on 
to the consumer, in the form of lower costs and a wider variety of 
makes and models. Under the CAFE fleet split requirements, however, 
auto manufacturers must constantly balance potential CAFE penalties for 
their imported and domestic fleets against their desire to meet 
consumer preferences and keep costs down.
    The original intent behind the twenty-five year old fleet split 
requirement was to preserve small car production in the United States, 
not to enhance fuel efficiency of automobiles sold in the United 
States, since that could be accomplished without separating the import 
and domestic fleets. At the time of implementation, the fear was that, 
absent such restrictions, Ford, General Motors and Chrysler would move 
small car production off-shore. Yet there is simply no evidence to 
substantiate that fear in today's setting. Indeed, as the chart below 
indicates, there is significant small car production in North America 
(and particularly in the United States) now. Moreover, it is unlikely 
that the billions of dollars invested in small car production and parts 
facilities in the North America by Japanese and U.S. automakers would 
simply walk away if the fleet split requirement were removed.

                                  North American Production of Small Cars 1998
----------------------------------------------------------------------------------------------------------------
                Model by Segment                   United States      Canada          Mexico           Total
----------------------------------------------------------------------------------------------------------------
Lower Small
    Geo Metro...................................               0          21,136               0          21,136
    Suzuki Swift................................               0           2,481               0           2,481
        Subtotal................................               0          23,617               0          23,617
Upper Small
    Chevrolet Cavalier..........................         233,806               0          78,376         312,182
    Chrysler Neon...............................         203,101               0          55,630         258,731
    Ford Escort.................................         198,679               0         136,744         335,423
    Geo Prizm...................................          45,284               0               0          45,284
    Mercury Tracer..............................          27,760               0           1,872          29,632
    Nissan Sentra...............................          54,358               0          62,239         116,597
    Pontiac Sunfire.............................          96,851               0           7,212         104,063
    Saturn......................................         244,101               0               0         244,101
    Toyota Corolla..............................         158,180         150,413               0         308,593
    VW Golf.....................................               0               0          60,066          60,066
    VW Beetle...................................               0               0         106,627         106,627
    VW Jetta....................................               0               0         123,037         123,037
        Subtotal................................       1,262,120         150,413         631,803       2,044,336
Specialty Small
    Eagle Talon.................................             295               0               0             295
    Mitsubishi Eclipse..........................          50,715               0               0          50,715
    Nissan 200SX................................           6,102               0               0           6,102
        Subtotal................................          57,112               0               0          57,112
----------------------------------------------------------------------------------------------------------------
Total Small.....................................       1,319,232          74,030          631,80       2,125.065
----------------------------------------------------------------------------------------------------------------
Source: Ward's Automotive Yearbook 1999. Segmentation based on Ward's sales segmentation.

Light Truck Exception
    Whereas manufacturers of passenger cars have long suffered from the 
CAFE fleet split requirement, there is no comparable restriction for 
light trucks. While a provision within the CAFE regulations does 
require the separation of ``captive imports,'' its impact is no longer 
of any significance. Like the fleet split requirement for passenger 
cars, the ``captive imports'' provision was first and foremost intended 
to prevent Ford, General Motors and Chrysler from shifting auto 
production (in this case light truck production) overseas. It served to 
curtail a 1980s trend by U.S. manufacturers to import trucks produced 
by foreign manufacturers and ``re-badge'' the imports under their own 
nameplates.
    There is no logical reason for maintaining a fleet split 
requirement for passenger cars while applying no such distinction for 
light trucks. The fact that CAFE has served its purpose with respect to 
light trucks by enhancing fuel efficiency in those vehicles in the 
absence of any fleet split requirement is ample evidence that the 
requirement is unnecessary for passenger cars.
Renault-AMC and Volkswagen Exceptions
    The U.S. Congress, 20 years ago, confirmed just how artificial and 
counterproductive the CAFE fleet split rule was (and still is) when it 
compromised the rule to serve the needs of AMC, which had just merged 
with Renault, and Volkswagen. AMC sought to import small-fuel efficient 
Renault models, but the rule prevented AMC from combining those imports 
with its domestic models to help it comply with CAFE standards. 
Volkswagen had established manufacturing facilities in Pennsylvania to 
make VW Rabbits. As VW increased its U.S. procurement, and the U.S. 
content of those Rabbits approached 75 percent, VW risked having its 
fleet split between ``imported,'' lower mileage Porsches and Audis that 
did not meet CAFE standards, and ``domestic,'' high-mileage Rabbits 
that did.
    AMC and Volkswagen requested special exemptions from the CAFE fleet 
split, and Congress granted them. Both were allowed to combine their 
fleets, with limits placed on the level of foreign content and volume 
of imports permitted.
    At the time Congress and the President agreed to this exemption, 
the justification was the need to encourage new investment and small 
car production in the United States. Twenty years later, the exception 
has now proven to be the rule. Many manufacturers have now established 
plants in the United States to build fuel-efficient cars. Yet the fleet 
split, long ago compromised solely to encourage such investment, 
remains in place. What was an unnecessary disincentive to U.S. 
procurement and investment then is even more so today. Certainly the VW 
and AMC Renault exceptions indicate there has been no defensible policy 
justification for this rule for many years.

