As noted here last week, the sparks flew at a Jan. 25 House Oversight and Government Reform Committee hearing titled “The Volt Fire: What Did NHTSA Know and When Did They Know It?“ Three witnesses testified: National Highway Traffic Safety Administration (NHTSA) Administrator David Strickland, General Motors (GM) CEO Daniel Akerson, and John German of the International Council on Clean Transportation. My earlier post was based on newspaper accounts of the hearing. Over the weekend, I watched the archived video of the proceeding and read the testimonies and Committee Staff Report. Here are the key facts and conclusions as I see them:

• The Volt battery fire occurred on June 2, 2011 in the parking lot of a Wisconsin crash test facility. The car caught fire three weeks after the vehicle had been totaled, on May 12, in a side-pole collision. The fire caused an explosion that destroyed not only the Volt but three other vehicles. The blast hurled one of the Volt’s components (a strut) a distance of nearly 80 feet.
• The fire was caused by the leaking of coolant into the Volt’s powerful 300-volt battery, which had been punctured by the crash.
• NHTSA could have avoided the fire had it run down (“drained,” “depowered,” “discharged”) the battery after the crash. This raises obvious questions: Was NHTSA responsible for the fire? Was the agency’s six-month silence partly an attempt to hide regulatory incompetence?
• The Volt is a safe car; consumers should not fear to drive it. Gasoline-powered vehicles are more likely than battery-powered vehicles to burn after a crash. The post-crash explosion from a damaged gas tank can occur in seconds as opposed to weeks. Electric vehicle batteries are harder to puncture than gas tanks. NHTSA tried and failed to replicate the fire by crashing other Volt test vehicles. To induce another battery fire, NHTSA had to impale the battery with a steel rod and rotate it in coolant with special laboratory equipment.
• GM is retrofitting Volt batteries to make them stronger and more leak proof, and is updating safety protocols to ensure batteries are depowered after crashes.
• NHTSA kept silent about the fire for six months, acknowledging it only after Bloomberg News broke the story on November 11, 2011.
• GOP Committee members produced no smoking gun evidence of collusion to cover up the Volt battery fire, such as an email saying ‘We’ve got to keep this under wraps or it will depress Volt sales, jeopardize EPA’s fuel economy negotiations with automakers, and make President Obama look bad.’
• Nonetheless, the Obama administration’s heavy investment (financial and political) in GM in general and the Volt in particular creates an undeniable conflict of interest.
• NHTSA determined the cause of the fire in August 2011, yet waited until November 25 to advise emergency responders, salvage yard managers, and Volt owners how to avoid, and reduce the safety risks associated with, post-crash fires.
• Administrator Strickland’s protestations to the contrary notwithstanding, it is difficult to explain the agency’s secretiveness apart from political considerations that should not influence NHTSA’s regulatory deliberations.

Conflict of Interest

The Committee’s Staff Report makes a strong case that the Obama administration has invested too much financial and political capital in GM and the Volt to be an honest broker of potentially damaging information about the vehicle. Consider the business side of the relationship:

• President Obama made the unilateral decision to use $50 billion in Troubled Asset Recovery Program (TARP) funds to bailout GM. Through the bailout, the government acquired a 60% equity stake in GM plus $8.8 billion in debt and preferred stock; it still owns 26.5% of GM stock.
• The Administration spent $2.4 billion of Stimulus funds on the development of technologies for the Volt and other electric vehicles. Such funds include ”$105.9 million directly to GM for production of high-volume battery packs for the Volt, $105 million to GM to construct facilities for electric drive systems, and $89.3 million to Delphi Automotive Systems, a former division of GM, to expand manufacturing facilities for electric drive power components,” the Staff Report notes.
• The U.S. Treasury picked four of five new GM board members in July 2009, including Mr. Akerson, who became CEO in January 2011.
• Volt buyers already qualify for a $7,500 federal tax credit but President Obama thinks they shouldn’t have to wait until after filing their taxes to get the rebate. The President’s FY 2012 Budget (p. 36) proposes to “transform the existing $7,500 tax credit for electric vehicles into a rebate that will be available to all consumers immediately at the point of sale.”

