INITIAL ANALYSIS OF THE ECONOMIC IMPACT
OF WATER POLLUTION CONTROL COSTS UPON
THE MOTOR VEHICLE MANUFACTURING INDUSTRY
The study is one of a series commissioned by the Environ-
mental Protection Agency to provide an initial assessment of the
economic impact of water pollution control costs upon industry,
and to provide a framework for future industrial analysis.
For the purpose of this initial analysis, the water pollution
control requirements were assumed to be those developed in 1972
as effluent limitation guidance by the EPA Office of Permit Pro-
grams. Costs were developed by the EPA Economic Analysis
Division on the basis of treatment technologies assumed necessary
to meet the effluent limitation guidance.
Because of the limitations of time and information avail-
able, these studies are not to be considered definitive. They
were intended to provide an indication of the kinds of impacts to
be expected, and to highlight possible problem areas.
This document is a preliminary draft. It has not been
formally released by EPA and should not at this stage be con-
strued to represent Agency policy. It is being circulated for
comment on its technical accuracy and policy implications.
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Final Report
The Economic Impact of the Cost of Meeting
Federal Water Quality Standards on the
Motor Vehicle Manufacturing Industry
ENVIRONMENTAL PROTECTION AGENCY
Washington, D. C.
This report is of a proprietary nature and intended solely
for the information of the client to whom it is addressed
January 19, 1973
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BQOZ• ALLEN PUBLIC ADMINISTRATION SERVICES, Inc 1025 Connecticut Avenue,N W
Washington 0 C 20036
(202) 293-3600
January 19, 1973
Mr. Lyman Clark
Environmental Protection Agency
Waterside Mall
Room 3234-A
401 M Street, S. W.
Washington, D. C.
Subject: Study of the Economic Impact of the Cost of Meeting
Federal Water Quality Standards on the Motor Vehicle
Manufacturing Industry
Dear Mr. Clark:
We are pleased to submit our Final Report on the Economic
Impact of the Motor Vehicle Manufacturing Industry of the cost of
meeting Effluent Limitation Guidance standards for water pollution
abatement. This volume is composed of an Executive Summary
which covers the contents of Chapter I-VU of the Final Report, the
Final Report itself, and Appendices which describe significant
industry characteristics.
Very truly yours,
a subsidiary of BOOZ ALLEN & HAMILTON Inc
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EXECUTIVE SUMMARY
This study was initiated under contract with the Environmental
Protection Agency to determine the impact of water pollution abate-
ment costs on the six major automotive production steps conducted
by the four major U. S. producers. The production steps considered
in the analysis were:
• Casting
• Engine machinery and assembly
• Stamping
Plating
Frame manufacturing
• Body and final assembly
An initial attempt was made to segment the industry by produc-
tion process and thereby identify the impact individually on each of the
six processes. This procedure could not be carried through because
of the high level of process integration in the industry and the unavail-
ability of financial data to describe specific plants. These problems
limited the comparative results and impact analysis to consideration
of the six processes in total.
Water pollution costs were developed by applying cost informa-
tion furnished by EPA to plant water flow data collected from the
manufacturers. Water pollution control costs required to meet
level A of the ELG standards were estimated for every plant using
the six processes and operated by the four major automotive pro-
ducers.
The major study findings and conclusions are:
The total investment cost for water pollution
abatement in the six automotive processes should
not exceed $331.5 million. This investment re-
quirement can probably be met by the industry.
The price increases to cover pollution abatement
costs should not exceed $20 per car. This increase
is expected to have not effect on sales.
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• No significant impact on production, plant
operation, employment, communities or foreign
trade is expected
The study results are limited and constrained by several factors,
most severely by the lack of an industry verified water pollution abate-
ment cost base; however, the conclusions reached as they apply to the
four major automotive producers are probably valid.
The conclusions do not apply to industry suppliers and do not
include consideration of abatement cost for production of components
by processes other than the six previously mentioned.
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TABLE OF CONTENTS
Page
Number
LETTER OF TRANSMITTAL
EXECUTIVE SUMMARY
I. INTRODUCTION 1
II. INDUSTRY SEGMENTS 4
I n. PRICE EFFECTS 6
IV. FINANCIAL PROFILES 8
V. POLLUTION CONTROL REQUIREMENTS 10
VI. IMPACT ANALYSIS 13
WI. LIMITS OF THE ANALYSIS 16
APPENDIXES:
A. INDIVIDUAL PLANT DATA
B. INDUSTRY DESCRIPTION
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INDEX OF EXHIBITS
Following
Page
I. SUMMARY OF WATER POLLUTION CONTROL
INVESTMENT AND OPERATING COSTS 5
II. SELECTED FINANCIAL DATA - AUTOMOBILE
PRODUCERS - 1967-1971 8
III. TREATMENT CONFIGURATIONS, PROCESSES
AND COSTS TO MEET SCHEDULE A REQUIREMENTS 10
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I. INTRODUCTION
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I. INTRODUCTION
The study of the impact of water pollution abatement costs on the motor
vehicle manufacturing industry was initiated on October 9, 1972, under con-
tract with the Environmental Protection Agency (EPA). This chapter de-
scribes the objectives and scope of the study, along with the study approach.
1. THE OBJECTIVE OF THE STUDY WAS TO DETERMTNE THE
ECONOMIC IMPACT OF POLLUTION CONTROL
The fundamental objective of the study was to provide EPA an analytical
framework for determining the economic impact of pollution control on the
automotive industry, specifically with respect to industry compliance with
water effluent standards. Several sub-objectives were included. Principal
among these were definition of the financial effects and production effects of
the costs of abating pollution in accordance with water effluent standards.