Distortion of Normal Market-Based Decisions

    The CAFE fleet split creates artificial conditions that influence 
auto manufacturing. The global auto industry has changed radically 
since this regulatory scheme was imposed, but CAFE has not changed in 
any substantial way. Under the CAFE fleet split, as noted above, 
decisions which should be made on practical economic considerations 
such as productivity, costs, access to suppliers, consumer demand, and 
profitability are being compromised to avoid the adverse regulatory 
consequences of CAFE penalties.
Non-Market Impact on Parts Sourcing
    The CAFE fleet split requirements distort the normal market-based 
decisions of global auto manufacturers. Because auto manufacturers must 
meet separate fuel efficiency requirements for their imported and 
domestic fleets, their sourcing flexibility is limited and strongly 
influenced by the threat of CAFE penalties. In some instances, the 
sourcing practices of automakers in the U.S. market amount to a kind of 
CAFE shell game. For example, in a well-documented case Ford shifted 
the ``citizenship'' of its least fuel-efficient cars (at that time the 
Crown Victoria and the Grand Marquis) to stay ahead of the fleet split 
curve by simply switching out rear axles. This move saved Ford over a 
million dollars in CAFE penalties without changing the fuel economy of 
the cars at issue.
    Even more important for JAMA member companies and other foreign 
manufacturers is the fact that the CAFE fleet split can penalize those 
companies when they seek to increase their procurement of U.S.-made 
parts. Since 1986, production of Japanese nameplate vehicles in the 
U.S. has increased almost 300 percent from 617,000 units in 1986 to 
2.38 million units in 1998. JAMA member companies have for two decades 
made significant and sustained effbrts to procure auto parts for these 
U.S.-built vehicles from U.S. suppliers. As a result, JAMA member 
companies have increased their procurement of U.S. auto parts from 
$2.09 billion in 1986 to $24.57 billion in 1998.
    Ironically, however, the CAFE fleet split works against this effort 
and the benefits its creates. Japanese auto companies (and other 
foreign-based manufacturers) producing cars in the United States are 
forced by the CAFE fleet split to make a potentially uneconomic choice. 
They can increase local procurement at their U.S. plants and exceed the 
75 percent content criterion for the cars they build in the U.S., so 
that they shift the mix of their ``import'' fleet, and risk paying CAFE 
penalties. Or, they can source parts from overseas to keep U.S.-built 
cars in their ``import'' fleet and avoid CAFE penalties.
    This negative effect thus keeps foreign auto companies from 
increasing their U.S. parts purchases to avoid the possible shift in 
classification from ``import'' to ``domestic.'' Such a change would 
limit their ability to import the larger cars that are in growing 
demand from U.S. consumers, but for which the volume of sales will not 
support a U.S. production facility.
    The CAFE fleet split has the opposite effect on manufacturers with 
U.S.-produced fleets with content exceeding 75 percent. They have an 
added incentive to increase their foreign purchasing when it is to 
their advantage to have certain U.S.-produced cars reclassified from 
``domestics'' to ``imports'' for CAFE purposes.
    The diagram below generally illustrates this non-market impact on 
parts sourcing.

[GRAPHIC] [TIFF OMITTED] T9683.025


    In this diagram, assume that all of these cars are being built in 
the United States. In Model Year 1, since Car A and Car B both do not 
meet the CAFE content requirement of 75 percent, the entire fleet is 
considered ``imported,'' and meets the 27.5 mpg standard. In Model Year 
2, the manufacturer has increased U.S. procurement for Car B, but Car A 
has retained its 50 percent content. As a result, the manufacturer's 
U.S. production of the same vehicles has now been split into two 
fleets, and the import fleet no longer meets the CAFE standards. No 
fuel economy benefits have been achieved, and the manufacturer is now 
exposed to CAFE penalties, all because it sought to buy more U.S. 
parts.
    What these facts indicate is that the CAFE fleet split has 
encouraged, rather than eliminated or curtailed, the off-shore sourcing 
patterns of multinational auto companies operating in the United 
States. The ``Big 3'' source off-shore because they can, and the other 
companies do so because they must. When these sourcing decisions are 
driven by such CAFE considerations, they undercut the goal of 
increasing U.S. parts purchases.
    In 1993-94, a GATT dispute settlement panel examined the CAFE fleet 
split rule, determining that it could not withstand scrutiny under 
Article III:4 (National Treatment) analysis. In summary, the panel 
concluded that the fleet split rule could not be justified simply 
because it balanced less favorable treatment of imported cars in some 
instances against less favorable treatment of domestic cars in other 
instances:
    ``In this case, less favorable treatment of large foreign cars 
(because they could not be averaged with small domestic cars, as large 
domestic cars could) would be balanced by less favorable treatment of 
large domestic cars (because they could not be averaged with small 
foreign cars, as large foreign cars could). The Panel noted that under 
Article HT-4 a contracting party cannot justify less favorable 
treatment to an individual product by showing that other products 
receive more favorable treatment . . . and concluded that the separate 
foreign feet accounting accorded less favorable conditions of 
competition to cars and car parts of foreign origin than those accorded 
to like domestic products, and thus was inconsistent with Article HT-
4.''
    Report of the Panel on United States--Taxes on Automobiles. 29 
September 1994 DS31/R.
    As the GATT panel found, the CAFE fleet split requirement distorts 
trade and alters the competitive environment in which automobiles are 
manufactured and sold in the United States. This result is unwarranted 
and unnecessary in meeting the stated intent of the law.