They don’t call it “Government Motors” for nothing. Although the company is paying off its debt to taxpayers, “ward of the state” is not a completely unfair description. In effect, when NHTSA investigated the Volt battery fire, the government was investigating a partly-owned subsidiary of — itself.

On the political side, President Obama has tied his reputation (hence his re-election prospects) to GM and the Volt:

• Obama claims the GM/Chrysler bailout saved one million auto industry jobs.
• He touts the Volt as “the car of the future.”
• The Volt’s success is critical to his goal, announced in the 2011 State of the Union speech, of putting “a million electric vehicles on the road by 2015.”
• Consumer acceptance of electric vehicles like the Volt may also be critical to the economic practicability of EPA and NHTSA’s proposed carbon dioxide (CO2)/fuel economy standards for model years (MYs) 2017-2025, which the White House considers one of the administration’s “hallmark achievements.”

At the hearing, Mr. German testified that plug-in hybrid and battery-electric vehicles are not needed to meet the new fuel economy standards, because improvements in turbochargers and other technologies are rapidly increasing the fuel efficiency of internal combustion engines. That may be so.

Nonetheless, the administration wants and expects the standards to expand the market for electric vehicles. As the Staff Report points out, according to EPA and NHTSA’s proposed rule (p. 75085), “After MY 2020, the only current vehicles that continue to meet the proposed footprint-based CO2 targets (assuming improvements in air conditioning) are hybrid-electric, plug-in hybrid-electric, and fully electric vehicles.” Accordingly, the proposal provides ”regulatory incentives” to encourage manufacture of electric vehicles during MYs 2017-2021 (pp. 75012-75013).†

Also relevent in this connection, the California Air Resources Board (CARB) — EPA and NHTSA’s partner in developing the CO2/fuel economy standards — projects that, under the standards, plug-in hybrids, battery-electric vehicles, and fuel cell vehicles will account for 15.4% of all new cars sold in California by 2025.

It just so happens that the Volt battery fire and NHTSA’s “preliminary” (off-the-record) investigation occurred while EPA, NHTSA, CARB, automakers, union labor, and environmental groups were negotiating the MY 2017-2025 fuel economy standards. Adverse publicity sparked by the battery fire could have complicated the “optics” of the negotiations, recharging the old debate over the safety risks of fuel economy regulation.

In short, the auto bailout, the Stimulus subsidies, the fuel economy rulemaking, and President Obama’s high-profile endorsement of the Volt created incentives for NHTSA to keep the Volt fire incident under wraps. A NHTSA Administrator would have to be a saint not to be tempted. Saints don’t lie. At a previous hearing before the Committee, Strickland denied under oath plain facts that he must know to be true.‡

The Timeline

The Staff Report also lays out a timeline that suggests a plan to keep Congress and the public in the dark until NHTSA and GM figured out how to eliminate the safety concern that the fire and explosion undeniably created.

The Wisconsin testing facility performed the crash test on May 12, 2011. NHSTA first learned of the fire on June 6. The agency retained a fire investigation firm to determine the cause of the explosion, because one of the other vehicles — or even an arsonist — might have started the fire. On July 5, the firm notified NHTSA that the Volt caused the fire. According to Strickland’s testimony, NHTSA determined in August that coolant leaking into the damaged battery was the source of the fire, although a second side-pole test in September did not damage the battery, leak coolant, or start a fire.

Bloomberg broke the story of the June fire on November 11, 2011. Not until November 25, the day after the previously described laboratory test caused a Volt battery to catch on fire, did NHTSA open a formal safety defect investigation. The formal inquiry took eight weeks. On January 20, 2012, NHTSA announced it was officially closing the safety probe following GM’s announcement that it would strengthen the structure around the battery and make other modifications to prevent and detect coolant leaks. But, on December 6, 2011, only two weeks into the investigation, and months in advance of the modifications GM is now implementing, Transportation Secretary Ray LaHood declared the Volt to be safe to drive.

