[Federal Register Volume 69, Number 248 (Tuesday, December 28, 2004)]
[Rules and Regulations]
[Pages 77663-77672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-28237]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 534

[Docket No. NHTSA 2004-19940]
RIN 2127-AG97


Fuel Economy Standards--Credits and Fines--Rights and 
Responsibilities of Manufacturers in the Context of Changes in 
Corporate Relationships

AGENCY: National Highway Traffic Safety Administration (NHTSA), 
Department of Transportation.

ACTION: Final rule.

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SUMMARY: This document establishes a new regulation governing the use 
of rights (credits) and liabilities (fines) under the Corporate Average 
Fuel Economy program in the face of changes in corporate relationships. 
This final rule fulfills a statutory responsibility to issue a 
regulation addressing these issues.

DATES: The rule is effective January 27, 2005.
    Petitions for Reconsideration must be received by February 11, 
2005. Petitions for reconsideration should refer to the docket and 
notice number of this document and be submitted to the Administrator of 
NHTSA 400 Seventh Street, SW., Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT: Mr. Otto Matheke, Office of the Chief 
Counsel, Suite 5219, National Highway Traffic Safety Administration, 
400 Seventh Street, SW., Washington, DC 20590. (202-366-5263)

Table of Contents

I. Introduction and History
II. Applicable Statutory Provisions
III. The Notice of Proposed Rulemaking
IV. Public Comments
V. Post-NPRM CAFE Considerations
VI. The Final Regulation
    A. Definitions
    B. CAFE Credits
    1. Legal Considerations
    2. Policy Considerations
    C. Acquisitions During a Model Year
VII. Rulemaking Analyses and Notices

I. Introduction and History

    This final rule establishes a regulation governing the treatment of 
corporate assets and liabilities arising from the agency's Corporate 
Average Fuel Economy (CAFE) program in the face of changes in corporate 
relationships. It fulfills a statutory responsibility to define by 
regulation the use of CAFE credits and liabilities in light of changes 
in corporate structure.
    In December 1975, Congress enacted the Energy Policy and 
Conservation Act (EPCA). The EPCA established the Corporate Average 
Fuel Economy (CAFE) program by adding a new Title V to the Motor 
Vehicle Information and Cost Saving Act. Congress has made various 
amendments to the fuel economy provisions since 1975, and the fuel 
economy provisions are now codified in Chapter 329 of Title 49 of the 
United States Code.
    The CAFE statute requires that a manufacturer meet average fuel 
economy standards, as established by regulation, separately for fleets 
of light trucks, domestic passenger cars and imported passenger cars. A 
manufacturer's average fuel economy for a particular model year is 
calculated in accordance with 49 U.S.C. 32904. The establishment of 
CAFE standards and the calculation of average fuel economy is 
statutorily tied to ``automobiles manufactured by a manufacturer'' for 
any given model year. (49 U.S.C. 32902, 32904)
    The statute specifically provides that, with regard to each 
individual fleet, a manufacturer may earn credits by exceeding the 
applicable standard and may use those credits, for three years forward 
and three years back, to offset any shortfalls in CAFE compliance 
applicable in a particular model year. Again the statute makes clear 
that the number of credits earned is tied to the volume of automobiles 
manufactured by the manufacturer. (49 U.S.C. 32903)
    Manufacturers failing to meet the established fleet standard for a 
particular model year must, if they do not have credits available to 
offset their shortfall, pay fines to the United States Treasury. Over 
the history of the CAFE program, manufacturers have paid over 140 fines 
totaling more than $600 million. The highest fine ever paid by a single 
manufacturer was almost $28 million, with the average approximating $4 
million.
    The provisions of EPCA recognize that changes in corporate 
structures are common and that a ``manufacturer,'' as defined by the 
CAFE statute, may change in light of new corporate relationships. In 
1980, Congress amended the definition of a manufacturer to explicitly 
contemplate corporate successors and predecessors. Congress recognized 
at that time that CAFE credits and responsibilities would become assets 
and liabilities in the course of such changes, and directed the 
Secretary of Transportation to promulgate regulations defining how such 
credits and responsibilities should be treated when corporate changes 
occur. (49 U.S.C. 32901(13))
    The agency did not immediately move to establish the regulation 
Congress prescribed. Nonetheless, in 1991, the Administrator authorized 
the agency's Complaint Counsel to initiate an administrative complaint 
against the Chrysler Corporation (Chrysler). As Congress anticipated, 
structural corporate change gave rise to issues relating to the 
application of CAFE rights and responsibilities. Chrysler had purchased 
the assets of American Motors Company (AMC) and Chrysler had fallen 
short of an applicable CAFE. AMC had available credits that Chrysler 
wished to apply to its existing shortfall. Chrysler took the position 
that AMC's CAFE credits were available to the new corporate entity. 
Complaint Counsel disagreed and sought to impose CAFE fines for 
Chrysler's failure to meet the applicable CAFE standard.\1\
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    \1\ Complaint Counsel's position in the administrative 
proceeding was consistent with the position taken by the agency's 
Acting Chief Counsel in a 1990 letter to the Chrysler Corporation 
setting forth the agency's interpretation of the law as applied to 
Chrysler's acquisition of AMC. Pursuant to 49 CFR part 501.8(d)(5), 
the NHTSA Administrator has delegated to the Chief Counsel the 
authority ``to issue authoritative interpretations of the statutes 
administered by NHTSA and the regulations issued by the agency.''
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    On January 8, 1992, an Administrative Law Judge issued an Initial 
Decision and Order. While expressing in dictum support for Complaint 
Counsel's position, the ALJ ruled that the agency could not enforce 
that position because it had not, as the statute anticipates, 
promulgated regulations in accordance with the Administrative 
Procedures Act. NHTSA's Administrator terminated the prosecution and 
directed the agency to initiate rulemaking. In an order dated March 31, 
1992, NHTSA's Administrator found:

    Upon further consideration of the matters at issue in this 
proceeding, I have decided that NHTSA should prescribe regulations

[[Page 77664]]

pursuant to section 501(g) of the Act to define the extent to which 
predecessors and successors of manufacturers of automobiles should 
be included within the term `manufacturer' for the purposes of the 
Act. I have therefore directed the Associate Administrator for 
Rulemaking to promptly commence such a proceeding.
    While such a proceeding would provide helpful clarification and 
be consistent with the statute, in my view there is a great deal of 
doubt as to the correctness of the Administrative Law Judge's view 
that, in the absence of such regulations, an enforcement proceeding 
against Chrysler cannot proceed. Therefore, I am unwilling to allow 
the I.D. (Initial Decision) to become the Final Decision of this 
agency. On the other hand, I believe that continuation of this 
proceeding under these circumstances could result in an unnecessary 
expenditure of the resources of the agency and of Chrysler. 
Therefore, I have decided to take steps to terminate the proceeding 
at this time, without prejudice to the possible filing of a new 
administrative complaint against Chrysler following the issuance of 
the regulatory definitions referred to above.

    The agency did not act immediately. In the early 1990s, the agency 
faced a variety of legal challenges raising numerous issues and 
focusing agency resources on the developing contours of the program. In 
April 1994, the agency began to consider a multi-year rulemaking to 
establish light truck CAFE standards for some or all of model years 
1998-2006. (59 FR 16324). Congress responded by effectively 
``freezing'' light truck standards. On November 15, 1995, the 
Department of Transportation and Related Agencies Appropriations Act 
for FY 1996 was enacted. Pub. L. 104-50. Section 330 of that Act 
provided:

    None of the funds in this Act shall be available to prepare, 
propose, or promulgate any regulations * * * prescribing corporate 
average fuel economy standards for automobiles * * * in any model 
year that differs from standards promulgated for such automobiles 
prior to enactment of this section.

