Motor Vehicle Regulations:

Regulatory Cost Estimates Could Be Improved

RCED-92-110: Published: Jul 9, 1992. Publicly Released: Aug 19, 1992.

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Pursuant to a congressional request, GAO evaluated the: (1) methods federal agencies and the automobile industry use to calculate the cost of proposed automobile safety, emissions, and fuel economy regulations; and (2) extent to which federal agencies coordinate and exchange information on the total regulatory costs in any one year.

GAO found that: (1) regulatory cost estimates made by federal agencies and the automobile industry differ in part because the two groups do not share much cost information; (2) cost differences also result because agencies set performance levels without specifying equipment design, since there is uncertainty about what the actual design, and therefore the final components, of the new system will be; (3) federal agencies and the motor vehicle industry use different data and assumptions on vehicle production volumes, manufacturer and dealer markups, and the cost of components; (4) agency methods for estimating fuel economy costs also differ, and the National Highway Transportation Safety Administration (NHTSA) estimates the consumer cost of several options for improving fuel economy while the Department of Energy selects the options for improving fuel economy that it believes manufacturers will most likely implement and estimates a per-vehicle consumer cost based on those options; (5) federal agencies generally consider the potential interaction among safety emissions and fuel economy regulations, but they do not consider interactive costs or the total cost to industry in a given year; and (6) the Office of Management and Budget evaluates each agency's regulations individually and does not assess the overall impact or total costs of all regulations affecting one sector of the economy.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: For ongoing and future cost estimates, DOT will request additional data, including confidential information, if necessary, to determine the reasons for the differences in cost estimates.

    Recommendation: To improve federal agency cost estimates, the Secretary of Transportation and the Administrator, Environmental Protection Agency (EPA), should request additional data, including confidential data, from industry when cost estimates are controversial and industry and agency estimates are far apart.

    Agency Affected: Department of Transportation

  2. Status: Closed - Implemented

    Comments: EPA intends to use the expanded information gathering authority provided by the Clean Air Act Amendments to obtain additional substantiated data, including proprietary cost data, when EPA and industry cost estimates differ substantially.

    Recommendation: To improve federal agency cost estimates, the Secretary of Transportation and the Administrator, Environmental Protection Agency (EPA), should request additional data, including confidential data, from industry when cost estimates are controversial and industry and agency estimates are far apart.

    Agency Affected: Environmental Protection Agency

  3. Status: Closed - Implemented

    Comments: DOT published a paper describing its methods of estimating manufacturer and consumer costs in the Federal Register on June 17, 1993. Public comments have been received and are being reviewed.

    Recommendation: To improve federal agency cost estimates, the Secretary of Transportation and the Administrator, EPA, should publicize the current methods agencies use to estimate costs and solicit comments from industry and other interested parties on the procedures.

    Agency Affected: Department of Transportation

  4. Status: Closed - Not Implemented

    Comments: EPA believes the supporting documents filed with each proposed and final rulemaking adequately describe its cost-estimating practices and invite industry comments on its practices. EPA will continue to solicit industry comments on its cost-estimating practices.

    Recommendation: To improve federal agency cost estimates, the Secretary of Transportation and the Administrator, EPA, should publicize the current methods agencies use to estimate costs and solicit comments from industry and other interested parties on the procedures.

    Agency Affected: Environmental Protection Agency

  5. Status: Closed - Implemented

    Comments: Agency officials generally agreed with the facts presented and said that they would consider informal meetings and contacts with cost estimators following the publication of the Federal Register notice setting forth DOT methods for estimating costs. The notice was published in June 1993. DOT and EPA have also reviewed each other's cost-estimating methodologies.

    Recommendation: To improve federal agency cost estimates, the Secretary of Transportation and the Administrator, EPA, should explore options outside the formal regulatory process for soliciting industry comments and cooperation, such as informal contacts between agency and industry analysts on cost methods, or workshops such as those used in implementing the 1990 Clean Air Act Amendments.

    Agency Affected: Department of Transportation

  6. Status: Closed - Implemented

    Comments: EPA stated that it has used informal approaches such as workshops in the past and that it could use them again for cost estimates of future regulations when the cost estimates are controversial and industry shows an interest in participation. EPA will also monitor a joint Department of Energy and American Automobile Association Manufacturers research effort aimed at improving estimates of the costs of fuel economy technologies. If this effort proves successful, EPA stated that it may provide a useful precedent for future cooperative efforts with industry.

