Interpretation ID: 2678y
Vice President, Public Affairs,
General Counsel and Secretary
Volkswagen of America, Inc.
P.O. Box 3951
Troy, MI 48007-3951
Dear Mr. Hutchinson:
Thank you for your letter to Administrator Curry inquiring about the status of Volkswagen's exemption from certain provisions relating to the Corporate Average Fuel Economy (CAFE) program. The Administrator has asked me to respond. Your letter requested NHTSA's position on the status of Volkswagen's exemption from the provisions of section 503(b)(1) of the Motor Vehicle Information and Cost Savings Act (15 U.S.C 1901 et seq.), and indicated that Volkswagen considers the exemption moot and terminated. As explained below, NHTSA considers the exemption terminated as of the beginning of model year (MY) 1989.
In 1981 (46 FR 54453, November 2, 1981), NHTSA granted Volkswagen's petition seeking an exemption from the general statutory provision that a manufacturer's domestically manufactured passenger automobiles and non-domestically manufactured passenger automobiles be placed in separate fleets for purposes of determining compliance with CAFE standards. Such an exemption is authorized under section 503(b)(3)(A) of the statute. The statute prohibits a manufacturer so exempted from earning CAFE credits during the period of the exemption.
At Volkswagen's request, NHTSA granted the exemption for the indefinite future, reserving the agency's right to reconsider its action if it appeared that the exemption was no longer consistent with the purposes of the Act.
Your letter indicates that Volkswagen terminated the production of "domestically manufactured" vehicles (i.e., vehicles whose domestic content exceeds 75 percent) on June 30, 1987, and that Volkswagen's U.S. production was terminated entirely effective July 14, 1988. You believe the exemption (including its prohibition on the accumulation of CAFE credits) should have ended on June 30, 1987, but in no event later than July 14, 1988. The primary legal issue raised by your letter is how exemptions can be terminated. Although the agency expects that exemptions will normally terminate only after affirmative agency action, automatic terminations are not precluded. However, we do not believe that an exemption terminates "automatically" merely because a manufacturer terminates its production of vehicles with more than 75 percent domestic content or halts all U.S. production. To conclude otherwise could create confusion and result in exemptions being terminated in instances in which the exempted manufacturer wanted its exemption to continue. The possibility of such problems may be seen in a number of circumstances, e.g., if a manufacturer temporarily halts U.S. production and then resumes it, or if it permits domestic content to fall below 75 percent temporarily and then raises it. We note that, in situations in which a manufacturer allows the percent domestic content to fall below 75 percent and continues to produce vehicles in the U.S. with that level of domestic content, it is likely to be relatively easy for the manufacturer to raise the level back above 75 percent.
There are circumstances in Volkswagen's case, however, that lead us to conclude its exemption terminated at the time Volkswagen's U.S. production terminated in its entirety (July 14, 1988). We believe it was evident at that time that Volkswagen was not merely halting U.S. production, but doing so with an intention to permanently abandon such production. We note, for example, that Volkswagen actively sought purchasers for its U.S. production facility in advance of its termination of U.S. production. While a manufacturer could change its mind after permanently abandoning U.S. production, resumption of U.S. production would be relatively difficult. Further, subsequent events, up to and including Volkswagen's February 1990 letter, have confirmed the appearances in 1988 of permanent termination of production.
While it would have been preferable for those appearances to have been confirmed essentially contemporaneously, we conclude that Volkswagen terminated U.S. production with an intention to permanently abandon it, and that its exemption became moot at that time. Since Volkswagen could receive no benefit from the exemption, and clearly had no intention of resuming U.S. production, I conclude that the exemption should be considered terminated effective with the beginning of the first model year following the company's cessation of U.S. production, i.e., MY 1989.
This decision is consistent with section 503(b)(3)(F) which provides that in any model year in which an exemption is effective, no credits may be earned. We interpret that section as requiring the bar to continue to the end of the model year in which the exemption terminated. Hence, the prohibition against earned credits is deemed to have ended with the beginning of the 1989 model year. I note that during MY 1989, Volkswagen accrued a CAFE credit excess of $28,798,575 for its passenger cars, and $56,310 for its light trucks. I hope you have found this information useful. Please do not hesitate to contact me if you have any questions concerning this matter.
Sincerely,
Paul Jackson Rice Chief Counsel
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