Passenger Automobile Average Fuel Economy Standards; Proposed Decision To Grant Exemption

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 531

[Docket No. 96-115; Notice 1]

Passenger Automobile Average Fuel Economy Standards; Proposed

Decision To Grant Exemption

AGENCY: National Highway Traffic Safety Administration (NHTSA),

Department of Transportation (DOT).

ACTION: Proposed decision.

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SUMMARY: This proposed decision responds to a petition filed by Lotus

Cars Ltd. (Lotus) requesting that it be exempted from the generally

applicable average fuel economy standard of 27.5 miles per gallon (mpg)

for model years 1994, 1995, 1997, and 1998, and that, for Lotus, lower

alternative standards be established. In this document, NHTSA proposes

that the requested exemption be granted to Lotus and that alternative

standards of 24.2 mpg be established for MY 1994, 23.3 mpg for MY 1995,

and 21.2 mpg for MYs 1997 and 1998.

DATES: Comments on this proposed decision must be received on or before

February 21, 1997.

ADDRESSES: Comments on this proposal must refer to the docket number

and notice number in the heading of this document and be submitted,

preferably in ten copies, to: Docket Section, Room 5109, National

Highway Traffic Safety Administration, 400 Seventh Street, S.W.,

Washington, DC 20590. Docket hours are 9:30 a.m. to 4 p.m., Monday

through Friday.

FOR FURTHER INFORMATION CONTACT: Ms. Henrietta Spinner, Office Planning

and Consumer Programs, NHTSA, 400 Seventh Street, S.W., Washington, DC

20590. Ms. Spinner's telephone number is: (202) 366-4802.

SUPPLEMENTARY INFORMATION:

Statutory Background

Pursuant to 49 U.S.C. 32902(d), NHTSA may exempt a low volume

manufacturer of passenger automobiles from the generally applicable

average fuel economy standards if NHTSA concludes that those standards

are more stringent than the maximum feasible average fuel economy for

that manufacturer and if NHTSA establishes an alternative standard for

that manufacturer at its maximum feasible level. Under the statute, a

low volume manufacturer is one that manufactured (worldwide) fewer than

10,000 passenger automobiles in the second model year before the model

year for which the exemption is sought (the affected model year) and

that will manufacture fewer than 10,000 passenger automobiles in the

affected model year. In determining the maximum feasible average fuel

economy, the agency is required under 49 U.S.C. 32902(f) to consider:

(1) Technological feasibility

(2) Economic practicability

(3) The effect of other Federal motor vehicle standards on fuel

economy, and

(4) The need of the United States to conserve energy.

The statute permits NHTSA to establish alternative average fuel

[[Page 67519]]

economy standards applicable to exempted low volume manufacturers in

one of three ways: (1) a separate standard for each exempted

manufacturer; (2) a separate average fuel economy standard applicable

to each class of exempted automobiles (classes would be based on

design, size, price, or other factors); or (3) a single standard for

all exempted manufacturers.

Background Information on Lotus

Lotus was founded in England by Colin Chapman in 1955 and owned by

Mr. Chapman until his death in 1982. After Mr. Chapman's death, the

company was owned by several joint companies until 1986. In 1986,

General Motors (GM) acquired total ownership of Lotus. Although GM

owned it, Lotus continued to operate on an independent basis. For MYs

1987-1993, Lotus' U.S. sales were incorporated into the GM import fleet

for corporate average fuel economy (CAFE) purposes. In August 1993,

Bugatti International SAH, a holding company with a controlling

interest in Bugatti Automobili SpA., acquired ownership of Lotus from

GM. Although under common ownership with Bugatti Automobili, Lotus

continued to operate independently.

Lotus has always provided high performance and efficiency through

technology and weight reduction. For example, the first Lotus street

production vehicle weighed 1,500 pounds (lbs.) and had a 1.6 liter

engine of 100 horsepower (hp) (15 lbs./hp). For more than 30 years,

Lotus four-cylinder engines were based on the fuel efficient four-

valve-per-cylinder design. Lotus pioneered and developed this

technology for its own and other automotive companies worldwide. Lotus

has exported vehicles to the United States (U.S.) for almost 30 years.