With respect to production effects, two critical sub-objectives were to deter-
mine which plants might have to curtail production or cease production en-
tirely as alternatives to pollution abatement expenditures, and to determine
the resultant effects on the communities involved.
2. THE STUDY SCOPE INCLUDED SIX MANUFACTURING CATEGORIES
The economic impact analysis, as defined by the Environmental Pro-
tection Agency, was to encompass the motor vehicle industry in terms of six
major manufacturing categories:
• Casting
Engine machining and assembly
Stamping and assembly
• Frame manufacturing
Plating
• Body and vehicle assembly
Further, these six categories were defined as those covered by Stan-
dard Industrial Classification (SIC) numbers 3711, 3713, 3714 and 3465.
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3. WATER POLLUTION ABATEMENT COST INFORMATION WAS
FURNISHED BY EPA
The scope of the study excluded development of water pollution abate-
ment costs. This cost information was supplied by EPA via the draft docu-
ment IWater Pollution Abatement Costs, Motor Vehicles, which provided
the abatement process cost data for the six plant types of interest (in terms
of production rates, water use rates and effluent standards). The water ef-
fluent standards applicable to these plants were also furnished by EPA in the
form of the ELG Standards dated August 14, 1972. During the course of the
study, additional cost data were furnished by EPA covering cost ranges for
several treatment configurations and different water-flow volumes. These
data are described in later chapters.
4. THE STUDY COVERED ONLY THE FOUR LARGE INTEGRATED
AUTOMOTIVE PRODUCERS
Because of the limited time, data and level of effort available to conduct
the study and because the cost standards are limited to specific plant types,
the study covered only passenger-automobile manufacturing by the four largest
producers: General Motors, Ford, Chrysler and American Motors. These
producers dominate the industry in terms of output and employment, but their
facilities are not necessarily typical of the plant sizes and types of the highly
diverse suppliers to the motor vehicle manufacturers. Hence, the conclusions
reached regarding the major manufacturers cannot be extended to cover the
automotive suppliers.
5. DATA WERE OBTAINED FROM THE FOUR AUTOMOTIVE
MANUFACTURERS AND OTHER COGNIZANT SOURCES
The approach to the study consisted of collecting and reviewing published
data describing the automotive industry, and direct contacts with cognizant in-
dustry and government representatives.
“Effluent Limitation Guidance, 1972,” prepared by the Office of Permit Pro-
grams, EPA.
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Data were collected from the following principal sources:
• Bureau of the Census
• Market Statistics, Inc., New York
• Motor Vehicle Manufacturers Association of the U.S. (MVMA)
(formerly the Automobile Manufacturers Association, Inc.
• Ward’s Communications, Inc.
• Automobile companies
Concurrent with published data source identification and collection, a
series of meetings were conducted with representatives of:
• Motor Vehicle Manufacturers Association of the U. S.
(Washington and Detroit)
• Pollution control staffs of GM, Ford, Chrysler and American
Motors (Detroit)
• National Industrial Pollution Control Council (Department of
Commerce)
The initial meetings were held with representatives of MVMA, who es-
tablished contact with automotive company staff personnel who were members
of the Association’s Industrial Pollution Control Committee.
Several rounds of meetings were held with the manufacturers and, as
a result, production and water-flow data for all plants covering the six pro-
cesses were obtained. These data were used in conjunction with the cost data
supplied by EPA to determine the water pollution abatement economic impact.
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II. INDUSTRY SEGMENTS
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II. INDUSTRY SEGMENTS
The U. S. automotive industry is a vast manufacturing arid distribution
complex composed of thousands of production plants. These plants are owned
by the vehicle manufacturers and also by manufacturing firms that supply ma-
terials and components to the vehicle manufacturers. The products include
automobiles, trucks, specialty vehicles and literally thousands of different
parts and materials. Accordingly, a thorough analysis of the total industry
would require a complex and time-consuming study of pollution abatement
along with cost standards for a wide range of manufacturing facilities.
1. GROUPING PLANTS BY PROCESS IS COMPLICATED BY A HIGH
LEVEL OF PROCESS INTEGRATION
Automobile manufacturers frequently operate integrated multiproduct,
multipurpose plants that perform several of the processes of interest as well
as additional operations.
At some assembly plants which produce passenger cars, for example,
light trucks and vans are assembled on the same production line as automo-
biles. In other plants trucks might be assembled in the same building but on
adjacent lines.
At least three corporations have highly integrated plants. In addition
to the six processes, these plants may have transmission manufacturing,
forging, electrical assembly, cutting and sewing, and many other operations.
In one plant, steel and glass are produced from raw materials.
Plating and frame manufacturing processes are in all cases combined
with other operations. Processes at plating plants commonly include die
casting, heavy stamping, injection molding and machining.
Frame manufacturing is generally subcontracted by automobile manu-
facturers. Ford produces frames in its Rouge plant, which is probably the
most complex automotive production facility in the world. GM produces stub
frames in a plant that also has stamping and engine machine and assembly
operations. Except for these two plants, frame manufacturing is confined to
outside suppliers.
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In this study, plants conducting frame manufacturing and plating oper-
ations were grouped with other multiprocess plants in an integrated plant
group.
