[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]


 
  HYBRID CARS: INCREASING FUEL EFFICIENCY AND REDUCING OIL DEPENDENCE

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

                                HEARING

                               before the

                  SUBCOMMITTEE ON ENERGY AND RESOURCES

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 20, 2006

                               __________

                           Serial No. 109-233

                               __________

       Printed for the use of the Committee on Government Reform


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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
JON C. PORTER, Nevada                C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas                BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia        ELEANOR HOLMES NORTON, District of 
PATRICK T. McHENRY, North Carolina       Columbia
CHARLES W. DENT, Pennsylvania                    ------
VIRGINIA FOXX, North Carolina        BERNARD SANDERS, Vermont 
JEAN SCHMIDT, Ohio                       (Independent)
BRIAN P. BILBRAY, California

                      David Marin, Staff Director
                Lawrence Halloran, Deputy Staff Director
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

                  Subcommittee on Energy and Resources

                 DARRELL E. ISSA, California, Chairman
LYNN A. WESTMORELAND, Georgia        DIANE E. WATSON, California
JOHN M. McHUGH, New York             BRIAN HIGGINS, New York
PATRICK T. McHENRY, North Carolina   TOM LANTOS, California
KENNY MARCHANT, Texas                DENNIS J. KUCINICH, Ohio
BRIAN P. BILBRAY, California

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                   Lawrence J. Brady, Staff Director
                 Dave Solan, Professional Staff Member
                          Lori Gavaghan, Clerk
           Shaun Garrison, Minority Professional Staff Member








                           C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 20, 2006....................................     1
Statement of:
    Frank, Andrew, director, University of California-Davis, 
      Hybrid Electric Research Center; David Hermance, executive 
      engineer, Toyota Motor North America; John German, manager, 
      environmental and energy analyses, American Honda Motor 
      Co.; and Don Mackenzie, vehicles engineer, Union of 
      Concerned Scientists.......................................    19
        Frank, Andrew............................................    19
        German, John.............................................    68
        Hermance, David..........................................    58
        Mackenzie, Don...........................................    74
Letters, statements, etc., submitted for the record by:
    Frank, Andrew, director, University of California-Davis, 
      Hybrid Electric Research Center, prepared statement of.....    22
    German, John, manager, environmental and energy analyses, 
      American Honda Motor Co., prepared statement of............    71
    Hermance, David, executive engineer, Toyota Motor North 
      America, prepared statement of.............................    60
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of.................     3
    Mackenzie, Don, vehicles engineer, Union of Concerned 
      Scientists, prepared statement of..........................    76

  HYBRID CARS: INCREASING FUEL EFFICIENCY AND REDUCING OIL DEPENDENCE

                              ----------                              


                        THURSDAY, JULY 20, 2006

                  House of Representatives,
              Subcommittee on Energy and Resources,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:05 p.m., in 
room 2247, Rayburn House Office Building, Hon. Darrell E. Issa 
(chairman of the subcommittee) presiding.
    Present: Representatives Issa and Watson.
    Staff present: Larry Brady, staff director; Dave Solan and 
Ray Robbins, professional staff members; Joe Thompson, GAO 
detailee; Shaun Garrison, minority professional staff member; 
and Cecelia Morton, minority office manager.
    Mr. Issa. In the essence of trying to minimize the waste of 
your time, I will ask unanimous consent that we begin without 
our reporting quorum. Without objection, so ordered.
    I will do my opening statement and then, hopefully, the 
ranking member will be here by then. If not, we will make other 
provisions.
    Good afternoon. I want to welcome everyone to this 
subcommittee hearing.
    Today's record oil and gasoline prices underscore our 
country's need for more fuel-efficient automobiles. We need to 
use fuel more efficiently to lessen the dependence on imported 
oil from unstable areas of the world. Almost 70 percent of the 
oil consumed in the United States is used by the transportation 
sector. Therefore, to improve the Nation's energy security, it 
is vital that we increase fuel efficiency of the cars and 
trucks--particularly light trucks and SUVs--that we drive.
    One of the more practical solutions in the near term and I 
might say in the present term is to increase the number of the 
hybrid vehicles on our Nation's roads. A hybrid is a vehicle 
that combines an electric motor and a battery pack with an 
internal combustion engine to increase fuel efficiency over 
traditional automobiles.
    These one-time improvements have their limits. Today, we 
will explore these limits and how we can further advance in the 
future. Is the recapture of kinetic energy in its infancy, its 
midlife, or have we, in fact, gotten most of what we can get 
from this technology? Can we increase the efficiency of 
recapturing this energy into batteries or even capacitors? 
Additionally, hybrids have a reputation for superlow emissions. 
Can we accomplish more in the way of reductions of emissions 
using constant speed engines and the other attributes that 
often come with hybrid technology?
    Currently, hybrids are about 30 percent more fuel efficient 
than nonhybrid counterparts, so they burn less fuel and emit 
fewer pollutants per mile travel than non-hybrid vehicles. 
Advances in hybrid technologies could potentially increase 
these benefits.
    A complex series of factors influences an individual's 
decision to purchase a hybrid vehicle, including purchase 
price, cost of gasoline, government incentives and personal 
convictions. This is the brag part of it. As the owner of two 
hybrid vehicles and the previous owner of two other hybrid 
vehicles, I am convinced of their benefits, but I am also 
concerned about the low level of market penetration that limit 
the overall impact of hybrids on fuel efficiency of the U.S. 
fleet.
    In an effort to better understand these competing factors, 
today's hearing on hybrid vehicles will focus on, but not be 
limited to, potential fuel efficiency and environmental 
benefits, cost-effectiveness, market penetration, government 
incentives, U.S. manufacturing capacity, and anticipated 
advances in technology.
    [The prepared statement of Hon. Darrell E. Issa follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Issa. We are privileged to have here today Dr. Andrew 
Frank, director, University of California at Davis, Hybrid 
Electric Research Center; Mr. David Hermance, executive 
engineer, Toyota Motor North America--and, yes, mine happen to 
all be Toyota. But I am looking forward to hearing more from 
Mr. John German, manager, Environmental and Energy Analyses, 
American Honda Motor Co.; and Mr. Don MacKenzie, vehicles 
engineer, Union of Concerned Scientists.
    I am looking forward to your testimonies; and particularly, 
since we have those in the record, I ask unanimous consent that 
the briefing memo prepared by the subcommittee staff be 
inserted into the record as well as all relevant materials.
    I additionally ask that your written statements all be 
placed in the record so that you need not do your opening 
statements verbatim but in fact can embellish or short cut or 
add to, essentially get more than we got in writing.
    I now would turn to the ranking member, but instead what we 
will do is I will ask that the panel be sworn in. As soon as 
the ranking member arrives, she may choose to insert her 
opening statement into the record or at that time may give her 
opening statement.
    I would ask you at this time to please rise to take your 
oath and raise your right hands. I mention this is a rule that 
we do to everybody, not just auto companies. We do it to 
university professors, too, I guess is what I'm trying to say.
    [Witnesses sworn.]
    Mr. Issa. The record will show all answered in the 
affirmative. Please be seated.
    Dr. Frank, we have introduced you. We haven't begun to say 
enough about how pleased we are to have you here. Before this 
began, you did one-up me, by letting me know that you had 
already created a hybrid vehicle in 1971 before I first saw the 
technology coming out of the University of Michigan in 1972. 
So, with that, I would like to learn more.
    Please--normally, we say 5 minutes, but it is a plus or 
minus 5 minutes. There will be a light that will come on, and 
with 1 minute remaining it will go to yellow, and when it goes 
to red do not open any new thoughts.
    Mr. Frank. Hit me on the head with a hammer.
    Mr. Issa. No, no. We are the kinder, gentler Government 
Reform. We didn't even hit Sammy Sosa on the head.

