Exhibit A:

Abstract

Retail Price Equivalent (RPE) is a methodology used by accountants and financial managers at vehicle manufacturers to determine the markup required from direct manufacturing costs the costs of materials and labor to the retail price at which a vehicle or component must sell in order to earn at least a competitive rate of return on their investments in technology. The appropriate markup consists of the indirect or overhead costs associated with R&D, pensions and health care, warranties, advertising, maintaining a dealer network, and profits. The National Research Council (NRC) finds a consensus among internal financial managers and outside analysts for an average RPE of around or slightly above 2.0, or twice the level of direct manufacturing costs. Historically, the government has used the RPE methodology to mark up direct manufacturing costs to retail. For the MY 2012-2016 greenhouse gas (GHG) and Corporate Average Fuel Economy (CAFE) standards, the government used a lower RPE of 1.5 in conjunction with the newly developed concept of Indirect Cost Multipliers (ICMs). Most recently, for MYs 2017-2025, it scrapped the RPE approach in favor of ICMs which results in an average markup of 1.25. This paper confirms the NRC’s consensus estimate of a 2.0 RPE markup and implies that the agencies have underestimated the increased consumer prices resulting from their proposal by a factor of 1.6. The ICM approach substantially underestimates the costs of the proposed standards and the significant losses of light vehicle sales and manufacturer, supplier, and dealer jobs. When an appropriate 2.0 RPE factor is applied to the proposal’s estimated costs, the per vehicle price increase increases from an estimated $2,937 to $4,803.