Benefits of airbag refitment in second-hand cars in New Zealand

Monash University Accident Research Centre – Report #174 - 2001

Full report in .pdf format [416KB]

Authors: Brian Fildes, Peter Vulcan, Magda Les & Andrew Morris

Abstract:

The Land Transport Safety Authority (LTSA) have a policy of allowing second-hand vehicles to be imported into New Zealand. Current policy in this country requires airbags to be reinstalled when they have been deployed, following a crash or for some other reason if the vehicle was originally certified to comply with a frontal impact standard. Given the governments policy of "Safety at Reasonable Cost", it is important to demonstrate the likely benefits and costs associated with this policy. The Monash University Accident Research Centre (MUARC) undertook an economic analysis of re-fitting airbags in vehicles where they had been fitted as original equipment but since were not operative or replaced following a crash. Using a similar procedure developed in Australia during the 1990s, a Harm analysis was undertaken to estimate the likely benefits for New Zealand. A number of assumptions were made about the level of injury savings expected to drivers in these target vehicles. Airbag replacement costs were derived from average industry figures provided as well as for expected future values, based on overseas experience. Findings showed that the break-even figure for mandating airbag replacement varied from between 5 and 16 years, depending on the cost of replacement and the discount rate for future earnings. The total system-wide benefits of airbags in both new and used vehicles in New Zealand was shown to vary from a Benefit-Cost-Ratio (BCR) of 2.4 to 3.4 for the same figures.

Executive Summary

Current policy in New Zealand requires airbags to be reinstalled when they have been deployed, following a crash or for some other reason, only if the vehicle was originally certified to comply with a frontal impact standard.

At present, Class MA passenger cars manufactured after March 1999 are required to comply with a frontal impact standard, and must therefore have airbags reinstalled if the vehicle was originally manufactured with airbags. All other vehicles may be operated without airbags, even if originally fitted with them.

The policy applies irrespective of whether the airbags are deployed whilst the vehicle is in service or prior to being imported into New Zealand. Policy makers in New Zealand have been considering a change in policy, which would require airbags to be reinstalled in all vehicles, which originally had them, with a possible cut off date when the vehicle has reached a certain age.

The fitment of a replacement airbag can be expensive, as replacement parts are not cheap on a one-off basis. The question arises whether the retrofitting of driver airbags is cost-beneficial for New Zealand and therefore, whether it should be mandated or rather simply recommended. New Zealand has adopted a "safety at reasonable cost" philosophy towards vehicle safety, which dictates that safety requirements must be assessed against community savings above implementation costs.

This report describes an analysis of the benefits of retrofitting airbags to second-hand cars and vans where they had an airbag fitted as original equipment but not replaced, or found to be inoperative subsequently.

Analysis Method

The analysis undertaken was based on best estimates of societal Harm to drivers in New Zealand, which adopted "Willingness-To-Pay" values of injury cost in the early 1990s. Benefit-Cost-Ratio (BCR) calculations were performed for varying vehicle ages for fitment up to 30 years and a break-even figure where costs=benefits is provided.

The calculation of benefits and costs is carried out assuming these figures apply to both imported second-hand cars as well as cars where the airbag has been deployed on New Zealand roads. In addition, a total systems-wide airbag benefit was also calculated to demonstrate what the total airbag benefit would be assuming all vehicles in the New Zealand fleet were to have airbags fitted. It was argued that the total systems-wide benefit provides an overview of what the total benefits would be to drivers in New Zealand and hence the total BCRs of airbag technology.

Replacement airbag costs were derived from information provided by the auto industry. Average cost of replacement was estimated across the range of different figures provided and future airbag replacement cost estimated by assuming that current Australian values are likely to represent future New Zealand equivalents.

Several Benefit-Cost-Ratios were computed assuming three replacement cost estimates and two different discount rates. Current scrappage rates were used to predict future fleet estimates.