    Similar language in subsequent Appropriations Acts continued the 
freeze through model year 2003. Ongoing debate about the efficacy of 
the CAFE program also led Congress to require a review of the program. 
The conference committee report for the Department of Transportation 
and Related Agencies Appropriations Act for FY 2001 directed NHTSA to 
fund a study by the National Academy of Sciences to evaluate the 
effectiveness and impacts of CAFE standards (H.R. Conf. Rep. No. 106-
940, at 117-118).
    On January 22, 2001, six months prior to submission of the NAS 
report to the Department of Transportation, the agency published a 
notice of proposed rulemaking (NPRM) advancing regulatory text intended 
to formalize Complaint Counsel's positions in the 1991-1992 
administrative proceeding. (66 FR 6523)

II. Applicable Statutory Provisions

    The CAFE statute provides that a ``manufacturer of automobiles 
commits a violation if the manufacturer fails to comply with an 
applicable average fuel economy standard under section 32902 of this 
title. Compliance is determined after considering credits available to 
the manufacturer under section 32903 of this title.'' (49 U.S.C. 
32911(b))
    Section 32903 provides that ``when the average fuel economy of 
passenger automobiles manufactured by a manufacturer in a particular 
model year exceeds an applicable average fuel economy standard * * * 
the manufacturer earns credits.'' Those credits may be applied to any 
of the 3 consecutive model years immediately proceeding or following 
the model year during which the credits were earned.
    The statute defines a ``manufacturer'' as ``(A) a person engaged in 
the business of manufacturing automobiles, including a predecessor or 
successor of the person to the extent provided under regulations 
prescribed by the Secretary; and (B) if more than one person is the 
manufacturer of an automobile, the person specified under regulations 
prescribed by the Secretary.'' (49 U.S.C. 32901(a)(13)) The statute 
defines ``an automobile manufactured by a manufacturer'' as including 
``every automobile manufactured by a person that controls, is 
controlled by, or is under common control with the manufacturer, but 
does not include an automobile manufactured by the person that is 
exported not later than 30 days after the end of the model year in 
which the automobile is manufactured.'' \2\
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    \2\ The statutory language relating to predecessors and 
successor was added to the statute as part of the 1980 amendments. 
That same set of amendments extended the credit period from one year 
carry forward and carry back to three years forward and back. 
Although the phrase ``automobile manufactured by a manufacturer'' 
was in the statute previously, Congress added the definition of that 
phrase in 1990. We take all of those definitions and provisions into 
account in reaching our conclusions in this rulemaking.
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    During the 1990s, the agency provided its interpretation of the 
term ``automobile manufactured by a manufacturer.'' This term is 
crucial to this rulemaking because a manufacturer earns CAFE credits 
when the average fuel economy of the ``automobiles manufactured by a 
manufacturer'' exceeds the applicable CAFE standard for that model 
year. In response to a 1996 letter from Ford Motor Company seeking 
clarification with regard to whether vehicles produced by certain 
corporate affiliates could appropriately be included in its CAFE fleet, 
the agency reviewed the meaning of the phrase ``automobiles 
manufactured by a manufacturer,'' which by statute ``includes every 
automobile manufactured by a person that controls, is controlled by, or 
is under common control with the manufacturer'' (except those exported 
within 30 days of the model year). The agency stated:

    The term ``control'' a used in 32902(a)(4) is not defined 
elsewhere in Chapter 329 or the legislative history of the Chapter 
and its predecessor, the Motor Vehicle Information and Cost Savings 
Act. In past interpretations the agency has indicated that the term 
as used in the CAFE context may have the same definition as it has 
when used in a corporate law context. In the corporate law context, 
the issue of control is important for determining whether the 
controlling persons have violated any fiduciary duties to the 
corporation and other shareholders. Control in that sense refers to 
ownership of a large enough bloc of a company's stock to constitute 
effective voting control of the firm.
    For the purposes of Chapter 329, control is important for 
determining a company's corporate average fuel economy and total 
production. For CAFE purposes, ``control'' is the ability to 
exercise a major influence over a company's average fuel economy and 
production. In addition to the ownership of a controlling bloc of 
stock, control for our purposes could be shown by control over the 
design and availability of certain models and other factors 
affecting production, sales mix and technological improvements.

(Letter from John Womack, Acting Chief Counsel, to Timothy Green of 
Ford Motor Company, dated September 19, 1996).
    In sum, the statute provides that a manufacturer may earn credits 
when its fleet (consisting of every vehicle built by a manufacturer 
that controls it, is controlled by it or is under common control with 
it) exceeds the applicable CAFE standard for that model year. The 
statute anticipates that predecessors and successors will be included 
and that the Department would define such entities through regulation.

III. The Notice of Proposed Rulemaking

    In January 2001, the agency published its NPRM relating to the 
rights and responsibilities of manufacturers in light of changes in 
corporate relationships. The NPRM sought to formalize the agency's 
position during the Chrysler enforcement action of the early 1990s and 
addressed a number of corollary issues.
    The regulatory text proposed in the NPRM would have made successors 
responsible for any civil penalties arising out of fuel economy 
shortfalls

[[Page 77665]]

