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Interpretation ID: nht93-8.3

DATE: November 08, 1993

FROM: Trombi, Federico -- Chief Homologation Engineer, Bugatti

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

TITLE: NONE

ATTACHMT: Attached To A Letter Dated 05/09/94 From John Womack To Lance Tunick (A42; PART 525)

TEXT: This letter follows the recent correspondence that you received from Ms Rachel Jelly at Lotus Cars, Ltd. ("Lotus") regarding the question of whether Lotus and Bugatti Automobili S.p.A. may file separate petitions requesting alternate CAFE standards.

As Ms Jelly noted, in August of this year, Lotus was sold to Bugatti International Holding, SA, a Luxembourg company that also controls Bugatti Automobili, S.p.A. ("Bugatti SpA"), the Italian automobile manufacturer that is planning to enter the US market in the near future. Lotus and Bugatti SpA are operated as separate companies.

Lotus intends to file a CAFE exemption petition, as does Bugatti-SpA. Both companies are small volume manufacturers, and their joint annual production is far below the 10,000 units per year eligibility threshold. There is thus no question as to eligibility of either Bugatti or Lotus. The only question is whether Bugatti SpA and Lotus can file separate CAFE exemption petitions.

To our knowledge, the Bugatti/Lotus situation (that is, two small manufacturers under common control whose joint world-wide annual production is less than 10,000) is unique and has never before been addressed by NHTSA. Bugatti SpA is of the opinion that it is appropriate for Bugatti and Lotus to file separate petitions.

THE FILING OF TWO SEPARATE PETITIONS IS WITHIN THE LETTER AND SPIRIT OF THE CAFE STATUTE AND LESS LIKELY TO CREATE ENFORCEMENT PROBLEMS

The CAFE statute states that "a manufacturer" may submit a petition for a CAFE exemption. A joint petition in this case would not fall within this provision. Bugatti International is itself not a manufacturer, and under the statute it would be improper for TWO manufacturers to apply together.

Further, the purpose of the alternate standards provisions of the CAFE law is to permit a given small manufacturer to obtain an alternate CAFE standard that reflects the best fuel economy that SUCH small manufacturer can achieve. Combining two small companies together would muddy the all important question of the best fuel economy that EACH company is capable of achieving.

Lastly, if separate petitions were not allowed and a joint petition were required and a joint alternate standard were granted, in the event of a failure to comply with such a joint alternate standard, NHTSA would be faced with a difficult situation as regards enforcement To whom would NHTSA send the bill and how would the bill be divided?

THE FERRARI/ALFA CAFE DECISION DOES NOT PRECLUDE TWO PETITIONS IN THIS CASE

It would be improper to apply NHTSA's July, 1991 Ferrari - Alfa Romeo CAFE decision to the Bugatti/Lotus situation. Under that decision, Ferrari was found ineligible for a CAFE exemption because the total world-wide production of Ferrari and its sister companies (Fiat and Alfa) were combined when considering whether the 10,000 unit per year limit was exceeded. Under this test, Ferrari was ruled ineligible.

The Ferrari decision reversed a previous decision in 1978 which held that Maserati was eligible to apply for a CAFE exemption even though its related company, Innocenti, manufactured in excess of 10,000 cars per year. The Maserati decision was based on the fact that only Innocenti's US imports were counted when considering the 10,000 unit limit. Because Innocenti did not import into the US, Maserati was eligible.

For the following reasons, it is inappropriate to apply the Ferrari decision to the Bugatti/Lotus situation:

1) The Ferrari decision was an ELIGIBILITY DECISION, and there is no question here that Bugatti and Lotus are eligible (their combined world-wide annual production is less than 10,000). It is therefore inappropriate to apply the logic of the Ferrari decision to answer the completely different question at issue here -- should Bugatti SpA and Lotus receive separate standards?