However, the number of Lotus vehicles entering the U.S. is usually

quite small. Lotus traditionally produces fewer than 2000 vehicles each

year.

For the 1994, 1995, 1997, and 1998 model years, Lotus'' product-

line for the U.S. market consists of the Lotus Esprit, a two-seat

sports car. Lotus imported 137 Esprit cars into the U.S. in the 1994

model year and 241 in the 1995 model year. Lotus does not anticipate

importing any vehicles into the U.S. in 1996 and projects sales volumes

for 1997 and 1998 that are consistent with its status as a low volume

importer.

The Lotus Petition

NHTSA's regulations on low volume exemptions from CAFE standards

state that petitions for exemption are submitted ``not later than 24

months before the beginning of the affected model year, unless good

cause for later submission is shown.'' (49 CFR 525.6(b).)

NHTSA received a joint petition from Bugatti Automobili S.p.A. and

Lotus Cars Ltd. (Bugatti/Lotus) on July 18, 1994, seeking exemption

from the passenger automobile fuel economy standards for MYs 1994-1996.

This joint petition was filed less than 24 months before the beginning

of MYs 1994 and 1995 and was therefore untimely under 49 C.F.R.

526.6(b). The agency notes that Lotus was not sold by GM until August

1993, when it was acquired by Bugatti International SAH. As both Lotus

and Bugatti were under the common control of Bugatti International,

they were required to file a joint petition for exemption. NHTSA

observes that the two companies requested the agency's opinion

concerning submitting a petition within three months of the sale of

Lotus by GM. The agency responded to the Bugatti/Lotus request by a

letter dated May 9, 1994 in which NHTSA indicated it would accept a

joint Bugatti/Lotus petition. Bugatti and Lotus submitted their joint

petition approximately two months later. Under the circumstances, NHTSA

concludes that Bugatti and Lotus took reasonable measures to submit a

petition in as timely a manner as possible. Therefore, the agency has

determined that good cause exists for the late submission of the

petition.

In October 1994, NHTSA received an additional joint petition from

Bugatti/Lotus seeking exemption from the passenger automobile fuel

economy standard for MY 1997. In October 1995, NHTSA received another

petition from Lotus seeking exemption from the passenger automobile

fuel economy standard for MY 1998. These petitions are timely, as

required by NHTSA's regulations at 49 C.F.R. 525.6(b).

On September 22, 1995, Bugatti entered receivership in Italy.

Because of Bugatti's financial instability, Lotus requested by a letter

dated October 31, 1995, that NHTSA remove Bugatti from the pending MYs

1994-1997 joint petitions filed previously by Bugatti and Lotus. Lotus

also indicated that there were no Bugatti imports for MYs 1994-1995 and

that Lotus itself would not import any vehicles into the U.S. for MY

1996. Lotus requested that NHTSA revise its petitions for MYs 1994,

1995, and 1997 to reflect alternative standards equal only to Lotus'

fuel economy values.

Methodology Used To Project Maximum Feasible Average Fuel Economy Level

for Lotus

Baseline Fuel Economy

To project the level of fuel economy which could be achieved by

Lotus in the 1994, 1995, 1997, and 1998 model years, NHTSA considered

whether there were technical or other improvements that would be

feasible for these vehicles, and whether the company currently plans to

incorporate such improvements in the vehicles. The agency reviewed the

technological feasibility of any changes and their economic

practicability.

NHTSA interprets ``technological feasibility'' as meaning that

technology which would be available to Lotus for use on its 1994, 1995,

1997, and 1998 model year automobiles, and which would improve the fuel

economy of those automobiles. The areas examined for technologically

feasible improvements were weight reduction, aerodynamic improvements,

engine improvements, drive line improvements, and reduced rolling

resistance.

