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Analysis of Auto Industry and Consumer Response to Regulations

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Analysis of Auto Industry and Consumer Response to Regulations FINAL REPORT Contract 02-310 Project No. 008545 Analysis of Auto Industry and Consumer Response to Regulations and Technological Change, and Customization of Consumer Response Models in Support of AB 1493 Rulemaking – Automaker Response to Passive Restraint Regulation with respect to Actions, Economics, Technology and Marketing Airbag Case Study for the Analysis of Auto Industry and Consumer Response to Regulations and Technological Change in Support of AB 1493 Rulemaking Ethan C. Abeles [email protected] with Andrew F. Burke Belinda Chen and Principal Investigator Daniel Sperling [email protected] Prepared for the California Air Resources Board and the California Environmental Protection Agency Prepared by: Institute of Transportation Studies University of California, Davis One Shields Avenue Davis, CA 95616 October 18, 2004 Disclaimer The statements and conclusions in this Report are those of the contractor and not necessarily those of the California Air Resources Board. The mention of commercial products, their source, or their use in connection with material reported herein is not to be construed as actual or implied endorsement of such products. ii Acknowledgments This Report was submitted in fulfillment of Contract 02-310, Project No. 008545 Analysis of Auto Industry and Consumer Response to Regulations and Technological Change, and Customization of Consumer Response Models in Support of AB 1493 Rulemaking by the Institute of Transportation Studies at the University of California, Davis under the sponsorship of the California Air Resources Board. Work was completed as of October 18, 2004. iii TABLE OF CONTENTS ABSTRACT .................................................................................................................................................... vii EXECUTIVE SUMMARY ............................................................................................................................... viii 1 INTRODUCTION..................................................................................................................................... 1 1.1 BACKGROUND.............................................................................................................................. 2 1.2 RESEARCH APPROACH ................................................................................................................. 3 2 HISTORY OF PASSIVE RESTRAINT REQUIREMENTS............................................................................ 4 2.1 FMVSS 208 DEVELOPS INTO AN AIRBAG MANDATE................................................................... 5 2.1.1 The Passive Restraint Requirement Issued By Secretary Dole............................................... 5 2.1.2 The Intermodal Surface Transportation Efficiency Act of 1991 ............................................. 6 2.2 PENETRATION RATES FOR AIRBAGS............................................................................................. 7 3 INDUSTRY RESPONSE ......................................................................................................................... 10 3.1 BARRIERS TO AIRBAG ADOPTION FROM AN AUTOMAKER PERSPECTIVE.................................... 11 3.1.1 Cost....................................................................................................................................... 11 3.1.2 Product Liability Claims....................................................................................................... 11 3.1.3 Less Expensive Alternatives.................................................................................................. 11 3.1.4 Questions about Airbag Reliability and Performance.......................................................... 13 3.1.5 Airbag Regulation was viewed as Beatable by Automakers ................................................. 13 3.2 COMPLIANCE COST .................................................................................................................... 14 3.2.1 Reported Airbag Cost Estimates 1969 – 2000...................................................................... 14 3.2.2 Option Pricing of Airbags .................................................................................................... 19 3.2.3 Airbag Component Costs...................................................................................................... 21 3.3 EVOLUTION OF COMPLIANCE COST............................................................................................ 23 3.3.1 Cost Reductions of Airbag Systems ...................................................................................... 23 3.3.2 Experience Curves for Airbag Systems................................................................................. 25 3.3.3 Other Mechanisms that have Facilitated Cost Reductions................................................... 27 3.4 COMPLIANCE COST IMPACT ON VEHICLE PRICING..................................................................... 29 3.4.1 Compliance Strategies.......................................................................................................... 29 3.4.2 Vehicle Pricing Policies of the Automobile Industry............................................................ 30 3.4.3 Cost Transfer for the Introduction of Airbag Systems .......................................................... 32 3.4.4 Impact of Airbag Regulation on the Auto Industry............................................................... 38 3.5 MARKETING COMPLIANCE-RELATED VEHICLE ATTRIBUTE CHANGES ...................................... 41 3.5.1 Advertising the Airbag.......................................................................................................... 41 3.5.2 Early Efforts by Mercedes-Benz ........................................................................................... 41 3.5.3 The importance of an Effective Marketing Campaign for GM ............................................. 42 3.5.4 Ford and Chrysler Follow Mercedes’ Lead in Different Ways ............................................ 44 3.5.5 Negative Portrayals of Airbags in Automakers’ Marketing ................................................. 45 3.5.6 Implications for Marketing Technologies that could reduce GHG Emissions ..................... 47 3.6 BUSINESS, JOB, WEALTH CREATION RESULTING FROM COMPLIANCE ....................................... 53 3.6.1 Expansion of the Automotive Airbag Industry ...................................................................... 53 3.6.2 Technological Innovation with respect to Airbags ............................................................... 57 3.7 UNREGULATED AUTOMOTIVE SAFETY SYSTEMS ....................................................................... 60 3.7.1 Anti-Lock Braking Systems (ABS)......................................................................................... 60 3.7.2 Traction Control................................................................................................................... 62 3.7.3 Side Airbags.......................................................................................................................... 63 4 CONSUMER RESPONSE ....................................................................................................................... 65 4.1 IMPACT OF COMPLIANCE-RELATED VEHICLE ATTRIBUTE CHANGES AND ACCOMPANYING PRICE CHANGES ON NEW CAR SALES................................................................................................................. 66 iv 4.2 INCENTIVES TO SPEED UP THE INTRODUCTION OF AIRBAGS....................................................... 70 4.2.1 The Insurance Industry......................................................................................................... 70 4.2.2 Automakers & Auto Dealers................................................................................................. 74 5 CONCLUSIONS AND LESSONS LEARNED ............................................................................................ 75 5.1.1 Lessons Learned ................................................................................................................... 75 REFERENCES................................................................................................................................................ 79 ABBREVIATIONS........................................................................................................................................... 87 APPENDICES ................................................................................................................................................. 88 APPENDIX A: CHANGES IN PRICE AND SALES VOLUME FOR 27 PASSENGER CARS ................................... 88 APPENDIX B: DETAILED AIRBAG AND ABS INSTALLATION RATES ........................................................ 115 APPENDIX C: DESCRIPTIVE STATISTICS FOR PRICE ANALYSIS ............................................................... 126 APPENDIX D: BUREAU OF LABOR STATISTICS NEW CAR QUALITY IMPROVEMENTS 1968 – 2002.......... 128 APPENDIX E: DESCRIPTION OF AIRBAG RELATED PATENT SUBCLASSES................................................ 129 APPENDIX F: COST FIGURING METHODOLOGY FOR NHTSA-SPONSORED STUDIES AND REPORTED AIRBAG COSTS ....................................................................................................................................... 132 APPENDIX REFERENCES ...........................................................................................................................
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