For most people, if they think about budgets at all, it’s usually limited to balancing a weekly paycheck against outstanding bills and hoping that the former exceeds the latter by a few dollars. But for the men and women that design and develop the cars and trucks we drive, budgeting is far more complex than just making sure the cost of production is less than the sale price. Every aspect of a new vehicle has non-monetary budgets associated with it that play a big part in the decision process of which products move from whiteboard to production and what form they take.
Market demand vs regulators
As the transportation landscape races toward a 2025 target to get the average fuel economy of the new vehicle fleet to 54.5 mpg, the internal discussions over how those budgets are distributed among weight, propulsion systems, electrical power, aerodynamics and more are getting increasingly contentious. Here in the U.S., automakers are facing two major environmental regulations plus a host of safety related mandates that will play a critical role in shaping those budgets and determining the makeup of the 2025 and beyond vehicle fleet.
On the environmental, side we have federal rules for fuel efficiency and greenhouse gas emissions while California and other states are mandating that an increasing percentage of new vehicle sales must have zero tailpipe emissions. From a purely technical perspective, it would be relatively straightforward to meet these ever-tightening rules if cost were no object.
Sadly, cost is very much an object. Most consumers have capability needs from the vehicles they buy and financial constraints based on their incomes. If they can’t get what they need at a price point they can afford, it doesn’t really matter how efficient those vehicles are, they won’t get sold and manufacturers won’t meet their targets or even remain in business. In that case, we potentially face a scenario like the one in Cuba over the half-century-long trade embargo where people will just keep what they have running as best they can. That’s a scenario that’s not good for anyone.
This leaves the product planners in Detroit, Tokyo, Seoul, Munich and elsewhere with a puzzle to solve. For the math and engineering nerds out there, planners essentially have to solve a complex system of equations that generates a fuel economy budget that meets both governmental and market demands. They need to come up with a fleet mix in 2025 and beyond that lets them sell enough profitable vehicles like trucks and utilities to offset the lower or negative margins on most of the more efficient EVs and small cars. Plus they still have to meet the safety rules and provide the amenities today’s customers expect.
What is it?
Further complicating this puzzle is that in addition to the fleet average fuel economy, individual model lines have to improve based on targets tied to the footprint of those vehicles. That means even the trucks have to get significantly less thirsty at the pump.
Layered on top of this are seemingly arbitrary vehicle segmentation rules about exactly what exactly counts as a car or a truck. It used to be easy to distinguish between cars and trucks with a few SUVs thrown in as well. However, as utilities have grown increasingly popular since the 1980s and shifted from body-on-frame truck platforms to car-based unibodies, that’s no longer true. The continuum of what is a crossover or sport utility vehicle has become so complex that when EPA took a stab at trying to add a definition for SUVs, they found it impossible to come up with a consistent one that worked.
As a result, we have car classifications that range from mini compact to large station wagon based on the interior volume index (the sum of the passenger and cargo volumes). On the truck side, we have small and standard pickups and SUVs that are split by whether the gross vehicle weight rating (GVWR, the combination of vehicle weight plus maximum payload) is above or below 6,000-pounds.
The small SUV segment is where all the action is today, but perhaps not in the way that you think. All standard SUVs over 6,000-pounds count as trucks toward CAFE and greenhouse gas rules. However, EPA decided that two-wheel-drive (2WD) small SUVs would count as cars while four-wheel-drive (4WD) versions of the same would be included in the truck count. Whether any particular utility model counts as an SUV at all or as a car is up to the manufacturer.
Based on these entirely arbitrary designations, the manufacturer looks at each model line to determine where it best fits within their fuel economy budget calculations. One example of how this plays it is at BMW where for marketing purposes, all of their X models are labeled as “sport activity vehicles” although most people looking at them would call them SUVs. Unsurprisingly, the X5 and X6 are standard SUVs by the EPA designation and thus trucks. At the entry point of the lineup is the X1 which BMW submitted as a large car for certification based on its combined 128 cubic feet of interior volume. In between, we have the small SUV X3 which is in 2WD form counts as part of the car fleet while the 4WD is a truck.
At Nissan, things are even stranger with the Rogue, Murano and Pathfinder. As expected the Rogue is a small SUV with the usual FWD/4WD car/truck split. The Murano which most observers would look at and call an SUV is classified as a midsize station wagon and thus counts toward the car fleet even in 4WD form. The Pathfinder is a large three-row utility similar in size to a Chevrolet Traverse or Ford Explorer, with the latter two classed as standard SUVs.
However, because the small/standard SUV divide is based on GVWR rather than the size, there was an opening for Nissan. Any SUV with a GVWR of less than 6,000-pounds is considered “small” regardless of its physical size. Limiting the Pathfinder payload so that the GVWR conveniently comes in just under the limit at 5,985 pounds allows it to be a small SUV, just like the Rogue. Thus the FWD versions of both the Rogue and Pathfinder are included in the car fleet average while the 4WD variants count toward the truck average.
Since the company had some margin available in their car fuel economy average, including the 2WD Pathfinder volume in the car fleet wouldn’t push it over the CAFE limit. Meanwhile, the 27 mpg 4WD Rogues which are part of the truck fleet offset some of the other vehicles in the truck fleet like the Titan, Quest, NV commercial vans and Armada SUVs. It’s all part of the budgeting process, in this case, trading off a bit of capability in order to get the fuel economy average Nissan needed for both cars and trucks.
Stay tuned for Part Two of Engineering Budgets
The author is a senior analyst on the Transportation Efficiencies team at Navigant Research
https://www.forbes.com/sites/samabuelsamid/2016/10/26/engineering-budgets-go-way-beyond-dollars-and-cents-is-it-a-car-truck-or-suv/
2016-10-26T13:11:00+00:00