[Federal Register Volume 71, Number 166 (Monday, August 28, 2006)]
[Notices]
[Pages 50977-50980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-14261]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

[Docket No. NHTSA-2006-25544, Notice 1]


SS II of America, Inc.; Receipt of Application for a Temporary 
Exemption From the Air Bag Requirements of FMVSS No. 208

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

ACTION: Notice of receipt of petition for temporary exemption from 
provisions of Federal Motor Vehicle Safety Standard (FMVSS) No. 208, 
Occupant Crash Protection.

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SUMMARY: In accordance with the procedures in 49 CFR part 555, SS II of 
America, Inc. (SS II) has petitioned the agency for a temporary 
exemption from the air bag requirements of FMVSS No. 208. The basis for 
the application is that compliance would cause substantial economic 
hardship to a manufacturer that has tried in good faith to comply with 
the standard.\1\
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    \1\ To view the application, go to: http://dms.dot.gov/search/searchFormSimple.cfm and enter the docket number set fourth in the 
heading of this document.
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    This notice of receipt of an application for temporary exemption is 
published in accordance with the statutory provisions of 49 U.S.C. 
30113(b)(2). NHTSA has made no judgment on the merits of the 
application.

DATES: You should submit your comments not later than September 12, 
2006.

FOR FURTHER INFORMATION CONTACT: Mr. Ed Glancy or Mr. Eric Stas, Office 
of the Chief Counsel, NCC-112, National Highway Traffic Safety 
Administration, 400 Seventh Street, SW., Room 5219, Washington, DC 
20590. Telephone: (202) 366-2992; Fax: (202) 366-3820.
    Comments: We invite you to submit comments on the application 
described above. You may submit comments identified by docket number at 
the heading of this notice by any of the following methods:
     Web site: http://dms.dot.gov. Follow the instructions for 
submitting comments on the DOT electronic docket site by clicking on 
``Help and Information'' or ``Help/Info.''
     Fax: 1-(202)-493-2251.
     Mail: Docket Management Facility, U.S. Department of 
Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, 
Washington, DC 20590.
     Hand Delivery: Room PL-401 on the plaza level of the 
Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 
a.m. and 5 p.m., Monday through Friday, except Federal Holidays.
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    Instructions: All submissions must include the agency name and 
docket number or Regulatory Identification Number (RIN) for this 
rulemaking. Note that all comments received will be posted without 
change to http://dms.dot.gov, including any personal information 
provided.
    Docket: For access to the docket in order to read background 
documents or comments received, go to http://dms.dot.gov at any time or 
to Room PL-401 on the plaza level of the Nassif Building, 400 Seventh 
Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through 
Friday, except Federal Holidays.
    Privacy Act: Anyone is able to search the electronic form of all 
comments received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an association, business, labor union, etc.). You may review DOT's 
complete Privacy Act Statement in the Federal Register published on 
April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit 
http://dms.dot.gov.
    We shall consider all comments received before the close of 
business on the comment closing date indicated

[[Page 50978]]

above. To the extent possible, we shall also consider comments filed 
after the closing date.