2. A SINGLE-VALUED WASTE-WATER PARAMETER IS NOT PRACTICAL
An almost infinite variety of process combinations exist and generally
there is no segregation of waste water by process. Accordingly, it is diffi-
cult to develop an analysis that covers the industry for the six plant types in
a pure form. It therefore appears that it is not practical to establish a single-
valued waste-water effluent parameter based on a single process identifica-
tion for a given plant.
This does not preclude the use of absolute pollutant levels per produc-
tion unit. However, it does require development of standards in much greater
depth, to the point that all processes performed have established waste-water
contaminant loads and concentration levels. Then more equitable standards
for multiprocess plants could be developed by accumulating waste-water con-
taminant loads that correspond to the plants’ processes and production levels.
3. POLLUTION CONTROL COSTS BY MANUFACTURING PROCESS
COULD NOT BE DETERMINED FItOM AVAILABLE DATA
An investment requirement and operating cost summary is shown in
Exhibit I, following this page. * Three cost levels are shown, corresponding
to the high and low figures in the cost range furnished by EPA and the ex-
pected cost within the range. Costs are shown here for plants having dis-
crete processes and for integrated plants. The total cost of pollution control
for each of the six processes suggested by EPA could not be determined be-
cause varying levels of each process are included in the integrated plant
group.
* * * *
* See Chapter V for cost development procedure and Appendix A for cost de-
tail by plant.
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III . PRICE EFFECTS
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III. PRICE EFFECTS
This chapter discusses the manner in which prices are determined in
the industry and the price changes that can be expected as a result of water
pollution control requirements. Both points are highly complex and are re-
lated to profit objectives, competition, consumer demand and price controls.
Moreover, the two- to three-year lag from planning to production in the in-
dustry may result in a change in pricing strategy to adjust to current condi-
tions.
Accordingly, a prediction of price effects is highly speculative and,
realistically, can only be expressed as a range of possible effects.
1. AN INCREASE IN AUTOMOBILE PRICES IS LIKELY TO DEPEND ON
GM’S REACTION TO WATER POLLUTION CONTROL COSTS
General Motors is recognized as the price leader in the automotive in-
dustry. GM generally establishes the price in each model category and com-
peting firms accept the price and compete among themselves and GM for the
volume demanded at that price by the public. GM can be expected to deter-
mine the level of price increase due to water pollution control costs based on
its pricing policies and profit objectives.
2. GM’S OBJECTIVE IN PRICING IS TO MAXIMIZE LONG-TERM
CORPORATE RETURN ON INVESTMENT
Return on investment as a yardstick for evaluating the viability of oper-
ations was established by GM in 1925, and is still the predominant factor in
pricing and investment decisions. GM can be seen as projecting its market
share model for model over a number of years and, through an analysis of
costs, prices, cross model elasticity, available capacity and return on assets
employed, establishing standard model volumes and prices that will yield the
maximum total corporate profit from the sale of automobiles.
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3. THE COST OF WATER POLLUTION CONTROL WILL PROBABLY BE
PASSED ON TO THE CONSUMER
The pricing practices and profit objectives in the industry make it rela-
tively safe to assume that water pollution control costs will result in higher
suggested retail prices.
No data are available either from the producers or from published
sources to describe the percentage of increased costs that historically are
passed on in the form of higher prices. In view of this data limitation, and
assuming no price control, recovery of operating costs plus a nominal return
on investment is the safest basis for developing unit price increases. This
method results in the maximum price increase that could logically result from
an increase in costs.
4. WATER POLLUTION CONTROL FOR THE SIX PRODUCTION PROCESSES
IS ESTIMATED TO COST BETWEEN $5 AND $10 PER CAR
Application of cost data furnished by EPA to water usage and production
data obtained from the manufacturers resulted in a probable range of annual
operating costs of $46. 7 million to $88. 6 million with an expected cost of $69. 3
million for water pollution control, as shown previously in Exhibit I.
Based on the 1971 production of about 8. 5 million automobiles, the aver-
age cost per car would range from $5 to $10, with an expected unit cost of $8.
5. THE MAXIMUM PRICE INCREASE TO THE CUSTOMER IS ESTIMATED
NOT TO EXCEED $20 PER CAR
Using the most extreme case- -which is the top of the cost range plus 30
percent return on invested capital and 24 percent dealer markup- - the suggested
retail price would be increased by $19. Because the 30 percent is a profit ob-
jective which is not typically achieved and because dealers seldom obtain full
markup, the actual cost to the customer probably will be approximately $10 to
$12 per car.
An average price increase of $10 to $12 per unit (or even the maximum
amount) is not expected to have a significant impact on automobile sales.
* * * *
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IV. FINANCIAL PROFILES
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IV. FINANCIAL PROFILES
This chapter presents financial profiles of major automotive
producers.
1. FORD AND GENERAL MOTORS ARE THE DOMINANT PRODUCERS
IN TERMS OF SALES AND PROFITABILITY
Exhibit II , following this page, is a five-year summary of financial
highlights for each of the four major automotive producers. The figures
shown relate to consolidated operations and thus include all operations of
each company, both foreign and domestic.
As indicated on the Exhibit, Ford and GM are clearly dominant in
terms of sales, profitability and return on investment. Chrysler and
American Motors, from 1969-1971 have been only marginally profitable
reflecting the greater vulnerability of the smaller producers to cyclical
downturns in the economy. For 1972 sales and profits for all producers
have shown marked improvement as economic growth has resumed.
Continued improvement is forecast for all producers during 1973, barring
serious automotive or teamsters strikes.