The agency interprets ``economic practicability'' as meaning the

financial capability of the manufacturer to improve its average fuel

economy by incorporating technologically feasible changes to its 1994,

1995, 1997, and 1998 model year automobiles. In assuming that

capability, the agency has always considered market demand as an

implicit part of the concept of economic practicability. Consumers need

not purchase what they do not want.

In accordance with the concerns of economic practicability, NHTSA

has considered only those improvements which would be compatible with

the basic design concepts of Lotus automobiles. Since NHTSA assumes

that Lotus will continue to build high performance cars, design changes

that would remove items traditionally offered on these cars were not

considered. Such changes to the basic design would be economically

impracticable since they might well significantly reduce the demand for

these automobiles, thereby reducing sales and causing significant

economic injury to the low volume manufacturer.

Technology for Fuel Economy Improvement

The nature of Lotus vehicles generally do not result in high fuel

economy values. Also, Lotus lags in having the latest developments in

fuel efficiency technology because suppliers generally provide

components and technology to small manufacturers only after supplying

large manufacturers.

[[Page 67520]]

Lotus states that the requested alternative fuel economy values

represent the best possible CAFE that Lotus can achieve for the 1994,

1995, 1997, and 1998 model years. However, the alternative fuel economy

values decrease from 24.2 mpg in MY 1994 to 23.3 mpg in MY 1995 (a

decrease of 0.9 mpg). For MYs 1997 and 1998, Lotus stated that the fuel

economy value of 21.2 mpg represents the best possible CAFE that it can

achieve. The shift from 23.3 mpg in MY 1995 to 21.2 mpg in MYs 1997-

1998 represents a decrease of 2.1 mpg. The fuel economy values will

decrease over the course of these model years because Lotus has

increased the Esprit's horsepower, and will replace the engine with a

V-8 after MY 1995 for higher performance. Lotus' decision to use a V-8

in the Esprit after MY 1995 is a response to market demand for more

powerful engines. Lotus has produced small lightweight innovative

sports vehicles for more than 40 years. Performance is achieved through

obtaining maximum output from a small engine displacement, the use of

glass fiber body panels, and reliance on a backbone chassis design. The

vehicle's compact dimensions provide efficient performance coupled with

a strong and relatively light-weight aerodynamic body construction.

The body and chassis have been continuously improved to satisfy

legal and customer requirements, and the MYs 1994-1995 vehicles have an

equivalent test weight of 3,250 pounds and a weight-to-horsepower ratio

of 12.31 lbs./hp and 11.36 lbs./hp respectively.

The current Lotus' engine family series, the 900, has been in

production for over 20 years. This engine is an in- line four-cylinder

unit of 2.2 liters with intercooled turbocharging to maximize air

density. The engine provides a high power/torque package that is a very

efficient balance of fuel economy versus engine power. In MYs 1997-

1998, Lotus will employ a new turbocharged 3.5 liter V-8 engine with

four valves per cylinder, high tumble combustion, and a high

compression ratio. This engine will also be highly efficient. Because

of Lotus' financial constraints and its decreased research and

development budget, the manufacturer must use an engine that fits the

existing Esprit chassis/body configuration and uses the present gearbox

while maintaining Lotus' performance image. Other vehicle

specifications for the MYs 1994, 1995, 1997, and 1998 Lotus' models

remain relatively constant, with a slight increase in vehicle weight

due to powertrain and regulatory requirements.

Model Mix

Lotus is a small vehicle manufacturer that produces a modest range

of high performance exotic sport vehicles. The current Lotus 900 engine

series has been successful in complying with world-wide emission

standards; however, in MY 1997, Lotus will alter its engine design to

increase performance and to comply with increasingly stringent U.S.

emission requirements. There is little opportunity to improve fuel

economy by changing model mix since Lotus will make only one basic

model in each model year.