Counterproductive

    As this paper has demonstrated, the CAFE fleet split regulatory 
scheme is a burden on both manufacturers and consumers. It neither 
enhances efficiency nor reduces cost, but can have the opposite effect, 
and thereby serves to restrict competition in the industry and deprive 
consumers of the benefits such competition would produce--more of the 
vehicles they want at lower costs. In short, it inhibits both the 
productivity of the industry and the marketplace with no offsetting 
benefit.
    By restricting the sourcing decisions of auto manufacturers, the 
CAFE fleet split requirement necessarily drives up manufacturing costs 
by preventing selection of the most cost-effective means of auto 
production. These costs are passed on to the consumer. In many cases, 
U.S. parts suppliers are unable to supply U.S. auto operations where 
the parts supplied could tip the balance between whether a car line is 
deemed domestic or foreign and therefore trigger CAFE problems. The 
opportunity costs that these suppliers lose are incalculable, but 
surely reach millions of dollars in lost sales for U.S. companies, lost 
investment by multinational companies that might otherwise locate or 
expand plants in the U.S., and many jobs for U.S. workers.
    The CAFE fleet split requirement does more to foster gamesmanship 
in the calculation of ``domestic'' and ``foreign'' fleet fuel 
efficiency ratings than to encourage actual gains in fuel efficiency. 
Parts allocation has become a function of knowing how far or close an 
auto manufacturer is to meeting its ``domestic'' and ``foreign'' fleet 
requirements. Where an auto manufacturer's ``domestic'' or ``foreign'' 
fleet is below the CAFE standard, it is more likely to turn to creative 
parts sourcing or move car lines between the two classifications, 
rather than actually seek to increase the fuel efficiency of the car in 
question, to gain a competitive edge or avoid penalties.
    CAFE standards would be more effective if they allowed fuel 
efficiency gains to be achieved through combining overall fleets in a 
global manufacturing context.

Conclusion

    The CAFE fleet split is counterproductive, inefficient and 
unjustifiable in the new global manufacturing setting. It fails to 
achieve its stated intent of promoting fuel efficiency and preserving 
U.S. small car production. Instead, it works against those objectives 
by limiting any real incentive to enhance fuel efficiency or improve 
the environment. No legitimate U.S. interest is served by such an 
outcome.
    This regulation creates burdens that adversely affect auto 
manufacturers, with a substantial burden falling on non-U.S. 
manufacturers with significant investments in the United States that 
support U.S. jobs and U.S. manufacturing. Because of the unjustified 
burdens this regulation creates, it should be repealed.
    Enhancing fuel efficiency in automobiles is a worthy objective. 
However, the fleet split requirement is not a fuel efficiency issue. It 
is a burdensome, outdated and counterproductive regulation for which 
there is no practical justification. This is particularly true today, 
when ownership and investment changes have made the distinction between 
a ``domestic'' and a ``foreign'' car virtually irrelevant. Companies 
operating in the U.S., like companies operating in any national 
economy, need to be free of regulations like the CAFE fleet split, 
which act as a drag on new investment and responsiveness to the 
consumer. Eliminating the fleet split will have no detrimental effect 
on auto companies' efforts to achieve new efficiency levels in their 
fleets. Eliminating the fleet split will almost certainly result in 
more sourcing of parts and assembly in the U.S., since it would no 
longer be necessary or desirable to make overseas production or 
sourcing decisions primarily to allow adjustment of content for CAFE 
purposes.
                               __________
        Prepared Statement of the Association of International 
                    Automobile Manufacturers (AIAM)

