Overview of Ecos Consultings Presentation

1
Overview of Ecos Consultings Presentation

• Provide market context
• Identify the scale and type of market opportunity
  presented by the state fleet
• Discuss test procedure recommendations
• Report findings from rolling resistance data
  collected so far
• Identify remaining data needs
• Gather input from manufacturers and other
  stakeholders

2
Process

• Ecos Consulting was hired by CEC to conduct
  outreach to manufacturers, obtain rolling
  resistance data, make technical and program
  design recommendations.
• Ecos specializes in the process of transforming
  markets for energy efficient products
• 1. Research to identify the technological
  market opportunities
• 2. Establishing manufacturer and retailer
  relationships and links to public purpose
  objectives
• 3. Understanding marketing leverage points for
  an efficiency message.
• 4. Creating a standardized test procedure and
  efficiency benchmark to facilitate fair, open
  competition.
• 5. Implementing a program (incentives,
  education, training, etc.) with trade allies to
  accelerate sales of the efficient products.

3
SB 1170 Overview

• Passed by Legislature in September 2001 and
  signed by Governor shortly thereafter
• Key provisions
• Fuel-efficiency specifications by 1/31/03
  governing motor vehicles and tires
• Reduce petroleum consumption to the maximum
  extent practicable and cost-effective.
• Goal is to reduce energy consumption of the state
  vehicle fleet by at least 10 by 1/1/05 (state
  buys about 1,500 vehicles and 5,000 replacement
  tires per year).

4
(No Transcript)
5
Key Market Stats

• Total North American tire sales 24 billion
  per year
• 60 million OEM and 200 million replacement
  tires sold per year (CA market alone 20
  million units per year)
• At least 28 brands and 700 models of replacement
  tires for sale
• Many complex partnerships among manufacturers
  and brands

6
Top Four Manufacturing Partnerships
(Michelin/BFGoodrich/Uniroyal, Goodyear/Dunlop,
Bridgestone/Firestone, Cooper)
Hold 56 Share of Replacement
Tire Market
Source tirebusiness.com
7
Rolling Resistance Is a Factor in the Competitive
Marketplace

• Michelin/BFGoodrich/Uniroyal played a leading
  role in the development of a new rolling
  resistance test procedure, has won 81 of JD
  Powers tire customer satisfaction awards, and
  invests the greatest percentage of its revenues
  in tire RD.
• Goodyear has developed GT3 bioTRED models with
  very low rolling resistance and corn starch-based
  polymers.
• Branded LRR tires for electric and hybrid
  vehicles, such as Bridgestone/Firestones ECOPIA.

8
(No Transcript)
9
(No Transcript)
10
Replacement Tire Characteristics

• Market dominated by all-season radials (90)
• About 80 of tires now carry speed ratings
• Federal government mandates ratings for
  traction, treadwear, temperature resistance,
  size, max pressure, max load, and other attributes

11
OE / Replacement Tire Differences

• Original Equipment Tires
• Low rolling resistance sought for CAFE
• Short lifetimes (2 years) typical (new cars
  driven heavily tire warranty separate from
  cars)
• About 42 of buyers will replace OE tires at end
  of life with the same brand
• Replacement Tires
• Low cost and longevity more important in
  marketing than low rolling resistance
• Lifetimes longer than 2 years
• About 35 of buyers will replace their second set
  of tires at end of life with the same brand

12
The Market Opportunity Bringing Low Rolling
Resistance to the Replacement Market

• Ongoing improvements continue from changes in
  tire chemistry and design. The most efficient
  tires cut RR by 30 or more, saving 2-6 of fuel
  use.
• Market opportunity to increase sales volumes of
  OE tires in the replacement market, rather than
  limiting low RR tires to the OE market only
• May be able to increase brand loyalty repeat
  purchases if customers can readily buy the same
  replacement tires that were on their new car
• Customers already pay more for better
  performance, durability, and brand. With the
  right marketing, customers would invest in fuel
  efficiency as well.