I. Air Bag Requirements and Small Volume Manufacturers

    Under S4.1.5.3 of FMVSS No. 208, new passenger vehicles 
manufactured on or after September 1, 1997 are required to be equipped 
with an inflatable restraint system (i.e., an air bag) at the driver's 
and right front passenger's positions. These air bags must provide the 
vehicle occupants in those seating positions with frontal crash 
protection meeting the requirements of S5.1 of the standard by means 
that require no action on the part of those occupants.
    In 2000, NHTSA upgraded the requirements for air bags in passenger 
cars and light trucks, requiring what are commonly known as ``advanced 
air bags.'' \2\ The upgrade was designed to meet the goals of improving 
protection for occupants of all sizes, belted and unbelted, in 
moderate-to-high-speed crashes, and of minimizing the risks posed by 
air bags to infants, children, and other occupants, especially in low-
speed crashes.
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    \2\ See 65 FR 30680 (May 12, 2000).
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    The advanced air bag requirements were a culmination of a 
comprehensive plan that the agency announced in 1996 to address the 
adverse effects of air bags. This plan also included an extensive 
consumer education program to encourage the placement of children in 
rear seats. The new requirements were phased in beginning with the 2004 
model year.
    Small volume manufacturers are not subject to the advanced air bag 
requirements until September 1, 2006, but their efforts to bring their 
respective vehicles into compliance with these requirements began 
several years ago. However, because the new requirements were 
challenging, major air bag suppliers concentrated their efforts on 
working with large volume manufacturers, and thus, until recently, 
small volume manufacturers had limited access to advanced air bag 
technology. Because of the nature of the requirements for protecting 
out-of-position occupants, ``off-the-shelf'' systems could not be 
readily adopted. Further complicating matters, because small volume 
manufacturers build so few vehicles, the costs of developing custom 
advanced air bag systems compared to potential profits discouraged some 
air bag suppliers from working with small volume manufacturers.
    The agency has carefully tracked occupant fatalities resulting from 
air bag deployment. Our data indicate that the agency's efforts in the 
area of consumer education and manufacturers' providing depowered air 
bags were successful in reducing air bag fatalities even before 
advanced air bag requirements were implemented.
    As always, we are concerned about the potential safety implication 
of any temporary exemptions granted by this agency. In the present 
case, we are seeking comments on a petition for a temporary exemption 
from the air bag requirements submitted by a manufacturer of very 
expensive, low volume, exotic sports cars.

II. Overview of Petition for Economic Hardship Exemption

    In accordance with 49 U.S.C. 30113 and the procedures in 49 CFR 
part 555, SS II has petitioned the agency for a temporary exemption 
from the air bag requirements of FMVSS No. 208 (S4.1.5.3 and S14). The 
basis for the application is that compliance would cause substantial 
economic hardship to a manufacturer that has tried in good faith to 
comply with the standard. A copy of the petition is available for 
review and has been placed in the docket for this notice.

III. Statutory Background for Economic Hardship Exemptions

    A manufacturer is eligible to apply for a hardship exemption if its 
total motor vehicle production in its most recent year of production 
did not exceed 10,000 vehicles, as determined by the NHTSA 
Administrator (49 U.S.C. 30113).
    In determining whether a manufacturer of a vehicle meets that 
criterion, NHTSA considers whether a second vehicle manufacturer also 
might be deemed the manufacturer of that vehicle. The statutory 
provisions governing motor vehicle safety (49 U.S.C. Chapter 301) do 
not include any provision indicating that a manufacturer might have 
substantial responsibility as manufacturer of a vehicle simply because 
it owns or controls a second manufacturer that assembled that vehicle. 
However, the agency considers the statutory definition of 
``manufacturer'' (49 U.S.C. 30102) to be sufficiently broad to include 
sponsors, depending on the circumstances. Thus, NHTSA has stated that a 
manufacturer may be deemed to be a sponsor and thus a manufacturer of a 
vehicle assembled by a second manufacturer if the first manufacturer 
had a substantial role in the development and manufacturing process of 
that vehicle.

IV. Petition of SS II of America, Inc.

    Background. SS II is a privately-held company that was incorporated 
in the State of Nevada in 2005 and began operations in January 2006. 
According to the petitioner, SS II acquired the tooling for the Shelby 
Series 1 vehicle under a licensing agreement from Shelby American 
Corporation, pursuant to which SS II has the right to produce 250 
Shelby Series II, a convertible sports car based upon the Shelby Series 
1 design. The Shelby Series II will utilize the same chassis as the 
Shelby Series 1, but it will use modified exterior, interior, and 
powertrain components. SS II operates independently and is not 
affiliated with any other vehicle manufacturer.
    In a supplement to its petition, SS II stated that Shelby American 
Inc. (another small volume manufacturer) produced Shelby Series 1 
vehicles for sale only in model year 1999, and these vehicles were sold 
without an inflatable restraint system, because NHTSA granted that 
company a temporary exemption under part 555 (see 64 FR 6736 (Feb. 10, 
1999)). As a result, when SS II acquired the tooling for the Shelby 
Series 1, there was no air bag system, so development efforts in this 
area must, by necessity, start from a very fundamental level.
    The petitioner argued that it tried in good faith, but could not 
bring the vehicle into compliance with the air bag requirements of 
FMVSS No. 208, and that it would incur substantial economic hardship if 
it cannot sell vehicles in the U.S. after September 1, 2006.
    Eligibility. SS II is a U.S. company incorporated in Nevada in 
2005. The company is a small volume manufacturer of specialty sports 
cars with approximately 30 employees. The organization obtained the 
rights to produce 250 ``Shelby'' vehicles under a licensing agreement 
from Shelby American Corporation. However, SS II is an independent 
automobile manufacturer; no vehicle manufacturer has an ownership 
interest in SS II, and the reverse is likewise true.
    As a relatively new company, SS II has not produced any vehicles in 
prior years. According to its current forecasts, SS II anticipates the 
following production of Shelby Series II vehicles over calendar years 
(CY) 2006-2008: 86 vehicles in CY 2006; 120 vehicles in CY 2007, and 44 
vehicles in CY 2008.
    Requested exemption. SS II stated its intention to certify 
compliance of Shelby II vehicles with all applicable U.S. standards by 
July 2008, including advanced air bags. The company envisions a later 
generation of Shelby III