STATEMENTS OF ANDREW FRANK, DIRECTOR, UNIVERSITY OF CALIFORNIA-
    DAVIS, HYBRID ELECTRIC RESEARCH CENTER; DAVID HERMANCE, 
 EXECUTIVE ENGINEER, TOYOTA MOTOR NORTH AMERICA; JOHN GERMAN, 
  MANAGER, ENVIRONMENTAL AND ENERGY ANALYSES, AMERICAN HONDA 
   MOTOR CO.; AND DON MACKENZIE, VEHICLES ENGINEER, UNION OF 
                      CONCERNED SCIENTISTS

                   STATEMENT OF ANDREW FRANK

    Mr. Frank. I am going to talk about hybrids and plug-in 
hybrids. I want to distinguish the difference between what the 
two are, and mostly I want to focus on environmental benefits, 
cost-effectiveness, market benefits, transition incentives, and 
U.S. manufacturing capacity.
    The car companies and most research of hybrids of today use 
a relatively small battery pack. It has fuel economy up to 50 
percent better, but it has no electric energy or not enough 
electric energy to drive the car all electrically for any 
substantial distance. The engine is downsized 10 or 20 percent.
    But if you add a plug, then the question is, what is a 
plug-in hybrid? The plug-in hybrid is like a Toyota Prius, but 
it has a much smaller engine, much smaller--I am talking about 
half or less--and a much larger electric motor and larger 
batteries. But these batteries can be plugged in at 120 volt 
standard plugs. The most important thing is the combination 
allows the vehicle to actually have better performance and, of 
course, much better fuel economy.
    But, really, we shouldn't be talking about fuel economy. We 
should be talking about fuel consumption. Because when you plug 
it in you are using energy from the wall rather than using 
gasoline, and that is the best way to get ourselves off the oil 
diet, as President Bush says.
    So we call this all-electric range. All-electric range 
[AER], operates on batteries from 100 percent state of charge 
down to about 20 percent states of charge. Then when you stop 
driving you plug it in and the batteries fill up.
    This is what a long-range, all-electric range or plug-in 
hybrid is all about. There is a much larger battery but much 
smaller gasoline engine. There is the conventional hybrid, and 
there is the 60-mile-range HEV. Sixty means that it is possible 
to build a car with 60 miles of all-electric range. This 
requires a lot of batteries, but the overall vehicle does not 
have to weigh any more.
    We have already built these cars. They don't weigh any more 
because the engine is much smaller. But the most important 
thing is we add a plug. So the advantages of a large battery 
pack is it provides the ability for zero emission driving, and 
it does not have to be charged since the gasoline or diesel 
engine is always there. If you don't charge it, you just use 
more gasoline, but if you do charge it, you use one-tenth to 
one-third the cost of fuel. In other words, using electricity 
is like buying gasoline at 70 cents a gallon instead of $3 and 
going up. People will be plugging these cars in.
    Mr. Issa. Even in California?
    Mr. Frank. Even in California. In fact, all the numbers I 
will talk about are California numbers.
    Batteries can be used to store energy from small wind, 
solar and water systems. In other words, you can have personal 
solar panels on your house, and today's sun will give you 
tomorrow's driving. And what that does is give individuals 
energy independence.
    So here are some examples of solar panels that are built by 
the Ovonic Solar Co. specifically to charge automobiles.
    The same thing will hold for wind. The problem with most 
renewable energy like wind and solar, however, is storage, but 
the plug-in hybrid gives you that storage, and it does not cost 
the utilities anything because the private person is paying for 
that.
    Therefore, the plug-in hybrid provides the most efficient 
use of renewable energy; because in a conventional renewable 
energy, big solar and wind, when the sun shines or the wind 
blows, you have to shut down a power plant somewhere because 
every electron you generate has to be used; and when you shut 
down a power plant, that makes the power plant less efficient.
    In this case, with a plug-in hybrid, you have a place to 
put that energy, and that is in the car. So a plug-in hybrid 
makes the renewable energy much more cost effective.
    Additional use batteries can be charged at night, thus 
balancing the electric grid, making the electric grid actually 
more efficient. The electric charging does not have to be done 
with anything special. A standard plug, 120 volts with GFI, is 
all you need. So we can reduce gasoline consumption by 80-90 
percent just by charging the cars with a standard 120 volt 
plug. That is not using any solar.
    So here are some results of a study that was done by EPRI, 
the Electric Power Research Institute, but I must say this is 
not solar electric power. The DOE, General Motors and other 
California agencies were involved in this study, and the 
results are a compilation of U.S. DOE labs and car companies 
and, of course, the universities. That's me.
    On the left hand side is the fuel costs--the CV means 
conventional vehicle; and the HEV zero is a conventional hybrid 
like a Prius.
    The upshot of all these curves is the more batteries you 
have, the more benefits. More batteries means that CO2 and smog 
decreases.
    This is a market preference, and the objective is to get to 
50 percent.
    I am going to skip ahead.
    And this is the most important one. This is the annual fuel 
consumption [referring to power point presentation]. The annual 
fuel consumption goes down. This is for SUVs all the way down 
to compact cars.
    Notice once you get out to 60 miles all-electric range that 
the amount of fuel used is one-quarter of a compact Ford Focus. 
This is the amount of gasoline saved.
    If we could get 10 percent of the fleet of HEV 40's--by the 
way, that is the number chosen by President Bush--we would 
reduce oil consumption by about 300 million barrels a year. 
That is about 4.5 percent of the U.S. oil used per year, and we 
would be out of the Middle East.
    So that is the diesel, [again referring to power point] and 
I am going to skip right to the conclusions.
    We can reduce the Mideast imports. Plug-in hybrids can use 
solar and other renewables, and plug-in hybrids allow us to 
integrate--here is an important feature--integrate both 
transportation and stationary energy use for an overall society 
that is much more efficient. We need to convince the car 
companies to make these things, and maybe they are convinced 
already. We need to create public demand for these, and we need 
to construct at least 1,500 more demonstration vehicles.
    I'm sorry to overrun.
    [The prepared statement of Mr. Frank follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Issa. David, are you roughly 5 minutes?
    Mr. Hermance. Yes, sir.
    Mr. Issa. We will do your testimony, and I will run like a 
bunny for two votes, one which should be just about over and 
the next, and then I will return. They are the last votes of 
the day, and I am yours when I get back.