During the formal investigation the agency evaded Committee requests for information:

Upon learning of the vehicle fire through press reports, Chairman [Darrell] Issa, Chairman Jordan, and Rep. [Mike] Kelly wrote to NHTSA Administrator Strickland on December 7, 2011, asking for answers about the Volt fires and NHTSA’s investigation of the matter. After failing to respond before a December 21, 2011 deadline, NHTSA promised to respond in full by January 6, 2012. However, NHTSA once again failed to respond to the new deadline, providing the Committee with no response and no explanation for the delay. . . .Only after a second letter sent on January 10, 2012, reiterating the Committee’s request for cooperation, did the Committee finally receive an incomplete response to the narrative questions posed in the latter on January 12, 2012, followed by a staff briefing on January 17, 2012. After six weeks of stonewalling, NHTSA provided the Committee with some documents on Thursday, January 19, 2012.

More troubling, though, is NHTSA’s long silence between June 6, when the agency learned of the fire, and November 11, when Bloomberg reported the incident. The Staff Report comments:

NHTSA’s six month silence on the Volt’s fire risks has baffled safety advocates. Joan Claybrook, a former Administrator of NHTSA and well-known auto safety expert, told the industry newspaper Automotive News that “not to tell [the public] anything for six months makes no sense to me. NHTSA could have put out a consumer alert and I think they should have done so.” She went on to say, “I believe they delayed it because of the fragility of sales.”

During the Q&A portion of the hearing, Administrator Strickland asserted it would be “irresponsible and frankly illegal” for NHTSA to “disclose anything” or say there was “something wrong” with the Volt while still engaged in “fact finding.” He did not cite the statutory provision that supposedly imposes such restraint. Although no fan of the risk-averse Precautionary Principle, I am at a loss to understand how a car fire and explosion could be serious enough to warrant ongoing tests over six months but not serious enough to mention to Congress, Volt owners, emergency responders, or potential customers.

On November 25, when NHTSA launched its formal investigation, the agency issued several safety guidelines such as keep damaged vehicles in open areas rather than inside garages or enclosed buildings, contact experts at the vehicle’s manufacturer who can discharge the propulsion system, and do not store damaged vehicles near other vehicles. Those precautions made practical sense the moment NHTSA figured out what caused the fire, in August 2011. Yet NHTSA waited another three months, and only after Bloomberg spilled the beans, to communicate important safety information to emergency responders, salvage yard managers, and Volt owners.

Concern about the “fragility of sales” may account for the delay. As noted earlier, another factor may have been negotiations over MY 2017-2025 fuel economy standards. From the Staff Report:

The fire occured on June 2, 2011. NHTSA’s investigation and response to that fire proceeded concurrently as the agency finalized negotiations on fuel economy and emissions regulation for model years 2017-2025. Bloomberg News broke the story on the Volt fires on November 11, 2011. NHTSA and EPA formally proposed the joint rulemaking for fuel economy on November 16, 2011, and nine days after the joint proposal was official, on November 25, 2011, NHTSA officially addressed the questions raised by the Volt fire and announced a formal defect investigation. Clearly, it would be inappropriate if NHTSA had stayed silent on the Volt battery’s safety risks in exchange for GM’s cooperation in the rulemaking.

Agency Error?

Another plausible motive for keeping mum may simply be embarrassment. The fire would not have occurred had NHTSA depowered the battery after the May 12 test crash. According to the Staff Report:

After news of the June Fire became public in November, GM Spokesman Greg Martin insisted that GM had long since established a set of safety protocols to prevent a fire after the Volt’s battery had been damaged. “The engineers tested the Volt’s battery pack for more than 300,000 hours to come up with the procedures, which include discharge and disposal of the battery pack,” he said. Mr. Martin went so far as to claim that “had those protocols been followed after [the May 12th test], this incident would not have occurred.” Clarence Ditlow, executive director of the Center for Auto Safety, stated he was “surprised NHTSA didn’t depower the battery after the first test in May, since it is standard procedure to drain fuel out of a conventional gasoline powered vehicle.”