2) The relevant FACTS of the Ferrari case were different from the facts in the Bugatti/Lotus situation. With Ferrari, NHTSA was considering two related companies (Ferrari and Alfa), one of which has a small volume manufacturer (Ferrari), the other of which was a large manufacturer (Alfa), and both of which were controlled by a still larger manufacturer (Fiat). In the Bugatti/Lotus case, Bugatti SpA and Lotus are both small manufacturers and their parent, Bugatti International, does not manufacturer autos. It is significant that the facts here are vastly different: NHTSA made it clear that the Ferrari decision depended heavily on the specific facts of that case.

3) In the Ferrari decision, NHTSA stated that the LEGISLATIVE GOAL of the CAFE exemption -- helping SMALL manufacturers -- would not be served if Ferrari were granted an exemption. In the Bugatti/Lotus situation, however, that goal would be best served if two standards were granted.

It is true that in the Ferrari decision, NHTSA said that "Ferrari and Alfa Romeo are in essence the same manufacturer for purposes of CAFE standards". NHTSA also stated that "any CAFE standard which applies to Ferrari should apply to Ferrari and Alfa Romeo together". These conclusions, however, do not foreclose Bugatti SpA and Lotus from filing separate petitions and receiving separate standards, for several reasons:

1) NHTSA's RATIONALE for these conclusions allows two standards in the Bugatti/Lotus situation. NHTSA based its conclusions on two sections of the CAFE law. Section 502(c) of the CAFE law permits CAFE exemptions to be granted ONLY IF NHTSA establishes "alternative . . . standards for . . . automobiles manufactured by manufacturers which receive exemptions". Section 503(c) defines "automobiles manufactured by a manufacturer" to include autos manufactured by a related company. Thus, in the Ferrari case, NHTSA concluded that it could grant Ferrari an exemption only if Alfa's cars were also covered by an alternate standard -- something that was impossible given Alfa's size. In the Bugatti/Lotus case, however, if two separate alternate standards were granted, NHTSA would be establishing alternate standards for all automobiles manufactured by all manufacturers which were receiving exemptions. Thus, the dilemma that existed in the Ferrari case is simply not present here.

2. The conclusions reached by NHTSA -- that Ferrari and Alfa Romeo were in essence the same manufacturer for purposes of CAFE standards and that any CAFE standard which applied to Ferrari should apply to Ferrari and Alfa -- must be read literally and confined to the context in which they were issued. In other words, when NHTSA stated that Ferrari and Alfa were "in essence the same manufacturer", the agency meant just that -- that Ferrari and Alfa were the same; the agency did NOT say or mean that two other manufacturers in a different situation would be "in essence the same". When NHTSA stated that the standard that applies to Ferrari should apply to "Ferrari and Alfa Romeo together", it meant exactly what it said -- that the standard should apply to Ferrari and Alfa; it did NOT say or mean that two other manufacturers in a different situation must meet the same result.

3. Lastly, NHTSA pointed out in the Ferrari decision that considering Ferrari and Alfa as separate manufacturers would cause problems, such as in determining compliance. In the Bugatti/Lotus case the opposite is true -- considering Bugatti and Lotus separately would create fewer problems.

The Ferrari ruling therefore only means that: 1) when the precise facts of the Ferrari situation exist (one small manufacturer related to larger manufacturers, with combined production in excess of 10,000), then all the manufacturers must be considered "the same" manufacturer, and the "normal" CAFE standard must apply; and 2) when there is a "related companies situation", one of two results must obtain: Either both companies are subject to "alternate standards" or both are subject to the "normal standard" (you cannot have half of one and half of the other).

Both of these readings of the Ferrari decision permit Bugatti SpA and Lotus to receive separate standards. Moreover, so limiting the application of the Ferrari decision to the specific facts of the Ferrari case is entirely consistent with NHTSA's careful crafting of a narrow ruling.

Based upon the forgoing, Bugatti SpA respectfully requests that NHTSA permit the filing of two separate petitions requesting 2 separate alternate standards for Bugatti SpA and Lotus.

Kindly direct any questions, as well as your response, to: Lance Tunick Ital Group Llc 9114 W 6th Ave. Lakewood CO 80215 (Tel. 303 274 0203) (Fax 303 279-9339)