    AIAM appreciates the opportunity to express its views to the 
Committee regarding the important matter of motor vehicle fuel 
economy.\1\
---------------------------------------------------------------------------
    \1\ AIAM members include American Honda Motor Co., Inc., American 
Suzuki Motor Corporation, Daewoo Motor America, Hyundai Motor America, 
Isuzu Motors America, Inc., Kia Motors America, Inc., Mitsubishi Motors 
America, Inc., Nissan North America, Inc., Peugeot Motors of America., 
Inc., Saab Cars USA, Inc., Societe Anonyme Des Usines Renault, Subaru 
of America, Inc., and Toyota Motor North America, Inc. The Association 
also represents original equipment suppliers and other automotive-
related trade associations. AIAM members have invested over $20 billion 
dollars in new production and distribution capacity, creating tens of 
thousands of high-skill, high-wage jobs across the country in 
manufacturing, supplier industries, ports, distribution centers, 
headquarters, R&D centers and automobile dealerships.
---------------------------------------------------------------------------
    AIAM member companies have for many years been leaders in offering 
fuel-efficient vehicles for the U.S. market. Historically, vehicles 
produced by our member companies have headed EPA's annual list of most 
fuel-efficient vehicles. Indeed, these companies have achieved success 
in the U.S. market to a significant extent through the offering of high 
quality, fuel-efficient vehicles.
    AIAM member companies have achieved this fuel economy leadership by 
pioneering the introduction of advanced automotive technology. The 
Honda Insight and Toyota Prius hybrid vehicles are notable examples of 
this leadership. We anticipate that AIAM companies will continue to 
follow this advanced technology path that has led to their success.
    AIAM supports the current reassessment of national energy policy by 
Congress and the Administration. As NHTSA Administrator Jim Runge 
stated at the hearing on December 6, the Department of Transportation 
(DOT) plans to proceed expeditiously to consider changes to the light 
truck standards as part of this reassessment. The recent report of the 
National Academy of Sciences (NAS) provides DOT with a strong starting 
point for its work. AIAM plans to participate fully in this process.
    The existing CAFE authority has proven to be reasonably effective, 
and AIAM believes there is no need for Congress to take action at this 
time to revise DOT's legal authority. Moreover, the existing authority 
has an advantage over some alternative formulations to regulate fuel 
economy because it (like every other motor vehicle standard) imposes 
precisely the same requirements upon each manufacturer. We believe that 
competitive fairness is a critical element to any regulatory program, 
and the current program passes this test.
    Nevertheless, the current CAFE system has been criticized by 
several parties and undeniably has elements that could be improved. If 
Congress decides to amend the current law, these program flaws should 
be addressed. However, any new legislation should embody three key 
principles:
     The requirements of the program must be applied equally. 
Any approach, such as uniform percentage improvement (UPI) standards, 
that imposes different numerical standards on the different 
manufacturers is inconsistent with this principle and therefore 
unacceptable. As discussed during the December 6th hearing, the UPI 
approach discriminates against companies that have achieved high levels 
of fuel economy and American workers employed by these companies. AIAM 
believes this approach is fundamentally unfair.
     The requirements raust be technologically feasible and 
effective in reducing petroleum consumption.
     The requirements must provide adequate lead-time. Fuel 
economy improvements can most effectively be implemented through 
careful integration of new technology. If sufficient lead-time is not 
provided, manufacturers may be forced to select less efficient 
technological approaches that may not be accepted by consumers.
    Chief among the flaws of the current program is that the program 
operates almost exclusively on the supply side, in 1hat it simply 
directs manufacturers to produce vehicles having a specified level of 
average; fuel economy or higher. On the demand side, however, current 
market signals and incentives are insufficient to cause consumers to 
demand such vehicles, producing an imbalance in the marketplace. CAFE 
also has been and will continue to be insensitive to future market 
shifts. AIAM believes that marketbased measures would more efficiently 
promote national goals of energy security and reduced emission of 
greenhouse gases.
    Nevertheless, we recognize that political realities may make it 
exceedingly difficult for the government to adopt more efficient 
strategies for promoting energy security and global climate policies, 
such as through higher or new fuel taxes. We also recognize that the 
seriousness of the current energy security and global climate concerns 
may justify a regulatory role for the Federal Government in enhancing 
vehicle fuel economy. These considerations lead us to support the 
efforts of this Committee to assess whether the current CAFE system can 
be revised to minimize its flaws, if not also to make it more 
effective.
    If the Committee decides to pursue; structural changes to CAFE, 
AIAM and its member companies urge the Committee to align the program's 
incentives with accepted national goals and minimize those aspects of 
the program that interfere with the free functioning of the 
marketplace. We recommend that the Committee consider the following 
measures, most of which are also among the recommendations in the 
recent National Academy of Sciences report:
    1. Reject uniform percentage improvement (UPI) standards based on 
individual manufacturer performance. The UPI format turns the 
incentives of the current program on their head, by penalizing the 
companies that have historically offered the most fuel-efficient 
vehicles and rewarding technology laggards. Standards formats must be 
competitively neutral. If Congress were to adopt the UPI format as part 
of CAFE, it would set a precedent for the use of that approach in other 
regulatory programs, sending a message to businesses nationwide (and 
their employees) that they could be punished if they do more than the 
absolute minimum required. These flaws in the UPI approach have been 
noted by two NAS Committees (1992 and 2001), the Office of Technology 
Assessment (OTA), the Justice Department, and other reputable 
organizations.
    2. Eliminate the domestic/import separate fleet requirement for 
passenger autos. It is clear that the fears of small vehicle 
manufacturing moving offshore that led to the initial adoption of this 
requirement are no longer credible. Moreover, the current requirement 
perversely discourages increased U.S. content and employment.
    3. Create new tax credits and other incentives to encourage 
consumers to demand fuel-efficient vehicles. Ideally, such credits and 
incentives should be performance-based and technology-neutral. 
Incentives are needed to facilitate the introduction of advanced 
technology into the market, since such technology frequently has high 
initial cost.
    4. Authorize credit trading. A trading system would enhance the 
efficiency of the overall CAFE system by facilitating least cost 
compliance strategies. The government could become the seller of last 
resort for credits, thereby both establishing a maximum cost of 
compliance and enabling the replacement of the current civil penalty 
compliance system. We believe that this can be accomplished without 
sacrificing overall fuel economy improvements.
    5. Require improvements in fuel quality, such as near zero sulfur 
gasoline and diesel fuel, stability in distillation parameters of 
gasoline, and control of deposits. Many of the advanced power-train 
systems that are being developed will require clean fuels.
    6. If changes to the current CAFE format are deemed appropriate, 
thoughtful attention should be given to a variety of attribute-based 
systems, such as market class, size, or weight-based standards. A size 
or weight-based system could be designed either on a class basis or 
through a continuous mathematical function. Attribute-based systems can 
be developed that would permit manufacturers to compete on an equal-
footing basis in any market segment.
    7. Provide adequate lead-time to allow manufacturers to plan and 
implement fuel efficiency improvements.

