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

This notice grants the Group Lotus Plc. (“Lotus”) application of for a temporary exemption from Paragraph S7 of Federal Motor Vehicle Safety Standard (“FMVSS”) No. 108, Lamps, reflective devices, and associated equipment; and Part 581 Bumper Standard. 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.

The National Highway Traffic Safety Administration (NHTSA) published a notice of receipt of the application on October 24, 2003, and afforded an opportunity for comment.

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 Unites 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 , 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-03-16341-1). For additional information on the vehicle, please go to 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). Lotus' latest financial submissions showed an 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 represented a cumulative loss for a period of 3 years of £63,660,000 (≉ $102,000,000).

According to the petitioner, the cost of making the Elise compliant with the headlighting requirements of FMVSS 108 and the bumper standard was beyond the company's current capabilities. Petitioner contended 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 requested 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 contended that Lotus could not 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 assumed that the petitioner receives exemptions from S7 of FMVSS No. 108 and the bumper standard. The second forecast assumed the exemptions are denied. In the event of denial, Lotus anticipated extensive losses through the fiscal year 2006, because it could not bring the Elise into full compliance any earlier.

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 anticipated 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 contended 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 cease U.S. operations. This would in turn result in loss of jobs by Lotus employees in the U.S.

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, and then 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. Comments Received on Lotus Application

The agency received a single comment in response to the notice of the application. The sole commenter was Mr. Alan Riley, the executive editor of Roadfly, an on-line automotive enthusiast community. Mr. Riley is in favor of granting the exemption. In support of his position, Mr. Riley indicated that the exemption would enable Lotus to maintain a continued presence in the U.S., which is important not only to potential Elise purchasers, but also to those individuals who already own Lotus vehicles and seek to properly maintain them.

VI. The Agency's Findings

The Lotus application for a temporary exemption clearly demonstrates the financial difficulties experienced by the company, with cumulative losses in the past three years exceeding $100,000,000. Further, the application indicates that Lotus has made a good faith effort and spent approximately $27,000,000 to bring Elise into compliance with federal safety standards.

Traditionally, the agency has found that the public interest is served in affording continued employment to a small volume manufacturer's work force. The agency has also found that the public interest is served by affording the consumers a wider variety of motor vehicles. In this instance, denial of the petition would most likely put Lotus out of business in the U.S. Further, an exemption would assure an adequate supply of spare parts and afford a continuing, uninterrupted commercial relationship with Lotus dealers and their employees in the United States.

The term of this exemption will be limited to three years and the agency anticipates that the Elise vehicle will be sold in limited quantities. With the help of revenues derived from U.S. sales, Lotus will introduce an all new, fully compliant vehicle that will replace the current Elise by 2006.

Because Lotus will be manufactured in limited quantities and because each vehicle is likely to be operated only on a limited basis, the agency finds that this exemption will likely have a negligible impact on the overall safety of U.S. highways. The agency notes that the vehicle subject to this petition complies with all other applicable Federal motor vehicle safety standards.

In consideration of the foregoing, it is hereby found that compliance with the requirements of Paragraph S.7 of 49 CFR 571.208, Lamps, reflective devices, and associated equipment; and 49 CFR part 581 Bumper Standard 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 and consistent with the objectives of traffic safety.

In accordance with 49 U.S.C. 30113(b)(3)(B)(i), Lotus is granted NHTSA Temporary Exemption No. EX 03-4, from Paragraph S.7 of 49 CFR 571.208, Lamps, reflective devices, and associated equipment; and 49 CFR part 581 Bumper Standard. The exemption shall remain in effect until January 1, 2007.

(49 U.S.C. 30113; delegation 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: 202-366-2992; Fax 202-366-3820; e-Mail: George.Feygin@nhtsa.dot.gov).