Historical & Contemporary - PowerPoint Presentation

Slide1

Historical & Contemporary Consumer Valuations of Fuel Economy & Other Measures of Vehicle UtilityRichard A. Simmons & Wallace E. TynerPurdue UniversityUSAEE 2015Concurrent Session 40: Transportation FuelsPittsburgh, PAOctober 28, 2015Slide2

Introduction and Context Historical trends in vehicle utility and pricesHedonic price modeling Insights and implications of 2014 Model Year resultsConclusions

Outline

2Slide3

Improving Energy Efficiency in Transportation3

Vehicle Technologies

Evolutionary efficiency improvements

New vehicle architecturesAlternative fuelsModal ShiftsEconomic Practicability

OEM & consumer attractiveness

Oil & energy prices

GDP impacts

Social Cost of Carbon?Regulatory ConstraintsCAFE standards (MPG, CO2eq/mile)Related: RFS (ethanol & advanced biofuels)

Key ConsiderationsSlide4

4Financial attractiveness and economic practicability for consumersNo loss of consumer choice in vehicle attributes or overall utilityOEM capability to deliver technologies with sufficient overall valueFeasibility of achieving regulatory requirements Effectiveness in banking fuel and energy savingsLifecycle environmental impacts

Key Multi-Disciplinary Objectives

Improving Energy Efficiency in TransportationSlide5

Compliance with Fuel Economy Standards5Data source: U.S. Environmental Protection Agency. “Light-Duty Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy Trends. 2013

Success toward compliance, 2011-2015

Challenge to maintain fuel economy trajectory at affordable pricesSlide6

Performance (power, torque, acceleration, and ride metrics)Aesthetic value, luxury, comfort and stylingCapacity (passenger & cargo space)Safety (crash worthiness, ratings) Fuel economy Environmental impactsStandard/Optional equipment Consumer ratings, personal experience

Cost to operate, maintain and repair

Quality, warranty and

reliabilityPrice & Resale valueAttributes contributing to vehicle utility6

Challenge:

Down-select to a set of

objective

,

representative attributes? Slide7

Vehicle powertrain power balance:

Insight from fundamental vehicle dynamics

7

General dynamic force balance:

What minimum number of objective attributes can lead to a reasonably accurate characterization?

Consider these 3:

fuel economy

,

vehicle mass

,

acceleration timeSlide8

8Objective function definition and correlations

Utility function attributes:

Objective

RepresentativeTangible (i.e., “direct” consumer measures)Continuous rather than categorical Readily grasped by OEMs and consumers

Historically tracked

Normalized to base year

Can be combined “orthogonally” (i.e., minimize collinearity)

Proposed utility function:

Time horizon:

1978 – 2014

Market:

U.S. passenger cars (300 million +)

 Slide9

9Trends in Vehicle Attributes

Note: Data are normalized to baseline values in the most recent reference year, 2014.

Simmons, R.A. and Tyner, W.E.,

“Fuel economy and vehicle attribute valuation trends via historical and contemporary hedonic pricing analysis”

Submitted

to the

J.

of Transportation Research, Part D. In review (Sept 2015).Slide10

10Trends in Vehicle Attributes

Simmons, R.A. and Tyner, W.E.,

“Fuel economy and vehicle attribute valuation trends via historical and contemporary hedonic pricing analysis”

Submitted

to the

J.

of

Transportation Research

, Part

D. In

review

(Sept 2015).

KEY POINTS:

Objective measures of utility have steadily improved over a 37 year

period;

Fuel

Consumption (FC)

and Acceleration

(ACCEL) trends are:

correlated

to

&

influenced by

regulationsSlide11

11Correlations vary by time period

Key periods and highlights:

FC

ACCEL

CWT

FC

1

ACCEL

0.390

1

CWT

0.733

-0.307

1

1978 through 1996:

FC

dominant due to regulations

CWT

reduced for quick compliance

1997 through 2014:

ACCEL

dominant

CWT

increases simultaneously

2014:

FC:ACCEL

aligned with physical principles

CWT

a proxy for many dimensions of utility

FC

ACCEL

CWT

FC

1

ACCEL

0.728

1

CWT

-0.624

-0.910

1

FC

ACCEL

CWT

FC

1

ACCEL

-0.832

1

CWT

0.644

-0.667

1



Substantial utility gains enabled by

simultaneous technological innovationSlide12

12Passenger car price trends

 Slide13

13Passenger car price trends

KEY POINTS:

Real price of autos in 2014 is approximately the same as it was in 1986;

However, consumer metrics for utility have increased substantially.Slide14

14Hedonic price modeling

A hedonic pricing analysis is performed to estimate the disaggregated contribution of each attribute to overall utility, proxied by the response variable, price.

