[Federal Register Volume 64, Number 27 (Wednesday, February 10, 1999)]
[Notices]
[Pages 6736-6738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3293]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration
[Docket No. NHTSA-98-4320; Notice 2]


Shelby American, Inc.; Grant of Application for Temporary 
Exemption From Federal Motor Vehicle Safety Standard No. 208

    We are granting the application by Shelby American, Inc., of Las 
Vegas, Nevada (``Shelby American''), for an exemption until January 1, 
2001, from the automatic restraint provisions of Federal Motor Vehicle 
Safety Standard No. 208 Occupant Crash Protection (S4.1.5.3). Shelby 
American applied for an exemption on the basis that compliance would 
cause substantial economic hardship to a manufacturer that had tried in 
good faith to comply with the standard.
    We published notice of receipt of the application on August 18, 
1998 (63 FR 44302), affording 30 days for comment. However, no comments 
were received.
    Shelby American is a Texas corporation, privately held and wholly

[[Page 6737]]

owned by Carroll Shelby. Its current business activities are conducted 
by three wholly owned subsidiaries. The first of these subsidiaries is 
Shelby Series One, Inc., the unit that will produce a new sports car 
which is the subject of the application for a temporary exemption. At 
the time the application was filed, these vehicles existed in prototype 
form only, and none had been produced. The second subsidiary is Shelby 
CSX4000, Inc., which produces ``a component vehicle sold without engine 
or transmission,'' to individuals who will install the power train of 
their choice. In 1997, 75 of these Cobra replica assemblies were sold. 
The third subsidiary is Shelby Original 427S/Cs, Inc., whose business 
is to assemble automobiles ``from certain new old stock parts surviving 
from the original 1965 Shelby Cobra production run * * * supplemented 
by newly manufactured parts utilizing original tooling.'' Two such 
vehicles have been assembled and sold as of the date of the 
application.
    The Series I is a two-passenger open convertible sports car, 
powered by the Oldsmobile Aurora engine. The first prototypes were 
shown in early 1997. Shelby American has asked to be excused from 
compliance with the automatic restraint requirements of Standard No. 
208, relating that it is working ``with many outside companies'' to 
complete the vehicle development and certification. Development of the 
Series I started in March 1995 (i.e., engineering tasks subsequent to 
initial design development). As of the filing of its application, 
Shelby American had spent an estimated total of 400 man hours and 
$75,000 related to air bag development. As with development of the 
engine and interior, the applicant must contract the air bag 
development to an outside company. This cost will total $4,643,500 over 
the period of time for which it has asked for an exemption. Additional 
expenditures of $546,000 will be necessary to cover the costs of 
testing, and integration of airbag wiring. In the interim, the Series I 
will be equipped with a three-point driver and passenger restraint 
system. The applicant is optimistic that it can sell 500 Series I cars 
in the period for which it has requested exemption. With these sales 
``Shelby American will be able to support the estimated $216,229 
monthly development expenditure necessary for implementation of the 
airbag at the end of the two year period.''
    Shelby American had no material operations in 1995. Its unaudited 
consolidated balance sheet showed a net loss of $738,415 for 1996, and 
a net income of $147,904 for 1997.
    The applicant argued that ``the production of the Shelby Series I 
is in the best interest of the public and the US economy.'' At the time 
of its application, the company planned to open a new 100,000 square 
foot facility in June 1998 in Las Vegas to produce the Series I. The 
new facility ``will provide direct employment to approximately 200 
employees.'' In addition, ``there are approximately 25 development/
partner companies working with Shelby American on the development of 
the Shelby Series I, providing indirect employment for those companies' 
personnel * * *'' The car will be sold through select Oldsmobile 
dealers * * * providing employment to many sales and service personnel 
at the dealership level.'' Most major components are produced in the 
United States, including the engine (Oldsmobile), tires (Goodyear), and 
transmission (ZF, from RBT, a US company). The Series I is technically 
advanced, combining ``an aluminum chassis with a carbon-fiber body, a 
new concept amongst production vehicles, which provides strength and 
durability while minimizing weight.'' Shelby American believes that 
``the reduced weight achieved with this vehicle will translate into a 
new standard for improved emissions and fuel efficiency. Aside from 
Standard No. 208, the car will be certified as conforming to all 
applicable Federal motor vehicle safety standards.
    As noted earlier, we received no comments on the application. 
However, several aspects of Shelby American's operations concerned us, 
and we commented on these in letters to the company on July 17, 1998, 
and October 15, 1998. The company responded to our concerns on November 
25, 1998.
    Shelby American's application informed us that its subsidiary, 
Shelby Original 427S/Cs, Inc., had assembled two vehicles, termed 
Continuation Cars, ``from certain new old stock parts surviving from 
the original 1965 Shelby Cobra production run * * * supplemented by 
newly manufactured parts utilizing original tooling.'' We informed the 
company that, in our opinion, vehicles produced under these facts must 
comply with all Federal motor vehicle safety standards in effect at the 
time of their assembly, and that its application had not covered these 
vehicles. The company replied that its Continuation Cars ``will only be 
sold as race cars, not as licensed vehicles for use on the public 
roads'' and that ``to the extent Shelby issues any statements of origin 
for these vehicles, it will be stated that the vehicles are not titled 
for highway use.''
    We were also concerned about the operations of Shelby CSX4000, 
Inc., which produces ``a component vehicle sold without engine or 
transmission.'' We informed the company that we would regard it as the 
``manufacturer'' and responsible for safety standard compliance 
certification if it offered an engine and transmission concurrently 
with the component vehicle or as part of the sales transaction. Shelby 
American responded that ``these are being sold by Shelby only as 
component vehicles, without engine and transmission, which are to be 
installed by the owner or at his or her direction. * * *'' While this 
falls short of a positive statement that the company is not furnishing 
an engine and transmission as part of the sales transaction, Shelby 
American's statement that the vehicles are sold only as component 
vehicles can reasonably be interpreted as meaning that it is not 
furnishing an engine and transmission for these vehicles.
    Finally, we had been concerned with an article appearing in the 
September 21, 1998, issue of Business Week on the Shelby Series 1. This 
article, ``Road Rockets for the Jaded,'' stated that ``Shelbys are 
selling briskly. In Vegas, [the author] met one high roller who has 
bought five of them for resale.'' Shelby American has informed us that 
it has only taken deposits on the Series 1, and that ``no Series 1 
vehicles, in whole or in part, have left the possession of Shelby 
American, Inc.'' ``No cars have been delivered, and no cars will be 
delivered'' unless and until we grant its application for exemption 
``and all appropriate engine/emissions certifications are obtained and 
affixed to the vehicles.''
    In order to grant Shelby American's application, 49 U.S.C. 30113 
requires us to make two findings. The first is that compliance with 
Standard No. 208 would cause substantial economic hardship to a 
manufacturer that has tried in good faith to comply with the standard. 
The second finding is that a temporary exemption is consistent with the 
public interest and the objectives of 49 U.S.C. Chapter 301--Motor 
Vehicle Safety.
    In determining the existence of hardship, we begin by balancing a 
small manufacturer's recent annual net income history against its 
estimates of costs to comply, and continue by considering intangibles 
such as loss of market if an exemption is not granted. Shelby had no 
material operations in 1995. Its net loss in 1996 was only slightly 
offset by its net income in 1997,

