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HONK IF YOU HATE THE EPA
Already bedeviled by traffic jams, pothole-pitted roads, and rising sticker prices, car owners may be pushed over the brink by the Environmental Protection Agency's tough new rules on auto emissions. The EPA's July 13 proposal will require some 100 million cars to undergo far stricter--and more expensive--testing than current regulations mandate. And owners of cars that can't pass may find themselves stuck with repair bills of as much as $450.
But there are plenty of Americans who just love the new regs. If the rules survive a gauntlet of likely legal challenges, it will mean a windfall for companies that make testing equipment and perform the actual tests. "It's a bonanza," says Chester Davenport, Chairman of Envirotest Systems Corp., a Bethesda (Md.) company that already runs inspection programs in seven states. Indeed, Davenport thinks the new rules could triple privately held Envirotest's 1991 revenues of $70 million by 1994. He says he may take the company public at some point to finance the resulting expansion.
Testers aren't the only companies bound to benefit. As many as one-third of the late-model cars currently on the road initially will fail the new test, the agency says. Today, just 8% to 10% do so. That means lots more cash for repair shops, parts makers, and repair-equipment manufacturers. "Anything driving more business to the repair shop is good for us," says Ronald J. Ortiz, president of North American operations for Sun Electric Corp. in Crystal Lake, Ill. His company runs inspections and makes diagnostic equipment used to repair cars that can't pass pollution tests.
NEW PARTS. Cleaning up smog-spewers will require plenty of new replacement parts, too. Already, sales of emissions equipment are growing 25% annually for Standard Motor Products Inc., a $550 million-in-sales auto-parts maker in Long Island City, N.Y. The tough new inspection law will only add to that. "It's what's known as the untapped repair market," says Steven J. Brown, Standard's vice-president for marketing.
The new rules, however, will mean big challenges for some companies. Though the EPA argues that the new inspection program is a cheaper way to cut air pollution than upcoming rules requiring cleaner cars and fuels, the change is going to be expensive. The new regulations require testing under conditions that more closely mimic actual driving. That means placing cars on expensive treadmills and running them at different speeds. The equipment costs a minimum of $150,000--and as many as 8,000 units may have to be set up to handle the flood of cars around the country.
BIG BILL. That's too expensive, some companies say, and that may force them out of the market. Three years ago, for example, Atlantic Richfield Co. launched Smog Pro, a chain of emissions-testing shops in Southern California. Now, there are 136 franchisees whose shops use a system that costs about $50,000. Upgrading would stick the franchisees with a bill of at least $40 million. And unless the EPA approves Smog Pro's current system, a step the agency is now evaluating, "we're really going to have to look at whether we want to be in this business," says Bob Fidler, manager of new marketing programs for Atlantic Richfield's products division.
That won't upset the EPA and environmental groups. They contend that half of all tests conducted at repair shops are done improperly, so they would prefer that more accurate tests be done at inspection-only facilities. Only strenuous lobbying by Atlantic Richfield and service station owners stopped the EPA from limiting the new tests to inspection-only shops--which would have hurt them and helped inspection contractors such as Envirotest and Sun Electric.
The EPA's new rules, which could serve as an international model, may even have given U.S. exports a boost. Britain adopted mandatory testing last year, Taiwan has a tough program in place, and Germany is expected to follow suit. U.S. companies such as Envirotest and Andros Inc., a maker of test equipment in Berkeley, Calif., are getting a nice chunk of that work. Cleaning up the air, it seems, can be good business for some the world over.A WINDFALL FOR THE `SMOG INDUSTRY'
TESTING COMPANIES With mandatory emissions-testing expanding to 55 new areas,
companies that run inspection programs stand to increase revenues by $1 billion
TEST-EQUIPMENT MAKERS High-tech dynamometers, the testing gear required under
the new law, cost $150,000 each. Companies that make the meters should rake in
some $1.2 billion in new business
REPAIR FACILITIES Service stations and other repair shops will get some $600
million in new work to bring cars up to the standard
AUTO-PARTS MAKERS All those cars will also need new parts, amounting to some
$240 million in business for parts manufacturers
DATA: BOOZ, ALLEN & HAMILTON INC., ENVIRONMENTAL PROTECTION AGENCY, COMPANY
Peter Hong in Washington, with Thane Peterson in New York and Ronald Grover in Los Angeles