Discussion of Key Issues

    The following elaborates on the seven points highlighted above:
    1. Uniform percentage improvement standards. AIAM absolutely 
opposes uniform percentage improvement (UPI) standards based on 
individual manufacturer performance. Simply stated, they represent bad 
public policy. The UPI standards format was extensively debated a 
decade ago in Congress. The standards format was roundly criticized and 
thoroughly discredited by several respected national organizations. 
This format would create unique fuel economy standards for each 
manufacturer, based on the manufacturer's performance in a base year. 
The same percentage increase would be required for each company, but 
the, actual standards differ due to differences in the fuel economy 
baselines. We are unaware of any current regulatory program that uses 
this standards format. Under UPI standards, if two manufacturers were 
to produce the same mix of vehicle sizes and technology in the same 
year, one manufacturer could be assessed civil penalties while the 
other could be awarded credits, due to differences in the two 
companies' baselines. We believe that a system that assigns differing 
compliance consequences to the same conduct by two entities is 
fundamentally discriminatory.
    The 2001 NAS CAFE Committee pointed out the inequities associated 
with the UPI standards format. The Committee's report stated as 
follows:
    The UPI system would impose higher burdens on those manufacturers 
who had already done the most to help reduce energy consumption. The 
peer-reviewed literature on environmental economics has consistently 
opposed this form of regulation: it is generally the most costly way to 
meet an environmental standard; it locks manufacturers into their 
relative positions, thus inhibiting competition; it rewards those who 
have been slow to comply with regulations; it punishes those who have 
done the most to help the environment; and it seems to convey a moral 
lesson that it is better to lag then (sic) to lead.'' \2\
---------------------------------------------------------------------------
    \2\ Id, page 5-19.
---------------------------------------------------------------------------
    The 1992 NAS Committee had similar criticisms of the UPI standards 
format.\3\
---------------------------------------------------------------------------
    \3\ Id, page 181.
---------------------------------------------------------------------------
    During Senate Commerce, Science, and Transportation Committee 
consideration of UPI standards a decade ago, the Office of Technology 
Assessment also criticized the UPI standards format.
    The structure does not account for the fact that at least a portion 
of the current differences in companies' CAFES are (sic) due to . . . 
the companies' different efforts at moving advanced technology into 
their fleets. Our analysis of the fuel economy characteristics of 
various company fleets . . . indicates that some companies have fleet 
fuel economies that are well above the industry average even when the 
effects of fleet size distribution are accounted for. Thus, this type 
of standard penalizes manufacturers who have tried the hardest to 
increase their fleet fuel efficiency in the past. They now have the 
most difficult technological challenge, because they have already 
``used up'' a larger portion of the technological headroom available to 
them from off-the-shelf technology. Companies that have hesitated to 
use the best available technologies . . . are instead rewarded by being 
presented with the lowest efficiency target . . . Also, it is possible 
that companies that wind up with the lowest efficiency targets could 
use the leeway these lowered targets afford them to increase vehicle 
performance to levels that companies with higher efficiency targets may 
not be able to match (because higher performance reduces fuel 
efficiency). [Such a result would] have not only rewarded the lower 
efficiency automakers with an easier target, but have given them a 
market advantage as well.\4\
---------------------------------------------------------------------------
    \4\ Statement of the Office of Technology .Assessment to the Senate 
Commerce, Science, and Transportation Committee, 101st Congress, Senate 
Hearing 101-347.
---------------------------------------------------------------------------
    The Justice Department reached a similar conclusion regarding UPI 
standards in a letter to the Consumer Subcommittee of the same Senate 
committee 10 years ago. The Justice Department letter states that . . . 
manufacturers with high average fuel economies will be impeded in 
entering U.S. markets for larger cars because such entry--even if they 
produce more efficient larger cars than are now available--could 
prevent them from meeting the new standards. Thus, competition would 
suffer and the fuel efficiency of a whole category of vehicles could be 
kept artificially low.\5\
---------------------------------------------------------------------------
    \5\ Letter from the Assistant Attorney General for Legislative 
Affairs to the Consumer Subcommittee, Senate Commerce, Science and 
Transportation Committee, January 26, 1990.
---------------------------------------------------------------------------
     We can only add our strongest possible agreement with these 
statements and note that nothing that has occurred over the past decade 
has improved the UPI standards concept.
    At the December 6 hearing, it was claimed that the differences in 
fleet fuel economy between some of our member companies and the 
Detroit-based manufacturers is due simply to differences in model mix. 
Claims of this sort have been used in the past in an attempt to justify 
the UPI format, by suggesting that each company has the same potential 
to improve fuel economy, on a percentage basis. However, this claim is 
not true. We note, however, that even if the claim were true that the 
company-to-company CAFE differences are all due to mix, UPI standards 
would not be appropriate. The UPI format would still prevent a high MPG 
manufacturer from competing with a low MPG manufacturer in the large/
luxury vehicle market segments, simply by virtue of the fact that the 
low MPG company first entered those segments. Such barriers to market 
entry would be clearly discriminatory and anathema to the concept of a 
free market.
    2. Domestic/import separate fleet requirement. The current law 
requires dividing a manufacturer's passenger automobile fleet into 
domestic and import classes that must comply separately with fuel 
economy standards. There is no similar requirement for light trucks. 
This requirement was originally intended to inhibit domestic 
manufacturers from simply importing large numbers of small, ``captive 
import'' vehicles as a strategy for increasing their average fuel 
economy. Today, AIAM companies are profitably producing fuel-efficient 
vehicles in the United States. Subsequent events, such as consolidation 
within the industry, have shown that, whatever the original validity of 
this concern, the concern should no longer exist. There is no reason to 
believe that the current market would accept large numbers of very 
small vehicles that were originally designed for foreign markets. 
Moreover, the provision has created a disincentive for foreign-based 