2. CHRYSLER AND AMERICAN MOTORS HAVE RELATIVELY
HEAVY LONG TERM DEBT BURDENS
Long term debt as a percentage of shareholders equity in 1971
for each producer was as follows:
$ $
Debt Equity Debt as %
( million) ( million) of Equity
General Motors $616 $10,805 5.7%
Ford 802 5,547 14.5
Chrysler 818 2,269 36.1
American Motors 78 214 36.4
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To the extent that future earnings permit, it can be expected that Chrysler
and American Motors will reduce reliance on long term borrowing in re-
lation to equity. General Motors and Ford, on the other hand, have rela-
tively little debt in their capital structures.
3. DATA NEEDED TO DEVELOP PLANT SPECIFIC
FINANCIAL PROFILES ARE NOT AVAILABLE
No data are available to describe any financial parameter of specific
plants or types of plants either from the manufacturers or from published
sources. The manufacturers stated that this information was confidential
and could not be released under any circumstances.
Because of the complexity of automotive manufacturing operations
and the great variety of plant configurations found in the industry, the
use of engineering factors to develop cost functions for timodelli plants
is not practical.
* * * *
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V. POLLUTION CONTROL REQUIREMENTS
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V. POLLUTION CONTROL REQUIREMENTS
The pollution control requirements and the related costs of invest-
ment and operation for treatment equipment for the study were furnished
by EPA. This chapter describes that material.
1. POLLUTION CONTROL REQUIREMENTS AND COSTS ARE THOSE
NECESSARY TO MEET SCHEDULE UAI OF THE ELG STANDARDS
The treatment configurations and their relative costs as they apply
to the production processes as defined by EPA are those necessary to
meet Schedule “A” of the ELG Standards of August 14, 1972. The effluent
characteristics, absolute pollutant level and limits of process-water usage
are shown on pages 7 and 8 of that document.
2. CAPITAL INVESTMENT ESTIMATES WERE PREPARED
FOR FOUR LEVELS OF WATER TREATMENT REQUIREMENTS
Exhibit III, following this page, contains estimates of capital invest-
ment needs for water treatment equipment assuming the following treat-
ment requirements.
Moderate requirements for surface discharge
Moderate requirements for municipal discharge
Severe requirements for surface discharge
Severe requirements for municipal discharge
The manufacturing processes to which each requirement is applicable and
the treatment configurations (treatment steps) are as indicated by the (X)’ s.
It should be noted that the cost estimates shown do not apply to combina-
tions of plants. Thus, under Moderate Surface Discharge Requirements,
the capital investment range of $0. 5 - $1.9 million for a plant with a one
MGD water flow would apply to a casting plant or a stamping plant or a
body and final assembly plant.
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The range of estimates for each treatment requirement reflects
the following cost related factors:
• The low costs correspond to engineering estimates for
the actual cost of treatment facilities with a nominal
allowance for installation
• The high costs are primarily based on industry estimates
and include a greater allowance for factors such as
installation, in - plant modifications, flow segregation
and collection, and general cost overruns.
Separate estimates were prepared for varying assumed levels of plant
water usage, as indicated.
3. FOUR FACTORS WERE USED TO ESTIMATE ANNUAL COSTS
(1) A Depreciation Rate of 8 Percent of Total Investment Is Included
in the Annual Operating Cost
A depreciation rate of 8 percent was described by a manufacturer
as reflecting its experience for water treatment facilities. This rate
was accepted by EPA and was used as a factor in the operating cost cal-
culations.
(2) A Capital Cost of 10 Percent on Total Investment Is Included in
the Annual Operating Cost
A capital cost of 10 percent was calculated based on General
Motors’ financial data. This cost approximates a weighted average cost
of capital based on GM’s present debt-equity ratio. The 10 percent fac-
tor was used in the operating cost calculations.
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(3) Annual Operating and Maintenance Costs Were Estimated To
Be 20 Percent of Investments in Pollution Control Equipment,
Excluding Extraordinary Installation Costs
A cost of 20 percent of investment was described by a manu-
facturer as reflecting its experience for operation and maintenance
of waste treatment facilities. This factor was accepted by EPA
with the condition that it be applied only to the cost of treatment
equipment and facilities and not the cost of in-plant changes, etc.;
(1. e., applied to the low points in the investment cost range.)
(4) A Surcharge of $0. 20 Per 1, 000 Gallons Was Estimated
for Municipal Discharges
A municipal discharge surcharge estimate of $0. 20/1, 000
gallons was supplied by EPA. This cost was included in the esti-
mates in addition to other operating costs for plants with municipal
discharge of process water.
4. EPA COSTS WERE APPLIED TO MANUFACTURERS’ PLANT DATA
Manufacturers were interviewed and descriptive plant data were col-
lected for all plants performing the six processes of interest. The data
collected included:
Plant location
Plant products/processes
Employment level
Daily water flow
Percent municipal discharge
Production level
The costs furnished by EPA were applied to develop individual plant
costs. Within each treatment configuration group, costs for each plant were
calculated based on water-flow volume. Three costs were calculated:
• Highest cost- -corresponding to the top of the range
• Lowest cost- -corresponding to the bottom of the range
Expected cost- - estimate based on actual plant information
when possible and on the relationship of water flow to
standard water volumes
The investment and operating cost estimates, production level, water
use and employment level of each plant are shown in Appendix A.
* * * *
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VI. IMPACT ANALYSIS
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VI. IMPACT ANALYSIS
The original objective of the impact analysis was to determine the effect
of water pollution control costs on each segment of the industry. As stated
previously, financial data were not available on a plant-by-plant basis. For
this reason and because process segregation was not possible in integrated
operations, the impact analysis was restricted to consideration of the six pro-
cesses in total.