incurred by predecessors, as well as any shortfall if the companies had 
combined within the last model year. Credits in existence at the time 
the predecessor/successor relationship was established could only be 
used to satisfy the existing shortfalls of each company prior to the 
formation of the new corporate structure. Thus, the successor's 
existing credits could only be used first to satisfy its existing 
shortfalls and the predecessor's credits could only be used first to 
satisfy its existing shortfalls. Remaining credits could be used to 
offset future shortfalls of the new corporate entity.
    The proposed regulatory text also addressed companies within 
control relationships. It suggested that each company coming within a 
corporate control relationship within a model year should be jointly 
and severally liable for any CAFE liabilities incurred by any of the 
other companies coming within the control relationship within that 
model year. The NPRM then set forth a number of additional 
``specifications'' attempting to define, in general terms, the use of 
credits and incurring of liabilities within control relationships. Each 
``specification'' was subject to the agreement of the other 
manufacturers, the availability of the credits, and other general 
restrictions.
    The proposal presented in the NPRM was built upon the following 
notion: ``Credits earned by a particular manufacturer are only 
`available to be taken into account with respect to the average fuel 
economy of that manufacturer,' for any of the three model years before, 
or after, the model year in which the credits are earned'' \3\ 
(emphasis added).
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    \3\ This language mirrors that in EPCA prior to its codification 
in 1994. The codification was not intended to have any substantive 
effect.
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    NHTSA historically allowed successor manufacturers to use a 
predecessor's existing credits to satisfy the newly merged 
corporation's CAFE liabilities acquired after the merger has been 
finalized. By the same token, successors are generally responsible for 
predecessors' liabilities, and NHTSA has maintained this is the case 
under the CAFE program. Thus, the only issue regarding credits in the 
NPRM was whether a successor is entitled to use the existing CAFE 
credits of either itself or its predecessors to satisfy the other's 
existing CAFE liabilities. In the NPRM, the agency tentatively was of 
the view that the successor could not.
    This position was based on two premises, one legal and one policy-
driven. First, NHTSA maintained that EPCA established a priority of 
credit carryover that requires all credits first be used by the 
manufacturer earning the credits to satisfy its existing CAFE 
liabilities and before remaining credits are carried forward for use by 
that same manufacturer. NHTSA then stated that permitting a successor 
to use its predecessor's remaining credits to satisfy other existing 
liabilities would permit the remaining credits to be carried forward 
and then carried back to a manufacturer that did not possess those 
credits when it incurred the liabilities the credits would satisfy. 
Although the agency did not conduct a rulemaking as Congress 
contemplated before taking a view, NHTSA's tentative position since the 
Chrysler enforcement action has been that the statute does not support 
such a result.
    Second, while recognizing Congress' intent to add flexibility to 
the CAFE program when amending the statute in 1980, the agency 
expressed concern that a successor should not be permitted to ``merge'' 
the CAFE credits of its predecessor companies because it believed that 
``permitting such use of credits would discourage energy conservation. 
For example, to the extent that a successor had been planning to exceed 
standards in the future to earn credits that could be carried back to 
cover pre-acquisition shortfalls, permitting the successor to use the 
predecessor's previously earned credits to cover those shortfalls would 
remove the incentive to exceed those standards.'' 66 FR 6528.
    As noted above, the agency proposed a number of ``specifications'' 
covering a variety of situations in which questions relating to the use 
of credits and liabilities might arise. The NPRM proposed the following 
definitions:
     Control relationship means the relationship that exists 
between manufacturers that control, are controlled by, or are under 
common control with, one or more other manufacturers.
     Identity means the relationship between a predecessor and 
a successor during the time in which the successor owns 50 percent or 
more of the assets, based on valuation, that had belonged to the 
predecessor.
     Predecessor means a manufacturer whose rights have been 
vested in and whose burdens have been assumed by another manufacturer.
     Successor means a manufacturer who has become vested with 
the rights and assumed the burdens of another manufacturer.
    As set forth in the NPRM, the definitions of ``successor'' or 
``predecessor'' are intended to reflect the ordinary corporate law 
meaning of those terms.\4\
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    \4\ The Revised Model Business Corporation Act (at Sec.  11.02), 
incorporates these general principles by stating that a ``survivor 
corporation becomes vested with all the assets of the 
corporation(s)/entity that merged into the survivor and becomes 
subject to their liabilities.'' The states in which the major motor 
vehicle makers are incorporated each apply the same concept in their 
respective statutes. See, e.g., 8 Del.C. Sec.  259 (Delaware), Cal. 
Corp. Code Sec.  1107(a) (California) and N.J.S.A. 14A:10-6 (New 
Jersey).
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IV. Public Comments

    The NPRM generated little public comment. Ford Motor Company raised 
fundamental objections to the definitional approach the agency had 
taken, pointing out that as applied to certain situations the approach 
created potentially unfair results inconsistent with the application of 
general principles of corporate law.
    Ford claimed that a successor should not be responsible for all 
vehicles manufactured by the predecessor for the entire model year 
(defined as October 1-September 30). The company argued the NPRM would 
have forced companies to combine fleets before any control relationship 
had been established. Ford also noted that the NPRM stated its intent 
to be both simple and faithful to the overall statutory scheme and then 
argued that the agency had failed to do so. According to Ford, 
``NHTSA's proposed rule short-circuits the statute and general 
principles of corporate successorship in its eagerness to achieve 
simplicity.''
    Ford and DaimlerChrysler also contested the agency's proposed 
limitations on the use of predecessor's pre-existing CAFE credits. Ford 
argued: ``[I]n the final analysis, we see no reason why allowing a 
successor corporation to use pre-existing credits as it sees fit would 
be contrary to the intent of Congress. Credits are not being double-
counted or being used for some improper purpose; no vehicles are being 
omitted from the CAFE calculations. The only real effect of this 
proposal would be to increase the likelihood that shortfalls will be 
subject to fines rather than covered with credits.''

V. Post-NPRM CAFE Considerations

    Since the promulgation of the NPRM, the CAFE program has received 
considerable analytic attention. Particularly in response to 
Congressional concerns, studies of the CAFE program have emerged that 
help us better understand how policy decisions are likely to affect the 
goal of achieving energy independence.
    Congress directed the National Academy of Sciences, in consultation

[[Page 77666]]

with the Department of Transportation, to evaluate the CAFE program and 
make recommendations to improve it. The NAS conducted a detailed review 
of the policies underlying the CAFE program and made recommendations 
for better achieving those policies. A draft of the NAS Report was 
available to the Department in June 2001 and the final report was 
published in January 2002.
    The NAS recommended ``the CAFE system, or any alternative 
regulatory system, should include broad trading of fuel economy 
credits. The committee believes a trading system would be less costly 
than the current CAFE system; provide more flexibility and options to 
the automotive companies; give better information on the cost of fuel 
economy changes to the private sector, public interests groups, and 
regulators; and provide incentives to all manufacturers to improve fuel 
economy. Importantly, trading of fuel economy credits would allow for 
more ambitious fuel economy goals than exist under the current CAFE 
system, while simultaneously reducing the economic cost of the 
program.''
    More recently, the Congressional Budget Office released an issue 
brief focusing on the economic costs of CAFE standards and comparing 
them with the costs of a gasoline tax that would reduce gasoline 
consumption by the same amount. The CBO noted the NAS's finding that 
enhancing the transfer of credits would encourage the creation of 
credits because firms able to produce them would be able either to use 
them as needed or to sell them to other firms. The CBO estimated that 
fuel economy credit trading could cut the cost of a 3.8 mpg increase in 
the CAFE standards by 16 percent, down from $3.6 billion per year to $3 
billion per year.\5\
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    \5\ The CBO estimated that CAFE standards would need to increase 
by 3.8 mpg (to 31.3 mpg for passenger cars and 24.5 mpg for light 
trucks) in order to reduce the amount of gasoline consumed by new 
vehicles by 10 percent.
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VI. The Final Regulation

