[Federal Register Volume 69, Number 24 (Thursday, February 5, 2004)]
[Pages 5658-5660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2517]



National Highway Traffic Safety Administration

[Docket No. NHTSA-03-16341, Notice 2]

Group Lotus Plc.; Grant of Application for a Temporary Exemption 
From Federal Motor Vehicle Safety Standard No. 108 and Part 581 Bumper 

    This notice grants the Group Lotus Plc. (``Lotus'') application of 
for a temporary exemption from Paragraph S7 of Federal Motor Vehicle 
Safety Standard (``FMVSS'') No. 108, Lamps, reflective devices, and 
associated equipment; and Part 581 Bumper Standard. In accordance with 
49 CFR Part 555, the basis for the grant is that compliance would cause 
substantial economic hardship to a manufacturer that has tried in good 
faith to comply with the standard.
    The National Highway Traffic Safety Administration (NHTSA) 
published a notice of receipt of the application on October 24, 2003, 
and afforded an opportunity for comment.\1\

    \1\ See 68 FR 61035. To view the Lotus application, please go to 
the DOT Docket Management System at http://dms.dot.gov/ (Docket No. 

I. Background

    Lotus, which was founded in 1955, produces small quantities of 
performance cars. In the past five years, Lotus has sold a total of 550 
automobiles in the United States. The only current Lotus vehicle sold 
in the Unites States is Lotus Esprit (``Esprit''). In the same time 
period, Lotus has manufactured a total of 18,888 vehicles worldwide, 
including Lotus Elise (``Elise'').
    The Elise was introduced in 1996, but it was not originally 
designed or intended for the U.S. market. However, after deciding to 
terminate production of the Esprit by 1999 \2\, petitioner sought to 
introduce the Elise in the United States. Significant management, 
ownership and financial hardship issues contributed to the delay in 
introducing the Elise model. Recently, Peruashan Otomobile Nasional 
Berhad (``Proton'') has taken a 100% ownership of Lotus. Petitioner is 
now ready to introduce the Elise vehicle into the U.S. Market. A 
description of the Elise vehicle is set forth in the Exhibit 1 of the 
petition (Docket No. NHTSA-03-16341-1). For additional information on 
the vehicle, please go to www.LotusCars.com.

    \2\ Exprit production was eventually extended by three years 
while petitioner sought to bring Elise into compliance with FMVSS. 
Esprit ceased production on 12/31/2003.

II. Why Lotus Needs a Temporary Exemption

    Lotus has continued to experience substantial economic hardship, 
previously discussed by the agency in a March 3, 2003 Renewal of a 
Temporary Exemption from FMVSS No. 201 (68 FR 10066).\3\ Lotus' latest 
financial submissions showed an operating loss of [pound]43,228,000 
([ap] $69,000,000) for the fiscal year 2000; a loss [pound]18,055,000 
([ap] $29,000,000) for the fiscal year 2001; and a loss of 
[pound]2,377,000 ([ap] $4,000,000) for its fiscal year 2002. This 
represented a cumulative loss for a period of 3 years of 
[pound]63,660,000 ([ap] $102,000,000).\4\

    \3\ We note that the Elise vehicle is FMVSS No. 201 compliant.
    \4\ All dollar values are based on an exchange rate of [pound]1 
= $1.60.

    According to the petitioner, the cost of making the Elise compliant 
with the headlighting requirements of FMVSS 108 and the bumper standard 
was beyond the company's current capabilities. Petitioner contended 
that developing and building FMVSS-compliant headlamps and Part 581-
compliant bumpers cannot be done without redesigning the entire body 
structure of the Elise. Specifically, developing Part 581-compliant 
bumpers would cost $6 million dollars over a period of 2 years. 
Producing an actual FMVSS-compliant headlamp would cost approximately 
$1.1 million. In addition, there are unspecified costs of body 
modifications in order to accommodate the new headlamp, because there 
is insufficient space in the current body structure to permit an FMVSS-
compliant headlamp.
    Lotus requested a three-year exemption in order to concurrently 
develop compliant bumpers and headlamps and make necessary adjustments 
to the current body structure. Petitioner anticipates the funding 
necessary for these compliance efforts will come from immediate sales 
of Elise vehicles in the United States.

