Interpretation ID: 32901.doc
Attorney
Ford Motor Company
Office of the General Counsel
Suite 728 - Parklane Towers East
One Parklane Boulevard
Dearborn, Michigan 48126-2493
Dear Mr. Green:
This responds to your letter of July 24, 1996, concerning whether particular vehicles can be included within a certain company's fleet for CAFE purposes. The factual situation, which includes car companies, A and B, and an importer, C, can be summarized as follows:
- Car company A is the single largest shareholder of car company B, holding over one third of the outstanding shares of B. Agreements between car company A and car company B stipulate that company A will have substantial influence over the design and production of vehicles manufactured by company B. Vehicles produced by company B are imported into the United States by company C. Company B is the single largest shareholder of C, with fifty percent of the outstanding shares of C.
You have asked whether you, as company A in the factual situation described above, can include the vehicles imported by company C in its fleet for CAFE purposes. As discussed below, it is our opinion that the answer is yes.
The following sections of Chapter 329 of Title 49 of the United States Code, "Automobile Fuel Economy" are relevant to answering your question:
32902(a)(4) "automobile manufactured by a manufacturer" includes every automobile manufactured by a person that controls, is controlled by, or is under common control with the manufacturer, but does not include an automobile manufactured by the person that is exported not later than 30 days after the end of the model year in which the automobile is manufactured.
- 32901(a)(12) "manufacture" (except under section 32902(d) of this title) means to produce or assemble in the customs territory of the United States or to import.
Company C imports vehicles produced by company B into the United States. While company C neither designs or produces these vehicles, C is their manufacturer for CAFE purposes. Company B, given its 50 percent ownership of company C and its control over the design and production of the vehicles, controls company C. The principal question, therefore, is whether company A "controls" company B to the extent that the cars imported by company C may be included in company A's CAFE fleet.
The term "control" as used in 32902(a)(4) is not defined elsewhere in Chapter 329 or the legislative history of the Chapter and its predecessor, the Motor Vehicle Information and Cost Savings Act. In past interpretations the agency has indicated that the term as used in the CAFE context may have the same definition as it has when used in a corporate law context. In the corporate law context, the issue of control is important for determining whether the controlling persons have violated any fiduciary duties to the corporation and other shareholders. Control in that sense refers to ownership of a large enough bloc of a company's stock to constitute effective voting control of the firm.
For the purposes of Chapter 329, control is important for determining a company's corporate average fuel economy and total production. For CAFE purposes, "control" is the ability to exercise a major influence over a company's average fuel economy and production. In addition to the ownership of a controlling bloc of stock, control for our purposes could be shown by control over the design and availability of certain models and other factors affecting production, sales mix and technological improvements.
Applying these terms to the facts presented by your letter compels the conclusion that cars imported by company C may be included in company A's fleet for CAFE purposes. Company C is controlled by company B. Company B is controlled by Company A by virtue of Company A's ownership of more than one-third of the outstanding shares of B and agreements between A and B indicating that A has the ability to exercise considerable influence over the design, production, and model mix of vehicles produced by B. Accordingly, NHTSA believes that it is appropriate for cars imported by C, a company controlled by B, to be included in A's fleet.
I hope that this letter is responsive to your inquiry. If you have any further questions or need additional information, please contact me or Otto Matheke of my staff at (202) 366-5263.
Sincerely,
John Womack
Acting Chief Counsel
ref:533
d:9/19/96