                  STATEMENT OF DAVID HERMANCE

    Mr. Hermance. Mr. Chairman and members of the committee, my 
name is Dave Hermance; and I'm the executive engineer for 
Advanced Technology Vehicles at Toyota's Technical Center in 
Los Angeles. I want to thank you for inviting Toyota to 
participate in this hearing and to provide our perspective on 
hybrid vehicles.
    Toyota believes that there is no single fuel or powertrain 
technology that can solve all of society's transportation 
needs. Simply put, there is no silver bullet. This is why 
Toyota and many other companies are pursuing multiple fuel and 
technology paths in the continuing quest to reduce the impact 
of the automobile on society.
    Through our research, we have discovered one key, however, 
to making improving efficiency of any choice of fuel or 
powertrain system and that is hybridization. Toyota is 
committed to hybrid as a core technology for future product.
    Today, by combining a secondary energy storage system, 
usually a battery, with conventional powertrains, Toyota's 
hybrid energy drive has the ability to reduce fuel consumption, 
reduce criteria pollutants and increase the ``fun to drive'' of 
the vehicle, which is why some people drive.
    In the future, similar hybrid systems can be combined with 
new diesel technology or alternative fuels technology or, 
ultimately, maybe even with hydrogen fuel cell technology. In 
all of those cases, hybridization increases the efficiency of 
any fuel or powertrain system; and increased efficiency is what 
is going to be the key to admission to the future.
    The vehicle purchase process is usually not an academic 
exercise in logic. It is usually more an emotional process. 
Manufacturers strive to find a balance of attributes that a 
potential customer will value. The overall process is referred 
to as finding the right value proposition, and this will likely 
vary by market segment, and it may vary over time, depending on 
what fuel prices and other outside effects are in play.
    For example, the Prius pairs a best-in-class fuel economy, 
saving about 350 gallons of fuel per year relative to class 
average, with class average acceleration performance. The Lexus 
GS 450h provides better than V-8 performance, while saving 
about 160 gallons of fuel per year. And the new Camry hybrid 
vehicle offers better performance than many midsize V-6 
products, while saving about 220 gallons of fuel per year.
    I should note that all Toyota and Lexus hybrid vehicles are 
federally certified as Tier 2--Bin 3 and in California as 
superultra low emission vehicles. Importantly, hybrid vehicles 
are saving fuel today using the existing infrastructure.
    Since our introduction of Prius in the Japan market in 
1997, Toyota's cumulative global hybrid sales have exceeded 
600,000 units. Of that total, slightly more than 300,000 
through the end of the first quarter have been in the United 
States. We have sold another 50,000 since then in the States.
    Currently, Toyota has five hybrid models on sale in the 
United States and one additional model, the Lexus LS 600h, 
which you can buy----
    Mr. Issa. Which I have on order.
    Mr. Hermance. All right--in 2007 as a 2008 model year 
vehicle. Clearly, the United States is an important market for 
Toyota's hybrid strategy.
    Moving forward, we can easily see the results of Toyota's 
continuous improvement philosophy by examining the improvements 
in Prius over the initial 6 years since it was launched. Since 
launch, we have increased the combined label fuel economy by 
over 30 percent, we have improved the acceleration performance 
from zero to 60 by 4.4 seconds, and we have steadily reduced 
the already low emissions. These enhancements are the result of 
increasing the efficiency of all the components, steady 
improvements in battery technology, and applied learning to the 
control systems. Over the same time interval, the vehicle has 
also grown physically in size to better meet the U.S. market 
and sold at steadily higher volumes, and we also managed to 
take 50 percent of the cost out of the component set.
    As a direct result of this approach, we can foresee a time 
when we offer a hybrid in every segment in which we compete. 
Over time, the cost/benefit of our hybrid systems will be 
improved to the point that a hybrid becomes a normal ``check 
the box'' option for a powertrain, just like a choice of a 4, 6 
or 8 cylinder engine is today. Our goal is to double the number 
of hybrid models by early next decade, and it is reasonable to 
expect that doing so will bring Toyota's global hybrid 
production to over a million units a year. We also plan to take 
50 percent of the cost out of the system in that time interval 
as well.
    Thank you, Mr. Chairman. I will be happy to answer your 
questions now or later.
    Mr. Issa. I am going to depart for just a few moments.
    [The prepared statement of Mr. Hermance follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    
    Mr. Issa. I have to be honest, Mr. Hermance. I have had 
nothing but Toyota and Lexus hybrids, but I am looking forward 
to seeing what Honda has to offer. It is just an order. It is 
cancelable still. So this is a perfect segue for me to depart 
for a moment and Honda to think about the hard sale.
    With that, we will stand in recess for about 20 minutes.
    [Recess.]
    Mr. Issa. Thank you all for your patience.
    As earlier promised, before we begin again, the ranking 
member, the gentlewoman from California, Ms. Watson, will make 
her opening statement.
    Ms. Watson. Thank you, Mr. Chairman.
    Because our Nation's demand for energy has increased 30 
percent since 1990 and the U.S. Energy Information 
Administration estimates that the demand will rise another 45 
percent by 2025, it is important for us to be researching and 
examining all possible solutions to our energy problem. The 
purpose of this hearing is to examine the innovative technology 
of hybrid vehicles and assess what the potential for hybrid 
vehicles is in increasing the overall fuel efficiency of 
automobiles while decreasing our dependence on imported oil.
    There are several potential benefits to increasing the 
number of hybrid vehicles on America's roads, but do those 
benefits outweigh the costs of possibly having more cars on the 
road, increasing congestion? Is this breakthrough technology 
the answer to our environmental problems with fuel emissions? 
And I hope that our witnesses will address that. I know that 
you have started; and so, if you have given us that 
information, maybe you can put it in writing to my office.
    Hybrid vehicles are becoming increasingly popular in the 
United States compared to the traditional vehicles. Hybrids are 
more fuel efficient, emit lower amounts of fuel, and their use 
in the long run is less expensive. The United States saw the 
sale of its first hybrid in 1999 and went from only 10,000 
vehicles sold in 2000 to almost 206,000 sold in 2005. They have 
many cost savings, State taxes and environmental benefits.
    In my own State of California where the traffic problems 
are among the worst in the Nation, there are several benefits 
for purchasers of hybrid vehicles. An example, if you own a 
zero emission vehicle or a superultra low emission vehicle in 
the city of Los Angeles, you can park without paying at metered 
parking spaces throughout our city. Other States have adopted 
tax incentives for consumers who purchase alternative fuel and 
advanced technology vehicles.
    These incentives are great, but are they really helping us 
accomplish our goal of saving energy and taking cars off the 
road? Saving energy is everyone's responsibility. Almost every 
aspect of business and commerce use some type of energy to 
perform their daily operations. Automakers especially need to 
work with government to set reasonable goals to improve fuel 
economy standards and reduce greenhouse gasses.
    So, Mr. Chairman, it is important that, while we do want to 
advance the production of hybrid vehicles, we do take into 
account that we should caution against simply promoting hybrid 
technology as the answer to promoting fuel efficiency and 
reducing oil dependence. We must explore what we can do to 
focus on a broad range of policies that would transition toward 
the use of renewable resources, reduce emission of greenhouse 
gasses and other air toxins and promote a reduction in driving 
habits. We need to work with the industry experts in developing 
policies that would include stronger fuel economy standards, 
which would benefit both the hybrid industry and our 
environment.
    Again, I thank our witnesses for your input; and I thank 
you, Mr. Chairman, for calling this meeting. I look forward to 
the testimony, and I yield back.
    Mr. Issa. Thank you.
    Mr. German, you have been very patient. The floor is yours.

