03-26873. Group Lotus Plc.; Receipt of Application for a Temporary Exemption From Federal Motor Vehicle Safety Standard No. 108 and Part 581 Bumper Standard

In accordance with the procedures of 49 CFR part 555, Group Lotus Plc. (“Lotus”) has applied for a Temporary Exemption from S7. Headlighting requirements, of Federal Motor Vehicle Safety Standard (“FMVSS”) No. 108, Lamps, reflective devices, and associated equipment; and Part 581 Bumper Standard. The basis of the application is that compliance would cause substantial economic hardship to a manufacturer that has tried in good faith to comply with the standard.

We are publishing this notice of receipt of the application in accordance with the requirements of 49 U.S.C. 30113(b)(2), and have made no judgment on the merits of the application.

I. Background

Lotus, which was founded in 1955, produces small quantities of performance cars. In the past five years, Lotus has sold a total of 550 automobiles in the United States. The only current Lotus vehicle sold in the United States is Lotus Esprit (“Esprit”). In the same time period, Lotus has manufactured a total of 18,888 vehicles worldwide, including Lotus Elise (“Elise”).

The Elise was introduced in 1996, but it was not originally designed or intended for the U.S. market. However, after deciding to terminate production of the Esprit by 1999,^[1] petitioner sought to introduce the Elise in the United States. Significant management, ownership and financial hardship issues contributed to the delay in introducing the Elise model. Recently, Peruashan Otomobile Nasional Berhad (“Proton”) has taken a 100% ownership of Lotus. Petitioner is now ready to introduce the Elise vehicle into the U.S. Market. A description of the Elise vehicle is set forth in the Exhibit 1 of the petition (Docket No. NHTSA-03-16341). For additional information on the vehicle, please go to http://www.LotusCars.com.

II. Why Lotus Needs a Temporary Exemption

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

According to the petitioner, the cost of making the Elise compliant with the headlighting requirements of FMVSS 108 and the bumper standard is beyond the company's current capabilities. Petitioner contends that developing and building FMVSS-compliant headlamps and Part 581-compliant bumpers cannot be done without redesigning the entire body structure of the Elise. Specifically, developing Part 581-compliant bumpers would cost $6 million dollars over a period of 2 years. Producing an actual FMVSS-compliant headlamp would cost approximately $1.1 million. In addition, there are unspecified costs of body modifications in order to accommodate the new headlamp, because there is insufficient space in the current body structure to permit an FMVSS-compliant headlamp.

Lotus requests a three-year exemption in order to concurrently develop compliant bumpers and headlamps and make necessary adjustments to the current body structure. Petitioner anticipates the funding necessary for these compliance efforts will come from immediate sales of Elise vehicles in the United States.

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

Petitioner contends that Lotus cannot return to profitability unless it receives the temporary exemption. In support of their contention, Lotus prepared alternative forecasts for the next 3 fiscal years. The first forecast assumes that the petitioner receives exemptions from S7 of FMVSS No. 108 and the bumper standard. The second forecast assumes the exemptions are denied.^[4] In the event of denial, Lotus anticipates extensive losses through the fiscal year 2006, because it cannot bring the Elise into full compliance any earlier.

m

Fiscal Year	Forecast if exemptions granted (in $)	Forecast if exemptions denied (in $)
2003	≉$975,000	≉−$1,700,000
2004	≉$12,520,000	≉−$15,402,000
2005	≉$11,749,000	≉−$22,718,000

According to the petition, Lotus expended substantial resources (approximately $27,000,000) in the past 12 months in order to bring Elise into compliance with the Federal Motor Vehicle Safety Standards and other U.S. regulations. Specifically, Lotus invested approximately $5,000,000 in order to obtain a suitable engine supplier capable of complying with U.S. emissions standards. Next, Lotus developed an FMVSS 208 compliant air bag system. Significant resources are currently being expended in order to bring Elise in compliance with all other Federal Motor Vehicle Safety Standards, including FMVSSs 208, 210, 212, 214, 219 and 301.

