You probably didn’t hear or think much about the Energy Independence and Security Act of 2007. I certainly didn’t give much thought to how it might influence how we sell replacement tires.
But more than five years after being signed into law, regulations in the bill that are still being firmed up will do just that.
The purpose of the Energy Act was “to move the U.S. toward greater energy independence and security” by increasing production of clean renewable fuels; increasing the efficiency of products, buildings and vehicles; promoting research on greenhouse gas capture and storage options, and improving the energy performance of things like light bulbs, cars and government buildings.
Tucked into the bill – and drafted by the RMA – is Section 111, which instructs the Secretary of Transportation to set rules “establishing a national tire fuel efficiency consumer information program for replacement tires designed for use on motor vehicles to educate consumers about the effect of tires on automobile fuel efficiency, safety, and durability.”
Approximately 10% of the cars and light trucks in this country are in California, and in 2005 that state, by executive order, undertook reducing greenhouse emissions to 1990 levels by 2020. As part of that, California developed its own tire fuel efficiency regulations. Other states soon began to formulate their own tire fuel efficiency laws, creating the potential that the industry could face 50 separate laws dealing with tire design and compounding – which is why the RMA stepped in and offered a national solution as part of the Energy Act of 2007.
In developing its regulations, California officials estimated that a 2% improvement in fuel economy is possible in this country with a shift to fuel-efficient tires. Carla Peterman, commissioner of the California Energy Commission, says: “2% improvement represents an opportunity for substantial benefits – 300 million gallons per year in reduced fuel use, $1.05 billion in annual fuel savings, and 3.3 million metric tons of reduced greenhouse gas emissions.”
In June 2009 – 18 months after the bill was signed into law – the U.S. Department of Transportation proposed a “new, consumer-friendly label on replacement tires that would include, for the first time, information about the tire’s impact on fuel economy and CO2 emissions reductions.”
“Our proposal would let consumers look at a single label and compare a tire’s overall performance as it relates to fuel economy, safety and durability,” Secretary of Transportation Ray LaHood said at the time.
The Next Steps
Once a bill is passed into law, the actual specific rules and regulations take many months to be developed, considered and formalized, and the tire labeling and consumer education provisions of the Energy Act of 2007 were no exception. But the requirements of the law were far more complicated than just creating an adhesive label; an entire grading system had to be created, and that could only come after all-new tire performance testing protocols were established.
Originally, NHTSA was given 24 months to finalize all aspects of the law, and when it finally offered its “final” rule in early 2010, it was already months late and still incomplete, a fact that it plainly acknowledged. While most of the testing protocols had been decided and a tentative label design selected, the ways and means to execute a national consumer education program remained undecided.
As we understand the situation, the Final Final Rule is scheduled to be published on March 15. Once that occurs, it will need to clear various governmental departments, and because they are already behind, it will be April before we see the proposed Final Final Rule.
After that, the Final Final Rule then faces a 60-day comment period, during which various stakeholders and those that might be impacted will be able to offer their thoughts. Barring any significant issues, the Final Final Rule will then become, well, final.
At this point, we are simply “waiting for NHTSA to announce the new proposed rule,” according to Dan Zielinski, senior vice president of public affairs for RMA. “We’ve had a number of discussions with them about what we think is the best approach; we hope they have listened, but we’re not going to know until they come out with it.”
Comparing Label Plans
In other parts of the world, tire fuel efficiency testing and labeling is already in place. Japan has a voluntary program, South Korea has one that is run by the government and Europe has a continent-wide program that recently went into effect. Many hope the U.S. program will resemble those, especially the European Union version.
On Nov. 1, 2012, formal testing and labeling regulations went into effect in the countries that are part of the European Union (EU). The EU passed a bill to get this done in 2009, and by working cooperatively with the tire industry it came up with a plan that pleased tiremakers, OEMs, distributors and consumer groups.
And the EU did this well before the U.S. has finalized its plan.
The EU system’s ratings are different than the ones proposed by NHTSA; while the U.S. (and presumably Canada as it is expected that Transport Canada will adopt the same regulations) will consider durability (treadwear), safety (measured by wet traction and braking) and fuel efficiency, the EU looks at fuel efficiency, wet traction and noise.