The general model follows the form:

P

i

represents the purchase price for vehicle

i,

inflated using the new vehicle index,

b

0

represents the intercept

,

b

j

are the

regressor coefficients

representing

elasticities of price with respect to a

set of

up to n continuous variables,

X

ij

and m-n dummy

variables,

Y

ij

.

e

i

represents the residual error between the predicted and actual values

.Slide15

15Hedonic price modeling

We make simplifying assumptions:

Considering 3 primary attributes (FC, ACCEL and CWT)

Neglect additional categorical, continuous or dummy variables

The simplified model now has the form:

P

i

represents the purchase price for vehicle

i,

inflated using the new vehicle index;

b

0

represents the

intercept

;

b

j

are the

regressor coefficients

representing

elasticities of price with respect to a

set of 3 continuous

variables,

X

ij

;

e

i

represents the residual error between the predicted and actual values

.

 

The log-log form yields

b

j

in terms of % change in the dependent variable for a given change in the independent variable, holding others constant. Slide16

16Results

Price elasticities suggest Willingness To Pay (WTP) for key attributes

Simmons, R.A. and Tyner, W.E.,

“Fuel economy and vehicle attribute valuation trends via historical and contemporary hedonic pricing analysis”

Submitted

to the

J.

of Transportation Research, Part D. In review (Sept 2015).

Time Period 

1978-1996

1997-2014

1978-2014

2014

Response Variable

ln(Real Price2)

ln(Real Price2)

ln(Real Price2)

ln(MSRP)

Estimator

WLS

WLS

WLS

WLS

Observations

19

18

37

814

R

2

0.992

0.963

0.943

0.722

Attribute

Coeff.

Param. Est.

Param. Est.

Param. Est.

Param. Est.

(Std. Error)

(Std. Error)

(Std. Error)

(Std. Error)

Intercept

b

0

0.41

-

3.53

9.97

***

0.59

(2.054)(3.175)(2.180)(0.527)ln(FC)b1-1.95***-

0.08

-

0.93

***

-

0.26

***

(0.163)

(0.091)

(0.158)

(0.049)

ln(

ACCEL

)

b

2

-

0.05

-

0.41

*

-

0.65

***-0.70*** (0.073)(0.220)(0.114)(0.051)ln(CWT)b31.95***2.02***0.50*1.59***   (0.314)(0.385)(0.302)(0.063)

The ‘dominant two’by time period:

FC

CWT

ACCEL

CWT

FC

ACCEL

ACCEL

CWTSlide17

17Results

Willingness To Pay (WTP) for key attributes by time period

Simmons, R.A. and Tyner, W.E.,

“Fuel economy and vehicle attribute valuation trends via historical and contemporary hedonic pricing analysis”

Submitted

to the

J.

of Transportation Research, Part D. In

review (Sept 2015).

FC

WEIGHT

A denotes 3 parameter model;

B denotes 7 parameter model (adds trim & drive)

ACCELSlide18

18Key findings

Real

weighted average prices for autos

have remained

roughly constant since

1986.

Simultaneous progress achieved

on several “counter-acting” technological dimensions.Simple equal-weight index suggests performance has increased about 2.7% per year while prices remained relatively constant

.Hedonic pricing methodologies quantify the relative WTP for vehicle attribute weightings during times of regulatory constraint. Authors’ methods accommodate sales-weighting and blocking by footprint; will be useful in projecting future fuel economy responses.Consumers of 2014 MY cars appear to value acceleration performance between two and three times as much as fuel economy. Slide19

Thank you!19Slide20

20Backup slidesSlide21

21Passenger car price trends

Real Price_2 is inflated using the new vehicle price index.

 Slide22

Improved Energy Efficiency in Autos22

Efficiency

Thermochemical, electrical

Weight, friction and drag reductionsAdvanced vehicle technologyInternal combustion engineAdvanced powertrainNew architectures

Alternative fuels

Biofuels, Natural gas

Transit systems

Intelligent routingModal shifts

Source: International Council on Clean Transportation, 2010, M. Kromer and C. Evans

Source: International Energy Agency (IEA), Energy Technology Perspectives (ETP), 2012.

Clean Vehicle Technology Projections

IEA

ICCT

Key Vehicle TechnologiesSlide23

Improving Energy Efficiency in Autos 23

OEM

product

offerings & incentivesConsumer responseDriving behavior (VMT)Transit options

Benefit-Cost

Economy-wide

Oil & energy prices

GDP impactsSocial Cost of Carbon (SCC)

Source:

RA Simmons, G Shaver, W Tyner, SV Garimella. A benefit-cost assessment of new vehicle technologies and fuel economy in the U.S. market. 2015. Journal of Applied Energy,

Key Economic Considerations