Interpretation ID: 18644kwii.ogm

William Shapiro, P.E.
Manager
Regulatory Compliance and Environmental Affairs
Volvo Cars of North America
7 Volvo Drive
Rockleigh, NJ 07647-0913

Dear Mr. Shapiro:

This is in response to your letter of August 6, 1998 regarding the impact of amendments adopted by the National Highway Traffic Safety Administration (NHTSA) pursuant to the Debt Collection Improvement Act (DCIA) on applicable penalties for violations by Volvo Cars of North America (Volvo) of the corporate average fuel economy (CAFE) standard applicable to model year (MY) 1998 passenger cars.

Pursuant to 49 U.S.C.  32912(b), a manufacturer that violates a CAFE standard (after applying any applicable carry-back or carry-forward credits) is liable for a civil penalty of $5.00 for each tenth of a mile per gallon (mpg) by which the standard exceeds its average fuel economy for that year, multiplied by the number of automobiles in its fleet. Pursuant to the DCIA, NHTSA raised that amount to $5.50 per tenth of an mpg. 49 CFR 578; 62 Fed. Reg. 5167 (January 30, 1997). The effective date of the increase was March 6, 1997.

In your letter, you refer to a July 23, 1998 letter from me to you, in which I stated that the increase in the CAFE penalty amount would apply beginning with the 1998 model year. You assert, however, that the penalty increase should not apply to Volvo's MY 1998 fleet because certain MY 1998 Volvos were produced and sold prior to the effective date of the increase.

In my July 23, 1998 letter, I explained that NHTSA has long maintained that CAFE standards apply to model years as a whole, and not to separate parts of a model year. The letter also set forth the agency's rationale for concluding that the applicable CAFE penalty is the penalty in effect at the beginning of the model year in question. Since the effective date of the DCIA increase was after the beginning of the 1997 model year, we announced that the penalty increase would apply to violations of the MY 1998 CAFE standards.

You have advised us that, beginning in February 1997, Volvo began selling S/V70 model vehicles that it designated as MY 1998 models. Since this preceded the effective date of the penalty increase, you contend that applying the increased penalty to Volvo's MY 1998 fleet would be inconsistent with the agency's decision that CAFE standards apply only to model years as a whole.

The agency does not agree with your interpretation. Rather, as explained below, we have determined that all DCIA amendments to CAFE civil penalty levels that are effective prior to October 1 of a given year will apply to violations of CAFE standards applicable to the subsequent model year.

As you know, 49 U.S.C. Chapter 329, "Automobile Fuel Economy," establishes time limits within which NHTSA must prescribe and/or amend fuel economy standards for a given model year that are based upon the beginning of the model year. See 49 U.S.C.  32902(a) and (g)(2). In interpreting those provisions, both NHTSA and the courts have concluded that the model year will be deemed to begin on October l. See 49 Fed. Reg.225l6 (May 30, l984); 49 Fed. Reg. 4l250 (October 22, l984); In re Center for Auto Safety, 793 F.2d l346, l349 (D.C. Cir. l986). See also General Motors Corporation v. NHTSA, 898 F.2d l65, l76 (D.C. Cir. l990); and Center for Auto Safety v. NHTSA, 7l0 F.2d 842, 847 (D.C. Cir. l983).

The use of October 1 to mark the commencement of a model year provides NHTSA with a consistent benchmark for satisfying its statutory obligation to promulgate and amend CAFE standards on a timely basis. If, for example, the agency were to recognize model years that were selected by manufacturers for marketing or other purposes as the model year for the purposes of prescribing or amending CAFE standards, it would be difficult, if not impossible, for NHTSA to issue such standards in a timely fashion.

We recognize that a manufacturer may produce or import vehicles that it designates as belonging to a particular model year before October l of the preceding year. However, for purposes of deciding the model year to which any enhanced penalties imposed under the DCIA apply, we need to have a standardized model year that applies to the industry as a whole. We have concluded that since we have previously utilized October 1 as the relevant date for other purposes under the CAFE statute, we will use it for this purpose as well.

If, as you suggest, NHTSA did not apply the enhanced penalties to Volvo's MY 1998 fleet, Volvo would be subject to lesser CAFE penalties than other manufacturers simply by virtue of having produced a small number of vehicles prior to March 6, 1997 that it unilaterally chose to designate as MY 1998 models. We believe that it would be inequitable for the agency to apply the CAFE penalties in such a fashion.

Moreover, if NHTSA were to adopt the position urged by your company, we would encourage manufacturers to time the introduction of new model year vehicles to avoid future penalty increases adopted pursuant to the DCIA. It could also lead to claims that newly adopted or amended CAFE standards for a future model year that were issued on a timely basis should not apply to any manufacturer that sold some of that model year's vehicles prior to October 1 of the preceding year. Such a result would be contrary to the purposes of both Chapter 329 and the DCIA.

Accordingly, NHTSA has concluded that, for purposes of deciding when the enhanced CAFE penalties will apply, the 1998 model year began on October 1, 1997, which was well after the effective date of the penalty increase. Of course, as has always been the case, all of the vehicles that Volvo designated as MY 1998 vehicles will be considered to be part of Volvo's MY 1998 fleet for purposed of calculating its CAFE for that model year.

Accordingly, it is our position that any CAFE penalties applicable to Volvo for the 1998 model year must be calculated using the $5.50 per tenth of an mpg rate required by the DCIA and NHTSA's implementing regulation. However, it also my understanding that Volvo intends to submit another request for interpretation that may further impact on any penalties owed for MY 1998. Provided that this request is submitted prior to the current deadline for the company's payment of the MY 1998 penalty, NHTSA will not take further actions until your request is resolved.

I hope that this is responsive to your request. If you have any questions, please contact Otto Matheke of my staff at (202) 366-5253.

Sincerely,
Frank Seales, Jr.
Chief Counsel
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