Europe is concerned about noise pollution and used this measure instead of treadwear, though some tire manufacturers have suggested adding durability (treadwear) to the EU plan in the future.
The EU tire rating system format follows one already employed to rate appliances, so it was already familiar to consumers. There are six “bins” – designated by letters “A” through “G” – in which fuel efficiency and traction fall into based on specific test result values.
Fuel efficiency is measured by a rolling resistance coefficient value, based on an international test standard that most U.S. tire industry experts expect will be used in the U.S. system. Noise is rated in decibels (dB) and marked on the label as such and not categorized by letter grade as with fuel efficiency and wet traction.
Enforcement in Europe is left up to the individual countries and most of them are still working out how to do that. One significant difference between their plan and the one we might see is that a threshold was set for rolling resistance, which will continue to be adjusted to force greater and greater fuel efficiency going forward. Many lower priced imported tires already do not meet current minimum rolling resistance standards and need to be re-engineered in order to be sold in the EU. The system will continue to place pressure on those overseas manufacturers.
It is too early to tell how the system is working in Europe. They have never had a testing and labeling system like this, and to quote the European Tyre and Rubber Manufacturers Association, “it is a game changer for the whole tire supply chain, right down to the consumer. Manufacturers will benefit from visible product differentiation. Consumers will now be able to effectively compare tires on the basis of information on three selected performance criteria that were so little known.”
What Will it Look Like?
If NHTSA listens to the industry and to various groups affected by the new rules, we will probably have a “5 bin” rating system, with the bins representing 5 levels. This is preferred by most, especially for the fuel efficiency rating, because it allows tires to be rated within brackets that can give adequate comparisons without the potentially misrepresentative level of detail of something like a proposed 0-100 scale.
The new labeling and consumer education program will include ratings in each of the three areas: fuel efficiency, safety and durability. The program will rate all replacement passenger tires (but not LT-metric or winter tires).
Fuel efficiency will be based on a rolling resistance measurement that manufacturers are charged with testing. “Safety” will be measured by wet traction, and durability will be represented by a treadwear rating.
“Fuel efficiency” is the most specific term, yet there will be confusion. The rating will be based on either a rolling resistance load measurement or a coefficient value. The coefficient value method is favored by RMA and TIA because it is the best way to compare one tire to another – apples to apples. All tires have a specific RRC (rolling resistance coefficient) value.
When Consumer Reports recently surveyed tire buyers, one thing it asked was how much of an increase in gas mileage they would expect by actually switching to low rolling resistance tires. Approximately one-third of respondents didn’t know, and on the other end of the spectrum, 25% thought they would get 10 mpg more!
The reality is much different. The amount of total fuel consumption attributable to the tires is between 4% and 7%, depending on the vehicle and urban vs. highway driving.
Let’s look at the reality of the high end of that scale – 7%. If you decrease the rolling resistance of a tire doing mostly highway driving by 20%, then you only gain 20% of that 7%, or a gas mileage improvement of just 1.4% overall. If your vehicle gets 30 mpg, that would be an increase of only 0.5 mpg, not 10 mpg!
Some manufacturers quote different numbers, but you get the picture. Tires only account for 4% to 7% of the 30 mpg, or 2.1 mpg on the high end. While that is a pretty good improvement in real terms, it seems that many U.S. drivers expect that more fuel-efficient tires will give them huge increases in fuel economy.
The opposite result was seen in a survey done with 3,000 motorists in the U.K. The result there was that 77% of those surveyed underestimated the possible savings from LRR (low rolling resistance) tires. Of course, with the price of fuel being almost $10 per gallon, the monetary savings in the U.K. is more than twice what we might see here. The point is that tire buyers need some educating.
The second rating is “safety” – a fairly broad term that can mean many different things. To reduce confusion, RMA and TIA have suggested that it be called exactly what it is: wet traction. As with fuel efficiency, NHTSA has not announced which measurement scheme it will employ – peak or slide. With ABS on 90% of the vehicles on the road today, most experts believe that peak value is best because ABS systems are designed not to avoid lock-up, necessary to make a “slide” measurement to be meaningful.
