Thank you for the opportunity to testify before your Committee regarding automakers’ efforts to develop advanced technology vehicles. I represent the Alliance of Automobile Manufacturers, a trade association of 10 car and light-truck manufacturers. Our member companies include BMW Group, DaimlerChrysler Corporation, Ford Motor Company, General Motors Corporation, Mazda, Mitsubishi, Nissan North America, Porsche, Toyota Motor North America and Volkswagen of America.

Alliance member companies have more than 620,000 employees in the United States, with more than 250 manufacturing facilities in 35 states. Overall, a University of Michigan study in 2001 found that the entire automobile industry creates more than 6.6 million direct and spin-off jobs in all 50 states and produces almost $243 billion in payroll compensation annually.

Alliance R&D Focus:

The University of Michigan study also found that the total R&D spending by the industry is approximately $18.4 billion per year, with much of it in the high-tech sector. In fact, the study stated the following: “The level of automotive R&D spending and the relatively high employment of research scientists and engineers in the U.S. auto industry has traditionally earned it a place in any U.S. government listing of high technology industries generally thought to be central to the long-term performance of the U.S. economy.”

The auto industry is committed to developing and utilizing emerging technologies to produce cleaner, more fuel-efficient cars and light trucks. According to EPA data, fuel efficiency has increased steadily at approximately 1.5% per year on average from 1975 to 2001 for both cars and light trucks. The National Academy of Sciences (NAS), in its 2001 report to Congress, introduced their discussion of promising technologies by stating that “the 1992 NAS report outlined various automotive technologies that were either entering production at the time, or were considered "emerging" based upon their potential and production intent. Many of the technologies identified in the 1992 report as "proven" or "emerging" have already entered production. This has occurred primarily by market/competitive driven forces and occurred during a time that CAFE standards remained relatively unchanged. Automotive technology has continued to advance, especially in microelectronics, mechatronics, sensors, control systems, and manufacturing processes.

Auto manufacturers are working on future technologies such as hybrid, advanced lean-burn, hydrogen fueled internal combustion engines, and fuel cell vehicles that may lead to substantial improvements in efficiency and emissions performance without sacrificing safety, utility, and performance. These new and emerging technologies all share the need for cooperative efforts that bring all the key stakeholders together….including the automakers, energy providers, government policy makers and most importantly, the customers.

Key Energy Policy Initiatives:

1) Promoting Market Based Principles:

The Alliance supports efforts to create an effective energy policy based on broad, market-oriented principles. Policies that promote research and development and deployment of advanced technologies and provide customer based incentives to accelerate demand of these advanced technologies set the foundation. This focus on bringing advanced technologies to market leverages the intense competition of the automobile manufacturers worldwide. This competition drives automakers to develop and introduce breakthrough technologies to meet a variety of demands and customer needs in the marketplace.

The NAS report in 2001 summarized this diversity of demand and priorities in the marketplace when it stated that “automotive manufacturers must optimize the vehicle and its powertrain to meet the sometimes-conflicting demands of customer-desired performance, fuel economy goals, emissions standards, safety requirements and vehicle cost within the broad range of operating conditions under which the vehicle will be used. This necessitates a vehicle systems analysis. Vehicle designs trade off styling features, passenger value, trunk space and utility. These trade-offs will likewise influence vehicle weight, frontal area, drag coefficients and powertrain packaging, for example. These features together with the engine performance, torque curve, transmission characteristics, control system calibration, noise control measures, suspension characteristics and many other factors, will define the drivability, customer acceptance and marketability of the vehicle.”

This is a long way of saying that in the end, the customer is in the driver's seat. Market based incentives and approaches ultimately will help consumers overcome the initial cost barriers of advanced technologies during early market introduction thereby increasing demand and bringing more energy efficient vehicles into the marketplace. This will also accelerate cost reduction as economies of scale are achieved in a timelier fashion.

2) Maintaining Technology Focus:

The Alliance and its 10 member companies believe that the best approach for improved energy conservation and fuel efficiency gains is to aggressively promote the development of advanced technologies – through cooperative, public/private research programs and competitive development – and incentives to help pull the technologies into the marketplace as rapidly as possible.

