Costs and Unintended Impacts

James M. LyonsSierra Research, Inc.

July 2, 2003

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Outline

Walk Behind Mower (WBM) Market Per Unit Costs for Engine Manufacturers

for Engines used in Commercial and Residential Applications

Impact on WBM Prices Overall Costs Unintended Impacts

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Walk-Behind Mower Market2002

Source: Briggs & Stratton

0%

5%

10%

15%

20%

25%

400+=14.6%

200-399=46.1%

0-199=39.3%

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WBM Market Factors(“Very important “or “Somewhat important”)

0%

20%

40%

60%

80%

100%

Under $200 $200 - $399 $400 Plus

Engine Horsepower Blade Size Low Polluting Engine OHV engine

Source: Briggs & Stratton

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WBM Selection Factors(reasons cited for selecting a particular WBM)

0%

10%

20%

30%

40%

50%

60%

70%

Under $200 $200 - $399

"Lowest priced mower" "Best model I could afford"

Source: Briggs & Stratton

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Estimated Costs forNon-Handheld Engines

Engine Manufacturer Costs for Exhaust and Evap:– Commercial Engines = $128 per unit– Residential Engines = $79 per unit

Costs for complete units may be higher

Source: Briggs & Stratton

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Retail Price Impacts

0.733.3 3.7

12.5

33.6

0

5

10

15

20

25

30

35

40

LEV II Coatings RFG III Hairspray WBMs

(Price Increase as Percentage of Retail Price)

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Overall Costs(Engine Manufacturers Only)

Commercial Engines – CA Sales = 81,150 per year– Annual Cost = $10.4 million

Residential Engines– CA Sales = 731,000 per year– Annual Cost = $57.8 million

Overall CA Cost = $68.2 million per year

Source: Briggs & Stratton

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Cost to California Businesses

Estimated Sales = 122,000 units per year

Average Cost = $112 per unit (engine manufacturer cost only)

Cost to CA Businesses = $13.6 million per year

Source: Briggs & Stratton

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Analysis of Major Regulations

H&SC Section 57005– …"major regulation" means any regulation

that will have an economic impact on the state's business enterprises in an amount exceeding ten million dollars ($10,000,000)…

Requires consideration of alternatives following “guidelines”

Most recent guidelines dated 12/9/96

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Other Cost Factors Include

Equipment Manufacturer Costs Financial Impacts of Reduced Sales in

California

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Potential Adverse Impacts

Pre-buy of lower cost units Slower population turnover Shift from mowers to handheld

equipment Out of state purchases

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Summary

Regulations have Large Impacts on Retail Price

“Major” Regulation Unintended Impacts Need to Be

Addressed

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Regulatory Price Impact

LEV II exhaust and evap for PCs to SULEV standard– $131 per vehicle for exhaust and $25 per vehicle for evap = 0.73

percent of vehicle cost ($21,440) Aerosol Coatings, Antiperspirants and Deodorants, and

Consumer Products– 10 cents per bottle = 3.3 percent of average can ($3 can)

Reformulated Gasoline (RFG III)– 5.5 cents mid-point estimate per gallon first year, lower costs

afterwards = 3.7 percent of $1.50 gallon of gasoline Hairspray Rule Amendments (55 % VOC limit)

– 12.5 cents per bottle (mid-point estimate) = 12.5 percent of low cost product ($1 bottle)

Small off-road engine rule– $79 per WBM = 33.6 percent of median WBM price of $235.