The other rating is “durability,” another term that could be clearer. When some people hear “durability,” they might think about puncture or abrasion resistance when, in fact, we’re talking about treadwear.
So what will the new labels or required test values look like? The RMA has done quite a bit of work on this and made several specific suggestions to NHTSA. The RMA disagreed with the 0-100 scale that was originally suggested. Instead, RMA believes that a five-category system would work best. This “five-category system” could be one to five stars or points or letters A through E, where all tires are rated for each category. This would be similar to the plan in use in Europe and Japan.
Will We Have Labels?
We don’t know. There has been logical argument against physical labels because most tire buyers don’t even see them when they’re shopping for tires. Getting them after the tires are installed is pointless, but will they be on display tires in the showroom?
The most logical ways to communicate the ratings to consumers must be at the point of sale or online. The information is deemed important to help consumers make better tire buying decisions, so access is vital. The ratings could be provided in web-based charts or as paper hand-outs or in tiremaker databooks. The information can be provided by each manufacturer or in a compendium created to house all of the information in one place.
NHTSA places much of the information-providing burden on the shoulders of tire retailers, and mentions posters and POS pamphlets as being employed, as well as requiring the retailer to include tire grades on their websites. TIA has raised its hand and asked to be the primary provider of labeling information to consumers, and this being a federally mandated program, the funding for a multi-pronged consumer education push would presumably come from taxpayers.
What Will Change?
We don’t know any details yet but can make a few assumptions:
• Tire dealers will need to get training on new regulations very quickly. Kevin Rohlwing, TIA’s senior vice president of training, explains there are three things that are yet to be determined: “how to measure, how to communicate and how we need to get it to the consumer.” After NHTSA decides those, TIA will then jump into action to get dealers trained on the new regulations.
“The whole industry is waiting on NHTSA and we are going to have to react quickly,” says Rohlwing. “Retail tire dealers are going to need to train quickly so that everyone at the sales counter can properly educate their customers.”
• Consumers will have more information than ever before to help them make the best tire buying decision – a true apples-to-apples decision impossible under the antiquated UTQG system. There already is a large consumer segment that does a significant amount of Internet research before buying tires. We will now be required by law to give them more data.
• The new rating system should encourage advancing technology in tire rolling resistance. Many tire companies will want to have products with the highest ranking so that they can claim having the most tires in the top rating categories, for example. Because comparison can be drawn across brand lines, the new testing and rating system will put more pressure on tiremakers to continuously improve the breed.
• Price differences between various tires might be easier to explain. To some, tires all look the same, and without guidance to define what makes expensive choices different from inexpensive ones, many consumers will buy based only on price. With this labeling system, there will be more tools to explain the differences.
On the other hand, it might be harder to explain some price differences. Emerging products from smaller tiremakers could test very well. Technology has been equalizing, and what some see as a Tier 3 product may deliver performance grades quite close to those of a traditional Tier 1 tiremaker. Consumers will question why one tire with a B-B-B (if bins and letters are used) is $40 more than another B-B-B rated tire from an unknown manufacturer.
• Interest in the various “savings calculators” on tire websites will grow dramatically. The ability to quantify fuel savings over a specific period of time for one tire vs. another will influence the way we sell tires. NHTSA surely will have a savings calculator on its website, and it probably will be a program requirement for all tiremakers and retailers to follow suit.
• Dealers may need to stock or have quick availability to a greater selection of tires in order to cover buyer fuel efficiency-price demands. Dealers will need to review their product screens to see that they offer – or can get – previously lesser-known tire options.
• Durability (treadwear) will likely now be rated on an industry standard rather than a manufacturer “standard,” as is the case with the current UTQG system. Tires are limited to a UTQG treadwear rating of about 800 now, even though some tires could be assigned a much higher number. Marketing by model line influences how tiremakers assign current ratings. If a universal standard is used across the board, the test values will be more meaningful for comparing different brands.