    We have considered the issues raised in the NPRM in light of the 
comments filed by Ford Motor Company and DaimlerChrysler, applicable 
concepts of corporate law and the policy analyses provided by the 
National Academy of Sciences and the Congressional Budget Office. We 
have also reviewed the legislative history and considered the issues 
with an eye towards the Congressional intent of providing flexibility 
while enhancing overall fuel efficiency. While this regulation does not 
directly implicate credit trading, the policy considerations are 
similar and, as the NPRM suggests, relevant to deciding how best to 
achieve the overall intent of the CAFE program.
    Based on our review and consideration of all this information, we 
have decided to expand our initial stance on carry back credits so as 
to allow a successor to use a predecessor's existing credits to satisfy 
the successor's existing liabilities and vice versa. As proposed in the 
NPRM, the successor will be liable for all of the predecessor's 
liabilities and credits not used to satisfy existing liabilities may be 
used to satisfy subsequent liabilities, consistent with statutory 
requirements. We have also decided to assess a successor's CAFE assets 
and liabilities for the full model year during which the corporate 
merger occurred. In those instances in which the change in corporate 
relationships did not result in the establishment of a successor/
predecessor relationship, but rather in a lesser form of corporate 
control, the corporations are free to determine which corporation will 
be responsible for the model year allocation of penalties, as long as 
they file a contract detailing respective responsibilities with NHTSA 
prior to the end of the model year.
    We no longer find tenable the proposed position we had taken 
limiting a successor corporation's right to use CAFE credits earned by 
a predecessor corporation. As indicated above, the proposed position 
was based on two premises, one policy and one legal. The policy premise 
was a statement that permitting a successor corporation to use the CAFE 
credits of its predecessor corporation would not encourage CAFE credit 
building. Upon further consideration, we do not believe our tentative 
policy premise regarding incentives to earn additional credits is a 
valid reason for limiting successor corporations' ability to use CAFE 
credits earned by a predecessor.
    Further, our preliminary legal analysis did not fully consider all 
the applicable statutory language nor did it apply the general 
corporate law principles it sought to instill in the definitions. The 
legal premise was explained in our proposal as an outgrowth of the 
statutory provision that credits earned by a particular manufacturer 
are ``only available to be taken into account with respect to the 
average fuel economy of that manufacturer.'' We proposed to conclude 
that a successor corporation could not be considered to be that 
manufacturer with respect to the predecessor corporation, and so the 
statute would prohibit the successor corporation from using CAFE 
credits earned by a predecessor corporation to address CAFE shortfalls 
the successor corporation had before it acquired the predecessor.
    We also proposed to define successors and predecessors in 
accordance with general principles of corporate law. Yet, even while 
doing so, we proposed a tentative conclusion different than the one 
that would result from applying those definitions and the same general 
principles. Under ordinary principles of corporate law, the reference 
to that manufacturer would not be read as prohibiting a successor from 
putting itself in the position of a predecessor corporation. Nor did we 
consider the import of the statutory phrase ``automobiles manufactured 
by a manufacturer'' when developing our preliminary analysis.
    The agency proposed a reading of the CAFE statute contrary to 
ordinary principles of corporate law based on our preliminary policy 
conclusion that permitting the normal application of successor/
predecessor principles of corporate law would frustrate the policies 
underlying the CAFE statute. In such circumstances, the proposed 
interpretation of the statute was intended to ensure that the 
underlying policies of the law were effectuated. However, we have now 
concluded that our policy view as to the impact of our reading of the 
statute does not in fact further the goals of the CAFE statute. 
Accordingly, we have no reason to read the CAFE statute in a way that 
is contrary to general principles of corporate law and we are not doing 
so in this final regulation.

A. Definitions

    The NPRM proposed four definitions: Control relationship, 
Successor, Predecessor and Identity. The comments did not take issue 
with these definitions, but did object to the agency's proposal 
regarding the use of credits upon corporate restructurings. As 
explained in the NPRM, the term ``identity'' was proposed solely to 
provide structure to the agency's proposal that credits earned by a 
company that subsequently becomes part of another should expire and no 
longer be available to the acquiring manufacturer.
    We are adopting in this Final Rule definitions of the terms 
``successor'', ``predecessor'' and ``control relationship'' as proposed 
in the NPRM. As amended in 1980, the EPCA specifically directed the 
agency to develop regulations to include successors and predecessors 
within the structure of manufacturer's carry-back and carry-forward 
CAFE credit plans. The proposed definitions incorporate into that 
regulatory structure the

[[Page 77667]]

common definition of successors and predecessors used in corporate law, 
providing successors with the rights and burdening them with the 
liabilities of their predecessors.
    We believe it is necessary to define a control relationship because 
in many instances manufacturers are engaged in the corporate operations 
of another manufacturer to such an extent that they may have control 
over vehicle design or production but do not have so much control as to 
establish the successor/predecessor relationship contemplated under 
corporate law. We have decided against defining the term ``identity'' 
because under today's rule, the successor is not limited in using 
credits generated by the predecessor or in satisfying the predecessor's 
CAFE liabilities. To the extent a non-successor/predecessor control 
relationship is established, the allocation of rights and liabilities 
will be governed by contract.
    The Final Rule also includes the following provision to help 
implement these definitions:
     ``Reporting Corporate Transactions.'' Manufacturers who 
have entered into written contracts transferring rights and 
responsibilities such that a different manufacturer owns the 
controlling stock or exerts control over the design, production or sale 
of automobiles to which a Corporate Average Fuel Economy standard 
applies shall report the contract to the agency as follows:
    (a) The manufacturers must file a certified report with the agency 
affirmatively stating that the contract transfers rights and 
responsibilities between them such that one manufacturer has assumed a 
controlling stock ownership or control over the design, production or 
sale of vehicles. The report must also specify the first full model 
year to which the transaction will apply.
    (b) The manufacturers may seek confidential treatment for 
information provided in the certified report in accordance with 49 CFR 
Part 512.

B. CAFE Credits

1. Legal Considerations
    NHTSA has been provided with wide latitude to confer rights and 
develop constraints within the context of the successor/predecessor 
relationship. In light of this broad statutory authority, we have 
determined that our previous interpretation of Sec.  32903 as 
prohibiting successor corporations from using a predecessor's existing 
credits to satisfy the successor's existing liability is too narrow.
    The fuel economy credit provisions are set forth in 49 U.S.C. 
32903, Credits for exceeding average fuel economy standards. Paragraph 
(a) of this section reads as follows:

    (a) Earning and period for applying credits. When the average 
fuel economy of passenger automobiles manufactured by a manufacturer 
in a particular model year exceeds an applicable average fuel 
economy standard under section 32902(b)-(d) of this title 
(determined by the Secretary of Transportation without regard to 
credits under this section), the manufacturer earns credits. The 
credits may be applied to--
    (1) Any of the 3 consecutive model years immediately before the 
model year for which the credits are earned; and
    (2) To the extent not used under clause (1) of this subsection, 
any of the 3 consecutive model years immediately after the model 
year for which the credits are earned.

    The language of the statute suggests that a manufacturer may use 
credits in any manner it chooses as long as existing liabilities are 
first satisfied and, potentially, those credits are not sold or 
otherwise traded to another manufacturer.\6\ However, the language of 
Sec.  32903 changed when the predecessor Motor Vehicle Information and 
Cost Savings Act, which was codified into Sec.  32903 by Pub. L. 103-
272 (July 5, 1994). Section 1(a) of that law stated that the laws being 
codified were being done so ``without substantive change.'' Therefore, 
it is appropriate to look to the language of the earlier statute when 
determining whether Congress intended to compel the agency to further 
restrict manufacturer use of credits.
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    \6\ The question as to whether the statute permits credit 
trading, either between manufacturers or between classes of light 
trucks, was raised in the agency's Advanced Notice of Proposed 
Rulemaking exploring CAFE reform options. See 68 FR 74908 (December 
29, 2003).
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    Section 502(l)(1)(B) of the Motor Vehicle Information and Cost 
Savings Act stated:

    Whenever the average fuel economy of the passenger automobiles 
manufactured by a manufacturer in a particular model year exceeds an 
applicable average fuel economy standard * * *, such manufacturer 
shall be entitled to a credit calculated under subparagraph (C), 
which--
    (i) Shall be available to be taken into account with respect to 
the average fuel economy of that manufacturer for any of the three 
consecutive model years immediately prior to the model year in which 
such manufacturer exceeds such applicable average fuel economy 
standard, and
    (ii) To the extent that such credit is not so taken into account 
pursuant to clause (i), shall be available to be taken into account 
with respect to the average fuel economy of that manufacturer for 
any of the three consecutive model years immediately following the 
model year in which such manufacturer exceeds such applicable 
average fuel economy standard.