The Alliance fully supports President Bush’s Hydrogen Fuel Initiative to spend $1.2 billion developing fuel technologies as well as infrastructure needed for fuel cell vehicles to be widely available. The fuel cell is the primary alternative to the battery for supplying power to an electric vehicle’s motor. Although a fuel cell looks like a battery, the former uses hydrogen fuel to continuously produce electric current whereas the latter stores electricity in its electrodes. Fuel cells work by chemically combining hydrogen and oxygen, a process that produces electricity and water. Because they produce less than one volt each, fuel cells must be stacked in a row to produce enough voltage for the motor. Hydrogen can be produced by reformulating a hydrogen-containing fuel or it can be stored in its pure form.

Automakers are racing to make fuel cell vehicles commercially viable, cost effective and appealing to consumers. However, as the President recognizes, an infrastructure of hydrogen fueling stations will have to be in place across the nation in order to encourage broad marketplace acceptance. Together with the already established FreedomCAR initiative, the automobile companies look forward to working with government agencies to overcome technical and cost barriers so we can deliver fuel cell vehicles and other advanced technologies products to the American consumer.

As a nation, we need to get these technologies on the road as soon as possible in an effort to reach the national energy goals as fast and as efficiently as we can.

New Technologies…Promises and Challenges:

Focus on Powertrain and Vehicle Technologies

Automobile companies around the globe have dedicated substantial resources to bringing cutting-edge technologies – electric, fuel cell, advanced lean burn, hybrid-electric vehicles as well as alternative fuels -- including hydrogen fueled internal combustion engines -- to the marketplace. Each of these technologies brings a set of unique advantages. At the same time, each technology has a unique set of challenges that inhibit widespread commercialization and acceptance. The internal combustion engine, fueled by relatively inexpensive gasoline, has been and continues to be, a formidable competitor against which all new technologies must compete.

For consumers sensitive to cost, fuel economy gains must be compared to the increased investment costs and risks in their new vehicle purchase decision. Assuming a fuel cost of $1.50 per gallon, a 20% increase in vehicle fuel efficiency offers an annual fuel savings of just over $150. This cost must be weighed against the convenience, utility and performance of the alternative.

The Alliance supports enactment of tax credits for consumers to help offset the initial higher costs of advanced technology and alternative fuel vehicles until more advancements and greater volumes make them less expensive to produce and purchase.

In reviewing Senate legislation that was recently introduced to spur the sale of advanced technology fuel-efficient vehicles, the Alliance believes that the overall concepts found in Senator Orrin Hatch’s new bill offer a solid framework, but we also support the inclusion of tax credits for advanced lean-burn technology vehicles. Automakers look forward to working with this Committee and the Senate Finance Committee as a new energy and tax package is developed this year.

Automakers are keenly aware of the importance of consumer choices and the challenges to deliver new technologies that meet their affordability, performance and utility needs. While fuel cell vehicles are still many years away from being widely available, there are a number of other advanced technology vehicles in the marketplace today, or in the near future, for consumers.

Hybrid-Electric Vehicles:

Hybrid-electric vehicles can offer a significant improvement in fuel economy. These products capture power through regenerative braking. When decelerating an internal combustion vehicle, the brakes convert the vehicle’s kinetic energy into heat, which is lost to the air. By contrast, a decelerating hybrid vehicle can convert kinetic energy into stored energy that can be reused during the next acceleration. Hybrid vehicles do not require additional investment in fuel infrastructure which helps reflect their potential for near-term acceptance. Today, hybrid vehicles face cost challenges.

Battery Electric Vehicles:

Vehicles that utilize stored energy from "plug-in" rechargeable batteries offer zero emissions. Battery electric vehicles continue to face weight, energy density and cost challenges that limit their customer range and affordability.

Advanced Lean Burn Technology Vehicles:

Advanced lean-burn technology diesel and gasoline vehicles employ highly sophisticated and costly combustion and emissions technologies that greatly enhance the existing advantages of lean-burn internal combustion engines. For example, advanced lean-burn technology diesel and gasoline vehicles are able to achieve exceptional combined city/highway mileage performance that can be higher than comparable conventional gasoline engine vehicles, offering both important conservation benefits and reduced lifetime fuel costs for consumers. Moreover, the technology’s fuel economy benefits are immediate and will improve as these vehicles come to market with the introduction of near zero sulfur fuels. These vehicles must meet the new stringent EPA Tier II emission requirements, through significant reductions of all regulated emissions.

Advanced lean-burn technology diesel and gasoline vehicles’ conservation and environmental benefits are complemented by exceptional overall engine performance characteristics, including high torque power, application to various vehicle categories and classes, and low maintenance costs-all of which will help ensure consumer acceptance when the technology becomes available in the marketplace.

