The World?s Leading Automakers? Chairman Y. GIESZL Toyota 131' Vice Chairman M. BASSERMANN Mercedes-Benz 2nd Vice Chairman T. ELLIOTT Honda Secretary V. DOOLAN BMW Treasurer R. RECCHIA Mitsubishi BMW Daewoo Fiat Ferrari Honda Acura Hyundai Isuzu Kia Land Rover Mazda Mercedes?Benz Mitsubishi Nissan Infiniti Peugeot Porsche Renault Rolls-Royce Bentley Saab Subaru Suzuki Toyota Lexus Volkswagen Audi Volvo President P. HUTCHINSON a men?s Just two Much In 1052 3/23/98 TO: AIAM Technical Committee AIAM Government Relations Committee FROM: Gregory J. Dana Vice President and Technical Director RE: CLIMATE CHANGE - Fuel Efficiency Tax Credits - Meeting with the Administration - March 20, 1998 - Summary On March 20, 1998, representatives of AIAM met with a group of Administration representatives on the President?s Climate Change Budget, specifically the auto efficiency tax credit. A list of the attendees at the meeting is enclosed along with a proposal of how to compute the ?baseline? fuel economy for determining the credits. This document was prepared by Charles Gray?s office in EPA. EPA has cut the number of size classes down to four and then computed a sales-weighted fuel economy for each segment of the class based on a calculated 0-60 time. Members should review this carefully to see if it would be an acceptable basis for determining this credit. The meeting went very well. The principles that our work group had agreed upon were pretty much covered by page two of the Administration proposal, so there was little to disagree on. The longest discussion was on whether the tax credit could be given to the manufacturer so it could be passed on to the consumer faster. I think they realized the benefit of this, but were somewhat hesitant to commit to this concept without further thought. We agreed to review the proposal and get back to the Administration. Members should consider whether we want to hire someone to do an independent analysis of this proposal. The working group will likely discuss this issue in the near future. ASSOCIATION OF INTERNATIONAL AUTOMOBILE MANUFACTURERS, 1001 19TH ST. NORTH I SUITE 1200 I ARLINGTON, VA 22209 I TELEPHONE 703.525.7788 I FAX 703.5 . INTERNET: AIAM-054733 AIAM-054734 MARCH 2.0 I999 M113. RR ?5 A (M I ?gar/v gem/c5 G42 #7 OS 7P .. (3330 0% .f . u/D Boon/207%? ?001. z? WTEWIOLJSIE l?rfom {65f . w? Macaw EOE. . ng?w . . CE {8.0 rob? . L7 04'? ?vftQ/L. . 095/4,me .th 557ml T?fme?t Hch'e. "?0ch (ma?a )17? 3/0 5:27.644 (06? W?e?k 1:342:77 -161 466 6033 .3736 668 V7071 710?: m- -35_g ?158? 301/5?5?? 02052, 444.4 I753 263 E2766 176/3" . 7?21?? 34.? 3I/q 20), (0133473,); 107/ 2573/ 137%?) gob 462-6055" 703 525 4788 2a 4&1 (cf/z? JM 554 Am 7696 4.va AIAM-054735 AIAM-054736 TAX CREDITS FOR PURCHASES OF FUEL EFFICIENT VEHICLES AIAM-054737 Principles that guided the design The credit should encourage innovation -- not changes in consumer behavior. The credit should be based on a performance standard -- doubling or tripling fuel economy for its class. The credit should provide a level playing ?eld. Fuel ef?ciency achievements should not be made at the expense of clean air. The incentive should be a temporam market boost. It should be administrable by the IRS. AIAM-054738 The FY 1999 budget proposal The President?s FY 1999 budget included two temporary tax credits for the purchase of highly fuel e?icient Vehicles. - $4,000 credit for vehicles with triple the base fuel economy for its class. - 000 credit for vehicles with twice the base fuel economy for its class. These credits would be available for all qualifying vehicles, including cars, minivans, sport utility vehicles, pickup trucks, and electlic vehicles. The credits would be temporary. AIAM-054739 Fuel Economy (mpg) 55 50 15 10 35? Using interior volume to determine the baseline fuel economy Base fuel economy When the budget proposal was announced the ?base fuel economy for the vehicle?s class? was not speci?ed. was problematic because the relationship between fuel economy and interior volume isn?t very clear. 0 Using volume alone to set the baseline would leave some cars with a huge hurdle while others with the same volume would be eligible with minor changes. Hence, there would not be a level playing ?eld. Spread in the 1998 Car Data 105 115 125 135 145 Total Volume [cu ft] 4 AIAM-054740 Baseline Design Cars: - Four volume-based classes. unadjuswad ampestle F. 1 1 CM 8 0 Within each class, fuel economy targets based on performance (0 - 60 time). Fuel Economy Baseline for Cars Two-seaters, minicompacts, subcompact Compact sedans, MidsiZe sedans 0-60 Time (sec) sedans small wagons and wagons Large sedans 8 or less 28.0 26.1 25.0 24.6 9 30.8 28.5 26.5 25.6 10 33.7 30.9 28.1 26.5 11 36.6 33.3 29.6 27.5 12 39.4 35.8 31.1 28.4 13 42.3 38.2 32.7 29.4 14 45.1 40.6 34.2 30.3 15 48.0 43.0 35.8 31.3 16 Or greater 50.9 45.4 37.3 32.3 0 Table shows baseline fuel economy for the four car classes across performance times. - Eligible vehicles must meet targets that are two or three times these base numbers. 5 AIAM-054741 How Far the 1998 Cars Would Need to Stretch for the 2X Credit Two-seaters, Compact minicompacts, sedans, Midsize subcompact small sedans and Large Grand 2X stretch sedans wagons wagons sedans Total 1.4-1.6 0 0 0 1.6-1.8 2 5 . 1 9 1.8-2 5 10 15 4 34 2-2.2 5 1 14 5 35 2.2-2.4 4 3 6 14 2.4-2.6 5 0 6 2.6-2.8 1 0 1 - Grand Total 23 30 36 11 100 - All cars produced now would have to stretch to reach the 2X threshold. 0 A low stretch value means that a car?s starting fuel economy exceeds the baseline -- it needs less than 2X improvements to meet the 2X target. 0 A higher stretch value means that a car?s starting fuel economy is below the baseline -- it must improve more than 2X to meet the 2X target. AIAM-054742 Trucks: 0 Two classes: 2-wheel drive, 4-wheel drive - Within each class, fuel economy targets based on Gross Vehicle Weight Rating Fuel Economy Baseline for Light Trucks Gross vehicle weight rating Two wheel drive Four wheel drive 3000 31.9 31.3 3500 29.4 28.3 4000 27.0 25.7 4500 25.0 23.3 5000 23.1 21.3 5500 21.5 19.6 6000 20.0 18.2 6500 18.9 17.1 7000 17.9 16.4 7500 17.2 16.0 8000 16.6 15.9 8500 16.4 15.9 - Eligible trucks must meet targets that are two or three times these numbers. AIAM-054743 How Far the 1998 Trucks Would Need to Stretch for the 2X Target Two wheel Four wheel 2X Stretch drive drive Grand Total 1.4-1.6 0 1.6-1.8 6 2 8 1.8-2 28 17 45 2-2.2 14 24 38 2.2-2.4 7 2 9 2.4-2.6 0 0 2.6-2.8 0 0 Subtotal 55 45 100 Light trucks produced now would have to stretch to reach the 2X target. AIAM-054744