German testified that, “All junkyards know to discharge the battery pack before storing, just as they remove fuel from the gas tank.” Implication: NHTSA, or its test facility, was incompetent or careless. When pressed on this point by Subcommittee Chair Jim Jordan (R-Ohio), German responded that he wrote his testimony in haste and meant to say “disconnect” rather than “discharge.” However, in the follow up, German did not challenge Jordan’s argument, based on German’s written testimony, that NHTSA should have done what junkyards know to do — depower, not merely disconnect, the battery. Asked why NHTSA did not do that, German replied: ”Again, those questions are better directed to NHTSA. The one thing I can say is there has not been a recorded case of a battery pack catching on fire. So it may have just been oversight. I don’t know.”

Conclusion

In the Q&A, Administrator Strickland said that “it took every second” for NHTSA’s technical team to determine what went wrong and how to fix it, and that is why NHTSA did not notify the public about the Volt battery fire and explosion until six months after the incident. That is not credible.

NHTSA understood the cause of the fire in August 2011, and the practical steps required to minimize safety risk – don’t keep a crashed electric vehicle in enclosed spaces or near other vehicles, arrange for experts to depower the battery — did not take another three months to figure out.

The administration’s heavy political and financial investment in GM and the Volt created a conflict of interest. The government’s ownership stake in GM and President Obama’s cheerleading for the Volt gave NHTSA an improper incentive to balance its safety mission against the administration’s political goal of boosting Volt sales. The perceived importance of electric vehicle sales to NHTSA, EPA, and CARB’s fuel economy agenda created an additional incentive to hide information that might depress Volt sales. Finally, agencies are not immune to the all-too-human desire to avoid blame for mistakes, and some experts say NHTSA should have known to drain the Volt battery after the crash test.

Absent smoking gun evidence, it is not possible to prove that political considerations account for NHTSA’s six-month silence. On the other hand, there is a simple way for Administrator Strickland to prove that political considerations were not a factor: Produce documents dated well prior to the Bloomberg story discussing when and how NHTSA planned to share the information with the public. If such documents exist, Strickland did not mention them at the hearing.

† During MYs 2017-2021, emissions from grid-based power used to recharge an electric vehicle will not be counted when assessing its compliance with EPA’s CO2 standards, and each plug-in vehicle sold will count as more than one car when calculating the manufacturer’s fleet-wide average fuel economy.

‡ Strickland, along with EPA officials Gina McCarthy and Margo Oge, denied that motor vehicle greenhouse gas (GHG) emission standards are ”related to” fuel economy standards. They surely know better. CO2 constitutes 94.9% of all GHGs emitted by motor vehicles, and “there is a single pool of technologies . . . that reduce fuel consumption and thereby CO2 emissions as well” (EPA/NHTSA Tailpipe Rule, pp. pp. 25424, 25327). Motor vehicle GHG standards are, thus, strongly “related to” fuel economy standards. Strickland, McCarthy, and Oge had to deny this because otherwise they would have to admit (1) that EPA’s grant of a waiver allowing California to regulate motor vehicle GHG emissions conflicts with the Energy Policy Conservation Act’s express preemption of state laws or regulations “related to” fuel economy, and (2) that EPA is implicitly prescribing fuel economy standards, even though the Clean Air Act grants the agency no such power. 

Recently on this site and at MasterResource.Org, I discussed the Obama Administration’s proposed rule to establish first-ever greenhouse gas (GHG) and fuel-economy standards for heavy duty (HD) vehicles. The rule, jointly proposed by the EPA and the National Highway Traffic Safety Administration (NHTSA), would set increasingly stringent GHG and fuel economy standards for HD vehicles manufactured during model years (MYs) 2014-2018. HD vehicles include ”combination tractors” (semi-trucks), “vocational trucks” (dump trucks, delivery trucks, buses), large pickups and vans.