companies to increase the U.S. content of their vehicles to levels 
above 75 percent, since doing so would place the vehicles in a separate 
compliance fleet. This disincentive is real, not theoretical, and has 
cost U.S. jobs. AIAM member companies have been compelled to limit 
increases in domestic content levels in the past in order to avoid 
creating a new CAFE compliance fleet. For example, Nissan's efforts to 
increase the domestic content of its Tennessee-produced Sentra model 
were delayed by the separate fleet restriction. There have even been 
situations in which a company may have decreased the U.S. content of 
certain low efficiency domestic vehicles to a level below 75 percent, 
so that those vehicles can be averaged with the manufacturer's more 
fuel-efficient import fleet.
    This year's NAS CAFE report \6\ states that ``the committee 
believes that the two-fleet rule no longer serves any useful purpose, 
but does increase cost to consumers.'' The 1992 NAS CAFE committee \7\ 
concluded that the separate fleet requirement ``has no obvious or 
necessary connection to the achievement of fuel economy'' and 
encouraged Congressional consideration of repeal. In addition, NHTSA 
concluded a decade ago that the two-fleet requirement serves no 
purpose. We strongly concur in these assessments.
---------------------------------------------------------------------------
    \6\ ``Effectiveness and Impact of Corporate Average Fuel Economy 
(CAFE) Standards,'' National Research Council, 1992, page 5-13.
    \7\ ``Automobile Fuel Economy, How Far Should We Go?'', National 
Research Council, 1992, page 184.
---------------------------------------------------------------------------
    3. Tax credits/incentives. As previously noted, a major deficiency 
of the CAFE system is the insufficiency of its market signals on the 
demand side to encourage consumers to purchase fuel-efficient vehicles. 
The best market signal is an increase in the cost of driving. Given the 
current political realities that work against increased fuel taxes, the 
next best alternative may be to create a variety of market incentives 
to stimulate demand for fuel efficiency as a vehicle attribute. Such 
incentives would encourage manufacturers to develop and introduce 
advanced technologies by enhancing the market for vehicles that use 
such technologies. Advanced fuel-efficient technologies are frequently 
costly, particularly in their first years of introduction, so 
incentives would facilitate the introduction of these items by helping 
to bridge the price differential between these vehicles and 
conventional vehicles. Congress has considered a variety of technology-
based incentives in recent years to encourage consumers to purchase 
advanced technology vehicles. AIAM member companies have generally 
supported these incentives. However, ideally, we believe that such 
incentives should be performance-based and technology-neutral, i.e., 
they should be designed to encourage the production and sale of fuel-
efficient vehicles, regardless of the technology selected by the 
manufacturer to achieve high fuel efficiency.
    4. Credit trading. New authority for credit trading between 
standards classes and between companies under the CAFE program would 
provide manufacturers with increased compliance flexibility in dealing 
with unanticipated market shifts. The 1992 \8\ and 2001 \9\ NAS CAFE 
Committees suggested this approach. Permitting such trading would also 
enhance the overall efficiency of the system. Concerns have been 
expressed that a credit trading system would primarily benefit foreign-
based manufacturers of fuel-efficient vehicles. However, under a 
weight- or size-based system, there is no reason in principle why there 
should be any disparate effects of this sort. A variation on this 
credit theme that was discussed briefly at the February meeting is the 
establishment of the government as the seller of last resort of CAFE 
credits. Under this approach, the government would set a fixed price 
for the credits that it would sell. This price would be set above the 
effective cost of compliance for a reasonably efficient manufacturer, 
to maintain the incentive for manufacturers to meet the fuel economy 
targets. However, for a manufacturer that faces unusual compliance 
problems or should market shifts occur or technology not develop as 
anticipated, this approach has the advantage of establishing a maximum 
cost of complying with the requirements. In addition, manufacturers 
could be required to make up any fuel efficiency shortfalls within a 
specified period of time. The credit system could replace the current 
civil penalty system under the law, a change that the 1992 NAS CAFE 
Committee characterized as a ``real advantage.'' In addition, the 
concepts of averaging and credit banking, which are part of the current 
system, should be retained.
---------------------------------------------------------------------------
    \8\ Id, page 184.
    \9\ Id, page 5-13 through 5-15.
---------------------------------------------------------------------------
    5. Fuels and fueling infrastructure. As EPA recognized recently in 
its Tier 2 emissions standards and diesel sulfur regulations, advanced 
engine technology and high levels of fuel quality go hand-in-hand. 
Direct injection engine technology requires gasoline with very low 
sulfur levels, and advanced diesel engines will require diesel fuel 
with near zero sulfur levels in order to meet applicable emissions 
standards. Stability in distillation parameters of gasoline and control 
of deposits are also needed for future vehicles. In the longer term, 
special fueling infrastructure will be needed for fuel cells and 
certain types of hybrid vehicles. A coordinated and sustained effort 
will be needed to assure that appropriate fuels are available as new 
technologies are implemented.
    6. Standards format. Should alternative standards formats be 
considered, they should be competitively neutral. These could be in the 
form of market class-, size- or weight-based standards. Under such 
standards formats, fuel efficiency improvements would be required for 
all vehicle classes. The burdens of the standards would be 
approximately the same, regardless of the mix of vehicles produced by 
the manufacturer.
    The attribute-based standards concept described in the recent 
National Academy of Sciences report is interesting, but would require 
further analysis. If Congress decides that there is a need to change 
the standards format, an alternative formulation could be developed 
through rulemaking by the Department of Transportation. Some vehicle 
class-based approaches could be implemented within the scope of the 
existing statutory authority to set separate standards for different 
classes (for light trucks). See 49 U.S.C. 32902(a).
    7. Lead time. Fuel economy improvements can be most efficiently 
implemented when they are timed to coincide with manufacturers' normal 
redesign cycles. The precise amount of lead-time needed would vary 
depending upon the magnitude of any standards increase. The 18-month 
minimum lead-time currently specified in the law is clearly 
insufficient to enable manufacturers to comply with new standards of 
significantly increased stringency. The recent NAS report recommended 
lead-time in the 10-15 year range for a significant CAFE increase. AIAM 
concurs with this conclusion.

