Bugatti Automobili, S.p.A.; Grant of Petition for Temporary Exemption From Standard No. 208 |
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Topics: National Highway Traffic Safety Administration, Bugatti EB110
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Christopher A. Hart
Federal Register
March 11, 1994
[Federal Register: March 11, 1994]
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DEPARTMENT OF TRANSPORTATION
[Docket No. 93-77; Notice 2]
Bugatti Automobili, S.p.A.; Grant of Petition for Temporary
Exemption From Standard No. 208
Bugatti Automobili, S.p.A., of Modena, Italy, petitioned for a
temporary exemption until November 1, 1995, from the automatic
protection requirements of Federal Motor Vehicle Safety Standard No.
208, Occupant Crash Protection. The basis of the petition was that
compliance would cause substantial economic hardship.
Notice of receipt of the petition was published on December 10,
1993, and an opportunity afforded for comment (58 FR 65008). This
notice grants Bugatti's petition.
Petitioner's Hardship Arguments
Under 15 U.S.C. 1410(a)(1)(A), section 123(a)(1)(A) of the National
Traffic and Motor Vehicle Safety Act (the Act), the Administrator may
provide a temporary exemption upon a finding that ``compliance would
cause substantial economic hardship and that the manufacturer has, in
good faith, attempted to comply * * *.''
The following is a summary of Bugatti's petition. Bugatti was
formed as an Italian corporation in 1987 for the purpose of
manufacturing automobiles. It is 80.66% owned by Bugatti International
Holding, S.A., a Luxembourg corporation, which between 1987 and 1994
will have invested in excess of $115,000,000 in facilities, personnel,
research and development. Four years after its founding in 1991,
Bugatti presented a prototype vehicle to the public. The factory was
completed in 1992. Production of its first model, the EB 110, began in
April 1993. As of the date of Bugatti's petition, ``fewer than 50 cars
have been produced.'' As the company only began realizing income with
the commencement of sales in 1993, its cumulative net losses from 1987
through the latest fiscal year preceding the filing of its petition
exceed $30,000,000.
In its early years, the company's focus was to establish itself and
to commence sales in markets other than the United States. The
company's permanent management team was not in place until 1991, and
its permanent engineering team was finalized only in 1993. Initially,
it ``seriously considered not even coming to the US at all'' because of
``product liability exposure and insurance, homologation costs, and the
often volatile nature of the high performance/exotic car market in the
United States.'' In the spring of 1993, however, it made the decision
to enter the U.S. market and intends to do so in mid-1994. Because of
the requirement in the Intermodal Surface Transportation Act of 1991
mandating the phase-in of airbags beginning in September 1996, the
company decided not to develop an automatic belt system but, instead,
to provide an air bag system from the beginning as a means of complying
with Standard No. 208.
Lacking the in-house engineering staff capable of developing an air
bag system, and concurrently with its decision to enter the U.S.
market, Bugatti began a search to locate an ``engineering design and
development firm to manage Bugatti's air bag project.'' Fourteen
companies were approached. In September 1993, the proposal by Lotus
Engineering was accepted. The cost set forth in the proposal is ``in
excess of $1.2 million (not including the cost of the vehicles to be
crashed).'' The company anticipates that it will be able to commence
production of air bag equipped vehicles in April 1995, well before the
end of the 2-year exemption it has requested.
Late in August 1993, Bugatti International Holding, signed a
contract to purchase Group Lotus plc, including Lotus Engineering.
Lotus is also a manufacturer of motor vehicles, whose production in
1992 was 688 units. According to the petitioner, Lotus ``lost over $35
million in 1992 on revenues of approximately $92 million.'' The
purchase of Lotus would be financed by capital investments into Bugatti
International Holding earmarked for that specific purpose.
In the absence of an exemption, the company projects continuing net
losses through 1994.
Arguments Why An Exemption Would Be in the Public Interest and
Consistent With Traffic Safety Objectives
In order to grant an exemption, the Administrator must also find
that the exemption is in the public interest and consistent with the
objectives of the Act. In support of its petition, Bugatti informed
NHTSA that it ``will make every effort possible to design its air bag
system so that it can retrofit with air bags all vehicles sold under
the exemption.'' It also argued that it does not expect to sell more
than 100 cars under the exemption. Each car, equipped with a three-
point belt system, would be labeled with a seat belt use reminder.
Further, all vehicles will meet all other Federal motor vehicle safety
standards including amended Standard No. 214 Side Impact Protection in
advance of the requirement to do so.
No comments were received on the petition.
The primary finding that must be made by the agency with regard to
Bugatti in order to grant its petition is that ``compliance would cause
substantial economic hardship'' (15 U.S.C. 1410(a)(1)(A)). The phrase
``substantial economic hardship'' is undefined, and there is scant
legislative history to provide an interpretation of these words. The
purpose that was cited on the House floor while the legislation was
pending was the need to protect the ability of a small U.S.
manufacturer to ``continue production of its automobiles while it
tooled to adapt the new safety equipment, which it purchases from big
automobile manufacturers, to its own automobiles.'' (Remarks of Rep.
Springer, Congressional Record, October 13, 1973, 38047 and 38048).
Thus, to require immediate compliance of the manufacturer in question
would have resulted in a cessation of production until compliance was
achieved. The obvious result of cessation of production is an eventual
cessation of sales and generation of revenue. In other words, the
hardship example cited by Rep. Springer is directly related to the
effect of a denial upon a small manufacturer's present income.