The remainder of this chapter describes the impact of pollution control
within the six processes on the four major producers.
1. WATER POLLUTION CONTROL IN VESTMENT REQUIREMENTS CAN
PROBABLY BE MET BY THE INDUSTRY
The maximum projected investment requirement is $331.5 million.
Assuming this investment could be made over a five-year period, the average
annual investment requirement is $66.3 million. This level of investment is
less than 4 percent of total industry capital expenditures in 1971. The annual
investment of $66. 3 million is probably no greater than the amounts contained
in industry future budgets for pollution control. Total budget figures are not
available, but GMts projected expenditures for waste treatment facilities in
1972 was $42 million. This amount, even after removal of the costs for non-
automotive operations, should cover GMts share of a $66 million annual re-
quirement.
GM’s $42 million expenditure in 1972 is for water treatment only and
does not include costs for air pollution abatement. Large investments to re-
duce air pollution have been made by the industry, particularly in the foundry
operation and generally for powerhouses and heating plants. Investments in
air pollution facilities through 1972, in GM’s case, have been approximately
19 percent greater than investments in water pollution facilities.
This investment level represents the cost required to go from no treatment
to ELG level ‘A” and includes an undetermined amount of treatment invest-
ments that already have been made.
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2. IT IS LIKELY THAT INCREASED COSTS CAN BE PASSED ON TO THE
BUYER WITHOUT AFFECTING SALES
The maximum price increase is projected to be less than $20 per unit,
including full dealer markup and a 30 percent (before taxes) return on manu-
facturer’s investment. Even at this level, which is certainly higher than the
average price increase, no reduction in sales is expected.
This conclusion is largely intuitive but is supported by a quantitative
analysis made by Chase Econometric Associates, Inc. on the economic impact
of meeting exhaust emission standards. * In that analysis the price increase
was approximately 10 percent (water treatment increase is less than 0. 6 per-
cent) and projected sales loss was approximately 3 percent.
3. THE COST OF WATER POLLUTION CONTROL IS NOT EXPECTED TO
AFFECT PRODUCTION OR PLANT OPERATION
The incremental unit-cost change and investment requirements, while
not insignificant, are not of a magnitude that should affect operations. The
management of each of the four manufacturers stated that no plants would close
because of the cost of water treatment. There may be a very few cases where
physical conditions, particularly lack of expansion area, may make meeting a
treatment requirement physically impossible. In these cases the plant pr b-
ably would be converted to a process which would require less water and less
rigid treatment requirements.
4. NO IMPACT ON EMPLOYMENT OR COMMUNITIES IS EXPECTED
As discussed previously, no change in production or plant operation is
expected. Therefore there would be no effect on employment or on community
economic situations. Even if a plant’s operations were changed because of
physical limitations, and again this is a possibility that is not expected to occur,
there would be little impact because:
“Phase II of the Economic Impacts of Meeting Exhaust Emission Standards
1971-1980, Part III, the economic impact of pollution abatement,” Chase
Econometric Associates, Inc. , December 1971.
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• The older plants where this possibility exists are located in areas
of high automotive activity.
• The union contracts provide area seniority, which protects the
jobs of the older and established members of the community.
• The plant would be converted to another use.
5. NO IMPACT ON BALANCE OF PAYMENTS IS EXPECTED
The maximum price increase of approximately $19 is not expected to af-
fect automotive sales and is below the level that would affect an individual’s
decision to purchase a foreign car. There similarly would be no effect ex-
pected on the competitive position of U. S. - produced automobiles in foreign
markets. The factors affecting the purchase of foreign cars and the position
of U. S. products in foreign markets is discussed in Appendix B.
* * * *
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VII. LIMITS OF THE ANALYSIS
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VII. LIMITS OF THE ANALYSIS
Analysis of the economic impact of water pollution control on the auto-
motive industry was limited or constrained by several factors. The following
paragraphs discuss these factors and their effect on the accuracy of the data
presented and conclusions reached.
1. WATER POLLUTION CONTROL COSTS WERE NOT VERIFIED
Water pollution requirements by process and the associated costs were
furnished by EPA. The scope and time available for the study did not permit
more than a cursory verification of these data. While the cost ranges furnished
generally included the limited amount of actual cost information that was ob-
tained, there were some cases when it did not. A specific example of cost out-
side the range is the engine machining and assembly plant at Trenton, Michigan.
The maximum investment cost for this plant from EPA data is $1. 5 million,
while the plant records indicate a previous expenditure of $2. 8 million and an
anticipated additional expenditure requirement to reach level “A” of $250, 000.
This may or may not be an isolated example, but it does illustrate that
atypical physical and operational conditions can exist which will result in costs
that exceed reasonable expectations.
It is hoped that the costs used accurately reflect normal actual costs and
that in the aggregate will be correct, but no independent basis for this judgment
was developed.
2. INVESTMENT LEVELS DESCRIBED INCLUDE INVESTMENTS THAT
HAVE ALREADY BEEN MADE
The investment costs furnished by EPA describe the cost of going from
no treatment to the treatment level required to meet level “A” of the ELG Stan-
dards. All of the producers have made investments in treatment facilities and
in many cases already meet level “B” treatment requirements. The amount of
these prior investments could not be determined.