                    STATEMENT OF JOHN GERMAN

    Mr. German. Thank you, Mr. Chairman. I welcome the break so 
perhaps you will not realize how similar my first two 
paragraphs are to Mr. Hermance's.
    Mr. Issa. As we said before the break, it is the difference 
in cars we want to hear about. It is very similar of the Toyota 
Prius' determination of whether or not its passive start works. 
Up is on and down is off.
    Mr. German. Good morning, Mr. Chairman and members of the 
subcommittee. My name is John German, and I am manager of 
environmental and energy analysis for the American Honda Motor 
Co. Let me thank you for the opportunity to provide Honda's 
views on the subject of hybrid vehicles and their role in the 
Nation's efforts to reduce its consumption of petroleum.
    Hybrid technology offers very significant opportunities for 
improving vehicle fuel economy, and that is one of the reasons 
why Honda was an early adopter of the technology. It is 
important to point out, however, that global demand for 
transportation energy is so immense that no single technology 
can possibly be the solution. There is no magic bullet. We are 
going to need rapid development and implementation of as many 
feasible technologies as possible.
    Honda has a long history of being a technology and 
efficiency leader. Our overall philosophy is to be a company 
that society wants to exist. One of the results of this 
philosophy is Honda's leadership on hybrid vehicle development.
    We introduced the first hybrid vehicle in the United States 
in 1999, the Honda Insight. This vehicle was designed to 
showcase the potential of hybrids and advanced technology. The 
Civic Hybrid, introduced in 2002, was the first hybrid 
powertrain offered as an option on a mainstream model. The 
Accord Hybrid was the first V6 hybrid, and the 2006 Civic 
Hybrid incorporated significant improvements to the battery, 
electric motor and hybrid operating system to improve both 
efficiency and performance.
    Honda's commitment to reduce energy consumption extends 
beyond hybrid vehicles. As the world's largest producer of 
internal combustion engines, we have already incorporated many 
technologies to make those engines more efficient, and there is 
substantially more that can be done in the future. For example, 
Honda pioneered variable valve timing in the early 1990's, and 
we now use it on 100 percent of our vehicles.
    For the future, we have announced plans to introduce within 
the next 2 years a more advanced version of Honda's four-
cylinder i-VTEC technology with up to a 13 percent improvement 
in fuel efficiency over 2005 levels and a more advanced 
variable cylinder management technology for six-cylinder 
engines with up to an 11 percent improvement in fuel 
efficiency.
    Honda has also announced its intention to introduce within 
3 years a clean diesel vehicle, meeting stringent clean air 
standards and achieving up to 30 percent better fuel economy.
    Honda also believes that alternative fuels offer 
significant potential. We are the only company that continues 
to offer a dedicated compressed natural gas vehicle, the third 
generation Civic GX.
    We recently introduced a home natural gas refueling station 
that will expand the market beyond fleets to retail customers. 
We were the first company to certify a fuel cell vehicle with 
the EPA and the first to lease a fuel cell vehicle to an 
individual customer.
    So development of hybrid vehicles needs to be viewed within 
this context. Hybrids have a lot of potential, but to achieve 
significant market penetration they must be able to compete in 
terms of cost, performance and utility with advanced gasoline 
and diesel engines. In this regard, the most important factor 
to consider is to reduce the cost, size and weight of the 
battery pack. We have found that today's hybrid customers are 
most interested in fuel cost savings, but at this juncture 
mainstream consumers do not value the fuel savings as highly 
and hybrid sales represent only about 1 percent of annual sales 
nationwide. Market penetration will increase as the costs come 
down in the future.
    Taking what we have learned, Honda's next step in hybrid 
vehicle development will be the introduction of an all-new 
hybrid car to be launched in North America in 2006. The hybrid 
vehicle will be a dedicated, hybrid-only model with a target 
price lower than that of the current Civic Hybrid. I am not 
sure it is a direct competitor to the LS 600h, but I can check 
it out. We are targeting an annual North American sales volume 
of 100,000 units, mostly in the United States, and 200,000 
sales worldwide.
    The ability for hybrids to reduce refuel consumption and 
green house gas emissions is proportional to the efficiency 
improvements and market share. If hybrids increase to a 5 
percent market share, this will reduce in-use fuel consumption 
and CO2 emissions by 1 to 2 percent. A 10-percent market share 
will offer 2 to 4 percent reductions. Note that there is 
nothing distinctive to hybrids about these effects. The same 
benefit could be obtained by raising the overall fleet fuel 
economy using conventional gasoline technology or diesel 
engines.
    As Honda has previously announced, we believe it is time 
for the Federal Government to take action to improve vehicle 
economy. Performance requirements and incentives are the most 
effective policy instruments, as they allow manufacturers to 
develop and implement the most cost-effective solutions. One 
example would be to increase the CAFE standards. The NHTSA 
already has the authority to regulate vehicle efficiency, and 
Honda has called upon the agency to increase the stringency of 
the fuel economy requirements, and we have also supported 
efforts to reform the passenger car standards. At the same 
time, Congress should develop a program of broad, performance-
based incentives to stimulate demand in the marketplace to 
purchase vehicles that meet the new requirements.
    The other effective action the government can take is 
research into improved energy storage. The success of the 
electric drive technologies, including hybrids and fuel cells, 
depends on our ability to build less expensive, lighter and 
more robust energy storage devices.
    The Department of Energy's work in this area should be 
supported and funded by Congress.
    I appreciate the opportunity to present Honda's views, and 
I would be happy to address any questions you have.
    Mr. Issa. Thank you.
    [The prepared statement of Mr. German follows:]
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    Mr. Issa. Mr. MacKenzie.