Issues Raised at the December 6 CAFE Hearing

    AIAM would like to comment on two additional issues raised at the 
December 6 CAFE hearing held by this Committee.
    1. ``Light truck loophole.'' Several pending legislative proposals 
would close the so-called ``light truck loophole'' by raising the light 
truck standard from its current 20.7 mpg level to 27.5 mpg, the current 
level of the passenger automobile standard. This CAFE increase is 
equivalent to that projected in the recent NAS study under the Case 1 
``break-even'' fuel economy analysis. However, Case 1 assumes: 1) the 
use of ``Path 3'' technology, the report's most aggressive technology 
scenario, 2) a 14-year payback period for the cost of new technology, a 
period much longer than many consumers would accept, and 3) lead time 
of up to 15 years. Thus, a light truck standard of 27.5 mpg would be 
very stringent, involve technological and economic risk, and require 
substantial lead-time. Moreover, simply raising the light truck 
standard to the passenger auto level would be inequitable, financially 
penalizing those manufacturers whose production is concentrated in 
light trucks relative to those manufacturers whose production was 
concentrated in cars.\10\
---------------------------------------------------------------------------
    \10\ 2001 NAS report, pages 5-36 through 5-37.
---------------------------------------------------------------------------
    2. On-road fuel economy discrepancy. Another issue raised at the 
hearing involves the difference between fuel economy data used for 
standards compliance purposes and the mileage experienced on-the-road 
by drivers. One witness claimed that this difference is relevant to the 
standard-setting deliberations of the Committee. We believe this is a 
non-issue. Fuel economy standards data is generated using procedures 
specified in the law, i.e. 1975 EPA test procedures or procedures that 
give ``comparable results.'' See 49 U.S.C. 32904(c). By specifying a 
test procedure baseline, Congress created a fixed ``yard-stick'' for 
measuring CAFE improvements. A gap between measured and on-road fuel 
economy existed in 1975, and that gap remains today. In fact, data used 
for CAFE standards purposes now reflects credits added by Congress 
subsequent to 1975 to encourage the production of alternative and dual-
fueled vehicles, potentially creating a larger gap between CAFE data 
and on-road fuel economy. Since no test procedure can practically 
replicate every individual's driving experience, there will always be 
some divergence between test procedure results and those experienced by 
any particular driver.
    However, this gap is irrelevant from the CAFE standards 
perspective, so long as the test procedures encourage the manufacturers 
to implement technology that results in on-road fuel efficiency 
improvements. We are unaware of any data that suggests a problem of 
this sort with the data generated for standards compliance purposes. 
(It should be noted that the data used in fuel economy labels and the 
EPA/DOE Gas Mileage Guides is different from the data used for CAFE 
standards purposes. The label/Guide data is adjusted mathematically by 
EPA to provide consumers with representative information about 
anticipated mileage levels.) If Congress were to mandate the use of a 
new test procedure for standards compliance purposes, future fuel 
economy improvement potential would be assessed based on this new 
procedure, probably leading to numerically lower standards than would 
be the case using the 1975 procedures. However, in either case, the 
real world fuel economy performance would be the same.
                               __________
                                 Honda North America, Inc.,
                                                      Dec. 19, 2001
Hon. John Kerry,
Committee on Commerce, Science, and Transportation, United States 
        Senate
    Dear Senator Kerry: Thank you for the opportunity to testify on 
fuel efficiency issues before the Senate Committee on Commerce, 
Science, and Transportation on December 6, 2001. Honda appreciates the 
opportunity to present information about our company's efforts to 
improve fuel economy, and we believe the hearing stimulated a good 
exchange of ideas.
    During the hearing, you questioned Honda about the fuel economy of 
our vehicles compared to other manufacturers on a model-to-model basis. 
You referenced testimony from Susan Cischke of Ford Motor Co. and a 
chart submitted by Ford, labeled ``Vehicle Fuel Economy Comparison.'' 
Unfortunately, Honda had not seen Ford's testimony or their chart prior 
to the hearing; thus, we were unable to respond at that time. 
Subsequent to the hearing, we examined Ford's testimony and are now 
responding to Ford's claims. We respectfully request that this letter 
and the two attachments be included in the hearing record.
    The fuel economy comparisons submitted by Ford is incomplete, 
misleadingly selective, and in many cases compared apples to oranges. 
As a result, the data provides no basis for sound analysis:
     Ford only compared mid-size cars--all other car 
comparisons were excluded. Had they compared the compact car class, the 
analysis would have shown that the average fuel economy of the Honda 
Civic is almost 20 percent higher than the Ford Focus and over 25 
percent higher than the Chevrolet Cavalier.
    The ``car'' comparison included only 6-cylinder engines. While this 
appears fair on the surface, it is really an apples and oranges 
comparison. 6-cylinder engines are standard on the Ford Taurus, 
Chrysler Concorde, and Chevrolet Impala. 4-cylinder engines are 