[[Page 6738]]

for a cumulative loss of $590,511. On the other hand, development and 
testing costs are estimated to exceed $5,000,000. We believe it 
manifest that to require immediate compliance with automatic protection 
specifications would cause Shelby ``substantial economic hardship'' 
within the meaning of the statute. We note that an exemption will allow 
sales generating to ``support the estimated $216,229 monthly 
development expenditure'' to comply with Standard No. 208 at the end of 
the exemption period.
    In finding whether an applicant has tried to comply with a standard 
in good faith, we ask an applicant to provide a chronological outline 
of its efforts. In this case, development is said to have begun in 
March 1995, and the company has learned that it must use outside 
assistance to comply. We are informed that the company, as of the date 
of its application, had ``spent an estimated total of 400 man hours and 
$75,000 related to development.'' Given its limited resources, we 
believe that the company's effort shows the requisite good faith 
attempt to meet Standard No. 208.
    Shelby supports its argument that an exemption is consistent with 
the public interest by citing that its new facility will create jobs 
for 200 people, that 25 other companies are helping it to produce the 
Series 1, that the Series 1 will be sold through Oldsmobile dealers, 
and that the vehicle employs new materials techniques that ``will 
translate into a new standard for improved emissions and fuel 
efficiency.'' We have frequently found in the past that the public 
interest is served by providing employment opportunities and 
technological advancement, cogent arguments here as well. Finally, in 
support of an argument that an exemption is consistent with objectives 
of motor vehicle safety, Shelby American confirms that the Series 1 
will be certified as conforming to all Federal motor vehicle safety 
standards other than Standard No. 208, and will be fitted with a three-
point driver and passenger restraint system. We note, also, that there 
will be only a very limited number of exempted vehicles on the roads, 
only 500 by July 1, 2001.
    Therefore, in consideration of the foregoing, and as required by 49 
U.S.C. 30113, I find that compliance with Standard No. 208 would cause 
substantial economic hardship to a manufacturer that has tried to 
comply with the standard in good faith, and that an exemption is 
consistent with the public interest and 49 U.S.C. Chapter 301--Motor 
Vehicle Safety. Accordingly, Shelby American, Inc., is hereby granted 
NHTSA Temporary Exemption No. 99-1, expiring January 1, 2001, from 
S4.1.5.3 Passenger cars manufactured on or after September 1, 1997, of 
49 CFR 571.208 Standard No. 208, Occupant Crash Protection.

    Authority: 49 U.S.C. 30113; delegation of authority at 49 CFR 
1.50.

    Issued: February 5, 1999.
Ricardo Martinez,
Administrator.
[FR Doc. 99-3293 Filed 2-9-99; 8:45 am]
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