Interpretation ID: nht94-5.45

DATE: May 09, 1994

FROM: Womack, John -- Acting Chief Counsel, NHTSA

TO: Tunick, Lance -- Bugatti

TITLE: NONE

ATTACHMT: Attached To A Letter Dated 11/8/93 From Federico Trombi To John Womack (OCC 9318)

TEXT: This responds to your letter n1 concerning low volume CAFE exemptions. I apologize for the delay in our response. You asked whether Bugatti Automobili S.p.A. (Bugatti) and Lotus Cars, Ltd. (Lotus), both of which are controlled by the same holding company, may submit separate low volume CAFE exemption petitions requesting two separate alternative standards. As discussed below, the answer to this question is no. Since any alternative CAFE standard would apply to Bugatti and Lotus together, a single combined petition must be submitted for a single alternative standard.

n1 The letter was signed by Federico Trombi of Bugatti Automobili S.p.A. but requested that the response be directed to you.

According to your letter and a separate one received from Lotus, General Motors sold Lotus to Bugatti International Holding, SA, in August 1993. That holding company also controls Bugatti, which is planning to enter the U.S. market in the near future. Lotus and Bugatti intend to submit petitions for low volume CAFE exemptions. Moreover, the joint annual production of Bugatti and Lotus is far below the 10,000 vehicles per year eligibility threshold for low volume CAFE exemptions.

In a telephone conversation with Edward Glancy of my staff, you indicated that Lotus cars are imported by Lotus USA. You also indicated that Bugatti cars could be imported by Lotus USA, or could be imported by a new company that would be established by Bugatti, e.g., "Bugatti USA." Finally, you indicated that Lotus USA is not in a control relationship with any other auto manufacturers.

In addressing whether Bugatti and Lotus would be eligible for two separate standards, I will begin by identifying the statutory provisions which are relevant to determining who manufactures the vehicles at issue. Under section 501(8) of the Motor Vehicle Information and Cost Savings Act, "(t)he term 'manufacturer' means any person engaged in the business of manufacturing automobiles." Under section 501(9), "(t)he term 'manufacture' (except for purposes of section 502(c)) means to produce in the customs territory of the United States, or to import." Under section 501(10), "(t)he term 'import' means to import into the customs territory of the United States."

Under these sections, the company which imports foreign-built cars into the United States is the manufacturer of those automobiles. Thus, if Lotus USA imported Lotus cars and Bugatti cars, Lotus USA, rather than Bugatti Automobili S.p.A. and Lotus Cars, Ltd., would be considered the manufacturer of those vehicles for CAFE purposes.

Since Lotus USA would be the manufacturer of all the vehicles under this scenario, and CAFE standards apply to all passenger automobiles manufactured by a manufacturer, there would be no basis for Bugatti and Lotus to request two separate standards. Instead, a single alternative standard would need to be requested for Lotus USA, which would cover all automobiles imported by that company.

This result would not change if Bugatti established a new company, Bugatti USA, for importing cars into the U.S. This is because of the operation of the operation of section 503(c), which provides that any reference to "automobiles manufactured by a manufacturer" is deemed to include all automobiles manufactured by persons who control, are controlled by, or are under common control with, such manufacturer. Since Lotus USA and Bugatti USA would presumably be under common control (traced back to Bugatti International Holding, SA), their fleets would be combined for CAFE purposes. Since many of the arguments you raise in your letter are relevant to this type of scenario, i.e., one in which Lotus and Bugatti cars would be considered to be manufactured by manufacturers within a control relationship, I will assume it for the rest of this letter.

As you noted in your letter, NHTSA addressed the issue of how alternative CAFE standards apply to manufacturers within a control relationship in a July 1991 decision concerning low volume exemption petitions submitted by Ferrari. Ferrari and Alfa Romeo were under the common control of Fiat. We stated the following:

Because of the operation of section 503(c), Ferrari and Alfa Romeo are in essence the same manufacturer for purposes of CAFE standards. As discussed below, under section 502, the same CAFE standard should apply to both manufacturers together. This is true for both generally applicable standards and alternative standards.

Section 502(a), in setting forth the generally applicable standard, specifies a standard for "passenger automobiles manufactured by any manufacturer." Section 502(c)(1), in setting forth requirements relating to low volume exemptions, specifies that such exemptions may not be granted unless the Secretary establishes, by rule, alternative average fuel economy standards for "passenger automobiles manufactured by manufacturers" which receive exemptions under this subsection. Under 503(c)(1), any reference to "automobiles manufactured by a manufacturer" is deemed to include all automobiles manufactured by persons who control, are controlled by, or are under common control with, such manufacturer. Thus, any CAFE standard which applies to Ferrari should apply to Ferrari and Alfa Romeo together. Therefore, granting Ferrari a low volume exemption in MY 1988 would create a paradox, since Alfa Romeo is indisputably not eligible (given its own worldwide production) for an exemption.

