The Response of the Auto Industry and Consumers to Changes in the Exhaust Emission and Fuel Economy Standards (1975-2003): A Historical Review of Changes in Technology, Prices and Sales of Various Classes of Vehicles

The objectives of this study were (1) to assess the responses of the auto ind ustry and consumers to changes in the exhaust emission and fuel economy standards that have occurred in the United States and California in the past thirty years (1975-2003), (2) to relate qualitatively these responses to technology developments and changing economic factors, such as vehicle prices, consumer income, inflation, and fuel prices over the same time period, and (3) to correlate quantitatively vehicle sales for the periods 1975-1985 and 1986-2001 for various vehicle classes to vehicle attributes and macro-economic factors using multiple regression analysis. The studies was done to provide information and data to the Research Division of the California Air Resources Board as they consider CO2 emission standards in response to directives in AB 1493 passed by the California Legislature in 2001. The primary thrust of the study was to perform a historical review of what has occurred in the auto industry for 1975-2003 and to assemble a large data base containing the characteristics, prices, and sales of vehicle models from many manufacturers for of the years from 1975 to 2003. The data base was then analyzed using SPSS, ACCESS, and EXCEL software to determine historical trends of vehicle, price, and sales parameters in response to changes in government regulations. The trends are shown graphically and in tabular form in the report. The data in the data base for the various vehicle models and size classes were also analyzed using multiple regression analysis techniques. The historical review indicated that the changes in emissions and fuel economy regulations forced the industry to develop an impressive sequence of new and improved technologies that were rapidly introduced in passenger cars, vans, SUVs, and light duty trucks starting in about 1976. The result has been gasoline fueled, light duty vehicles with ultra-clean emissions (ULEV and SULEV) and improvements in fuel economy of 60-75% relative to comparable 1975 models. The MSRP prices (2001$) of the models in the various vehicle classes have increased between 1975-2001 by a factor of 1.5 to 2.0 based on the general consumer price index (cpi). The sales-weighted average MSRP price of vehicles has increased over the same period by 46% (a factor of 1.46). Of that increase 33% of the increase is due to government regulations and 67% is due to increased quality of the vehicles. The price analyses indicated that the actual prices of cars of constant quality increased slower in the period of interest than the general price index. If that had not been the case, the average price of cars between 1975 and 2001 would have increased by 73% rather than 46% in constant 2001$. The fuel economy of the new vehicles reached a peak in about 1987 and the fleet fuel economy for new vehicles has actual gone down as the sales of vans and SUVs has increased until in 2001 total sales of vans and SUVs are about the same as passenger cars. Total vehicles sales have been between 13-17 million annually since 1984 with most of the year-to- year fluctuation due to changes in the economic conditions. The increase in vehicle prices has been accommodated by increases in disposal income and creative financing of sales through longer loan periods and leasing. Vehicle sales have remained high in periods of favorable economic conditions through periods of significant changes in government regulations.