In implementing the statutory provision, NHTSA requires a
petitioner to file corporate balance sheets and financial statements
for the past three fiscal years (49 CFR 555.6(a)(1)(iv)), and a
projected balance sheet and financial statement for the year following
any denial of a petition (49 CFR 555.6(a)(1)(v)). A petitioner is also
offered an opportunity to discuss ``any other hardships (e.g., loss of
market) that the petitioner desires the agency to consider.'' (49 CFR
555.6(a)(1)(vi)).
The touchstone that NHTSA has used in determining the existence of
substantial economic hardship is an applicant's financial health as
indicated by its income statements. NHTSA has tended to consider a
continuing and cumulative net loss position as evidence per se of
hardship. See, e.g., Ferrari, Docket No. EX89-5 (55 FR at 3786);
Maserati, Docket No. EX88-2 (53 FR at 34630). The theory behind NHTSA's
rationale is that, if a company with a continuing net loss is required
to divert its limited resources to resolve a compliance problem on an
immediate basis, it may be unable to use those resources to solve other
problems that may affect its viability. The agency has considered this
especially important in its treatment of corporate petitioners during
their infancy.
NHTSA has considered all these foregoing factors in the finding
that it has reached with respect to Bugatti. The petitioner's income
statements indicate the company's cumulative net losses to date of
$30,000,000. Under ordinary circumstances, that fact ought to enable
the Administrator to conclude that the company has made a persuasive
hardship argument. Yet there are other factors here which must be
weighed in reaching a decision that is consistent with the hardship
legislation as NHTSA interprets it. The most important of these factors
is the effect of a denial upon the company. A denial will not force the
company to terminate production until compliance with Standard No. 208
is achieved, because the United States is only one of a number of
markets that the company is pursuing. A denial will not result in the
withdrawal of funds by investors as completion of a total of
$115,000,000 investment is scheduled for the current year. A denial
will not result in loss of market in the United States or create
hardship for its dealers here because the company has not yet imported
vehicles for sale through a franchised dealer network. The primary
recognizable effect of a denial is that the company will be unable to
introduce itself to the American market until if fields a fully
complying car. According to the petition, it anticipates that
compliance will be achieved during April 1995, approximately 9 months
after it would have begun importation of an exempted vehicle. Given the
nature of the EB110, it appears that sales which would otherwise have
occurred during this period will only be deferred rather than lost.
In search of a rationale for an affirmative finding of hardship,
NHTSA returns to the criterion implicit in Rep. Springer's example, the
effect of a denial upon present income. The effect of a denial,
according to Bugatti, is that it will experience a net loss of
$2,000,000 rather than the $10,000,000 profit projected with the
exemption in place. Thus, a denial would have a potential $12,000,000
impact upon the company, contributing to an increase, rather than a
decrease, in the cumulative net loss figure of $30,000,000. Even though
the profits might eventually be realized with the sale of conforming
cars were the petition denied, the delayed profits will have the effect
of deferring down the line the additional profits that would be
realized, and will not affect the net losses attributable to a denial.
This has an impact upon the company's cash flow situation. NHTSA has
been given to understand that the petitioner has been able to sell only
approximately 30 vehicles as of mid-January 1994 because of the
economic situation in Europe, and that this is below the sales that had
been projected for the EB 110. Thus, it is the effect that a denial
would have upon current income that NHTSA believes would create
substantial economic hardship. This situation is to be contrasted with
the agency's denial of a similar petition by Ferrari where the effect
of the agency action was to reduce anticipated profits from $20,000,000
to $10,000,000, and no loss of cumulative loss position existed (55 FR
3785).
With respect to the company's good faith efforts to meet Standard
No. 208, the company has argued that it did not commit itself to
entering the American market until early 1993. While it might be
assumed that a motor vehicle would not be designed today without the
American market in mind, the United States is not invariably attractive
to small manufacturers. The EB 110 appears to be one of a number of
expensive, high performance vehicles that have been developed with no
original intention of sale in the United States. Examples of such
vehicles include Britain's Jaguar XJ220, McLaren, and Lister. Accepting
the petitioner's statement that the decision to offer the vehicle for
sale in the United States was not made until 1993, the agency is led by
the solicitations and decisions reached in the period preceding the
filing of the petition, and Bugatti's anticipated ability to comply by
April 1995 to conclude that the petitioner has made a good faith effort
to meet the automatic restraint requirements of Standard No. 208.
The agency must also find that an exemption is in the public
interest and consistent with the objectives of the Safety Act. In
providing the authority to establish safety standards, Congress
expressed its intent that the public continue to be afforded a wide
choice of motor vehicles. The agency is cognizant that granting the
petition would not appear to have a discernible impact upon safety.
Bugatti now anticipates that, at the most, about 50 vehicles would not
be provided with automatic restraints. Further, it is actively pursuing
the possibility that these could be retrofitted to comply with driver
airbags.
For the reasons expressed above, it is hereby found that to require
Bugatti to comply with Standard No. 208 would create substantial
economic hardship, and that the petitioner has made a good faith effort
to comply with the standard. It is further found that an exemption for
Bugatti would be in the public interest and consistent with the
objectives of the Act. Accordingly, Bugatti Automobili S.p.A. is hereby
granted NHTSA Exemption No. 94-1 from paragraph S4.1.4 of 49 CFR
571.208 Motor Vehicle Safety Standard No. 208 Occupant Crash
Protection, expiring November 1, 1995.
Authority: 15 U.S.C. 1410; delegation of authority at 49 CFR
1.40.
Issued on: March 8, 1994.
Christopher A. Hart,
Deputy Administrator.
[FR Doc. 94-5774 Filed 3-10-94; 8:45 am]
BILLING CODE 4917-59-M