[[Page 50979]]

vehicles that would similarly comply with all applicable standards. 
Accordingly, SS II seeks an exemption from the requirements of S4.1.5.3 
and S14 of FMVSS No. 208 from the date of approval of its petition to 
July 31, 2008.
    Economic hardship. The financial documents submitted to NHTSA by 
the petitioner indicate that the SS II Shelby Series II project will 
result in financial losses unless SS II obtains a temporary exemption. 
As discussed below, the company has invested significant resources to 
ensure that the Shelby Series II meets current U.S. standards, and it 
has plans for the development of an inflatable restraint system that 
meets the ``advanced air bag'' requirements of FMVSS No. 208.
    As of the time of the application, SS II has invested over $1.4 
million on the design, development, and homologation of the Shelby 
Series II project in order to have the vehicle meet U.S. standards--not 
including the air bag requirements which are the subject of the present 
petition for temporary exemption. The company has stated that it cannot 
hope to attain profitability if it incurs additional research and 
development expenses at this time.
    SS II stated that costs associated with air bag engineering and 
development (including materials, tooling, testing, and test vehicles) 
have been estimated to be almost $4.2 million. In its petition, SS II 
reasoned that sales in the U.S. market must commence in order to 
finance this work and that the exemption is necessary to allow the 
company to ``bridge the gap'' until fully compliant vehicles can be 
funded, developed, tooled, and introduced.
    If the exemption is denied, SS II projects a net loss of nearly 
$4.8 million over the period from calendar years 2006-2008. However, if 
the petition is granted, the company anticipates a net profit of over 
$1.7 million during that same period.\3\ According to the petitioner, 
if its exemption request is denied, the company would not have 
sufficient funds to sustain its air bag development program, and it 
would have to discontinue the Shelby Series II and subsequent vehicle 
programs for USA-compliant vehicles, thereby causing substantial 
economic hardship to the company.
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    \3\ It should be noted that the two sets of financial 
projections supplied by SS II reflect slightly different timeframes. 
For the scenario in which the agency denies the company's requested 
exemption, figures are provided for January 2006 to December 2008. 
However, for the scenario in which the agency grants the company's 
requested exemption, figures are provided for January 2006 to June 
2008. The truncated financial figures under the ``grant'' scenario 
reflect the fact that if the petition is granted, SS II expects to 
have produced all 250 Shelby Series II vehicles permitted under its 
licensing agreement by mid-2008.
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    Good faith efforts to comply. As noted above, SS II has invested 
over $1.4 million on the design, development, and homologation of the 
Shelby Series II project in order to have the vehicle meet U.S. 
standards (other than the air bag provisions). Furthermore, to date, SS 
II has invested over $22,500 related to the installation of passenger 
and driver air bags in Shelby Series II vehicles. Since the company's 
start-up, it has been able to bring the vehicle into compliance with 
all applicable NHTSA regulations, except for the air bag provisions of 
FMVSS No. 208.
    SS II considered the alternative of installing a standard air bag 
system (i.e., one that meets the requirements of FMVSS No. 208, except 
for the advanced air bag provision) in the Shelby Series II, but it was 
determined that a temporary exemption would still be necessary, because 
such an interim measure could not be implemented before the second 
quarter of 2008. Thus, in light of limited resources, the petitioner 
reasoned that it would be logical to move directly to the development 
of an air bag system that meets the advanced air bag requirements of 
FMVSS No. 208, without first seeking to develop a standard air bag 
system. According to SS II, installation of an advanced air bag system 
would require just a few more months in terms of development time at 
slightly higher cost. In contrast, SS II stated that it would have been 
cost-prohibitive for the company to develop and install a non-advanced 
air bag, which would then be followed by an advanced air bag system. 