                   STATEMENT OF DON MACKENZIE

    Mr. MacKenzie. Thank you, Mr. Chairman and Chairwoman for 
the opportunity to testify before you today. I'm an engineer in 
the clean vehicles program at the Union of Concerned 
Scientists, a national nonprofit alliance of citizens and 
scientists who have been working at the intersection of science 
and policy for over 30 years. We also maintain a now award-
winning Web site, hybridcenter.org, that is dedicated to 
educating the public on hybrid vehicles.
    Hybrids are indeed a timely subject. Despite the nay-saying 
from some and the reneging of certain automakers on their 
hybrid commitments, the hybrid market as a whole continues to 
grow quickly. In fact, hybrid sales in the second quarter of 
this year were up 20 percent over the same period last year. 
That said, hybrids still represent only a quarter of a percent 
of all the vehicles on our roads and continue to need support 
if they are going to live up to their potential.
    They do have a significant potential to help reduce our 
dependence on oil and the environmental and economic burdens 
that come with that dependence. But hybrids alone cannot 
deliver the kind of reductions that we need. To solve our oil 
dependence problem, we need a three-pronged approach that will: 
No. 1, reduce the amount of fuel that consumers burn by 
increasing fuel economy standards for all vehicles. This is an 
area where hybrids can help. No. 2, we need to reduce the 
number of miles that our vehicles are being driven. And No. 3, 
in the long term we need to replace the petroleum fuels that 
we're still using with sustainable low-carbon alternatives.
    A good advanced technology hybrid is capable of doubling 
fuel economy and can be equipped to use alternative fuels, but 
not all hybrids are created equal. Those like the Toyota Prius, 
Honda Civic hybrid, the Escape hybrid and now the Camry hybrid 
increase fuel economy by 40 to 80 percent. On the other hand, 
muscle hybrids like Honda's Accord and the Lexus GS-450h from 
Toyota forego fuel savings in favor of faster acceleration, 
thus missing out on much of the potential of hybrid technology. 
Hollow hybrids like GM's Silverado pickup claim the hybrid 
name, but don't have the true hybrid's ability to capture and 
reuse significant quantities of energy.
    A further challenge is that if the sale of a hybrid is 
offset by the sale of another gas guzzler, then there is no net 
savings in oil use. Despite leading the industry in hybrid 
sales, both Toyota's and Honda's overall average fuel economy 
is projected to be lower in 2006 than in 2005, this is 
according to an EPA report that was released this week. It is 
therefore somewhat inaccurate to ascribe specific fuel savings 
numbers to hybrid sales to date. The way to ensure that the 
U.S. car and truck fleet cuts down on its oil use is through 
increases in fuel economy standards.
    I will now discuss some steps that the Federal Government 
can take to encourage greater sales of clean, high-fuel-economy 
hybrids, and ensure these hybrids deliver the maximum possible 
benefit in terms of reduced oil use. Any incentives for hybrids 
should be designed to encourage the sale of vehicles that take 
full advantage of the technology's potential for increasing 
fuel economy. Putting aside all jargon and classifications, the 
bottom line is how much of a fuel economy increase does this 
vehicle deliver and how much pollution comes out of the 
tailpipe.
    The structure of the Federal hybrid tax credit is a good 
example of a rational, performance-based incentive that gives 
larger credits to hybrids that deliver larger fuel economy 
gains. The fatal flaw in this program is the 60,000-vehicle-
per-manufacturer cap on the number of eligible vehicles, which 
will soon take away credits from many of the best hybrid models 
while leaving credits in place for poor performers. Congress 
should make it a priority to lift this cap as quickly as it 
can.
    Members of the committee and others in Congress have 
identified the importance of producing hybrid vehicles and 
their components in the United States. Congress should adopt 
manufacturing incentives that promote the production of hybrid 
technologies in the United States, but should do so only if 
these incentives are linked to increases in fuel economy. This 
pairing avoids corporate welfare, and ensuring that meaningful 
increases in fleet fuel economy are achieved. Industry should 
not receive public dollars unless a public benefit is 
guaranteed in return.
    Manufacturing incentives tied to increased fuel economy are 
essential because it is high gas prices and not investments in 
technology that threaten domestic auto manufacturing. A study 
by the University of Michigan and the Natural Resources Defense 
Council found that as a result of the Big Three's poor 
positioning on fuel economy and technology, a sustained gas 
price of $2.86 a gallon would put almost 300,000 Americans out 
of work. In contrast, a study by UCS found that increasing fuel 
economy standards to 40 mpg over 10 years would lead to the 
creation of 160,000 new jobs nationwide, including 40,000 in 
the automotive sector.
    I will stop there, and I thank you for the opportunity to 
testify, and I look forward to your questions.
    Mr. Issa. Thank you. And thank you very much for observing 
the 5 minutes. That is always very much appreciated.
    [The prepared statement of Mr. MacKenzie follows:]
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    Mr. Issa. We will get right to questions. I will lead off.
    First of all, Mr. German, I will look at the 2006 Civic for 
my son. Having said that, I would like to start with Mr. 
MacKenzie.
    The EPA report on Honda, if I understand correctly, the 
projected reduction has to do with the mix that Honda is 
enjoying primarily because the Big Three have dominated the 
full-size truck market for a long time, and Honda and Toyota 
and others are now going into that. This is a mixed change, not 
a ``per a given like vehicle'' reduction. In other words, the 
Honda Accord is not going down in mileage, the Honda Civic is 
not going down. No major platform is going down in mileage, but 
rather the projected mix is anticipated to be different. Is 
that roughly what I remember reading?
    Mr. MacKenzie. Yes, that's a very good point, and I think 
it illustrates the need for us to have increases in fuel 
economy standards at the same time as we have incentives for 
some of these high-fuel-economy vehicles in order to ensure 
that we get those increases.
    Mr. Issa. This goes back to a question I have specifically 
for you because you touched on this. I am a supporter of CAFE 
standard increases. I am personally convinced that we should 
never have stops and starts that send mixed messages to the 
industry. They can be incredibly small if technology is sort of 
at a stumbling point and larger if we see opportunities.
    Having said that, don't you agree, or would you be willing 
to agree with me, that a modernized CAFE should look at each 
category, where we expect them to be, where they can be, and 
begin increases in fuel economy by major categories? Meaning if 
I have a family of one grown child, so by definition my wife 
and I drive alone, but if you have seven children and you need 
to carry nine people, that realistically you don't have the 
option of going to the Honda Civic, you have to choose a family 
sedan or perhaps even a van of some sort.
    So wouldn't you agree that, in fact, CAFE standards should 
observe block categories, although we could disagree on where 
those blocks are; that the ratings should be on some tangible 
performance that is unique to perhaps a slightly larger 
vehicle.
    Mr. MacKenzie. I think the idea of a class-based or 
attribute-based standard is reasonable. If you look at the rule 
that NHTSA came out with for trucks, that does a good job of 
addressing a lot of the concerns about possible disparate 
impacts on different manufacturers. What we need now is to see 
larger increases, see that kind of a framework, but using that 
to drive larger increases that we know are possible with the 
technology that is available.
    Mr. Issa. And then I don't want to dwell on CAFE, but for 
both of the auto manufacturers, realistically I would assume 
that your companies, as representatives of many companies, 
support that concept; that you can look at each of your major 
platform categories and work to improve standards on a 
platform-by-platform basis. Is this a reasonable approach as 
you view it?
    Mr. German. Honda has supported CAFE increases. We are on 
record that we actually prefer the current system, but that if 
you do want to do an attribute system, that size works a lot 
better than weight. We are happy that NHTSA adopted a size 
system, and we are supportive of the system.
    Mr. Issa. And I was referring to a size system. I don't 
want to penalize something for using aluminum rather than 
steel.
    Mr. German. Exactly.
    Mr. Issa. Moving back into the core, as we talked about 
batteries, because part of this hearing is how much further can 
we go, supercapacitors typically, as well as capacitor-type 
technology, typically intake and outflow capacity of 
electricity quicker and can operate at higher voltage. Would 
you recommend that when the Federal Government is looking at 
these developments that we look specifically to higher voltages 
so that you can have more efficient electric motors and the 
coupling of those? Does that make sense?
    I will give Dr. Frank a chance. In a plug-in environment 
this may not always be optimal, but certainly when you are 
looking at quick recovery for some kinetic energy savings? 
Doctor.
    Mr. Frank. Ultracapacitors have higher efficiency and 
higher power capability, but when you go to a plug-in hybrid 
where you have a lot of batteries, you already have high power 
capacity, so you don't need ultracapacity. The only purpose of 
ultracapacity is you want to stick to a very small battery 
pack, but if you stick to a small battery pack, you can't make 
