Cross Lander USA; Grant of Application for a Temporary Exemption From Federal Motor Vehicle Safety Standard No. 208

AGENCY:

National Highway Traffic Safety Administration (NHTSA), DOT.

ACTION:

Grant of Application for a Temporary Exemption from S4.2 and S14 of Federal Motor Vehicle Safety Standard No. 208.

SUMMARY:

This notice grants the Cross Lander USA (“Cross Lander”) application for a temporary exemption from the requirements of S4.2 and S14 of Federal Motor Vehicle Safety Standard (FMVSS) No. 208, Occupant crash protection. The exemption applies to the Cross Lander 244X vehicle line. In accordance with 49 CFR part 555, the basis for the grant is that compliance would cause substantial economic hardship to a manufacturer that has tried in good faith to comply with the standard.

DATES:

The exemption from S4.2 and S14 of FMVSS No. 208, Occupant crash protection, is effective from December 1, 2005 until May 1, 2008.

FOR FURTHER INFORMATION CONTACT:

George Feygin in the Office of Chief Counsel, NCC-112, (Phone: 202-366-2992; Fax 202-366-3820; E-Mail: George.Feygin@nhtsa.dot.gov).

I. Background

Cross Lander, a Nevada corporation, owns a Romanian vehicle manufacturer ARO, S.A., which manufactures multipurpose passenger vehicles built for extreme off road conditions. According to the petitioner, this vehicle was formerly used by Romanian military. Cross Lander intends to import and distribute this vehicle, named the Cross Lander 244X (“244X”), in the United States. A detailed description of the 244X is set forth in their petition (Docket No. NHTSA-2005-20288-1). For additional information on the 244X, please go to http://www.crosslander4x4.com/ .

In preparing the 244X for sale in the United States, Cross Lander anticipated that the Gross Vehicle Weight Rating (GVWR) of the 244X would exceed 5,500 pounds, which would exclude the vehicles from the air bag requirements specified in S4.2 and S14 of FMVSS No. 208. However, because of an unexpected change in the choice of engine used in the 244X, the GVWR of the 244X is less than 5,500 pounds, and it is thus subject to the requirements in S4.2 and S14. Because a heavier vehicle would not have been subject to the applicable air bag requirements, the petitioner was not prepared to equip the 244X with a suitable air bag system. According to the petitioner, the cost of making the 244X compliant with FMVSS No. 208 on short notice is beyond the company's current capabilities. Thus, Cross Lander requests a three-year exemption in order to develop a compliant automatic restraint system.

As described below, the petitioner seeks a temporary exemption because despite its good faith efforts, it cannot bring the 244X into compliance with the applicable air bag requirements without incurring substantial economic hardship.

II. Why Compliance Would Cause Substantial Economic Hardship and How Cross Lander Has Tried in Good Faith To Comply With FMVSS No. 208 and the Bumper Standard

Because the “advanced” air bag requirements specified in S14 of FMVSS No. 208 become effective September 1, 2006, Cross Lander intends to concentrate all its efforts on developing an “advanced” air bag system. Cross Lander chose Siemens as its air bag supplier. According to the petitioner, equipping the 244X with advanced air bags will require significant time and resources necessary to redesign the vehicle interior and for laboratory testing and sensor calibration. The estimated cost of developing an advanced air bag system is $2 to $3 million. Further, the project would take approximately 24 months and cannot begin until Cross Lander is assured of an immediate source of revenue. That is, because Cross Lander has no current vehicles for sale in the United States, the petitioner states that it is impossible to finance this project without a source of revenue. The petitioner contends that a three-year exemption from the current, as well as the “advanced” air bag requirements would allow it to successfully develop a suitable air bag system.

The petition and supplements filed by the petitioner indicate that Cross Lander has invested over $3 million into the company. According to the petitioners, the total investment will reach $34,000,000 by the time the 244X will be offered for sale in the U.S. The petitioner states that an immediate exemption is crucial to the survival of Cross Lander because it must begin selling 244X immediately in order to generate a cash flow that can support the company's continued existence.

