Interpretation ID: 2874yy
Staff Attorney
Office of General Counsel
Ford Motor Company
The American Road
Dearborn, MI 48l2l
Dear Mr. Canever:
This responds to your letter concerning Ford's plan to allocate MY l986 light truck credits to cover MY l985 and MY l989 shortfalls. For each of those model years, manufacturers have the option of complying with separate 4x4 and 4x2 standards or a combined standard. Ford elected to comply with the separate standards for MY l985 and the combined standard for MY l986 and MY l989. The MY l986 credits are applied in the plan on a prorated basis to MY l985.
In response to your letter, we have reviewed Ford's credit allocation plan in light of 49 CFR 535.4(e). That section provides, among other things, that "(c)redits may not be applied between classes of light trucks, except as determined by the Administrator to account for changes made in the definitions of classes between model years." Since Ford's plan involves applying credits earned by exceeding the MY l986 combined standard to shortfalls incurred against the MY l985 separate 4x4 and 4x2 standards, we have considered whether the plan represents a cross-class application of credits that is prohibited by 535.4(e). As discussed below, we have concluded that Ford's allocation plan is not prohibited.
In your letter, you suggest that the regulatory scheme creates two methods of complying with light truck CAFE standards and not three classes of light trucks. You also state that the term "class" is nowhere applied to the combined light truck fleet. You conclude that there is no cross-class application of credits.
We do not agree with your suggested analysis. Section 535.3(a)(4) states that the term "class of light trucks" is used in accordance with the determinations in Part 533 of this chapter. Section 535.4(b) then indicates that credits are earned "whenever the average fuel economy for a class of light trucks manufactured by a manufacturer exceeds an applicable average fuel economy standard established in Part 533 of this chapter." The term "class" in Part 535 thus refers to each possible grouping of light trucks that is averaged together for determining compliance with CAFE standards. Looking at Part 533, there are, in fact, six classes of light trucks for the model years in question: (l) Combined captive import, (2) Combined other, (3) 2-wheel drive captive import, (4) 2-wheel drive other, (5) 4-wheel drive captive import, and (6) 4-wheel drive other.
While we do not agree with your suggested analysis, we believe that there is ambiguity with respect to how 535.4(e) applies to the factual sitation at issue. First, Ford's plan involves overlapping classes. Thus, while there is a degree of cross-class application of credits, it is limited. Second, NHTSA has never addressed in rulemaking the issue of whether manufacturers should, in effect, forfeit credits as a result of choosing particular compliance options for particular years. This situation is analagous in some respects to the issue of whether forfeiture of credits should occur where NHTSA changes the definitions of classes between model years. In that situation, the agency decided, based on its understanding of statutory intent, against forfeiture. Third, in a letter dated April 26, l988, NHTSA approved a Ford carryback plan for MY l985 light trucks which set forth Ford's proposed allocation methodology. While the agency did not expressly address that methodology in the letter approving the plan, Ford could have assumed that the agency considered the proposed allocation to be permissible.
Given the ambiguity surrounding this issue, NHTSA believes that it is appropriate to decide the issue, for now, in favor of the manufacturer. The agency believes that this is a type of ambiguity that should be resolved, for the future, by rulemaking. However, the issue will become moot, at least for the time being, since, beginning with the MY l992 light truck CAFE standards, NHTSA decided not to set optional separate two-wheel drive and four-wheel drive standards. Should the agency decide to issue optional CAFE standards at some future time, it will address this issue in rulemaking.
For now, NHTSA will treat situations where a manufacturer changes compliance options between model years in the same manner as situations where the agency changes the definitions of classes between model years. In both types of situations, NHTSA will follow the policy first announced in a November 8, 1979 notice of interpretation (44 FR 64943), and reaffirmed in a December 18, 1980 Federal Register notice (45 FR 83233), of attempting to assure that credits are applied to offset shortfalls on the same types of vehicles which generated the credits.
Ford's plan to apply, on a prorated basis, credits earned by exceeding the MY l986 combined standard to shortfalls incurred against the MY l985 separate 4x4 and 4x2 standards, is consistent with the examples set forth in the November l979 and December l980 notices. Ford's plan then to apply remaining MY l986 credits to its MY l989 shortfall, incurred against the MY l989 combined standard, does not involve any cross-class application of credits. I therefore conclude that Ford's allocation plan is not prohibited.
Sincerely,
Paul Jackson Rice Chief Counsel ref:535#502 d:3/l4/9l