As previously discussed, the Elise was not designed for the U.S. market and does not have a conventional bumper system or the underlying bumper structure. Instead, it was designed with “clam shell” body parts. According to the petitioner, installing a compliant bumper system would require re-designing the entire body of the automobile.

Petitioner considered equipping the Elise with an “interim headlamp” that would comply with FMVSS No. 108. This headlamp would not feature a polycarbonate cover currently on the vehicle, and would have been assembled from “off-the-shelf” parts. However, the development of this “interim headlamp” would cost $500,000. Because Lotus anticipates introducing an all-new, fully compliant Elise in 2006, the projected number of vehicles sold until the introduction of the new 2006 model could not justify this investment.

Petitioner contends that installation of “an interim headlamp” without a polycarbonate cover would also significantly decrease forecasted sales because aesthetic appearance of the automobile would be compromised. Lotus marketing research forecasted a sales decline of as much as 30%. Further, the absence of the polycarbonate cover would have a negative effect on vehicle aerodynamics, and would decrease fuel economy. Finally, Lotus indicated that installation of “interim headlamps” could result in U.S. customers purchasing aftermarket or “European-spec” headlamps and installing these headlamps on their vehicles.

As previously stated, Lotus plans to introduce the second generation Elise in late 2006. This vehicle will feature compliant headlamps, bumpers and advanced air bags.

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

Petitioner put forth several arguments in favor of a finding that the requested exemption is consistent with the public interest and the objectives of the Safety Act. Specifically:

1. Petitioner notes that the current Elise headlamp does not pose a safety risk because the headlamp's photometrics are very close to the requirements of FMVSS 108. The headlamp has also been subjected to environmental testing, and has a good warranty record.

2. Petitioner argues that the clamshell body system utilized by the Elise vehicle acts to reduce low-speed damage even in the absence of conventional bumpers. In a situation involving greater damage, the cost of an entire fiberglass clamshell is comparable to bumper-related repair costs of other “high-end” vehicles.

3. Petitioner suggests that denial of the petition would prevent Lotus from introducing the Elise for a period of three years and would in fact cause Lotus to seize U.S. operations. This would in turn result in loss of jobs by Lotus employees in the U.S.^[5]

4. With respect to consumers, petitioner argues that denial of the petition would limit consumer choices by eliminating Lotus from the marketplace. Lotus contends that its continued presence in the U.S. is needed in order to provide parts and service for the existing Lotus Esprit customers.

5. Lotus remarks that due to the nature of the Elise vehicle, it will, in all likelihood, be utilized infrequently as a “second” or a recreational vehicle.

6. Finally, Lotus notes that the Elise does comply with all other Federal Motor Vehicle Safety Standards, and features above-average fuel economy.

V. How You May Comment on Lotus's Application

We invite you to submit comments on the application described above. You may submit comments [identified by DOT Docket Number NHTSA-03-16341] 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: [phone].
• 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 am and 5 pm, 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 am and 5 pm, 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 below. To the extent possible, we shall also consider comments filed after the closing date. We shall publish a notice of final action on the application in the Federal Register pursuant to the authority indicated below.

Comment closing date: November 24, 2003.

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

FOR FURTHER INFORMATION CONTACT:

George Feygin in the Office of Chief Counsel, NCC-112, (Phone: [phone]; Fax [phone]; E-Mail: [e-mail]).

Issued on: October 20, 2003.

Stephen R. Kratzke,

Associate Administrator for Rulemaking.

Footnotes

1.  Espirit produciton was eventually extended by three years while petitioner sought to bring Elise into compliance with FMVSS. Espirit will cease production on 12/31/2003.

2.  We note that the Elise vehicle is FMVSS No. 201 compliant.

3.  All dollar values are based on an exchange rate of £1= $1.60.

4.  See Petition Exhibit 2 (Docket No. NHTSA-03-16341).

5.  In the event the petition is granted, Lotus anticipates hiring more employees and expanding its dealer network.