    NHTSA has historically maintained that this language of the Motor 
Vehicle Information and Cost Savings Act means that a credit earned by 
a particular manufacturer (or group of related manufacturers) is only 
available to be taken into account with respect to the average fuel 
economy of that manufacturer (or group of related manufacturers). In 
the NPRM (as well as in previous agency articulations of the issue), 
NHTSA maintained that this language allows only a manufacturer 
exercising control at the time the credit is earned to use the credit 
to satisfy a contemporaneous or preexisting liability.
    However, support for this position cannot be found in the 1980 
amendments to the statute that codified this provision, or indeed to 
its predecessor language in EPCA. Additionally, this position largely 
ignores the fact that the 1980 amendments, which adopted not only this 
language but amended the definition of a manufacturer to include 
successor/predecessor relationships which were to be defined by NHTSA, 
were made to increase the degree of manufacturer flexibility while 
retaining the overall intent of the original statute to promote fuel 
efficiency. Thus, in defining the terms ``successor'' and 
``predecessor'' consistent with Congress' intent at the time, we must 
look not only to the overarching goal of improving fuel efficiency, but 
more specifically to the goal of increasing manufacturing flexibility.
    CAFE standards were established in 1975 as part of a far-reaching 
piece of legislation designed to address growing dependency on foreign 
oil and dwindling domestic petroleum reserves. Congress determined that 
the best way to encourage the automotive sector to increase the fuel 
efficiency of its vehicles was to create a system under which 
manufacturers would be required to meet federally established fuel 
standards. These standards were to be sufficiently rigorous to promote 
the development of more fuel efficient vehicles, but not so rigorous as 
to result in the loss of employment in the automotive sector, then 
responsible for 1 out of every 9 jobs in the U.S. economy.
    As part of that legislation, Congress established a limited credit 
program in which a manufacturer could earn credits for enhanced fuel 
efficiency. As part of its enforcement program, the Department of 
Transportation would determine a manufacturer's liability and

[[Page 77668]]

then would determine whether the manufacturer had earned any credits 
the previous year. If so, those credits were to be applied to the 
liability and penalties would be reduced by existing credits on a one-
to-one basis. Any credits not used to satisfy a previous year's 
liabilities could be retained to meet liabilities incurred in the 
following year, either as a direct reduction if penalties had not yet 
been paid, or as a refund.
    A manufacturer was defined as ``any person engaged in the business 
of manufacturing'' and the Secretary of Transportation was ordered to 
``prescribe rules for determining, in cases in which more than one 
person is the manufacturer of an automobile, which person is to be 
treated as the manufacturer'' 15 U.S.C. 2002 (1976 Ed.).
    Five years later, domestic U.S. automobile manufacturers were in 
the midst of financial difficulties and one major manufacturer, 
Chrysler, was on the verge of bankruptcy. Congress decided the CAFE 
program needed to be amended so as to provide vehicle manufacturers 
with greater flexibility, thus decreasing the likelihood of layoffs in 
the automotive sector, while generally retaining the program's 
commitment to increased fuel efficiency.
    As part of the 1980 amendments, Congress took several steps to 
increase manufacturer flexibility. First, it allowed low-volume 
manufacturers to request alternative CAFE standards for two or more 
years and exempted them from reporting requirements. Second, it 
provided additional flexibility in the CAFE standards for foreign 
manufacturers so as to encourage them to expand manufacturing 
operations into the U.S. Finally, and most importantly for this 
discussion, it provided manufacturers with greater flexibility in 
achieving CAFE standards in any particular year by allowing 
manufacturers to earn credits that could be used to offset liabilities 
incurred up to three years before and three years after the credits 
were earned.
    Manufacturers without credits that discovered they were likely to 
end the model year with a shortfall were permitted to file a plan with 
NHTSA demonstrating how they would make up any shortfall within three 
years. Unless the plan was deemed unreasonable, NHTSA was to approve 
the plan, and penalties were deferred until the plan failed to produce 
the anticipated credits. As part of this legislation, the term 
``manufacturer'' was amended to ``include[s] any predecessor or 
successor of such a manufacturer to the extent provided under rules 
which the Secretary shall prescribe.''
    Under the scheme proposed in the NPRM, a successor's use of the 
CAFE credits of its predecessor corporations would be limited, placing 
a significant constraint on manufacturer flexibility. Yet, the 
successor would be held responsible for any CAFE liabilities of its 
predecessor companies. A successor corporation could well find itself 
responsible for previously incurred CAFE obligations, but without 
previously earned CAFE credits. Despite the statutory language, a 
``manufacturer'' would no longer include the concept of successor and 
predecessor corporations as generally defined in corporate law. 
Instead, it would be subject to a different set of rules applicable 
only in the context of the CAFE program.
    Further, the preliminary analysis set forth in the NPRM focused 
only on the statutory term ``manufacturer,'' but did not give due 
consideration to the import of the statutory term ``automobiles 
manufactured by a manufacturer.'' This latter term is the fulcrum of 
determining the CAFE performance of a particular vehicle fleet and, by 
statute, incorporates any vehicle manufactured by a manufacturer in a 
control relationship with another manufacturer. By definition, then, 
the statute anticipates including in a manufacturer's fleet vehicles 
sold by manufacturers other than the particular corporate entity that 
produced or sold the vehicle when there is a control relationship.
    We believe it is unlikely that Congress expected the agency to 
develop a scheme under which there is no incentive to earn credits 
other than to make up for existing shortfalls. Nor is it a policy 
encouraging the development and sale of vehicle fleets exceeding 
applicable CAFE standards.
    Indeed, as discussed above, Congress adopted amendments to the CAFE 
statute to provide for three-year carry-forward and carry-back 
compliance plans using credits to offset liabilities expressly to give 
manufacturers additional flexibility. Rather, it is more likely that 
Congress was well aware when it enacted provisions to extend CAFE 
credit planning that compliance with CAFE standards was premised on the 
fleet of ``automobiles manufactured by a manufacturer,'' and further 
that any individual fleet would include vehicles manufactured by 
companies in various control relationships. Congress chose to provide 
additional flexibility to manufacturers to meet CAFE standards while 
maintaining the ability of a manufacturer in a control relationship to 
calculate its corporate average fuel economy with regard to the 
automobiles sold by companies within that control relationship.
2. Policy Considerations
    The NPRM was premised on the agency's preliminary belief that tight 
constraints on existing credits are necessary to encourage vehicle 
fleets to exceed applicable CAFE standards. The agency reasoned that 
allowing the transfer of CAFE credits as part of a corporate merger 
would not encourage good CAFE performance. Indeed, the agency believed 
that permitting the transfer of CAFE credits would discourage the 
development and sale of more fuel-efficient vehicles.
    The NPRM offered the following example: ``To the extent that a 
successor had been planning to exceed standards in the future to earn 
credits that could be carried back to cover pre-acquisition shortfalls, 
permitting the successor to use the predecessor's previously earned 
credits to cover those shortfalls would remove the incentive to exceed 
those standards.'' 66 FR 6528. It did not, however, consider the 
incentive to companies to exceed standards in order to gain assets 
valuable to potential investors and acquirers.
    The agency issued the NPRM without the benefit of the policy input 
and economic analysis developed during the NAS's review of the CAFE 
program. The NAS study is instructive in that it raises the prospect 
that treating credits as an asset that is potentially of value to 
others provides an increased incentive to create the asset. The 
preliminary conclusions stated in the NPRM did not consider that a 
successor company's ability to use CAFE credits might create valuable 
assets enhancing the value of a corporation to another.
    In the NPRM, the agency only considered the prospect encountered in 
the earlier Chrysler enforcement action, i.e., the successor possesses 
a shortfall that the predecessor's credits can alleviate. It did not 
consider the reverse situation in which a credit-rich manufacturer is 
acquiring a predecessor with sizeable CAFE liability. Ford raised this 
scenario in its comments. Ford offered the following example:

    If A, whose fleet is CAFE-positive, acquires B, whose fleet is 
CAFE-negative, it may not be possible for A to generate sufficient 
credits in the next three years to cover B's pre-existing 
shortfalls. A's product plans for the next three model years are 
basically set, and there is little A can do in the short term to 
improve its CAFE performance. Nor can A do anything to change B's 
CAFE-negative past. As a result, A may have no choice but to address 
B's shortfall by paying a fine--even

[[Page 77669]]

though A may have enough past credits to offset B's past shortfall. 
This outcome may add to the coffers of the U.S. Treasury, but it 
unfairly penalizes A and does nothing to serve CAFE's overall 
purpose of promoting energy conservation.

    While Ford expressed its concerns in terms of equity, we believe 
the ability of a successor corporation to use its existing credits 
actually has the potential to encourage greater fuel efficiency. That 
is to say, a manufacturer has an incentive to earn credits above and 
beyond its actual need because a credit-rich manufacturer can use 
excess credits to reduce the cost of merging with an otherwise 
attractive manufacturer that is laden with CAFE liabilities.
    The concern expressed in the NPRM was also premised on the notion 
that allowing a successor corporation to use credits by one of its 
predecessors to offset the liabilities of any other predecessor 
amounted to trading credits between manufacturers. This concern was 
premised on a preliminary belief that allowing a successor to use 
within the control relationship the credits earned by one of its 
constituent parts would ``retroactively'' apply credits to a 
``manufacturer'' that did not earn them.
    After reviewing the comments and applicable corporate law, we find 
that acknowledging the purchase and sale of corporate assets, including 
CAFE credits, or corporate liabilities, including CAFE obligations, 
does not amount to trading credits between manufacturers. Nor does it 
imply any retroactive application of credits. At any particular point 
of time, CAFE responsibility is gauged in accordance with the corporate 
structure in existence at that time.
    If a company purchases the assets and liabilities of another 
manufacturer, in accordance with the contract between them, the 
successor manufacturer may be entitled to use the assets of its 
constituent parts as one company. If the successor has purchased the 
assets and liabilities of its constituent parts, it is entitled 
(consistent with its contract) to use those assets and liabilities to 
address the responsibilities of the company as they exist as of that 
time. For example, if Company A has CAFE liability in Year 1 and 
purchases the assets and liabilities of Company B midway through Year 
2, combined Company C's assets and liabilities for CAFE purposes are 
determined with regard to its position, in terms of its CAFE 
responsibilities, as of Year 3. If the contract provides, combined 
Company C incurs all the liabilities and is entitled to all of the 
assets of its predecessor corporations. If within the three-year carry-
forward carry-back time frame, the company is responsible for the 
liabilities and may use the credits applicable to the corporation as a 
whole.
    Consistent with the express statutory terms construing a 
manufacturer's corporate average fuel economy in terms of the 
``automobiles manufactured by a manufacturer,'' and consistent with 
general principles of corporate law, a successor corporation is 
entitled to use the assets and is responsible for the liabilities of 
its predecessor corporations as defined by their contractual relations. 
This includes the rights and responsibilities of companies in a 
position of control over, or who are controlled by, another 
corporation.
    Our purpose, as set forth in the NPRM, is to encourage CAFE 
compliance in the vehicle fleet as a whole to reduce consumption of 
gasoline and to enhance the nation's energy independence. We now 
believe that the ability of successor corporations to use more freely 
the CAFE credits earned by each of their predecessor corporations 
enhances the value of those companies to others. And, perhaps more 
compelling, the ability of a successor corporation to use its own 
credits to satisfy the liabilities of a predecessor provides the 
successor with a valuable mechanism to reduce the overall cost of the 
acquisition. Thus, the effect of today's rule is to encourage companies 
on the one hand to maximize the number of credits it earns and on the 
other to join in corporate structures that help advance overall fleet 
fuel economy.
    The NPRM also addressed other types of changes in corporate 
relationships, including the potential for corporate relations to 
dissolve. We believe our regulation properly addresses such 
dissolutions by focusing on the contractual agreements and by applying 
(as suggested in the NPRM) general principles of corporate law. Thus, 
we have included in the Final Rule a provision simply stating that 
dissolutions--like combinations--are subject to contractual agreements 
and should be available for use consistent with general principles of 
corporate law. We have, therefore, simplified the final regulation 
without altering the basic policy underlying the need to enhance energy 
independence.

C. Acquisitions During a Model Year

    In the NPRM, we proposed to specify that ``(i)f one manufacturer 
becomes the successor of another manufacturer during a model year, all 
of the vehicles produced by those manufacturers during the model year 
are treated as though they were manufactured by the same 
manufacturer.'' The proposed specification also provided that ``(a) 
manufacturer is considered to have become the successor of another 
manufacturer during a model year if it is the successor on September 30 
of the corresponding calendar year and was not the successor for the 
preceding model year.''
    Ford argued that the proposed specification ``is clearly 
inconsistent with the CAFE statute.'' It noted that, as currently 
codified, 49 U.S.C. 32901(4) defines the term ``automobile manufactured 
by a manufacturer'' as including every automobile manufactured by a 
person that controls, is controlled by, or is under common control with 
a manufacturer * * *''
    Ford argued that a problem with NHTSA's proposed rule is that it 
forces manufacturers to combine fleets before any control relationship 
has even been established. It cited the example of A's acquiring or 
taking control of B on August 1, 2002. Under the proposed rule, the 
fleets of A and B would be combined for all of model year 2002. 
However, Ford argued that it is improper to force A to include in its 
model year 2002 fleet a vehicle produced by B on October 2001.
    Ford noted the agency's statement that fuel economy standards must 
apply to ``particular model years as a whole'' and not to ``separate 
parts of a model year.'' It stated that the agency is worried that, 
absent such a provision, ``one or both manufacturers would have two 
separate CAFE values * * * for the same model year.'' Ford claimed this 
is an implausible assumption. According to Ford, simply put, both 
manufacturers would file CAFE reports; manufacturer A would include 
those models produced after ``control'' was established and 
manufacturer B would include those vehicles produced before ``control'' 
was established. This would be the case even if B ceased to exist after 
the ``control'' date.
    That company argued that a scheme which pretends that Manufacturer 
A ``controls'' Manufacturer B for an entire model year, even though the 
actual control relationship existed only for the last two months (or 
even the very last day) of that model year, is contrary to the 
statutory scheme. Ford argued that in setting up the ``control'' 
criterion, Congress intended to count in a manufacturer's CAFE fleet 
only those vehicles for which the manufacturer could fairly be held 
responsible. Ford argued that the fairest and most transparent way to 
address the issue is to have A take responsibility for only those 
vehicles produced by B after the control relationship is established.

