Shelby American, Inc.; Grant of Application for Temporary Exemption From Federal Motor Vehicle Safety Standard No. 208

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

[Docket No. NHTSA-98-4320; Notice 2]

Shelby American, Inc.; Grant of Application for Temporary

Exemption From Federal Motor Vehicle Safety Standard No. 208

We are granting the application by Shelby American, Inc., of Las

Vegas, Nevada (``Shelby American''), for an exemption until January 1,

2001, from the automatic restraint provisions of Federal Motor Vehicle

Safety Standard No. 208 Occupant Crash Protection (S4.1.5.3). Shelby

American applied for an exemption on the basis that compliance would

cause substantial economic hardship to a manufacturer that had tried in

good faith to comply with the standard.

We published notice of receipt of the application on August 18,

1998 (63 FR 44302), affording 30 days for comment. However, no comments

were received.

Shelby American is a Texas corporation, privately held and wholly

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owned by Carroll Shelby. Its current business activities are conducted

by three wholly owned subsidiaries. The first of these subsidiaries is

Shelby Series One, Inc., the unit that will produce a new sports car

which is the subject of the application for a temporary exemption. At

the time the application was filed, these vehicles existed in prototype

form only, and none had been produced. The second subsidiary is Shelby

CSX4000, Inc., which produces ``a component vehicle sold without engine

or transmission,'' to individuals who will install the power train of

their choice. In 1997, 75 of these Cobra replica assemblies were sold.

The third subsidiary is Shelby Original 427S/Cs, Inc., whose business

is to assemble automobiles ``from certain new old stock parts surviving

from the original 1965 Shelby Cobra production run * * * supplemented

by newly manufactured parts utilizing original tooling.'' Two such

vehicles have been assembled and sold as of the date of the

application.

The Series I is a two-passenger open convertible sports car,

powered by the Oldsmobile Aurora engine. The first prototypes were

shown in early 1997. Shelby American has asked to be excused from

compliance with the automatic restraint requirements of Standard No.

208, relating that it is working ``with many outside companies'' to

complete the vehicle development and certification. Development of the

Series I started in March 1995 (i.e., engineering tasks subsequent to

initial design development). As of the filing of its application,

Shelby American had spent an estimated total of 400 man hours and

$75,000 related to air bag development. As with development of the

engine and interior, the applicant must contract the air bag

development to an outside company. This cost will total $4,643,500 over

the period of time for which it has asked for an exemption. Additional

expenditures of $546,000 will be necessary to cover the costs of

testing, and integration of airbag wiring. In the interim, the Series I

will be equipped with a three-point driver and passenger restraint

system. The applicant is optimistic that it can sell 500 Series I cars

in the period for which it has requested exemption. With these sales

``Shelby American will be able to support the estimated $216,229

monthly development expenditure necessary for implementation of the

airbag at the end of the two year period.''

Shelby American had no material operations in 1995. Its unaudited

consolidated balance sheet showed a net loss of $738,415 for 1996, and

a net income of $147,904 for 1997.

The applicant argued that ``the production of the Shelby Series I

is in the best interest of the public and the US economy.'' At the time

of its application, the company planned to open a new 100,000 square

foot facility in June 1998 in Las Vegas to produce the Series I. The

new facility ``will provide direct employment to approximately 200

employees.'' In addition, ``there are approximately 25 development/

partner companies working with Shelby American on the development of

the Shelby Series I, providing indirect employment for those companies'

personnel * * *'' The car will be sold through select Oldsmobile

dealers * * * providing employment to many sales and service personnel

at the dealership level.'' Most major components are produced in the

United States, including the engine (Oldsmobile), tires (Goodyear), and

transmission (ZF, from RBT, a US company). The Series I is technically

advanced, combining ``an aluminum chassis with a carbon-fiber body, a

new concept amongst production vehicles, which provides strength and

durability while minimizing weight.'' Shelby American believes that

``the reduced weight achieved with this vehicle will translate into a

new standard for improved emissions and fuel efficiency. Aside from

Standard No. 208, the car will be certified as conforming to all

applicable Federal motor vehicle safety standards.

As noted earlier, we received no comments on the application.

However, several aspects of Shelby American's operations concerned us,

and we commented on these in letters to the company on July 17, 1998,

and October 15, 1998. The company responded to our concerns on November

25, 1998.

Shelby American's application informed us that its subsidiary,

Shelby Original 427S/Cs, Inc., had assembled two vehicles, termed

Continuation Cars, ``from certain new old stock parts surviving from

the original 1965 Shelby Cobra production run * * * supplemented by

newly manufactured parts utilizing original tooling.'' We informed the

company that, in our opinion, vehicles produced under these facts must

comply with all Federal motor vehicle safety standards in effect at the

time of their assembly, and that its application had not covered these

vehicles. The company replied that its Continuation Cars ``will only be

sold as race cars, not as licensed vehicles for use on the public

roads'' and that ``to the extent Shelby issues any statements of origin

for these vehicles, it will be stated that the vehicles are not titled

for highway use.''