a plug-in. The big battery pack does everything that the 
ultracapacitor will do, but better.
    Mr. Issa. I appreciate that.
    I noted that the some of the studies have suggested that it 
is a hybrid of the hybrid, if you will, that mixing batteries 
for depth and capacitors for those quick on and off 
accelerators may also be part. Are these the nuances that we 
should be looking at?
    Mr. Hermance. You can indeed increase overall efficiency, 
particularly on the regenaritive side, with the use of 
ultracapacitors, but they store very little energy. So even in 
today's hybrids, not even toward plug-in hybrids, you're 
marginal whether you can store enough energy in a capacitor. 
So, yes, those applications that have used both have generally 
used them together, with the exception of some fuel cell 
applications which are quite different applications.
    The bus industry has used both combinations of battery 
storage and capacitor storage, and that is possible. The one 
downside is that capacitors are both pricey, and they take a 
lot of volume.
    Mr. Issa. But they are light.
    Mr. Hermance. No, they are actually not. Well, they are 
light for their unit volume, but they are not free from a 
weight standpoint.
    Mr. Issa. Of course.
    Mr. Hermance. But they are also quite expensive, and you 
have to balance the benefit you might get from that improvement 
with the cost of that system and whether that makes a viable 
decision for the customer.
    Mr. German. Right now Honda is using ultracapacitor on our 
fuel cell vehicle where you don't need much energy storage. But 
I agree with all the comments of Dr. Frank and Dave Hermance. 
The only thing I will add is that there is some very early 
stage research being done on using nanotubes with 
ultracapacitors, which has the potential, if it works out, to 
tremendously increase the storage capacity and still maintain 
all the good characteristics. It is a long way off, but it is 
fun to watch this stuff.
    Mr. Issa. When I was a young boy in the auto industry, we 
generally looked at about 32 volts. As we got above that, we 
started worrying about arcing, we started worrying about all 
the disadvantages that keep us from putting our finger anywhere 
near 110 volts if it were DC. However, in the technology that 
you are both going toward, clearly voltage matters, and you are 
going up in voltage.
    Where is the sweet spot now and in the long run in voltage 
development? In other words, how high can you go in order to 
reduce the size of the electric motor and gain other 
efficiencies? And where are your engineering challenges today 
that the government might play a role in helping to get past?
    Mr. Hermance. You want to go first, John?
    Mr. German. No.
    Mr. Hermance. OK. Today our systems operate at as high a 
voltage as 650 volts. There is a practical limit that changes 
to a different class of materials if you go much beyond that. 
There is a little more margin, but not a lot more. The other 
break point that you mentioned before is at nominally 50-volt 
system. Below that there are different requirements for safety. 
At high voltage you require a level of safety, isolation and 
what-not that is different from the low-voltage systems. But 
there are practical limits to the voltage as well from the 
standpoint of the class of materials that you use to provide 
the necessary isolation, and it is not a lot higher than the 
650 that is in current use.
    Mr. Issa. So you think your voltage is getting close to 
where it can be? And by definition does that mean that you are 
going to multiple motors, which I know is in Toyota's strategy, 
but multiple motors is going to become a bigger strategy?
    Mr. Hermance. Actually, you don't need to go to multiple 
motors. You might go to an additional motor for all-wheel 
drive, which allows you a little bit better regen capture, but 
at a cost. We are managing to make the motors themselves more 
compact over time. Really we don't see a need to go to multiple 
motors from a traction power standpoint. We just made them more 
efficient and more compact by going to the higher voltage.
    Mr. German. Having electric motors in each wheel is an 
interesting idea which has a number of efficiencies. The 
problem is that is unsprung mass; that is, mass that has to be 
controlled by the springs and affects ride and handling of the 
vehicle. So far we haven't figured out how to make electric 
motors light enough to be able to put them in the wheels.
    Mr. Issa. You can put them in the middle of the transaxle. 
Sadly enough, I had an Indy car team, and we never solved the 
problem of our unsprung weight versus the competitors', so we 
never won in my years.
    I am going to finish up here. I guess I will ask for a 
second round, but when I look at California's experiment with 
the zero emissions vehicle, the General Motors famous leased 
vehicle, an abysmal failure because it was, in fact, a product 
that needed special charging, and it basically had limited 
range, and then you had to find yourself a high-voltage source 
and plug in and wait.
    Dr. Frank, particularly for the technology you are looking 
at, I see that essentially what you are hoping to get by is to 
find the sweet spot of 60 or so miles so that we can avoid the 
problems of the General Motors vehicle and incorporate the 
ability beyond 60 miles to go from plugged, if you will, to 
totally unplugged. Is that roughly the basis for your 
preference toward a plugged hybrid?
    Mr. Frank. That's exactly the objective. But the plug-in 
hybrid opens the door to renewable energy use directly as well. 
So the plug-in hybrid solves all the problems of the pure 
electric vehicle because there is no charging infrastructure. 
You have always got gasoline on board. It is a dual-energy-
source system. So because of the dual-energy-source capability, 
you don't have to charge quickly, and that's one of the main 
features, so that means you can charge with conventional 120-
volt plugs, which are everywhere in our society already.
    Mr. Issa. Last question, Mr. Hermance. I'm going to put you 
on the spot and use the bloggers against you. You are probably 
familiar with the Prius stealth mode modifications that are 
actually available outside the United States, but in the United 
States are being done aftermarket by people who read your 
sites--essentially creating the ability to extend to the limits 
of the batteries you already equip a zero emissions mode. They 
make some significant claims, tens of miles. Would you like to 
comment on those with your existing product and whether or not 
that approach, in Toyota's opinion, could be in the future, 
which would be closer to Dr. Frank's concept?
    Mr. Hermance. The basic difference between the vehicle as 
it exists today and Dr. Frank's concept is there is no 
provision for putting grid electricity, plug-in, into the 
battery pack. You only have the energy on board within the 
narrow operating range of the vehicle to use. The actual 
distance possible with the on-board energy is only about a 
mile, not tens of miles, in addition to which in the current 
system without grid replacement of that energy, you have to 
replace that energy with gasoline, and therefore it is an 
inefficient operation. In fact, there is an increase in CO2 
emission and increase in fuel consumption utilizing that 
modification of the vehicle as it is currently configured. Some 
of what they think they are getting, they are not.
    Mr. Issa. Thank you. And I am pleased I was able to get 
that on the record for my nephew, another Prius owner.
    Diane.
    Ms. Watson. Thank you very much. I'm going to direct my 
questioning to Mr. MacKenzie. He looks like the one that is 
going to be around with these cars.
    Mr. Issa. Ouch. You could have just said he was your 
witness, instead of my witnesses are old, and you have the next 
generation.
    Ms. Watson. I did not say those words, Mr. Chairman. You 
said ``for my son in the future,'' so I'm calling on someone's 
son here.
    What would you see are the most effective ways to reduce 
oil consumption in our overall transportation sector?
    Mr. MacKenzie. Well, the No. 1 thing the government can do 
is to increase fuel economy standards for all vehicles. That's 
the fastest and most effective, proven way that we have to 
reduce oil consumption.
    Ms. Watson. Then how can we make sure that the advantages 
of hybrid penetration are not offset by less fuel-efficient 
vehicles elsewhere in the fleet? Will hybrid penetration 
necessarily result in higher fuel economy?
    Mr. MacKenzie. Well, that's a good point. I alluded to 
that, of course, in my testimony. You see that looking at some 
of the automakers today, you can see that leading the market in 
hybrids does not necessarily mean that your fuel economy is 
going to get better. So promoting hybrids in and of itself is 
not a guarantee of oil savings. If we want to make progress on 
our oil dependence, we need to couple those incentives for 
hybrids with increases in fuel economy standards to ensure that 
we reap those benefits.
    Ms. Watson. I want to just throw this out, because all of 
you have been watching what has been going on in the Middle 
East, and there is a prediction there that all of us would 
expect that the prices are going to go up. And we are so 
heavily dependent on oil in the Middle East, and I am just 
wondering, when will the industry be up to a position where we 
don't have to be dependent on Middle Eastern oil? You know, the 
President said we are addicted to oil, and my question is what 
do all of you feel will be our potential in the manufacturing 
industry, the high-technology industry, in seeing that all the 
vehicles that we use are up to a point where we don't depend on 
foreign oils?
    Mr. German. One of the main problems faced by the auto 
industry is that the average customer places a relatively low 
value on fuel economy and fuel savings. If you look at it, you 
take even $3 a gallon, if you adjust it for the price of 