    Recommendation: To improve federal agency cost estimates, the Secretary of Transportation and the Administrator, EPA, should explore options outside the formal regulatory process for soliciting industry comments and cooperation, such as informal contacts between agency and industry analysts on cost methods, or workshops such as those used in implementing the 1990 Clean Air Act Amendments.

    Agency Affected: Environmental Protection Agency

  7. Status: Closed - Implemented

    Comments: The National Highway Traffic Safety Administration will publish a range of cost estimates for each new proposed regulation if the costs are likely to vary significantly between manufacturers and product lines. Cost assumptions will be tested using sensitivity analyses.

    Recommendation: To improve federal agency cost estimates, the Secretary of Transportation and the Administrator, EPA, should account for the variations among auto manufacturers and product lines by publishing a range, instead of a single cost estimate for proposed regulations, and testing assumptions thoroughly when a great deal of uncertainty exists.

    Agency Affected: Department of Transportation

  8. Status: Closed - Not Implemented

    Comments: EPA believes that it adequately addresses variations in costs among auto manufacturers and product lines. Agency officials stated that, currently when a great deal of uncertainty exists they may estimate costs under alternative scenarios that provide a range of costs outcomes and will continue to do so when the data warrant or enable their use.

    Recommendation: To improve federal agency cost estimates, the Secretary of Transportation and the Administrator, EPA, should account for the variations among auto manufacturers and product lines by publishing a range, instead of a single cost estimate for proposed regulations, and testing assumptions thoroughly when a great deal of uncertainty exists.

    Agency Affected: Environmental Protection Agency

  9. Status: Closed - Implemented

    Comments: NHTSA has updated its cost estimating databases to include foreign manufacturers and tier-1 original equipment manufacturers of major automotive components and systems. NHTSA has also derived product markup rates for 10 domestic and foreign vehicle manufacturers and 15 suppliers of automotive components and systems. NHTSA and EPA discussed the feasibility of updating their databases for component costs and using one database. EPA, however, has not responded to NHTSA's initiatives to develop a joint database as of August 1996 and NHTSA has decided not to pursue this effort any further with EPA.

    Recommendation: To improve federal agency costs estimates, the Secretary of Transportation and the Administrator, EPA, should update the database for calculating the component costs of proposed safety and emissions regulations, combining the NHTSA and the EPA efforts and using one database on component costs to reduce federal costs and avoid duplication.

    Agency Affected: Department of Transportation

  10. Status: Closed - Implemented

    Comments: EPA officials stated that they had tried to improve the basis for estimating costs but acknowledged problems with obtaining cost information from industry. EPA nevertheless believes its method of applying an inflation factor to its materials and labor costs is acceptable for estimating the cost of proposed emission regulations. EPA and DOT have discussed the feasibility of using one database. While the National Highway Traffic Safety Administration (NHTSA) has updated its database, EPA has not responded to NHTSA's initiatives to use one database.

    Recommendation: To improve federal agency costs estimates, the Secretary of Transportation and the Administrator, EPA, should update the database for calculating the component costs of proposed safety and emissions regulations, combining the NHTSA and the EPA efforts and using one database on component costs to reduce federal costs and avoid duplication.

    Agency Affected: Environmental Protection Agency

  11. Status: Closed - Not Implemented

    Comments: NHTSA and EPA have discussed the feasibility of standardizing their methods of estimating the costs of proposed regulations. EPA had not responded to NHTSA's initiatives to follow through on this effort as of August 1996. NHTSA does not believe that further actions with EPA are warranted.

    Recommendation: The Secretary of Transportation and the Administrator, EPA, should standardize their methods of estimating the cost of proposed regulations affecting the auto industry, particularly their approach to determining the manufacturer and dealer markups, when calculating the consumer cost.

    Agency Affected: Department of Transportation

  12. Status: Closed - Not Implemented

    Comments: EPA officials began discussing GAO's suggestions for standardizing assumptions on overhead costs and markup rates with NHTSA at regulatory coordination meetings. EPA, however, has not responded to NHTSA's initiatives on this effort.

    Recommendation: The Secretary of Transportation and the Administrator, EPA, should standardize their methods of estimating the cost of proposed regulations affecting the auto industry, particularly their approach to determining the manufacturer and dealer markups, when calculating the consumer cost.

    Agency Affected: Environmental Protection Agency

 

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