At present, current technology light-duty diesel vehicles comprise 40% of new vehicle sales in Europe, a figure that is projected to increase to 70% by the end of the decade. By contrast, current technology light-duty diesel vehicles represented less than 1% of the U.S. market in 2002 due to U.S. emission requirements.

Hydrogen Fueled Internal Combustion Engine:

An internal combustion engine vehicle powered by liquid hydrogen combines the goals of near-zero emissions with the utility and flexibility of an internal combustion engine, emitting only water vapor when burned. Combined with existing state-of-the-art technology, this same internal combustion engine can also run on gasoline. Such dual fuel capacity enables the vehicle to be switched to gasoline operation should it become necessary, eliminating any restrictions that might be imposed by range or hydrogen availability.

Focus on Fuels and Infrastructure

Much of the discussion regarding energy policy and the transportation sector centers on the vehicles of the automobile manufacturers. But it is important not to forget about a vital component for any vehicle – the fuel upon which it operates. As automakers looking at the competing regulatory challenges for their products -- fuel efficiency, safety and emissions -- and attempting to move forward with advanced technologies, they must have the best possible and cleanest fuels. EPA has begun to address gasoline and diesel fuel quality, but fuel needs to get even cleaner. This is important to enable advanced lean burn vehicles to comply with increasingly stringent emissions standards and because gasoline will remain the prevalent fuel for years to come and may eventually be used for fuel cell technology.

Low Sulfur Gasoline:

In 1999, new EPA rules were issued which direct oil refiners to reduce the amount of sulfur in gasoline to an average of 30 parts per million, a reduction of 90% over current levels. Low sulfur gasoline is vital to ensuring that vehicle pollution control devices, such as catalytic converters, work more efficiently. The Tier II emissions regulations were required under the 1990 Clean Air Act and will be phased in beginning in the 2004 model year.

Low Sulfur Diesel:

Automakers are constantly evaluating fuel-efficient technologies used in other countries to see if they can be made to comply with regulatory requirements in the United States. One such technology is diesel engines, using lean-burn technology, which has gained wide acceptance in Europe and other countries representing about 40% of new passenger vehicle sales. Automakers have been developing a new generation of highly fuel-efficient clean diesel vehicles – using turbocharged direct injection engines – as a way to significantly increase fuel economy. However, their use in the U.S. must be enabled by significantly cleaner diesel fuel.

In 2001, EPA promulgated its low sulfur diesel rule that the Alliance aggressively supported as a strong step toward enabling use of clean diesel technology in light duty vehicles. In addition to lower sulfur, however, diesel fuel also must have higher cetane, lower aromatics and adequate lubricity, and the quality of the diesel fuel currently sold in the U.S. is inadequate with respect to these properties. Unless better fuel quality can be assured nationwide, companies will hesitate to introduce clean diesel technologies into the U.S. market. Besides enabling advanced technologies, cleaner conventional fuels will provide emission benefits in the existing fleet of on-road vehicles. More information and details can be found in the World-Wide Fuel Charter which is endorsed by automakers around the world.

Alternative Fuels:

Beyond conventional fuels, the auto industry also is producing vehicles that can operate on alternative fuels. In fact, the industry already offers more than 25 vehicles powered by alternative fuels. Approximately 2 million of these vehicles are on the road today and more are coming. Today, auto manufacturers offer alternative fuel vehicles on the following fuels:

 Natural gas  Ethanol  Biodiesel  Liquefied petroleum gas (propane)

The largest share of alternative fuel vehicles being produced by U.S. manufacturers are vehicles that can operate on a mixture of 85% ethanol and 15% gasoline. The government has supported efforts to produce these vehicles with extra fuel economy credits to help meet the CAFÉ requirements. While the volume of vehicles is now approaching a critical mass, we think continuation of these government incentives will spur further development of the needed ethanol infrastructure.

As you can tell, the automobile companies – from the top executives to the lab engineers – are constantly competing for the next breakthrough innovation. If I can leave one message with the Committee today, it is to stress that all manufacturers have advanced technology programs to improve vehicle fuel efficiency, lower emissions and increase motor vehicle safety. These are not “pie in the sky” concepts on a drawing board. In fact, automakers have advanced technology vehicles in the marketplace now and have announced aggressive production plans for the near future.

The race is on among all companies and breakthroughs are being made every year. A continuous dialogue with policymakers, like those who serve on this Committee, will ensure that the United States continues to be a leader for innovative and world-class technology not only for the motor vehicle fleet but for all sectors of our economy.

This concludes my testimony. Thank you for the opportunity to testify before the Committee today.

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