III. Why Compliance Would Cause Substantial Economic Hardship and How 
Lotus Has Tried in Good Faith To Comply With Standard No. 108 and the 
Bumper Standard

    Petitioner contended that Lotus could not return to profitability 
unless it receives the temporary exemption. In support of their 
contention, Lotus prepared alternative forecasts for the next 3 fiscal 
years. The first forecast assumed that the petitioner receives 
exemptions from S7 of FMVSS No. 108 and the bumper standard. The second 
forecast assumed the exemptions are denied.\5\ In the event of denial, 
Lotus anticipated extensive losses through the fiscal year 2006, 
because it could not bring the Elise into full compliance any earlier.

    \5\ See Petition Exhibit 2 (Docket No. NHTSA-03-16341-1).

                                                                 Forecast if exemptions   Forecast if exemptions
                          Fiscal year                               granted  (in $)           denied  (in $)
2003..........................................................             [ap]$975,000          [ap]-$1,700,000

[[Page 5659]]

2004..........................................................          [ap]$12,520,000         [ap]-$15,402,000
2005..........................................................          [ap]$11,749,000         [ap]-$22,718,000

    According to the petition, Lotus expended substantial resources 
(approximately $27,000,000) in the past 12 months in order to bring 
Elise into compliance with the Federal Motor Vehicle Safety Standards 
and other U.S. regulations. Specifically, Lotus invested approximately 
$5,000,000 in order to obtain a suitable engine supplier capable of 
complying with U.S. emissions standards. Next, Lotus developed an FMVSS 
208 compliant air bag system. Significant resources are currently being 
expended in order to bring Elise in compliance with all other Federal 
Motor Vehicle Safety Standards, including FMVSSs 208, 210, 212, 214, 
219 and 301.
    As previously discussed, the Elise was not designed for the U.S. 
market and does not have a conventional bumper system or the underlying 
bumper structure. Instead, it was designed with ``clam shell'' body 
parts. According to the petitioner, installing a compliant bumper 
system would require re-designing the entire body of the automobile.
    Petitioner considered equipping the Elise with an ``interim 
headlamp'' that would comply with FMVSS No. 108. This headlamp would 
not feature a polycarbonate cover currently on the vehicle, and would 
have been assembled from ``off-the-shelf'' parts. However, the 
development of this ``interim headlamp'' would cost $500,000. Because 
Lotus anticipated introducing an all-new, fully compliant Elise in 
2006, the projected number of vehicles sold until the introduction of 
the new 2006 model could not justify this investment.
    Petitioner contended that installation of ``an interim headlamp'' 
without a polycarbonate cover would also significantly decrease 
forecasted sales because aesthetic appearance of the automobile would 
be compromised. Lotus marketing research forecasted a sales decline of 
as much as 30%. Further, the absence of the polycarbonate cover would 
have a negative effect on vehicle aerodynamics, and would decrease fuel 
economy. Finally, Lotus indicated that installation of ``interim 
headlamps'' could result in U.S. customers purchasing aftermarket or 
``European-spec'' headlamps and installing these headlamps on their 
    As previously stated, Lotus plans to introduce the second 
generation Elise in late 2006. This vehicle will feature compliant 
headlamps, bumpers and advanced air bags.

IV. Why an Exemption Would Be in the Public Interest and Consistent 
With the Objectives of Motor Vehicle Safety

    Petitioner put forth several arguments in favor of a finding that 
the requested exemption is consistent with the public interest and the 
objectives of the Safety Act. Specifically:
    1. Petitioner notes that the current Elise headlamp does not pose a 
safety risk because the headlamp's photometrics are very close to the 
requirements of FMVSS 108. The headlamp has also been subjected to 
environmental testing, and has a good warranty record.
    2. Petitioner argues that the clamshell body system utilized by the 
Elise vehicle acts to reduce low-speed damage even in the absence of 
conventional bumpers. In a situation involving greater damage, the cost 
of an entire fiberglass clamshell is comparable to bumper-related 
repair costs of other ``high-end'' vehicles.
    3. Petitioner suggests that denial of the petition would prevent 
Lotus from introducing the Elise for a period of three years and would 
in fact cause Lotus to cease U.S. operations. This would in turn result 
in loss of jobs by Lotus employees in the U.S.\6\

    \6\ In the event the application was granted, Lotus anticipated 
hiring more employees and expanding its dealer network.