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I
3. THE ANALYSIS DOES NOT ENCLUDE ALL PLANTS OF THE
AUTOMOTIVE INDUSTRY
Because of the limited time, data and level of effort available for the
study, the study team focused its research efforts on passenger-automobile
manufacturing by the four major producers. While it is true that in terms of
output and employment these firms dominate the industry, their plants probably
are not typical of those of the highly diverse suppliers to the industry.
It is highly probable that the four major producers, because of their size
and financial resources, will be better able to meet water pollution abatement
capital requirements than smaller, less financially entrenched component and
vehicle producers. Because of this, caution must be observed in generalizing
conclusions regarding the four major producers to encompass the total industry.
In view of the highly diverse nature of smaller producers and an almost total
lack of usable single-source data regarding their plant types and financial char-
acteristics, a comprehensive analysis of this industry segment was not possible
within the scope of this study.
4. THE ANALYSIS DOES NOT INCLUDE THE MANUFACTURE OF
ALL AUTOMOTIVE COMPONENTS
Limiting the analysis to the six primary processes used in automotive
manufacturing ignores up to 30 percent of automotive water pollution costs for
the large integrated producers. General Motors plants which are included in
the analysis use 70 percent of the total water used by all GM automotive plants.
Components produced by other plants include:
Transmissions
Steering components
Suspension systems, springs, axles
Carburetors
Seat and fabric assemblies
Wheels
Electrical motors, generators
Lamps
Ignition components
Brake systems
Plastic parts
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5. COSTS ARE NOT LIMITED TO THE SIX PROCESSES
Application of EPA cost data resulted in inflated costs because:
Integrated plants conduct operations outside the scope of the
study, such as transmission manufacture, forging axles,
springs and suspension components, etc. Cost estimates
were based on total water flow in these plants because water
use could not be related to specific processes.
Some plants included in the analysis produce trucks and truck com-
ponents as well as automobiles. Since water streams could not be
separated between autos and trucks, costs were based on total
water flow. The truck production included in the analysis is esti-
mated to be less than 2 percent of total production.
When possible, only process waste-water was considered, but in
many plants, particularly those with 100 percent municipal dis-
charge, waste streams included sanitary and utility water. In
plants where waste-stream components could not be identified,
cost estimates were based on total water flow.
6. LOCATION OF SPECIFIC PLANT COSTS WITHIN THE COST RANGE
SPECIFIED BY EPA WAS NOT PRECISE
The cost figures furnished by EPA covered a wide range; e. g., the in-
vestment cost used for integrated plants at a water flow of 12 million gallons
per day ranged from a low of $3 million to a high of $10 million. Location of
expected costs in a few cases were based on knowledge of actual plant condi-
tions. In other cases, cost estimates were based on water usage rates rela-
tive to the rates described in the ELG Standards and in other cases, particu-
larly integrated plants where no basis for placement in the range was available,
expected costs were set in the upper-middle portion of the cost range.
7. THE CONCLUSIONS REACHED AS THEY APPLY TO THE FOUR MAJOR
PRODUCERS ARE PROBABLY VALID
While the development of data used in the analysis leaves substantial
room for error, the conclusions reached are thought to be correct. Even if
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the projected costs were doubled, there would be little impact on plant opera-
tion or on vehicle sales.
The conclusions reached do not apply to industry suppliers. A much
more comprehensive study is necessary to assess the impact on these plants.
* * * *
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APPENDIX A
INDIVIDUAL PLANT DATA
Employment, Production Level, Water Flow,
Pollution Control Cost
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LIST OF APPENDIX A EXHIBITS
A-I CASTING PLANTS
A-IT ENGINE MACHINING AND ASSEMBLY PLANTS
A-Ill STAMPING PLANTS
A-TV BODY AND FINAL ASSEMBLY PLANTS
A-V INTEGRATED PLANTS
A-VI PRODUCTION, EMPLOYMENT AND WATER USE
DATA FOR U. S. AUTOMOTIVE PRODUCTION FACILI TIES
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APPENDIX B
INDUSTRY DESCRIPTION
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LIST OF APPENDIX B EXHIBITS
B-I AUTOMOBILE CLASSES AND REPRESENTATIVE EXAMPLES
B-LI PERCENT OF TOTAL SALES OF 1970 AND 1971 U.S. CAR
PRODUCTION IN $100 PRICE GROUPS
B-Ill PERCENT OF MOTOR VEHICLE REGISTRATIONS BY STATE
IN 1971
B-TV PERCENT OF TLTAL SALES BY MARKET CLASS FOR 1967-19 71
B-V USE OF RAW MATERIALS BY THE AUTOMOTIVE INDUSTRY
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APPENDIX B (1)
INDUSTRY DESCRIPTION
Passenger automobiles are the basic method of personal transportation
in the United States, and as such are functionally a single product. However,
the product-line presented to the consumer is large and varied. Even in this
age of mass production, it is possible that no two cars produced are exact
duplicates. This is due to the wide range of choices in make, model, body
color, body style, fabrics, trim, engines, transmissions and, of course, the
almost unlimited list of extra-cost, convenience, safety, performance and
personal-comfort options.
Based primarily on sales price, passenger cars can be grouped in six
mutually exclusive market classes. The classes and representative examples
are described in Exhibit B-I, following this page.
The relative share of sales for U. S. production by $100 price groups in
1970 and 1971 is shown graphically in Exhibit B-I l, following Exhibit B-I.