We were also concerned about the operations of Shelby CSX4000,

Inc., which produces ``a component vehicle sold without engine or

transmission.'' We informed the company that we would regard it as the

``manufacturer'' and responsible for safety standard compliance

certification if it offered an engine and transmission concurrently

with the component vehicle or as part of the sales transaction. Shelby

American responded that ``these are being sold by Shelby only as

component vehicles, without engine and transmission, which are to be

installed by the owner or at his or her direction. * * *'' While this

falls short of a positive statement that the company is not furnishing

an engine and transmission as part of the sales transaction, Shelby

American's statement that the vehicles are sold only as component

vehicles can reasonably be interpreted as meaning that it is not

furnishing an engine and transmission for these vehicles.

Finally, we had been concerned with an article appearing in the

September 21, 1998, issue of Business Week on the Shelby Series 1. This

article, ``Road Rockets for the Jaded,'' stated that ``Shelbys are

selling briskly. In Vegas, [the author] met one high roller who has

bought five of them for resale.'' Shelby American has informed us that

it has only taken deposits on the Series 1, and that ``no Series 1

vehicles, in whole or in part, have left the possession of Shelby

American, Inc.'' ``No cars have been delivered, and no cars will be

delivered'' unless and until we grant its application for exemption

``and all appropriate engine/emissions certifications are obtained and

affixed to the vehicles.''

In order to grant Shelby American's application, 49 U.S.C. 30113

requires us to make two findings. The first is that compliance with

Standard No. 208 would cause substantial economic hardship to a

manufacturer that has tried in good faith to comply with the standard.

The second finding is that a temporary exemption is consistent with the

public interest and the objectives of 49 U.S.C. Chapter 301--Motor

Vehicle Safety.

In determining the existence of hardship, we begin by balancing a

small manufacturer's recent annual net income history against its

estimates of costs to comply, and continue by considering intangibles

such as loss of market if an exemption is not granted. Shelby had no

material operations in 1995. Its net loss in 1996 was only slightly

offset by its net income in 1997,

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for a cumulative loss of $590,511. On the other hand, development and

testing costs are estimated to exceed $5,000,000. We believe it

manifest that to require immediate compliance with automatic protection

specifications would cause Shelby ``substantial economic hardship''

within the meaning of the statute. We note that an exemption will allow

sales generating to ``support the estimated $216,229 monthly

development expenditure'' to comply with Standard No. 208 at the end of

the exemption period.

In finding whether an applicant has tried to comply with a standard

in good faith, we ask an applicant to provide a chronological outline

of its efforts. In this case, development is said to have begun in

March 1995, and the company has learned that it must use outside

assistance to comply. We are informed that the company, as of the date

of its application, had ``spent an estimated total of 400 man hours and

$75,000 related to development.'' Given its limited resources, we

believe that the company's effort shows the requisite good faith

attempt to meet Standard No. 208.

Shelby supports its argument that an exemption is consistent with

the public interest by citing that its new facility will create jobs

for 200 people, that 25 other companies are helping it to produce the

Series 1, that the Series 1 will be sold through Oldsmobile dealers,

and that the vehicle employs new materials techniques that ``will

translate into a new standard for improved emissions and fuel

efficiency.'' We have frequently found in the past that the public

interest is served by providing employment opportunities and

technological advancement, cogent arguments here as well. Finally, in

support of an argument that an exemption is consistent with objectives

of motor vehicle safety, Shelby American confirms that the Series 1

will be certified as conforming to all Federal motor vehicle safety

standards other than Standard No. 208, and will be fitted with a three-

point driver and passenger restraint system. We note, also, that there

will be only a very limited number of exempted vehicles on the roads,

only 500 by July 1, 2001.

Therefore, in consideration of the foregoing, and as required by 49

U.S.C. 30113, I find that compliance with Standard No. 208 would cause

substantial economic hardship to a manufacturer that has tried to

comply with the standard in good faith, and that an exemption is

consistent with the public interest and 49 U.S.C. Chapter 301--Motor

Vehicle Safety. Accordingly, Shelby American, Inc., is hereby granted

NHTSA Temporary Exemption No. 99-1, expiring January 1, 2001, from

S4.1.5.3 Passenger cars manufactured on or after September 1, 1997, of

49 CFR 571.208 Standard No. 208, Occupant Crash Protection.

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

1.50.

Issued: February 5, 1999.

Ricardo Martinez,

Administrator.

[FR Doc. 99-3293 Filed 2-9-99; 8:45 am]

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