Do Consumers Undervalue Fuel Economy?

The agencies have long held that “consumers undervalue fuel economy,” as EPA puts it on p. 44413 of its July 2008 Advanced Notice of Proposed Rulemaking: Regulating Greenhouse Gases under the Clean Air Act).  Yes, EPA acknowledges, the addition of fuel saving technology increases the purchase price of a vehicle, but, the agency contends, “the lifetime discounted fuel savings will exceed the initial cost increase substantially” (ANPR, p. 44447).

EPA writes as if the only factors consumers need to weigh and balance when purchasing an automobile are the upfront purchase price and the lifetime fuel costs. Given that premise, consumers who do not spend more for a higher mpg-vehicle are short-sighted (“fuelish”). Like children, they either do not discern their own best interest or lack the self-discipline to pursue it. So the Nanny State must step in and restrict our choices for our own good. Such is the elistist pretension underpinning three-plus decades of fuel-economy regulation.

In reality, consumers are not two-dimensional beings trapped, like agency fuel-economy fetishists, within a two-factor decision framework. In addition to the tradeoff between upfront cost and long-term fuel expenditures, consumers also consider vehicle power, performance, utility, style, safety, comfort, and amenities. Some people, for example, are willing to pay more for gasoline in order to enjoy the panoramic views, cargo space, passenger space, off-road versatility, and towing capacity of a large SUV.

More importantly, when consumers purchase a car, they typically take into account costs that are completely unrelated to the vehicle itself. For example, Mrs. Smith may prefer a lower priced car because she needs more disposable income this year for new home-office equipment, for little Sallie’s music lessons, or for Bill Jr.’s orthodonture. Forcing her to spend more of her disposable income on a higher-mpg vehicle would not enhance her family’s welfare, even if she could recover the extra expense in five years. Each consumer’s welfare is subjective and involves a subtle weighing and balancing of many competing considerations. For EPA to claim that “consumers undervalue fuel economy” is tantamount to saying that Mrs. Smith “overvalues” music lessons.

Do Truckers Underinvest in Fuel Economy?

Okay, so the notion that consumers “undervalue” fuel economy is dubious. In their joint proposed rule, EPA and NHTSA do not claim that truckers undervalue fuel economy. That would not pass the laugh test. As the agencies acknowledge (p. 315), “Unlike in the light-duty vehicle market, the vast majority of vehicles in the medium- and heavy-duty truck market are purchased and operated by businesses with narrow profit margins, and for which fuel costs represent a substantial operating expense.” Indeed, for truckers, fuel is the single biggest operating expense.

Source: EPA-NHTSA, Draft Regulatory Impact Analysis: Proposed Rulemaking to Establish Greenhouse Gas Emission Standards and Fuel Economy Standards for Medium- and Heavy-Duty Engines and Vehicles, Figure 9-1, p. 9-4

Clearly, nobody has a keener incentive to reduce fuel expenditures than people who haul freight for a living.

Yet the agencies claim that truckers “underinvest” in fuel saving technology. According to their calculations, the proposed rule will compel the trucking industry to invest $7.7 billion in fuel-saving technologies (p. 36), which will cut fuel consumption by 500 million barrels, which will save truckers $28 billion (assuming a 7% discount rate) or $42 billion (assuming a 3% discount rate). In the agencies’ words (p. 315), “the application of fuel-saving technologies in response to the proposed standards would, on average, yield private returns to truck owners of 140% to 420%.”