[[Page 77670]]

    We disagree. First, CAFE compliance and any remaining obligations 
are based on the total volume of vehicles sold during the course of the 
model year and are not determined until the end of the model year. (49 
U.S.C. 32903(b)(1)) No administrative mechanism currently exists to 
separate CAFE compliance to account for mid-year changes in corporate 
relationships and we see no need to craft one. Under today's rule, an 
acquiring corporation inherits all CAFE liabilities and credits of the 
predecessor corporation for a period dating back three years. These 
assets and liabilities would be considered by both parties when 
negotiating the transfer of corporate interests, as would any assets 
and liabilities.
    Accordingly, we do not believe that the successor corporation is in 
any way injured by the existing administrative structure. A successor 
corporation may, upon acquisition, take steps to mitigate any projected 
CAFE shortfall for its total fleet for that model year, including 
filing a plan to make up any shortfalls within the next three model 
years. Given today's determination that a predecessor's CAFE 
liabilities need not be satisfied solely through the payment of 
penalties, there is no imposition of an unreasonable burden.
    Further, to ensure that the agency properly allocates CAFE credits 
and liabilities to the appropriate manufacturer in accordance with 
their corporate transaction, we have decided to include in the 
regulation a provision similar to that used in many of our Federal 
Motor Vehicle Safety Standards (FMVSS). New or upgraded FMVSS often 
include a ``phase-in'' schedule during which the standard becomes 
applicable to an increasing percentage of each manufacturer's new 
vehicle fleet. The agency has accounted for corporate transactions in 
this context by providing that a vehicle will be attributable as 
between manufacturers in accordance with express written contracts 
submitted to NHTSA. (See, e.g., FMVSS 225 Sec.  14.2.2 and 49 CFR part 
596.6(b)(3)).
    We have included a similar provision in this Final Rule to help the 
agency identify when a corporate transaction has resulted in the 
transfer of rights and responsibilities between manufacturers. To 
effect the corporate transaction, manufacturers are to submit a 
certified report to the agency stating that the transaction has or will 
transfer controlling stock interest or otherwise vest a new corporate 
entity with control over the design, production or sales of automobiles 
manufactured by another manufacturer.
    Likewise, to the extent that a group of manufacturers within a 
control relationship allocates the group's CAFE credits and liabilities 
among the manufacturers within the group, the group of manufacturers 
shall file a copy of the agreement controlling the allocation at the 
end of each model year. In this way, NHTSA will be better able to 
administer its CAFE compliance program. All manufacturers in a control 
relationship shall be jointly and severally liable for any CAFE 
liabilities that are not collected from the manufacturer allocated 
responsibility for those liabilities.

VII. Rulemaking Analyses and Notices

A. Executive Order 12866 and DOT Regulatory Policies and Procedures

    NHTSA has considered the impact of this rulemaking action under 
Executive Order 12866 and the Department of Transportation's regulatory 
policies and procedures. This rulemaking document is not economically 
significant. It was reviewed by the Office of Management and Budget 
under E.O. 12866, ``Regulatory Planning and Review.'' The rulemaking 
action has been determined to be significant under the Department's 
regulatory policies and procedures, given the public interest in the 
automotive fuel economy program.
    The new regulation does not create any new obligations, other than 
the obligation to file with NHTSA evidence of a contractual 
relationship allocating CAFE credits and liabilities among various 
parties exercising control over the manufacture of a fleet of vehicles. 
It expands upon the same positions concerning predecessors and 
successors as we have previously taken in interpretation letters by 
permitting existing credits to be used to satisfy the existing 
liabilities of either party to a transaction establishing a successor/
predecessor relationship.
    As discussed earlier in this notice, if we did not adopt 
regulations governing the use of CAFE credits by predecessors and 
successors, a predecessor's unused credits would simply expire, since 
the only manufacturer that could use them would no longer exist. 
Similarly, there would be no way of offsetting a predecessor's 
remaining CAFE shortfalls in the absence of some provision concerning 
successors. The successor would thus be required to pay the 
predecessor's penalties, a responsibility which it assumed with the 
rest of the predecessor's obligations, but would have no ability to 
earn future credits to offset the predecessor's shortfalls.
    To address this inequity, the regulation gives the successor all 
the rights the predecessor had with respect to the use of preexisting 
credits and the ability to earn future credits.
    The provisions concerning the rights and responsibilities of 
manufacturers in other situations in which there have been changes in 
corporate relationships, e.g., changes in control, are essentially a 
statement of our interpretation of the statute and reflect the same 
principles as the provisions relating to predecessors and successors.

B. Regulatory Flexibility Act

    We have considered the effects of this rulemaking action under the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.) I hereby certify that 
proposed rule does not have a significant economic impact on a 
substantial number of small entities. Therefore, a regulatory 
flexibility analysis is not required for this action. As discussed 
above, the regulation does not create any new obligations but simply 
adopts the same positions concerning predecessors and successors as we 
have previously taken in interpretation letters. Similarly, the 
provisions concerning the rights and responsibilities of manufacturers 
in other situations in which there have been changes in corporate 
relationships, e.g., changes in control, are essentially a statement of 
our interpretation of the statute and reflect the same principles as 
the provisions relating to predecessors and successors. Moreover, as a 
practical matter, the acquiring corporations most likely to be affected 
by this regulation are not small businesses.

C. National Environmental Policy Act

    NHTSA has analyzed this rule for the purposes of the National 
Environmental Policy Act and determined that it does not have any 
significant impact on the quality of the human environment.

D. Executive Order 13132 (Federalism)

    The agency has analyzed this rulemaking action in accordance with 
the principles and criteria set forth in Executive Order 13132 and has 
determined that it does not have sufficient federalism implications to 
warrant consultation with State and local officials or the preparation 
of a federalism summary impact statement. The rule has no substantial 
effects on the States, or on the current Federalism-State relationship, 
or on the current distribution of power and responsibilities among the 
various local officials.

E. Unfunded Mandates Act

    The Unfunded Mandates Reform Act of 1995 requires agencies to 
prepare a

[[Page 77671]]

written assessment of the costs, benefits and other effects of proposed 
or final rules that include a Federal mandate likely to result in the 
expenditure by State, local or tribal governments, in the aggregate, or 
by the private sector, of more than $100 million annually (adjusted for 
inflation with base year of 1995). The rule does not result in the 
expenditure by State, local or tribal governments, in the aggregate, or 
by the private sector, of more than $100 million annually.

F. Executive Order 12778 (Civil Justice Reform)

    This rule does not have any retroactive effect. However, as we 
noted in the NPRM, we would, as a practical matter, consider the 
regulation in any enforcement action regarding predecessors and 
successors that involved conduct that occurred before the regulation 
became effective.
    As discussed earlier, the regulation does not create any new 
obligations but expands the same positions concerning predecessors and 
successors as we have previously taken in interpretation letters and 
have previously applied in our administration of the statute. If we did 
not adopt special provisions governing the use of CAFE credits by 
predecessors and successors, a predecessor's unused credits would 
simply expire, since the only manufacturer that could use them would no 
longer exist. Similarly, there would be no way of offsetting a 
predecessor's remaining CAFE shortfalls in the absence of some 
provision concerning successors.
    The rule addresses this inequity and gives the successor all the 
rights the predecessor had with respect to credits.
    We would similarly consider the regulation in any enforcement 
action regarding other situations in which there have been changes in 
corporate relationships, e.g., changes in control, that involved 
conduct that occurred before the regulation became effective. However, 
the provisions are essentially a statement of our interpretation of the 
statute.
    States are preempted from promulgating laws and regulations 
contrary to the provisions of this rule. The rule does not require 
submission of a petition for reconsideration or other administrative 
proceedings before parties may file suit in court.