1. FOREIGN MARKET POTENTIAL FOR U.S. AUTOMOTIVE PRODUCTS
IS LOW
In 1971 the United States produced 6 million passenger cars with a total
retail value of over $21 billion. Export sales are somewhat erratic, but have
been holding at over $1 billion since 1963. In 1971 automotive exports totaled
$1.3 billion. The major factors which tend to reduce the foreign market
potential for U.S. -manufactured vehicles are the imposition of high tariffs by
other nations and discriminatory devices such as progressive registration
fees for vehicles of larger engine capacity.
Other factors which have contributed to a hard foreign market include:
Low income levels, limited purchasing power
High gasoline taxes
High shipping costs
Development of manufacturing and assembly industries in foreign
countries
Low labor and raw materials costs in foreign countries
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EXHIBIT B-I
Environmental Protection Agency
AUTOMOBILE CLASSES AND
REPRESENTATIVE EXAMPLES
Class Representative Models
Luxury Cadillac, Lincoln, Imperial
Medium Price Polara, Pontiac, Oldsmobile, Buick, Mercury,
Chrysler
Regular Chevrolet, Ford, Fury, Ambassador
Intermediate Matador/Rebel, Satellite, Coronet/Charger,
Fairlane/Torino, Montego, Comet, Skylark,
Chevelle, 25/Cutlass, LeMans
Compact Ventura II, Chevy Il/Nova, Falcon, Valiant, Dart,
Hornet, Maverick, Comet
Subcompact Vega, Pinto, Gremlin
Specialty/Sports J avelin, Continental, Barracuda, Mustang, Cougar,
Thunderbird, Riviera, Eldorado, Camaro, Corvette,
Toronado, Firebird, Monte Carlo, Grand Prix
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APPENDIX B (2)
2. U.S. CORPORATIONS ARE EXPANDING OVERSEAS MARKETS TO
GAIN A BETTER POSITION IN THE WORLD MARKET
While the United States is still the largest producer of automobiles in
the world, its world-market share has dropped from 76 percent in 1950 to 32
percent in 1971. This trend is expected to continue with the world market in-
creasing at a faster rate than the U. S. market. Since automotive products
produced in the United States cannot compete effectively in foreign markets,
U. S. manufacturers have moved production overseas.
• Between 1966 and 1971, Ford added 24 million square feet in
foreign plants compared to 23 million square feet added to U. S.
plants.
Ford’s 1972 expansion plans are 60 percent foreign and 40 percent
domestic.
• GM purchased a share of Isuzu Motors of Japan in 1971.
Chrysler purchased a share of Mitsubishi of Japan in 1971.
3. IMPORTS CONTINUE TO PENETRATE THE U.S. MARKET
Import sales hit an all-time high in 1971 when 1.5 million units were de-
livered, a 19. 9 percent increase over 1970. Import sales in 1971 were 15. 3
percent of total car sales. There were indications early in 1972 that the flood
of import cars had been stemmed. The 10 percent surtax imposed by the
President in August 1971 and the subsequent devaluation of the dollar (the sur-
tax was dropped at this point) resulted in slightly higher prices for imports.
Import sales were also reduced, and probably to a greater extent, by the dock
strike late in 1971. Even so, import sales in the first nine months of 1972
were only 3 percent below 1971, and appeared to be swinging upward. Import
sales in August and September 1972 were higher than the same months in 1971.
Many of the factors which limit the export potential of U. S. products
make imports popular here, but these factors are related to price and price
is not the only consideration. The primary consideration is the belief that
foreign cars are better than domestic products. Also, foreign producers are
innovators. In recent years they have pioneered three-point seat belts, dual
brake systems, disc brakes, front-wheel drive, mid- and rear-engine cars,
radial tires and, most recently, the Wankel engine. An additional attraction
of the foreign car is the longer retention of basic style and appearance. There
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APPENDIX B (3)
is a widespread belief that U. S. manufacturers change styles in order to pro-
mote frequent new purchases. Import buyers are not concerned with their
car going out of style in a few years.
For whatever the reasons, imports are here to stay; and unless safety
and emission regulations price them out of the market, will probably main-
tain or increase their share of the U. S. market. U. S. makers have appeared
to have adapted to the situation as captive import sales in 1971 were up 68
percent over 1970 to almost 14 percent of total import sales.
4. THE DOMESTIC MARKET FOR U. S. AUTOMOTIVE
PRODUCTS IS NATIONWIDE
U. S. -produced cars are distributed through 26 thousand franchised
dealers representing 39 thousand franchises. Dealer location and sales are
related to population density. Exhibit B-Ill, following this page, shows the
percent of automotive registrations by state in 1971.
5. THE POPULARITY OF SMALL CARS HAS INCREASED DOMESTIC
SALES IN THE COMPACT AND SUBCOMPACT CLASSES AND
REDUCED SALES IN OTHER CLASSES
The introduction of the Gremlin, Vega and Pinto in 1970 resulted in
sales of 148 thousand units. Sales in 1971 jumped 420 percent to 722 thou-
sand units. A part of the increase is due to late introduction in 1970, but
the increase is expected to continue and may reach 12 to 15 percent of total
sales in 1973. Also, sales in the compact class have increased from 6. 7
percent of total sales in 1967 to 12. 1 percent of total sales in 1971. The
primary market target for these classes, particularly the subcompacts,
was foreign cars; but they seem to have missed the mark and have impacted
on the sale of more expensive American cars without affecting the sale of
foreign cars. The percent of total sales for each market class from 1967
to 1971 is shown in Exhibit B-14, following Exhibit B-Ill.