A similar paradox would arise in the context of determining compliance with the statute. Under section 503(a), neither manufacturer may have an independent CAFE value. Instead, by operation of section 503(c), they share a CAFE value that is based on the total volume of cars imported by both companies.

Thus, a decision to grant an exemption to Ferrari while applying the generally applicable standard to Alfa Romeo would cause compliance enforcement difficulties by compelling the agency to try to compare a combined CAFE value to separate CAFE standards. 56 FR 31461, July 10, 1991.

You argued in your letter that, because of factual differences, the Ferrari/Alfa analysis should not be applied to the Bugatti/Lotus situation, and Bugatti and Lotus should be permitted to submit separate low volume CAFE exemption petitions requesting two separate alternative standards.

While we agree that there are factual differences, e.g., Ferrari and Alfa Romeo together produced too many vehicles to meet the eligibility threshold while Bugatti and Lotus do not, the situations are identical with respect to the issue of how CAFE standards apply to manufacturers within a control relationship. In particular, since Lotus USA and Bugatti USA would be under common control and because of the operation of section 503(c), the two companies would in essence be the same manufacturer for purposes of CAFE standards. Any alternative standard issued under section 502 would apply to the two companies together. Moreover, neither manufacturer would have an independent CAFE value under section 503(a). Instead, by operation of section 503(c), they would share a CAFE value that is based on the total volume of cars imported by both companies. Therefore, the same CAFE standard would necessarily apply to the two companies together.

You raised several other objections in your letter. First, you stated that the CAFE statute provides that "a manufacturer" may submit a petition for a CAFE exemption, and a joint petition would not fall within this provision. In fact, any one of the related companies (Lotus, Lotus USA, Bugatti, the Bugatti U.S. subsidiary, or the holding company) could submit a petition on behalf of the combined companies. However, any such petition would apply to the combined fleet of both Bugatti USA and Lotus USA.

You also stated that combining two small companies together would muddy the question of the best fuel economy that each company is capable of achieving. However, NHTSA would simply assess the "maximum feasible average fuel economy level" that could be achieved by the combined Bugatti/Lotus fleet. We recognize that this level would be dependent on assumptions about the relative volumes of Bugatti USA and Lotus USA. However, the agency needs to take this factor into account in assessing the capability of any manufacturer which produces vehicles with varying fuel economy values.

Finally, you stated that if a joint alternative standard was established, NHTSA would face a difficult enforcement situation in the event of a failure to comply with the standard. You asked how the agency would divide the civil penalties. It is our opinion that Lotus USA and Bugatti USA would be jointly and severally liable for the full amount of the civil penalty, although we would permit the two companies to divide the penalty between themselves.

I would like to address two other issues that are raised by the factual situation described in your letter: (1) the immediate eligibility of Bugatti/Lotus given that Lotus was owned by General Motors until August 1993, and (2) the timing of petitions for low volume exemptions.

As you know, section 502(c)(1) specifies that low volume exemptions are only available for manufacturers "who manufactured . . . fewer than 10,000 passenger automobiles in the second model year preceding the model year for which the application is made. . . ." (Emphasis added.) During the time that Lotus was owned by General Motors, the combined companies manufactured far more than 10,000 vehicles. It is our opinion that Lotus does not have to wait two years from the date it ceased being in a control relationship with General Motors to be eligible, given the circumstances described above. In particular, we believe that the requirement that a manufacturer have manufactured fewer than 10,000 passenger automobiles in the second model year preceding the model year for which the application is made was intended to address varying production levels (above and below 10,000) and not a situation where a small manufacturer such as Lotus is sold by a large manufacturer.

With respect to the timing of petitions, NHTSA's regulations at 49 CFR @ 525.6, Requirements for petition, state that petitions from low volume manufacturers for alternative fuel economy standards must be "submitted not later than 24 months before the beginning of the affected model year, unless good cause for later submission is shown." Clearly, the deadline for a timely submission for model years 1994-96 has passed. On the issue of "good cause" for a later submission, we note that Lotus was not sold by General Motors until August 1993, and both Lotus and Bugatti requested our opinion concerning submitting a petition within three months of that sale.

Under the circumstances, we conclude that, Lotus/Bugatti have, to date, taken reasonable measures to submit a petition in as timely a manner as possible. Therefore, if a petition that meets the requirements of 49 CFR Part 525 is submitted promptly after receipt of this letter, we will consider there to be good cause shown for submitting a late petition for model years 1994-96. I also note that a petition for model year 1997 would be due later this year.

I hope this information is helpful. If there are any questions, please contact Dorothy Nakama of my staff at (202) 366-2992.