G. Paperwork Reduction Act

    The agency has prepared the necessary paperwork under the Paperwork 
Reduction Act and submitted it to the Office of Management and Budget. 
PRA clearance is necessary because the final regulation includes a 
provision requiring the submission of agreements between companies in 
certain circumstances.

H. Regulation Identifier Number (RIN)

    The Department of Transportation assigns a regulation identifier 
number (RIN) to each regulatory action listed in the Unified Agenda of 
Federal Regulations. The Regulatory Information Service Center 
publishes the Unified Agenda in April and October of each year. You may 
use the RIN contained in the heading at the beginning of this document 
to find this action in the Unified Agenda.

I. Executive Order 13045

    Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any 
rule that: (1) Is determined to be ``economically significant'' as 
defined under E.O. 12866, and (2) concerns an environmental, health or 
safety risk that NHTSA has reason to believe may have a 
disproportionate effect on children. This regulatory action does not 
meet either of those criteria.

J. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act (NTTAA) requires NHTSA to evaluate and use existing voluntary 
consensus standards \7\ in its regulatory activities unless doing so 
would be inconsistent with applicable law (e.g., the statutory 
provisions regarding NHTSA's vehicle safety authority) or otherwise 
impractical. This requirement is not relevant to this rulemaking 
action.
---------------------------------------------------------------------------

    \7\ Voluntary consensus standards are technical standards 
developed or adopted by voluntary consensus standards bodies. 
Technical standards are defined by the NTTAA as ``performance-based 
or design-specific technical specifications and related management 
systems practices.'' They pertain to ``products and processes, such 
as size, strength, or technical performance of a product, process or 
material.''
---------------------------------------------------------------------------

List of Subjects in 49 CFR Part 534

    Fuel economy, Motor vehicles.


0
In consideration of the foregoing, chapter V of title 49 of the Code of 
Federal Regulations is amended by adding a new Part 534 to read as 
follows:

PART 534--RIGHTS AND RESPONSIBILITIES OF MANUFACTURERS IN THE 
CONTEXT OF CHANGES IN CORPORATE RELATIONSHIPS

534.1 Scope.
534.2 Applicability.
534.3 Definitions.
534.4 Successors and predecessors.
534.5 Manufacturers within control relationships.
534.6 Reporting corporate transactions.
535.7 Situations not directly addressed by this part.

    Authority: 49 U.S.C. 32901; delegation of authority at 49 CFR 
1.50.


Sec.  534.1  Scope.

    This part defines the rights and responsibilities of manufacturers 
in the context of changes in corporate relationships for purposes of 
the automotive fuel economy program established by 49 U.S.C. Chapter 
329.


Sec.  534.2  Applicability.

    This part applies to manufacturers of passenger automobiles and 
non-passenger automobiles.


Sec.  534.3  Definitions.

    (a) Statutory definitions and terms. All terms used in 49 U.S.C. 
Chapter 329 are used according to their statutory meaning.
    (b) As used in this part--
    ``Control relationship'' means the relationship that exists between 
manufacturers that control, are controlled by, or are under common 
control with, one or more other manufacturers.
    ``Predecessor'' means a manufacturer whose rights have been vested 
in and whose burdens have been assumed by another manufacturer.
    ``Successor'' means a manufacturer that has become vested with the 
rights and assumed the burdens of another manufacturer.


Sec.  534.4  Successors and predecessors.

    For purposes of the automotive fuel economy program, 
``manufacturer'' includes ``predecessors'' and ``successors'' to the 
extent specified in paragraphs (a) through (d) of this section.
    (a) Successors are responsible for any civil penalties that arise 
out of fuel economy shortfalls incurred and not satisfied by 
predecessors.
    (b) If one manufacturer has become the successor of another 
manufacturer during a model year, all of the vehicles produced by those 
manufacturers during the model year are treated as though they were 
manufactured by the same manufacturer. A manufacturer is considered to 
have become the successor of another manufacturer during a model year 
if it is the successor on September 30 of the corresponding calendar 
year and was not the successor for the preceding model year.
    (c) Credits earned by a predecessor may be used by a successor, 
subject to availability of the credits and the general three-year 
restriction on carrying credits forward and the general

[[Page 77672]]

three-year restriction on carrying credits backward.
    (d) Credits earned by a successor may be used to offset a 
predecessor's shortfall, subject to availability of the credits and the 
general three-year restriction on carrying credits backward.


Sec.  534.5  Manufacturers within control relationships.

    (a) If a civil penalty arises out of a fuel economy shortfall 
incurred by a group of manufacturers within a control relationship, 
each manufacturer within that group is jointly and severally liable for 
the civil penalty.
    (b) A manufacturer is considered to be within a control 
relationship for an entire model year if and only if it is within that 
relationship on September 30 of the calendar year in which the model 
year ends.
    (c) Credits of a manufacturer within a control relationship may be 
used by the group of manufacturers within the control relationship to 
offset shortfalls, subject to the agreement of the other manufacturers, 
the availability of the credits, and the general three-year restriction 
on carrying credits forward or backward.
    (d) If a manufacturer within a group of manufacturers is sold or 
otherwise spun off so that it is no longer within that control 
relationship, the manufacturer may use credits that were earned by the 
group of manufacturers within the control relationship while the 
manufacturer was within that relationship, subject to the agreement of 
the other manufacturers, the availability of the credits and the 
general restriction on carrying credits forward or backward.
    (e) Agreements among manufacturers in a control relationship 
related to the allocation of credits or liabilities addressed by this 
section shall be filed with the agency within 60 days of the end of 
each model year in the same form as specified in section 534.6. The 
manufacturers may seek confidential treatment for information provided 
in the certified report in accordance with 49 CFR Part 512.


Sec.  534.6  Reporting corporate transactions.

    Manufacturers who have entered into written contracts transferring 
rights and responsibilities such that a different manufacturer owns the 
controlling stock or exerts control over the design, production or sale 
of automobiles to which a Corporate Average Fuel Economy standard 
applies shall report the contract to the agency as follows:
    (a) The manufacturers must file a certified report with the agency 
affirmatively stating that the contract transfers rights and 
responsibilities between them such that one manufacturer has assumed a 
controlling stock ownership or control over the design, production or 
sale of vehicles. The report must also specify the first full model 
year to which the transaction will apply.
    (b) Each report shall--
    (i) Identify each manufacturer;
    (ii) State the full name, title, and address of the official 
responsible for preparing the report;
    (iii) Identify the production year being reported on;
    (iv) Be written in the English language; and
    (v) Be submitted to: Administrator, National Highway Traffic Safety 
Administration, 400 Seventh Street, SW., Washington, DC 20590.
    (c) The manufacturers may seek confidential treatment for 
information provided in the certified report in accordance with 49 CFR 
part 512.


Sec.  534.7  Situations not directly addressed by this part.

    To the extent that this part does not directly address an issue 
concerning the rights and responsibilities of manufacturers in the 
context of a change in corporate relationships, the agency will make 
determinations based on interpretation of the statute and the 
principles reflected in the part.

    Issued on: December 20, 2004.
Jeffrey W. Runge,
Administrator.
[FR Doc. 04-28237 Filed 12-27-04; 8:45 am]
BILLING CODE 4910-59-P