Effect of Other Federal Motor Vehicle Standards

The new, stringent California emission standards and the similarly

stringent Federal Clean Air Act Amendments will apply to Lotus in MYs

1995, 1997, and 1998. Lotus will likely achieve lower fuel economy due

to compliance with these standards. In addition, a portion of its

limited engineering resources will have to be expended to comply with

these more stringent emissions standards including, but not limited to,

evaporative emission standards.

Federal motor vehicle safety standards (FMVSS) and regulations also

have an adverse effect on the fuel economy of Lotus vehicles. These

standards include 49 CFR Part 581 (energy absorbing bumpers), FMVSS 202

(head restraints), FMVSS 207 (seating systems), FMVSS 208 (occupant

crash protection), FMVSS 214 (side door strength), and FMVSS 216 (roof

crush resistance). These standards tend to reduce achievable fuel

economy values, since they result in increased vehicle weight.

Lotus is a small company and engineering resources are limited.

Priority must be given to meeting mandatory standards to remain in the

marketplace.

The Need of the United States to Conserve Energy

The agency recognizes there is a need to conserve energy, to

promote energy security, and to improve balance of payments. However,

as stated above, NHTSA has tentatively determined that it is not

technologically feasible or economically practicable for Lotus to

achieve an average fuel economy in MYs 1994 through 1998 above the

levels set forth in this proposed decision. Granting an exemption to

Lotus and setting an alternative standard at that level would result in

only a negligible increase in fuel consumption and would not affect the

need of the United States to conserve energy. In fact, there would not

be any increase since Lotus cannot attain those generally applicable

standards. Nevertheless, the agency estimates that the additional fuel

consumed by operating the MYs 1994, 1995, 1997, and 1998 fleets of

Lotus vehicles at the CAFE of 24.2 mpg for MY 1994, CAFE of 23.3 mpg

for MY 1995, projected CAFE of 21.2 mpg for MYs 1997 and 1998 (compared

to a hypothetical 27.5 mpg fleet) is 21,159 barrels of fuel. This

averages about 3 barrels of fuel per day over the 20-year period that

these vehicles will be an active part of the fleet. Obviously, this is

insignificant compared to the fuel used daily by the entire motor

vehicle fleet which amounts to 4.81 million barrels per day for

passenger cars in the United States in 1994.

Maximum Feasible Average Fuel Economy for Lotus

The agency has tentatively concluded that it would not be

technologically feasible and economically practicable for Lotus to

improve the fuel economies of its MYs 1994, 1995, 1997, and 1998 fleets

above an average of 24.2 mpg for MY 1994, 23.3 mpg for MY 1995 and 21.2

mpg for MYs 1997 and 1998. Federal automobile standards would not

adversely affect achievable fuel economy beyond the amount already

factored into Lotus' projections, and that the national effort to

conserve energy would not be affected by granting the requested

exemption and establishing an alternative standard.

Consequently, the agency tentatively concludes that the maximum

feasible average fuel economy for Lotus is 24.2 mpg for MY 1994, 23.3

mpg for MY 1995, and 21.2 mpg for MYs 1997 and 1998.

NHTSA tentatively concludes that it would be appropriate to

establish a separate standard for Lotus for the following reasons. The

agency has already granted petitions submitted by Rolls Royce for

alternative standards of 14.6 mpg for MYs 1995-96 and 15.1 mpg for MY

1997. NHTSA has also granted a petition from Mednet, Inc. (successor

company to Dutcher Motors) for an alternative standard of 17.0 mpg for

MYs 1996-98. Therefore, the agency cannot use the second (class

standards) or third (single standard for all exempted manufacturers)

approaches for MYs 1995, 1996, 1997, and 1998.