13
The Retail Side

• About 50 of all replacement tires are sold
  through local dealers and another 25 through
  regional and national dealers.
  Bridgestone/Firestone is largest national
  retailer.
• General merchandise sellers like Wal-Mart, Sams
  Club, Costco are only about 11-18 market share,
  but are expanding.
• Internet sites like tirerack.com also growing in
  importance allow extensive comparative research
  across brands and models before purchasing.
• Minimal marketing of rolling resistance at
  present.

14
(No Transcript)
15
From an Energy Consumption Standpoint, Tire Use
Dwarfs Manufacturing, Shipping and Recycling
Source Pirelli
16
The California Fleet Market Opportunity
17
U.S. Market Share Estimates for Replacement Tires
by Size
Source tirebusiness.com
18
(No Transcript)
19
Rolling Resistance Test Procedure Options

• SAE J1269
• Originally developed in 1979
• Only tests at one speed (80 kph)
• SAE J2452
• Developed in 1999
• Tests at 6 speeds between 115 kph and 15 kph
• Used by GM, Ford, and Daimler/Chrysler for OEM
  tires
• Used by NREL in ADVISOR modeling to estimate fuel
  economy impacts
• Other Approaches
• Coast down measurements by EPA on a test track
  (SAE J2263)
• Track testing of fuel consumption in pairs of
  identical vehicles with different tires

20
After extensive research, Ecos recommended the
use of J2452 to the CEC

• Results more predictive of real-world performance
  than J1269
• Actions by the state would be consistent with
  testing processes already in use between
  automakers and OE tire manufacturers
• Coast-down and test-track measurements can be
  substantially more expensive and difficult, not
  yet widely in use in industry
• Linkage to NRELs ADVISOR permits straightforward
  fuel economy impact assessments

21
Variations Identified in the J2452 Testing
Process May Need Adjustments

• Options to True-Up Tire Test Results from
  Different Manufacturers
• Centralized Testing
• Trust but Verify
• Trust and Adjust
• Take the Tire Challenge

22
Centralized Testing

• Main elements
• Competitively selected independent testing lab
• Manufacturers submit tires for testing
• Reports sent to CEC
• Testing costs to be paid by manufacturers who
  wish to sell in California

23
Trust But Verify

• Main elements
• Manufacturers provide CEC with self-tested tire
  data
• CEC selects random models for testing
• Independent results replace manufacturer results
  if they are less favorable

24
Trust and Adjust

• Main elements
• CEC assumes car mfr function of adjusting data
  submitted by tiremakers
• Sends tire samples to each tire mfr to test
• Analyzes submitted results
• Creates adjustment factors
• Standardize rolling resistance data before
  publication

25
Tire Challenge

• Main elements
• Manufacturers submit data to CEC
• Any result can be formally challenged by another
  manufacturer
• Sample tested at CEC-selected independent test
  lab
• If results come equal or better, test paid for by
  challenger
• If results come out worse, test paid for the
  manufacturer that was challenged

26
(No Transcript)
27
(No Transcript)
28
(No Transcript)
29
(No Transcript)
30
(No Transcript)
31
(No Transcript)
32
Relational Tire Database
33
How Will the Database be Used?

• Allows investigation of correlations between
  rolling resistance and other tire performance
  metrics (traction, tread wear, temperature
  resistance, etc.)
• Helps fleet buyers determine which efficient
  tires are available for which vehicle types
• Possible front-end for consumer education website
  (vehicle/tire matching)
• Assists with cost effectiveness calculations
  comparing incremental cost of efficient tires to
  lifetime fuel savings
• Allows comparison of test lab results, possible
  adjustments as needed

34
Remaining Data Needs

• Only have 9 data points for J2452 and 15 data
  points for J1269 Need far more tire data
• OE and replacement tires needed
• Industry research on synergies and interactions
  between RR and other tire attributes
• Information about industry marketing of low RR
  replacement tires so far
• Incremental costs
• Opportunities for listing in Green Seal Choose
  Green report