The petitioner's financial statements indicate a net loss of $673,079 for the fiscal year ending 12/31/2002, and a net loss of $523,676 for the fiscal year ending 12/31/2003. The petitioner stated that its 2004 net loss is $5,069,185.00. The petitioner provided the following summary of the financial consequences of failure to obtain a temporary exemption from the requirements of FMVSS No. 208:

III. Comments Regarding the Cross Lander Petition.

The National Highway Traffic Safety Administration (NHTSA) published a notice of receipt of the application on February 9, 2005, and afforded an opportunity for comment. The agency received two comments from Public Citizen. A short description of the comments follows.

Public Citizen argues that the petitioner has not sufficiently demonstrated financial hardship, and that a grant of exemption would not be in the public interest. First, Public Citizen argues that the financial burdens associated with complying with the air bag requirements are not covered by the “substantial economic hardship” statutory provision. Second, Public Citizen argues that because a financial hardship exemption could affect a large number of vehicles, a grant of the petition would not be in the public interest. Third, Public Citizen argued that the petitioner downplayed the safety benefits associated with air bags. Fourth, Public Citizen expressed concerns that the 244X vehicles would be used primarily for common transportation by the vast majority of buyers, and not off-road, as indicated by the petitioner.

IV. The Agency's Findings

Cross Lander is not significantly different from small volume manufacturers who have received temporary exemptions in the past on hardship grounds. Although Cross Lander has negotiated with an air bag manufacturer for the design and testing of an air bag system for its vehicle, they contend that completion of the air bag development is not economically viable without additional revenue generated through immediate sales of the 244X in the United States. In evaluating the petitioner's current situation, the agency finds that to require immediate compliance with FMVSS No. 208 would cause the petitioner substantial economic hardship, and could even result in the company going out of business. The agency concludes that the petitioner's application for a temporary exemption demonstrates the requisite financial hardship.

The term of this exemption will be limited to less than three years and the agency anticipates that the 244X will be sold in limited quantities. In total, we anticipate that Cross Lander will not sell more than 9,000 vehicles. We anticipate that with the help of revenues derived from U.S. sales, Cross Lander will be able to introduce a fully compliant vehicle by the time this exemption expires. The agency notes that, according to the petitioner, the 244X complies with all other applicable Federal motor vehicle safety standards.

We note that under 49 CFR 555.9(b) and (c), the petitioner will be required to indicate on the vehicle certification label, and on a separate label affixed to the windshield or the side window, that the 244X does not comply with FMVSS No. 208. In addition to the required labeling, the petitioner agreed to affix additional labeling to each vehicle. This supplemental labeling would read as follows:

The supplemental labeling will take the place of air bag warning labels required by FMVSS 208, and will be affixed to the sun visor.

Contrary to Public Citizen's comments, we believe that the petitioner has demonstrated financial hardship. As a part of its application, the petitioner submitted detailed financial information. While most of this information has been granted confidential treatment and is not being published in this notice, the agency examined all the information submitted to the agency and concluded that the petitioner has experienced financial hardship as evidenced by net losses in all of the past 3 years. We further note that an exemption from the air bag requirements is consistent with the agency's previous financial hardship exemptions granted to Lotus, Saleen, and Spyker. Finally, we note that the information submitted by the petitioner indicates that sales of their vehicles are unlikely to exceed 9,000 vehicles for the duration of the exemption.

Public Citizen made a variety of arguments against granting this exemption. However, we believe that our decision is consistent with Congressional intent to allow the Secretary to temporarily exempt small volume manufacturers from a given standard when compliance with that standard would cause substantial economic hardship.

In consideration of the foregoing, it is hereby found that compliance with the requirements of Paragraphs S4.2 and S14 of Federal Motor Vehicle Safety Standard (FMVSS) No. 208, Occupant crash protection would cause substantial economic hardship to a manufacturer that has tried in good faith to comply with the standard. It is further found that the granting of an exemption would be in the public interest.

In accordance with 49 U.S.C. 30113(b)(3)(B)(i), Cross Lander is granted NHTSA Temporary Exemption No. EX 05-3, from Paragraphs S4.2 and S14 of Federal Motor Vehicle Safety Standard (FMVSS) No. 208, Occupant crash protection. The exemption shall remain in effect until May 1, 2008.

Authority: 49 U.S.C. 30113; delegation of authority at 49 CFR 1.50 and 501.8.