inflation and adjust it for the increased efficiency vehicles 
adjusts compared to what they were in the 1970's, adjust it for 
the difference in the standards of living and the disposable 
income, $3 a gallon is still pretty cheap. It is a smaller part 
of the budget of the average family than fuel was before the 
first oil crisis in 1973.
    Some customers are certainly responding to the increase in 
gas price. You see that in certain segments, but most customers 
are not. If you look at it from the standpoint of dollars and 
cents, it is actually fairly rational.
    So this is the problem we face. Society needs reductions in 
fuel use. Individual customers don't see it as a major part of 
their purchase decision. There is a disconnect. And it is this 
disconnect which is the reason why Honda is supporting 
increases in CAFE standards.
    Ms. Watson. You know, I represent an area in central Los 
Angeles, and right now the main street in my district is a 
street called Crenshaw. There is evidence that the youth are 
coming out at night, and they are doing these donuts. Do you 
know what a donut is? They go speeding down, and they put their 
brakes on, and they spin around. It happens after 1 a.m. And I 
come down that artery and I am saying, my goodness, look at the 
tracks, look at the gasoline expended.
    When you said what you did, Mr. Chairman, I thought we have 
a tremendous need to educate all our people as to how to make 
the best use of our resources, gasoline or whatever. The kids 
have to fill up at the gas station, and in California our 
gasoline prices have gotten up to $4 from time to time.
    Of course, we need better, shall I say, law enforcement, 
traffic enforcement on our streets. But there is a mentality, 
it is a lifestyle mentality. Kids do it because that is what 
you do during this era. So there is a combination of things 
that we have to grapple with, I think, in our society, because 
it is really lifestyle, and all of our kids, particularly the 
gang members, they want to do what everyone else does. It is a 
real issue as the prices continue to go up and the resources 
continue to diminish.
    Mr. Hermance. There are a number of folks in an area not 
far west of your district that are promoting that with movies 
like Fast and Furious 1, 2, 3, and several more yet to come, 
but you're right. There is a huge need for education and a 
message to be communicated of the value of the resource versus 
its long-term scarcity. That is not there.
    And as John says, right now, if you ask on a list--we 
survey 31 attributes of a vehicle for purchase decision. Fuel 
economy used to be dead last. It has moved up, but it is still 
in the bottom third of reasons for purchase of a specific 
vehicle, except in very small segments. So you are right, there 
is a major education process necessary.
    Ms. Watson. Dr. Frank.
    Mr. Frank. Thank you.
    Ms. Watson. I just want to say he is from USC, and that is 
right in the area that I am talking about. I think you are 
familiar.
    Mr. Frank. I am at UC Davis.
    Mr. Issa. But he does a wonderful job. Undergraduate 
Berkeley. Graduate Berkeley. Ph.D. at USC. Now he's at Davis. 
He covers it all.
    Mr. Frank. Right.
    Anyway, the point is the objective is to give the general 
public, including kids who are doing those donuts, everything 
they want, but not use gasoline. The real objective is to 
reduce oil. So the plug-in hybrid which I have been promoting 
for about 25 years, and I think Dave knows about that, anyway, 
is one way to do this. The whole objective of the plug-in 
hybrid is to use electricity, which is equivalent to buying 
gasoline at 70 cents a gallon. That's the big goal. At 70 cents 
a gallon people will plug their cars in.
    The California Resources Board did not like the idea 
before, but they do now because the price of gasoline is $3 and 
$4 a gallon. If you can buy the equivalent power for donuts or 
whatever, if you buy the equivalent power for 70 cents a 
gallon, that's the motivation. The question is how do we get 
the car guys to buy into that?
    Ms. Watson. That's the reason why my question was, Mr. 
Chairman, is when do you think the industry will be ready to 
accept that particular option? Car guys?
    Mr. Hermance. Toyota has announced the intent to pursue the 
development of a plug-in hybrid. That said, it is probable that 
it will not be a plug-in hybrid as described by Dr. Frank. The 
most cost-effective way to use electricity to reduce fuel 
consumption is not to have all-electric range, but rather to 
have longer periods that the engine is off during normal 
operation. That mitigates the need for significantly larger 
drive motors and power electronics, and this is the evolving 
direction from the large workshop with DOE of many 
stakeholders. So it is not necessary that a plug-in vehicle 
have all-electric range. The benefits are very substantial with 
much less incremental costs. The incremental costs of large-
battery vehicles now is still very high.
    Ms. Watson. You know, there was a statistic that showed 
that your Honda Accord was the car most often stolen in 
California. So there is something about that Accord that they 
love. It has a faster speed? You want to counter that?
    Mr. German. It is just a lot of them are being stolen for 
parts. You chop it up. We sell 350,000, 400,000 Accords a year. 
There is a big demand for parts. The latest statistics is the 
older Accords that are being stolen the most, they are going to 
chop shops and chopping them up and selling the parts off them.
    Ms. Watson. Thank you, Mr. Chairman.
    Mr. Issa. Thank you. I will try to sum up a few more 
questions. First of all, I am old enough to remember when the 
Oldsmobile Cutlass was the most stolen car in America. Now 
there is no Oldsmobile.
    And for those who don't--I think I should confess here, my 
prior business was the largest manufacturer of car security 
systems in America. So thank you because Honda made me a 
Congressman in many ways; however I started the company with 
Olds Cutlass.
    A couple of quick questions. First of all, as we are 
discussing plug-in hybrids and extended-range batteries for 
greater amounts--let's just say more electricity, less motor, 
in a sense aren't we looking for--both of what you are trying 
to do, we are looking for a sweet spot similar to the one that 
the train companies found in the 1950's and 1960's and so on. 
Trains--locomotives that power America have been diesel 
electric for a very long time for a number of attributes they 
found: diesels running at constant speed, the advantage of 
being able to get the amount of power they needed over the 
drive wheels. And we could go through all the tradeoffs that 
went into the development of the electric train, which is a 
universal product basically today.
    In a sense, isn't your development--this is primarily for 
Toyota and Honda--isn't your development to try to find within 
the market demand for performance and other characteristics the 
highest overall productive use of the vehicle, both, of course, 
acceleration, deceleration, fuel economy and emissions? Isn't 
it sort of a combination that you are working with today, 
David?
    Mr. Hermance. Clearly it is. If the buying process were 
wholly rational, you could tell fuel economy much easier. Since 
the buying process is often emotional, you have to find the 
balance of benefits that customers are willing to pay for. That 
includes fuel economy certainly, but it also includes 
performance, and at least in California it includes emissions 
performance. Finding that sweet spot, if you will, the best 
value proposition is how you get customers to buy your 
vehicles.
    Even if we were to develop independently the best vehicle 
to solve any specific problem, if we couldn't sell them in 
significant volume, it wouldn't make any difference. So you 
have to find something the customers value, they are willing to 
part with their hard earned money to buy and still reap both 
societal benefit, and the customer has to feel good about his 
decision.
    Mr. German. The value proposition is what has led both 
Toyota and Honda toward small battery packs in primarily 
assist-type modes. That is because the battery right now is 
still very expensive, and its energy storage density is very, 
very small compared to liquid fuel. You are trying to maximize 
the fuel savings without putting more batteries in, and you 
have to make sure that the battery is going to last the life of 
the vehicle, and part of the way we are doing that now is by 
limiting the change in the energy stakes to very small levels, 
which greatly improves the life.
    Mr. Issa. We have a little housekeeping before the ranking 
member is going to have to leave. I would ask unanimous consent 
that we be able to hold the record open for 2 weeks from this 
date so that all the Members may make submissions and possible 
inclusions into the record. Without objection.
    I would also ask unanimous consent that this hearing 
continue until the remainder of this cycle of questions, at 
which time we will adjourn. Without objection. I thank the 
ranking member.
    That allows us to be very legal in this because this is one 
of the most bipartisan subcommittees. We have done every one of 
our hearings in an effort to try to get to the best opportunity 
for America to go the right direction on energy.
    I would like to ask a couple more quick questions. This is 
not intended to be a speech, but it will sound a little bit 
like it.
    If it is fair to say that the President was right about us 
being addicted to oil, and that addiction being dangerous, then 
it would be fair to say that it is, in fact, a national 
security imperative that we lessen our addiction, slash, 
dependence on foreign oil.
    If that is the case, what messages from Congress within the 
capabilities of your technology and within the reasonable time 
constraints to move to those technologies--what messages 
besides CAFE would best come from Congress that would move the 
decision process toward lower emissions absolutely--that is 