Assumptions for the Analysis

A number of assumptions needed to be made in calculating the benefits and costs of replacement airbags in New Zealand. These are listed below.

  • While airbags are currently being fitted to many different vehicle types, only benefits to occupants in passenger cars were considered here.
  • It was assumed that the Australian distribution of injury frequency by body region and severity modified for the local market was applicable, as no New Zealand equivalent data were available.
  • Willingness-To-Pay injury cost figures published by the LTSA in 1999 and used in current calculations was again used for calculating New Zealand Harm estimates.
  • The total annual Harm for vehicle occupant injuries in New Zealand amounted to NZ$2.9billion.
  • Seat belt wearing rates in New Zealand have been observed to be 89% for front seat occupants. On the basis of overseas equivalents, it was assumed that the level of unrestrained occupants injured in crashes in New Zealand was 25%.
  • Expected injury reductions for airbags reported in a previous Australian benefit-cost study (MUARC, 1992) were used as a basis for the benefit calculation in New Zealand.
  • Three replacement costs were used for the calculation, based on average figures reported by the automotive industry in New Zealand now and adjusted for expected future values.
  • Relevant crashes were assumed to be frontal impacts where a driver was injured. It was expected that airbag deployment rates would be below the expected injury level.
  • The Harm benefit per vehicle was assumed to be the expected annual Harm saved for the total fleet, divided by the average number of crashes in New Zealand.
  • Historical vehicle scrappage rates were assumed to be representative of future scrappage rates.
  • While current New Zealand policy decisions call for a 10% discount rate of future benefits, a 5% value was also included to provide sensitivity figures (a 5% discount rate is routinely as a basis for policy decisions in a number of overseas countries).
  • Total fleet benefits of airbags included both new and second-hand vehicle savings.
  • New car airbag fitment costs would be NZ$800. The average marginal cost for a second-hand vehicle with an airbag already fitted was assumed to be NZ$400.
  • A 10% fitment rate was assumed for imported cars requiring an airbag refitment.

Individual Break-Even BCR Figures

The break-even number of vehicle years for a BCR = 1 (i.e., where the costs outweigh the benefits) are shown below in Table 1 for both 5% and 10% discount rates. These include both current and future replacement costs for an airbag in New Zealand.

Table 1 Break-even year (BCR=1) for retro-fitting airbags by age of second-hand vehicle in New Zealand

Replacement Cost 5% Discount Rate 10% Discount Rate
NZ$1,320 10 years 5 years
NZ$950 14 years 12 years
NZ$770 16 years 14 years

Figures rounded to nearest whole year

Total System-Wide Benefits

The total system-wide benefits (BCRs) for mandating airbags in new and second-hand cars in New Zealand are shown in Table 2 below. It was argued that while the marginal BCRs for airbag replacement on some older cars is less than 1, this ignores what the overall BCR is for the total system.

Table 2 System-wide benefits in New Zealand for airbags in new and used vehicles

Cost of Used Airbag Discount Rate
  5% 10%
NZ$770 3.39 2.51
NZ$950 3.33 2.47
NZ$1,320 3.21 2.38

Conclusion

On the basis of the data on the future expected cost of airbags in New Zealand, it seems reasonable to conclude that it would be cost-beneficial for cars to be refitted with airbags when they are not replaced after a crash for up to 14-years of their life.

The benefits would be higher for a less conservative future discount rate than 10%, which is the current practice in New Zealand. Other countries, however, use less conservative rates, ranging from 4% in the USA to 5% or 7% in Australia.

It is conceivable that the estimates provided here of the future cost of airbags might be even less as efficiencies and exposure increase substantially in the years ahead.

The total system-wide BCRs support the overall benefit of airbags as a cost-beneficial safety feature in all New Zealand passenger cars. It is expected that these benefits would also apply to other vehicles, such as 4WDs and passenger vans.

Sponsoring Organisation: Land Transport Safety Authority, Wellington, New Zealand