According to the petitioner, the modifications to the vehicle to 
implement any inflatable restraint system are substantial, and not all 
the changes that would be appropriate for a non-advanced system would 
be suitable for an advanced system, so the company reasoned that it 
would be a waste of resources not to immediately pursue the advanced 
air bag technology already mandated under FMVSS No. 208.
    The petitioner estimates that development of an advanced air bag 
system for the SS II would entail an average expenditure of $174,000 
per month for the approximately 24 months it would take to develop and 
validate the system. According to its petition, even though air bags 
are beyond its current capabilities, SS II is nonetheless planning for 
the introduction of these devices.
    The company expects to subcontract most of the air bag development 
project to an experienced outside company, and as noted above, current 
plans estimate a cost of nearly $4.2 million and a minimum lead time of 
24 months for the advanced air bag project. SS II stated that the 
following engineering efforts are needed to equip the Shelby Series II 
with an advanced air bag system: (1) Tooling for both prototypes and 
production vehicles; (2) contractor engineering; (3) air bag system 
materials; (4) cost of test vehicles; (5) integration of air bag 
wiring; (6) radio frequency interference/electromagnetic compatibility 
(RFI/EMC) testing and engineering; (7) design and development of a new 
seat with sensors; (8) frontal barrier crash testing; and (9) system 
validation.
    In terms of specific vehicle modifications necessary to install air 
bags in the Shelby Series II, the petitioner stated that the following 
changes are required: (1) Redesign of the dashboard exterior and 
supporting skeletal structure to add a passenger-side air bag; (2) 
redesign of the steering column to install a driver-side air bag; (3) 
installation of new seats with sensors; (4) integration of the air bag 
system's wiring harness with the vehicle's main wiring harness, and (5) 
installation of crash sensors and a properly calibrated restraint 
control module.
    In short, SS II argued that, despite good faith efforts, limited 
resources prevent it from bringing the vehicle into compliance with all 
applicable requirements, and it is beyond the company's current 
capabilities to bring the vehicle into full compliance until such time 
as additional resources become available as a result of U.S. sales. 
With funding from sale of the current generation of Shelby Series II 
vehicles, the company expects that additional development efforts could 
commence as would permit production of a fully compliant vehicle in 
July 2008.
    SS II argues that an exemption would be in the public interest. The 
petitioner put forth several arguments in favor of a finding that the 
requested exemption is consistent with the public interest and would 
not have a significant adverse impact on safety. Specifically, SS II 
emphasized that the Shelby Series II will comply with all applicable 
FMVSSs, except for air bags.
    The company asserted that granting the exemption will benefit U.S. 
employment, companies, and citizens, because Shelby Series II vehicles 
will be produced in the U.S., will have major components (e.g., 
chassis, body, and engine) produced by U.S. companies, and will be sold 
and serviced through U.S. dealers. SS II also argued that

[[Page 50980]]

denial of the exemption request would have an adverse impact on 
consumer choice, suggesting that there is domestic demand for Shelby 
Series II vehicles.
    As an additional basis for showing that its requested exemption 
would be in the public interest, SS II stated that Shelby Series II 
vehicles have utilized advanced composite technology and lightweight 
materials, which provide both strength and durability. According to SS 
II, this reduced weight translates into improved emissions and fuel 
efficiency.

V. Issuance of Notice of Final Action

    We are providing a 15-day comment period, in light of the short 
period of time between now and the time the advanced air bag 
requirements become effective for small volume manufacturers (i.e., 
September 1, 2006). After considering public comments and other 
available information, we will publish a notice of final action on the 
application in the Federal Register.

    Issued on: August 18, 2006.
Ronald L. Medford,
Senior Associate Administrator for Vehicle Safety.
[FR Doc. E6-14261 Filed 8-25-06; 8:45 am]
BILLING CODE 4910-59-P