Unexamined Hypothesis: Opportunity Cost of EPA Emission Control Standards

The agencies propose five “potential hypotheses” to explain why firms with narrow profit margins in a competitive industry where fuel is the chief operating expense are not seizing an opportunity to make billions in easy money. As discsussed in my MasterResource column, none of these explanations demonstrates a “market failure.” In fact, two of the hypotheses suggest that truckers are simply acting like prudent buyers (although, naturally, the agencies don’t put it that way). Specifically, truckers want to make purchasing decisions based on road-tested information, not just agency speculation. Prior to actual deployment of the technologies, nobody knows whether they will yield the promised fuel savings and how they will affect engine reliability and maintenance costs.

The Oak Ridge Laboratory publishes an annual Transportation Energy Data Book. The chapter on heavy vehicles (p. 5-2) reports that the fuel-economy of “single unit” trucks improved 2% annually during 1998-2008. No “underinvestment” there. In contrast, “combination tractor” (semi-truck) fuel economy declined 1.2% annually over that period (p. 5-3). Yet these are the long-haul guys who, according to EPA and NHTSA, will save 18 times as much on fuel as owners of vocational trucks once they comply with the proposed rule (p. 337).

I don’t know if prudent- buyer behavior accounts for the alleged investment “gap” or “energy paradox” (p. 315) in the semi-truck category, but the agencies should have at least mentioned one other obvious “hypothesis”: the opportunity cost of EPA’s emission control mandates.

Back in the year 2000, EPA adopted tough new emission control standards for HD vehicles.  EPA’s Regulatory Impact Analysis (RIA) estimated that the industry’s 11 major diesel manufacturers would have to make substantial commitments of time, money, and personnel to comply with the new standards:

We have therefore estimated that each of the 11 major diesel engine manufacturers will invest approximately $7 million per year on research and development over a period of five years to adapt their engine technology to the advanced emission control technologies described here. Seven million dollars represents the approximate cost for a team of more than 21 engineers and 28 technicians to carry out advanced engine research, including the cost for engine test cell time and prototype system fabrication. [RIA, Chapter V: Economic Impacts, p. V-20]

“In total,” EPA’s RIA continues, ”we have estimated that the engine manufacturers will spend approximately $385 million on R&D.” Three hundred and eighty-five million dollars. Presumably, that could crowd out significant R&D on fuel saving technology. Every year for five years, an estimated 21 engineers and 28 technicians at each of 11 major diesel manufacturers would be working on emission control technology. They would likely work less (or not at all) on fuel-saving technology.

The RIA also estimated that, in the “near term” (MY 2007), the average semi would incur fixed, variable, and operating costs of $280, $2,946, $3,785, respectively (p. V-7). So in the near term, owners would have about $7,000 a year less per vehicle to spend on fuel saving technology. For perspective, EPA and NHTSA estimate that their proposed GHG/fuel economy standards will increase the cost of a “combination tractor” by $5,896 in MY 2014 (p. 7-3). Presumably, some truckers who spent $7000-plus for mandated emission control technologies did not have $5,896 to spend for new fuel saving technology.
 
Finally, EPA’s year 2000 RIA says that the diesel particulate filter will “negatively impact fuel economy by approximately one percent” but that this will be “more than offset through optimization of the engine-PM trap-NOx adsorber system” (p. V-32). Whether this forecast turned out to be accurate or not, I do not know. 
 
What does seem clear is that EPA’s own rules may be responsible for the alleged “paradox” that the freight goods industry is not making cost-effective investments in fuel-saving technology.

Request for Information

Unfortunately, the latest information I have found on the industry-wide R&D costs and per-vehicle costs of EPA’s HD vehicle emission standards, and whether the associated technologies enhance or reduce HD vehicle fuel economy, is EPA’s year 2000 RIA, which offers projections rather than a retrospective, real-world, assessment. I would be grateful to anyone who can point me to later information.

Richard Morrison, Jeremy Lott and the American Spectator’s Joseph Lawler assemble to bring you Episode 77 of the LibertyWeek podcast. We talk about Myron Ebell’s recent global warming debate during the Detroit Auto Show and the future of cap and trade in Congress. Segment starts approx. 12:30 into the show.