• The price of tires will likely adjust to the new regulations and the cold, hard realities of ratings. With new government requirements come additional costs to tiremakers, and those will get passed along to consumers. Enforcement includes a proposed $50,000 fine for each case of non-compliance, adding to the cost picture.
While this is nothing new, tires with better technology will still command a higher price, especially if consumers show that they really are interested buying more fuel-efficient tires. NHTSA estimates that the costs to improve rolling resistance would average $3 per tire. The result of that “investment” would be an estimated decrease in rolling resistance of 5%-10%.
• Tiremakers will have to use “real” numbers to explain the fuel efficiency gains of their products vs. older models or competitive products. Because there have not been consistent testing standards, in recent years manufacturers could and would toss out fuel efficiency gains of new products, some heavily footnoted as a comparison against an existing tire or a very specific size and model of competitive rubber. Now they will have to “show their cards” with real numbers or letters.
• What we don’t know is whether consumers will even care. Back in 2007, consumers faced pump prices of $2.50 per gallon (even $3!), and consumers complained to their congressmen and to the media. Soon, the industry was flooded with ideas and devices that would improve gas mileage, and replacement tires were accused of being less fuel-efficient than their OE cousins.
Since those panicked days, gas prices have soared past $4 a gallon, settling in at around $3.50 now, and while consumers aren’t happy about it, they have seemingly accepted the reality of expensive gasoline and diesel. Since it has taken so long to get from the President’s desk to reality, many wonder how this tire testing, grading and labeling system will even be received.
At present, the research shows that fuel efficiency is down on the list of consumer tire concerns. Anyone working the retail sales counter would probably agree.
Will it be Confusing?
There is certainly a lot of potential for confusion. Existing UTQG ratings and information have been around for decades and some retailers are still unclear on what 400AAA means. Imagine, then, what consumers know or think of UTQG ratings.
There will be a period of transition with a good deal of confusion. It is assumed, but not decided, that the current UTQG system will be replaced by the new system. The proposed rule states that it will remain, but many expect that to change as two systems would only add to the confusion. “Why introduce the possibility of consumer confusion, especially with a new system that will take some time getting used to?” says Zielinski.
There also will be some definite training and communication challenges just with the new rules. The new ratings will NOT be molded in the sidewall, and will only appear on the tire as a label or equivalent.
That means that for a period of time, we will still have UTQG ratings molded on the tires. Once the molds wear out – if UTQG is done away with – they will probably get changed. So, if the new system replaces the current UTQG, as many assume, we will need to tell customers that the data permanently molded into the side of the tires isn’t important anymore.
Not missing in this conversation is the importance of proper inflation pressure on fuel efficiency, as well as on durability and safety. Buying more fuel-efficient tires will help reduce consumption of gas and increase our energy independence, but proper tire inflation remains the key factor in maximizing fuel efficiency.
Selling tires might soon take a little more time. At 7:30 a.m., few salespeople have time enough to explain the new ratings and labeling, and this will make selling tires a bit more complicated. The program won’t just be a new label with some new “values,” but a full-scale testing and grading system with a significant “consumer information program” with specific requirements for tire dealers. What remains unknown is how much help retailers will get in their mandated consumer education efforts.
So will the goals of the new program be met? Tire Rack’s website says that our existing UTQG system “has not fully met their original goal of clearly informing consumers about the capability of their tires. Maybe it’s because tires are so complex and their uses can be so varied, that the grades don’t reflect their actual performance in real world use.” But are the failings of UTQG fairly indicative of how this will go?
We don’t know exactly what NHTSA will include in the Final Final Rule and most are hesitant to guess at this point. One thing is certain: We’re getting a new program and a new way of selling consumer tires. And if you thought tire customers were armed with too much online research that just complicates the selling process, just wait.
Since one goal of the new rule is to better inform consumers, we had all better be paying attention and get up to speed on the details. Dealer training has to happen before customers can get educated.
Sure, you still will have lots of customers that rely on your recommendation – and may or may not care about fuel efficiency – but selling tires is about to become a little more challenging.