Regulatory Impact Analyses

NHTSA has analyzed this proposal and determined that neither

Executive Order 12866 nor the Department of Transportation's regulatory

policies and procedures apply. Under Executive

[[Page 67521]]

Order 12866, the proposal would not establish a ``rule,'' which is

defined in the Executive Order as ``an agency statement of general

applicability and future effect.'' The proposed exemption is not

generally applicable, since it would apply only to Lotus Cars Ltd., as

discussed in this document. Under DOT regulatory policies and

procedures, the proposed exemption would not be a ``significant

regulation.'' If the Executive Order and the Departmental policies and

procedures were applicable, the agency would have determined that this

proposed action is neither major nor significant. The principal impact

of this proposal is that the exempted company would not be required to

pay civil penalties if its maximum feasible average fuel economy were

achieved, and purchasers of those vehicles would not have to bear the

burden of those civil penalties in the form of higher prices. Since

this proposal sets an alternative standard at the level determined to

be the maximum feasible levels for Lotus for MYs 1994, 1995, 1997, and

1998, no fuel would be saved by establishing a higher alternative

standard. NHTSA finds in the Section on ``The Need of the United States

to Conserve Energy'' that because of the small size of the Lotus fleet,

that incremental usage of gasoline by Lotuss customers would not

affect the United States's need to conserve gasoline. There would not

be any impacts for the public at large.

The agency has also considered the environmental implications of

this proposed exemption in accordance with the Environmental Policy Act

and determined that this proposed exemption if adopted, would not

significantly affect the human environment. Regardless of the fuel

economy of the exempted vehicles, they must pass the emissions

standards which measure the amount of emissions per mile traveled.

Thus, the quality of the air is not affected by the proposed exemptions

and alternative standards. Further, since the exempted passenger

automobiles cannot achieve better fuel economy than is proposed herein,

granting these proposed exemptions would not affect the amount of fuel

used.

Interested persons are invited to submit comments on the proposed

decision. It is requested but not required that 10 copies be submitted.

All comments must not exceed 15 pages in length (49 CFR 553.21).

Necessary attachments may be appended to these submissions without

regard to the 15 page limit. This limitation is intended to encourage

commenters to detail their primary arguments in a concise fashion.

If a commenter wishes to submit certain information under a claim

of confidentiality, three copies of the complete submission, including

purportedly confidential business information, should be submitted to

the Chief Counsel, NHTSA, at the street address given above, and seven

copies from which the purportedly confidential business information has

been deleted, should be submitted to the Docket Section. A request for

confidentiality should be accompanied by a cover letter setting forth

the information specified in the agency's confidential business

information regulation. 49 CFR part 512.

All comments received before the close of business on the comment

closing indicated above for the proposal will be considered, and will

be available for examination in the docket at the above address both

before and after that date. To the extent possible, comments filed

under the closing date will also be considered. Comments received too

late for consideration in regard to the final rule will be considered

as suggestions for further rulemaking action. Comments on the proposal

will be available for inspection in the docket. NHTSA will continue to

file relevant information as it becomes available in the docket after

the closing date, and it is recommended that interested persons

continue to examine the docket for new material.

Those persons desiring to be notified upon receipt of their

comments in the rules docket should enclose a self- addressed, stamped

postcard in the envelope with their comments. Upon receiving the

comments, the docket supervisor will return the postcard by mail.

List of Subjects in 49 CFR Part 531

Energy conservation, Gasoline, Imports, Motor vehicles.

In consideration of the foregoing, 49 CFR part 531 is proposed to

be amended as follows:

PART 531--[AMENDED]

1. The authority citation for part 531 would be revised to read as

follows:

Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR

1.50.

2. In Sec. 531.5, the introductory text of paragraph (b) is

republished for the convenience of the reader and paragraph (b)(6)

would be added to read as follows:

Sec. 531.5 Fuel economy standards.

* * * * *

(b) The following manufacturers shall comply with the standards

indicated below for the specified model years:

* * * * *

(6) Lotus Cars Ltd.

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Average fuel economy

Model year standard (miles per

gallon)

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1994......................................... 24.2

1995......................................... 23.3

1997......................................... 21.2

1998......................................... 21.2

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* * * * *

Issued on: December 18, 1996.

L. Robert Shelton,

Associate Administrator for Safety Performance Standards.

[FR Doc. 96-32545 Filed 12-20-96; 8:45 am]

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