standard on the comparable Honda Accord and Toyota Camry--the 6-
cylinder engine is a performance option. This is because the advanced 
technology on Honda's engines provides very high power output for a 
given engine size, allowing a 4-cylinder Accord to have similar 
performance (and much better fuel economy) compared to other 
manufacturers' 6-cylinder engines. This is demonstrated by the fact 
that most Accord buyers feel the performance of the 4-cylinder is more 
than adequate for their needs--only 30 percent of Accord purchasers opt 
for the 6-cylinder engine.
     The small SUV comparison excluded the Honda CR-V.
     Ford only compared manual transmission models of small 
SUVs. Because of the performance characteristics of the engine, the 
Ford Escape is available with a 4-cylinder engine only with a manual 
transmission. This engine is so low-performance that Ford does not 
offer it with an automatic transmission--customers must take a 6-
cylinder engine with much lower fuel economy if they want an automatic 
transmission. By contrast, the 4-cylinder engine on the Honda CR-V is 
sufficiently powerful that we do not need a 6-cylinder option to 
support an automatic transmission.
     Ford selected the Honda Passport for comparison with other 
mid-size SUVs. This is entirely inappropriate. The Passport is a very 
old design that will cease production after the 2002 model year. Ford 
excluded the Acura MD-X from the comparison, even though Honda sells 
over twice as many MD-Xs as Passports. The MD-X is the best fuel 
economy performer in its class and has significantly better fuel 
economy than the other models listed by Ford, in addition to 
substantially more horsepower.
     The minivan comparison is also misleading, although in a 
less egregious way. The Chevrolet Venture and the Toyota Sienna are 
significantly smaller than the other minivans. Not only does the Honda 
Odyssey have substantially more horsepower than the other minivans 
listed, but it also has better fuel economy than the two other minivans 
of comparable size, the Ford Windstar and the Chrysler Caravan.
    We have appended as Attachment 1 a corrected vehicle comparison. It 
is based on Ford's ``Vehicle FE Comparison,'' but with the problems 
listed above corrected and a ``horsepower'' column added. These 
comparisons clearly contradict Ford's testimony that: ``Contrary to 
what you may have heard or believe, on art apples-to-apples basis, the 
fuel efficiency of vehicles from domestic manufactures is comparable; 
to those from the international companies. Looking at today's fuel 
economy data, on a model-to-model basis, you will see very little 
difference in the fuel economy performance across the major 
manufacturers.'' That statement is simply inaccurate.
    Given the variety of vehicles and engines offered by the major 
manufacturers, any comparison of individual vehicles could be 
selective; and potentially biased. Fortunately, a much better source of 
data is available. The Fuel Economy Trends report published annually by 
EPA includes average mpg data for each model. EPA uses confidential 
production information submitted by each manufacturer to calculate a 
sales-weighted average fuel economy of the different engine and 
transmission offerings within each model.
    Attachment 2 lists the top mpg vehicles for each vehicle class in 
which Honda competes, listed in order of decreasing mpg. These are the 
sales-weighted mpg values from Appendix C of the 2001 FE Trends Report, 
except that manufacturers other than DC, Ford, GM, Honda, and Toyota 
have been eliminated. The vehicle classes listed in Attachment 2 are 
also taken from Appendix C of the 2001 FE Trends Report.
    The sales-weighted model data clearly demonstrates that, on a 
model-to-model basis, Honda's vehicles have substantially better fuel 
economy performance than vehicles from DC, Ford, and GM. The only 
apparent exception is the minivan class, where the Honda Odyssey ranks 
behind the GM Venture. However, as previously explained, the GM Venture 
is much smaller than the Odyssey and has much lower horsepower. When 
size and power are considered, the Odyssey also has significantly 
better fuel economy performance than its competitors.
    Honda's vehicles have better fuel economy primarily due to advanced 
engine technology. As discussed above, Honda's engines have very high 
power output. This is accomplished by careful design and use of many 
incremental technologies in our mass-market engines, such as 4 valves/
cylinder, overhead camshafts, lightweight aluminum blocks, reduced 
engine friction, variable valve timing, and sequential multi-point fuel 
injection. Honda also pays attention to careful body design, to reduce 
weight and improve aerodynamics. The net result of these efforts can be 
seen indirectly in the class-leading fuel economy of our high volume 
vehicles.
    In summary, the comparisons submitted by Ford do not accurately 
reflect comparable-model fuel economy performance. The Ford surnmary's 
omissions and careful selections lead to conclusions that are not 
supported by accurate and unbiased analysis. We trust that your 
Committee's examination will include all the relevant data, which shows 
conclusively that in fact there are very significant differences in 
fuel economy performance among the major auto manufacturers.
        Sincerely,
                                           Edward B. Cohen,
                    Vice President, Government & Industry Relations
[GRAPHIC] [TIFF OMITTED] T9683.026

[GRAPHIC] [TIFF OMITTED] T9683.027

  

                                  