certainly something that this Congress is dedicated to--but the 
higher fuel economy?
    I hear all of you, rightfully so, and I spent years selling 
the products the customer wanted, and every once in a while I 
would make something that I wanted the customer to want, and 
very seldom did it end up being what the customer wanted, but 
Congress has an influence. Used imprudently, we can put your 
companies into deep, deep recession. We can change the whole 
nature of the buying pattern. We can cause a recession.
    At the same time, what measures do you think would be 
prudent for Congress to use, besides what we have already 
talked about, CAFE, to encourage a movement toward dramatically 
lower fuel consumption, again, within those norms that would 
allow society not to have a whipsaw?
    Mr. Hermance. One quick thing I think John mentioned in his 
testimony and I would reiterate, you could lift the 60,000-unit 
cap for manufacturers on the hybrid tax credit. We have already 
gone through the cap. Our customers will cease to realize the 
full benefit at the end of September. Lifting that cap to allow 
customers to buy the most efficient vehicles which are the ones 
that get the largest credit seems a prudent thing to do as a 
near-term help.
    Near term it is hard to do other things immediately. Some 
longer-term program of education to improve the understanding 
of the buying public about the value of the scarce commodity is 
certainly--we have to change buyer behavior somehow so that 
they value fuel efficiency.
    Mr. Issa. Anyone else?
    Mr. Frank. There are many ways to carry out these benefits. 
Of course, I have been promoting the use of the plug-in hybrid, 
and Mr. Chairman mentioned that the cost is high and the 
batteries and so on. The life is short. We have a lot of 
evidence that shows that is not quite exactly true.
    The Honda--excuse me, the RAV 4, the Toyota RAV 4 electric 
vehicle batteries are very similar to what we're going to in 
the plug-in hybrid, I think lasted over 120,000 miles, and 
Southern California Edison has already shown this, and that is 
a lifetime battery. The metal hydride batteries have now come 
down significantly in price over the years. One of the most 
important things is the plug-in hybrid battery is not the same 
as the power batteries that are currently used at much lower 
price per kilowatt hour. There is a lot of evidence to show the 
battery technology is not so far off. That is No. 1.
    No. 2, lithium batteries are much better, much lighter, 
half the weight for the same amount of energy. So when we go to 
energy--and Toyota, by the way, has already invested in 
lithium, and almost everybody else has as well, and all of 
their competitors are looking at lithium. So the batteries is I 
don't think as far an issue as before. As I have shown in 
slides, we can build these cars with long range and not cost 
anything in weight and incremental costs. I have addressed 
that. It is much less than you think.
    Mr. Issa. Please.
    Mr. German. I think the primary message from Honda is 
whatever you do, try to make it performance-based. Don't try to 
pick specific technologies or whatever. Set out performance 
standards or incentives and base them on equal footing so 
manufacturers can develop their own products.
    Some States are looking at changes in sales tax based upon 
the efficiency of the vehicle. You could extend the gas guzzler 
tax, use those moneys to incorporate more incentives for high-
performance vehicles. There are all kinds of possible scenarios 
out there, including the CAFE. As long as it is performance-
based, that is really the key.
    Mr. MacKenzie. In terms of things----
    Mr. Issa. We want to hear from the youth of America, as our 
ranking member wanted to tell you.
    Mr. German. David, I want to make sure that by performance 
we don't mean how fast it accelerates. Performance in the 
efficiency of the consumption of the vehicle.
    Mr. Issa. Both of your companies, for investment in 
traction control, which the gentlelady was not aware that your 
traction control vehicles clearly did not leave those marks.
    Mr. Hermance. There is no switch on our car. You can't shut 
it off.
    Mr. MacKenzie. I was using performance in the same way, and 
I want to echo our support for an action that the government 
could take promptly would be to remove that cap on the number 
of eligible vehicles for the hybrid tax credit, should be done 
as soon as possible in the interest of consumers getting a 
strong and consistent message.
    Mr. Issa. I'm going to ask you a followup question since 
you are the only one that doesn't have a financial gain if I 
bring that to fruition. If you were in my seat, would you 
eliminate the cap on all vehicles, or would you--because it is 
going to cost money to--at least to the Federal revenue. Would 
you incentivize that toward the overall higher performing as 
far as fuel savings vehicles? Would you, in fact, change the 
existing rules of the road now, or would you simply raise the 
number?
    Mr. MacKenzie. Well, the structure as it stands is quite 
good. It is a performance-based system, and those vehicles----
    Mr. Issa. You are happy with the 3,000 and all the 
different levels?
    Mr. MacKenzie. The levels are fairly reasonable and set up 
well, so I think the solution is to just remove the cap.
    Mr. German. If I could make one additional comment on that, 
I am not going to disagree----
    Mr. Issa. He made your case wonderfully. Take ``yes'' for 
an answer.
    Mr. German. The current tax incentives are based only on 
the city fuel economy, and that is not really the best 
performance metric. Some hybrid systems do better on the city 
and highway. Diesels do better on the highway. And to make it 
more neutral, it should be based on the combined fuel economy 
of the vehicle, not the city. So that would be one positive 
change that could be made if you are going to change it.
    Mr. Issa. Sure. I am probably overstepping this committee's 
jurisdiction, but with all due respect to the city and highway 
measures, I think some of your companies have been lobbying 
to--I know there has been a small change, but to really 
modernize the EPA fuel economy standard, to make it as accurate 
as possible, which it historically has never been. Is that fair 
to say that is the other part is, yes, make it combined, but 
also make it--don't make it assume that highway driving is 50 
miles an hour, and city driving has this incredibly amount of 
stops relative to what really happens?
    Mr. German. I won't get into the details because they are 
monumental, but yes, you are correct.
    Mr. MacKenzie. It is a whole other kettle of fish in a 
large kettle.
    Mr. Issa. My Committee on Energy and Commerce, which I am 
on leave of absence from, would assume primary jurisdiction on 
some of that.
    Mr. German. Just one point. Because of the timeliness 
requirement, it might be better to quickly lift the cap and 
then adjust the metric, because the EPA changes in labeling 
won't occur for at least another year, and the cap is going to 
be an issue at the end of September.
    Mr. Issa. By the way, I would completely agree with you, 
except I have seen the history of when we do one and promise to 
do the other. I am certain that a staggered view all in one 
bill might, in fact--with a deadline for new standards, might, 
in fact, be a compromise.
    Mr. MacKenzie.
    Mr. MacKenzie. In regards to basing the credits on the 
combined rather than just the city fuel economy, an additional 
complication there is that may then be appropriate to adjust 
what those credit levels are if you are going to adjust your 
numbers to the combined.
    Mr. Issa. Dr. Frank, because you got your Ph.D. before 
anyone else in the room, you get the closing statement.
    Mr. Frank. Well, I just want to say that by going to the 
plug-in hybrid--I will push it one more time--that you get both 
fuel economy in city and highway because of the downsized 
gasoline engine. All the performance comes from the electric 
motor. So I have to disagree with Mr. German from Honda a 
little bit. Toyota certainly knows that they have done a very 
good job, but when you go to the plug-in hybrid, everything 
gets better. You can downsize the engine much further and get 
city and highway fuel economy both.
    Mr. Issa. I thank you all for your testimony. I would be 
remiss if I didn't make a plug that if California lifts its ban 
on nuclear energy, and as a result we are using far less fossil 
fuel to produce our electricity, although the 70 cents may 
still be 70 cents, the emissions benefit goes to a zero 
emissions.
    With that, I will make my closing remarks. From what I have 
heard here today--and, by the way, we really did look at your 
statements before I made ``what I heard here today''--it is 
clear that the breakthroughs in technology and manufacturing 
are needed to improve hybrid cars. It is also clear that those 
are on the horizon. We can increase their efficiency and 
commercialize plug-in hybrids to reduce the Nation's reliance 
on unstable foreign suppliers of oil.
    The hybrid car market is not a niche market in America, and 
manufacturers must acknowledge this fact. Consumers are 
clamoring for more hybrids, and today, with the increased CAFE 
standards, the next generation of hybrids can provide a 
foundation for reducing U.S. petroleum consumption.
    I'd like to thank our witnesses here today for such an 
informative hearing. And once again, there is no level of 
thanks this committee can give for people who come together 
from very different backgrounds, from academia, from, to be 
honest, the for-profit car companies, and from think tanks and 
bring together just consistency that the direction that we are 
going is just the beginning; the direction that we can go is up 
to you, but it is also up to Congress. With that, I hope this 
record will help the rest of the Congress seek some of these 
solutions. We stand adjourned.
    [Whereupon, at 4:03 p.m., the subcommittee was adjourned.]