6. AUTOMOBILE PRODUCTION IS A MAJOR CONSUMER
OF THE NATION’S RAW MATERIALS
The automotive industry is the nation’ s largest user of metals and
rubber materials. The automotive consumption and the percent of total
U. S. consumption is shown in Exhibit B-V, following Exhibit B-IV.
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EXHIBIT B-Ill
Environmental Protection Agency
PERCENT OF MOTOR VEHICLE
REGISTRATIONS BY STATE IN 1971
/
\ )
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EXHIBIT B-IV
Environmental Protection Agency
PERCENT OF TOTAL SALES BY
MARKET CLASS FOR 1967 - 1971
Percent of Total Sales
Class 1967 1968 1969 1970 1971
Luxury 2.9 2.6 2.9 2.3 2.7
Medium Price 17.8 17.0 16.8 13.7 15.1
Regular 28.6 27.0 25.9 22.5 20.9
Intermediate 21.8 24.0 22.2 21.0 18.1
Compact 6.7 7.1 9.8 13.8 12.1
Subcompact 1.6 7.4
Specialty/Sports 12.8 11.7 11.1 10.3 8.6
Foreign 9.3 10.5 11.2 14.7 15.1
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EXHIBIT B-V
Environmental Protection Agency
USE OF RAW MATERIALS BY
THE AUTOMOTIVE INDUSTRY
Automotive Percent of Total
Raw Material Consumption U. S. Consumption
Steel 14,475,207 tons 15.9
Aluminum 368, 500 tons 8. 2
Copper 225, 000 tons 7.8
Cotton 38,932 tons 1.9
Iron 351,591 tons 41,2
Nickel 20, 300 tons 11.3
Natural Rubber 386, 817 long tons 69. 2
Reclaimed Rubber 115, 493 long tons 57. 9
Synthetic Rubber 1, 190, 779 long tons 62. 1
Zinc 398, 750 tons 29. 0
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APPENDIX B (4)
7. AUTOMOTIVE PRODUCTION IS A NATIONWIDE BUSINESS
The production of automotive components and parts is spread throughout
the country. Final assembly of automobiles is made in 17 states. The plants
owned by the four U.S. producers which perform processes covered by the
study are shown in Appendix A-VI. Appendix A-VI also describes for each
plant location the products produced by process, the production volume, the
employment level and the water usage.
8. CHANGES IN AUTOMOTIVE DESIGN ARE TIED TO EMISSION AND
SAFETY REGULATIONS
The requirement to reduce automotive emissions has led manufacturers
to search for an alternative to the conventional internal-combustion engine.
The most prominent alternative is the Wankel engine. While the Wankel in its
basic form is not necessarily a cleaner engine than present items, it may be
easier to clean up and with less degredation of engine performance and economy.
General Motors is expected to offer a Wankel-powered car by 1975. Further in
the future but also under development is the gas turbine.
Other changes in the foreseeable future include:
Heavier bumpers
• Passive restraint devices
Catalytic exhaust converters
• Metallic brake linings
• Honeycomb steel construction
Physiological anti-theft and anti-drunk devices
Periscopic and CCTV rear-vision devices
Digital readout of computerized monitoring of vehicle operation
and performance
These changes, many of which are demanded by regulations, will increase
the price of automobiles and the labor requirement in the automotive industry.
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APPENDIX B (5)
9. PRODUCTION DEVELOPMENTS ARE RELATED TO ENVIRONMENTAL
PROTECTION REGULATIONS
The traditional method used for melting iron in automotive foundries is
the cupola, which belches black smoke that is almost impossible to control.
To reduce the potential for air pollution, foundries use wet scrubbers in the
cupola stacks, which results in large volumes of water polluted with solids
and phenols. New foundries use electric-arc furnaces, which melt cleanly
with dry dust-collection systems to reduce air pollution.
A second technological improvement is the use of dry-particle electro-
static painting. In this process, dry electrically-charged particles are sprayed
on electrically-charged auto bodies. Electrical energy holds the particles in
place until the vehicle enters a heated chamber where the particles melt and
flow to give a smooth finish. This process eliminates the need for water-
curtain spray booths and their resulting water pollution.
10. SAFETY AND EMISSION REGULATIONS WILL INCREASE AUTOMOBILE
PRICES AND HAVE LITTLE EFFECT ON SALES: THE NET RESULT
WILL BE INCREASED LABOR DEMANDS BY THE AUTOMOTIVE
INDUSTRY
The accumulated effect of safety and emission-control requirements on
car prices has been projected to reach $1, 200 per unit by 1975. Even with this
price increase, automotive producers are projecting a 25 to 30 percent increase
in unit sales by 1980. Since the added cost items require labor to produce, the
net effect will be an increase in labor requirements which could be 50 percent
above the present level by 1980.
11. THE ARRIVAL OF THE FOUR-DAY WEEK MAY ALSO BOOST THE
NUMBER OF PEOPLE EMPLOYED IN THE AUTOMOTIVE INDUSTRY
The shorter workweek is expected to be a major goal of the UAW-Big
Three contract negotiations in 1973. The attitude and resistance of manufac-
turers is uncertain, but several factors make a positive decision at least pos-
sib 1 e:
The UAW is one of the strongest unions in the country.
The manufacturers recognize the monotony of assembly-line work
and are interested in steps to reduce the problem.
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APPENDIX B (6)
The problems of low productivity and excessive absenteeism on
Mondays and Fridays are increasing to an intolerable level.
Manufacturers may look upon the four-day week as an opportunity
to fulfill their social responsibility.
The four-day week may not come in 1973, but will very likely be a reality
before 1980. When it happens, an additional increase in labor demands for the
automotive industry may occur.
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