[Federal Register Volume 72, Number 104 (Thursday, May 31, 2007)]
[Notices]
[Pages 30426-30428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-10501]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

[Docket No. NHTSA-2006-25544]


SS II of America, Inc.; Denial 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: Denial of application for a temporary exemption from provisions 
of Federal Motor Vehicle Safety Standard (FMVSS) No. 208, Occupant 
Crash Protection.

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SUMMARY: This document denies the petition of SS II of America, Inc. 
(SS II) for a temporary exemption from the air bag requirements of 
FMVSS No. 208 for the SS II Shelby Series II from September 1, 2006 
through July 31, 2008. The basis for the application was that 
compliance would cause substantial economic hardship to a manufacturer 
that has tried in good faith to comply with the standard.\1\ We have 
determined that it would not be in the public interest or consistent 
with the Safety Act to grant an economic hardship exemption to permit 
this vehicle to be sold without air bags.
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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.

FOR FURTHER INFORMATION CONTACT: Ms. Dorothy Nakama, Office of the 
Chief Counsel, NCC-112, National Highway Traffic Safety Administration, 
1200 New Jersey Avenue, SE., Washington, DC 20590. Telephone: (202) 
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366-2992; Fax: (202) 366-3820.

SUPPLEMENTARY INFORMATION:

I. 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 units of the 
Shelby Series II, a convertible sports car based upon the Shelby Series 
1 design. The Shelby Series II would utilize the same chassis as the 
Shelby Series 1, but 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.
    A. 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.
    B. Requested exemption. SS II stated its intention to certify 
compliance of Shelby II vehicles with all applicable U.S. standards by 
July 31, 2008, including advanced air bags. The company envisions a 
later generation of Shelby III 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.

II. SS II's Statement of 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.\2\ According to the

[[Page 30427]]

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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    \2\ 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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III. SS II's Statement of 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.

IV. SS II's Statement of 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 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. Notice of Receipt of Petition and Public Response

    On August 28, 2006 (71 FR 50977) (Docket No. NHTSA-2006-2554), 
NHTSA published a Notice of Receipt of Application for a Temporary 
Exemption From the Air Bag Requirements of FMVSS No. 208, and asked for 
public comment. NHTSA received no comments in response to this notice.

VI. Agency Decision

    NHTSA has decided to deny SS II's petition for the SS II Shelby 
Series II. As discussed below, we have concluded that it would not be 
in the public interest to grant an economic hardship exemption to 
permit this vehicle to be sold without air bags.
    In discussing this decision, we begin by noting that, in order to 
grant an economic hardship petition, the agency must, under 49 U.S.C. 
30113(b), find both that compliance with a standard would cause 
substantial economic hardship and that the manufacturer has tried to 
comply with the standard in good faith, as well as that the exemption 
is in the public interest and consistent with the Safety Act.\3\ The 
purpose of the Safety Act is to reduce traffic accidents

[[Page 30428]]

and deaths resulting from traffic accidents.
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    \3\ The Safety Act is codified as Title 49, United States Code, 
Chapter 301.
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    In recent years, the agency has received a number of economic 
hardship petitions concerning requirements for air bags. Most of the 
petitions have been limited to requirements for advanced air bags, 
which did not become effective for small volume manufacturers until 
September 1, 2006. A very small number of petitioners have requested 
that vehicles be permitted to be manufactured and sold without air 
bags.
    We are concerned about the potential safety implication of any 
temporary exemptions that may be granted by this agency. However, in 
considering whether a requested economic hardship exemption is in the 
public interest and consistent with the Safety Act, we believe it is 
important to distinguish between petitions requesting exemptions from 
requirements for advanced air bags and ones requesting exemptions to 
permit vehicles to be manufactured and sold without air bags.
    There are significant differences between these two types of 
petitions. One difference relates to the length of the time that the 
relevant requirements have been in effect, and related technical 
difficulties in bringing vehicles into compliance with the 
requirements. The other difference relates to safety benefits.
    All passenger cars manufactured on or after September 1, 1997 have 
been required to provide air bags at the driver and right front 
passenger positions. Thus, the requirements for ``basic'' air bags are 
longstanding, and a number of small volume manufacturers have found 
ways to meet the requirements.
    By contrast, the requirements for advanced air bags did not become 
effective for small volume manufacturers until September 1, 2006. 
Because the new advanced air bag 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.
    Frontal air bags for drivers and right front passengers have great 
net benefits. NHTSA estimates that they saved 19,659 lives from 1987 
through the end of 2005.\4\ Air bags reduce overall fatality risk in 
purely frontal crashes by 29 percent. They reduce overall fatality risk 
by 12 percent for drivers of passenger cars, and by 14 percent for 
right front passengers of passenger cars.\5\
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    \4\ Traffic Safety Facts--2005 Data--Occupant Protection, NHTSA 
Report No. DOT HS 810 691, Washington, 2006.
    \5\ Kahane, C.J., Lives Saved by the Federal Motor Vehicle 
Safety Standards and Other Vehicle Safety Technologies, 1960-2002, 
NHTSA Technical Report No. DOT HS 809 833, Washington, 2004, pp. 
108-115.
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    Given the large benefits of frontal air bags, the number of years 
that the requirements have been in effect and the fact that a number of 
small volume manufacturers have been able to meet the requirements for 
``basic'' air bags, we have determined that it is generally not in the 
public interest or consistent with the Safety Act to grant new economic 
hardship exemptions to permit light vehicles to be sold without air 
bags. We note that while the agency has granted a small number of such 
exemptions in the past, we believe it is more difficult with the 
passage of time, to justify granting such petitions, since air bag 
technology has been widely available and incorporated into vehicle 
designs for over twenty years.
    As for the SS II Shelby Series II, we note that, as indicated 
earlier, SS II began operations in January 2006. It 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 a convertible sports car based upon the Shelby Series 1 
design. The Shelby Series II would utilize the same chassis as the 
Shelby Series 1, but use modified exterior, interior, and powertrain 
components. The SS II Shelby Series II is in essence a modified version 
of an older vehicle that was designed without air bags. Given the 
safety benefits of frontal air bags, we have determined that it would 
not be in the public interest or consistent with the Safety Act to 
grant an economic hardship exemption to permit the manufacture and sale 
of this vehicle without air bags.
    Since we have determined that the requested exemption is not in the 
public interest or consistent with the Safety Act, it is not necessary 
address the issues of economic hardship or whether or not the 
manufacturer has tried to comply with the standard in good faith.
    Accordingly, SS II's petition for a temporary exemption is denied.

    Issued on: May 24, 2007.
Nicole R. Nason,
Administrator.
[FR Doc. E7-10501 Filed 5-30-07; 8:45 am]
BILLING CODE 4910-59-P