    4. With respect to consumers, petitioner argues that denial of the 
petition would limit consumer choices by eliminating Lotus from the 
marketplace. Lotus contends that its continued presence in the U.S. is 
needed in order to provide parts and service for the existing Lotus 
Esprit customers.
    5. Lotus remarks that due to the nature of the Elise vehicle, it 
will, in all likelihood, be utilized infrequently, and then as a 
``second'' or a recreational vehicle.
    6. Finally, Lotus notes that the Elise does comply with all other 
Federal Motor Vehicle Safety Standards, and features above-average fuel 

V. Comments Received on Lotus Application

    The agency received a single comment in response to the notice of 
the application. The sole commenter was Mr. Alan Riley, the executive 
editor of Roadfly, an on-line automotive enthusiast community. Mr. 
Riley is in favor of granting the exemption. In support of his 
position, Mr. Riley indicated that the exemption would enable Lotus to 
maintain a continued presence in the U.S., which is important not only 
to potential Elise purchasers, but also to those individuals who 
already own Lotus vehicles and seek to properly maintain them.

VI. The Agency's Findings

    The Lotus application for a temporary exemption clearly 
demonstrates the financial difficulties experienced by the company, 
with cumulative losses in the past three years exceeding $100,000,000. 
Further, the application indicates that Lotus has made a good faith 
effort and spent approximately $27,000,000 to bring Elise into 
compliance with federal safety standards.
    Traditionally, the agency has found that the public interest is 
served in affording continued employment to a small volume 
manufacturer's work force. The agency has also found that the public 
interest is served by affording the consumers a wider variety of motor 
vehicles. In this instance, denial of the petition would most likely 
put Lotus out of business in the U.S. Further, an exemption would 
assure an adequate supply of spare parts and afford a continuing, 
uninterrupted commercial relationship with Lotus dealers and their 
employees in the United States.
    The term of this exemption will be limited to three years and the 
agency anticipates that the Elise vehicle will be sold in limited 
quantities. With the help of revenues derived from U.S. sales, Lotus 
will introduce an all new, fully compliant vehicle that will replace 
the current Elise by 2006.
    Because Lotus will be manufactured in limited quantities and 
because each vehicle is likely to be operated only on a limited basis, 
the agency finds that this exemption will likely have a negligible 
impact on the overall safety of U.S. highways. The agency notes that 
the vehicle subject to this petition

[[Page 5660]]

complies with all other applicable Federal motor vehicle safety 
    In consideration of the foregoing, it is hereby found that 
compliance with the requirements of Paragraph S.7 of 49 CFR 571.208, 
Lamps, reflective devices, and associated equipment; and 49 CFR part 
581 Bumper Standard would cause substantial economic hardship to a 
manufacturer that has tried in good faith to comply with the standard. 
It is further found that the granting of an exemption would be in the 
public interest and consistent with the objectives of traffic safety.
    In accordance with 49 U.S.C. 30113(b)(3)(B)(i), Lotus is granted 
NHTSA Temporary Exemption No. EX 03-4, from Paragraph S.7 of 49 CFR 
571.208, Lamps, reflective devices, and associated equipment; and 49 
CFR part 581 Bumper Standard. The exemption shall remain in effect 
until January 1, 2007.

(49 U.S.C. 30113; delegation of authority at 49 CFR 1.50 and 501.8)

FOR FURTHER INFORMATION CONTACT: George Feygin in the Office of Chief 
Counsel, NCC-112, (Phone: 202-366-2992; Fax 202-366-3820; e-Mail: 
[email protected]).

    Issued on: February 2, 2004.
Jeffrey W. Runge,
[FR Doc. 04-2517 Filed 2-4-04; 8:45 am]