This notice grants the application by Saleen, Inc., of Irvine, California (“Saleen”), for a renewal of a temporary exemption for its S7 passenger car from the requirements of Federal Motor Vehicle Safety Standard No. 208, Occupant Crash Protection. In accordance with 49 U.S.C. 30113(b)(3)(B)(i), the basis of the request was that compliance would cause substantial economic hardship to a manufacturer that has made a good faith effort to comply with the standard.

The National Highway Traffic Safety Administration (NHTSA) published a notice of receipt of the application on July 25, 2003, and afforded an opportunity for comment (68 FR 44139).

Background

The Saleen S7 is a high performance, limited production sports car built in Irvine, CA. The S7 costs approximately $400,000. In June 2001, NHTSA granted Saleen a two-year hardship exemption from the requirements of S4.1.5.3 of Standard No. 208, expiring July 1, 2003.^[1] On April 16, 2003, Saleen petitioned to renew this exemption for an additional 3 years. In accordance with 49 CFR 555.8(e), the previous exemption has remained in effect until the publication of this notice, because the application for renewal was filed more than 60 days prior to expiration of the exemption.

Petitioner began developing the S7 in February of 2000. Originally, Saleen expected to deliver the S7 vehicles to customers in the summer of 2001. However, product development and regulatory issues delayed production until March 6, 2003, when Saleen received Certificates of Conformity for the 2003 model year from the Environmental Protection Agency and the California Air Resources Board. Between March 6, 2003, and the date of the petition, Saleen sold eight S7s. Petitioner hopes to sell a total of 36 S7s by the end of 2003. In contrast, Saleen originally projected selling 112 S7s by the end of 2003.^[2]

Petitioner's other line of business consists of altering Ford Mustang vehicles. However, the company has “sustained a major slowdown” in the sales of these vehicles, which it attributes “to the downturn in the U.S. economy.” The company has produced only 79 “Saleen Mustangs” as of June 11, 2003, compared with 327 in the comparable period in 2002. The company currently maintains a payroll of 96 people. Previously, Saleen employed 122 individuals, but was forced to downsize in an effort to complete development of the S7.

Why Saleen Needs a Renewal of a Temporary Exemption

In the original petition, Saleen estimated that it needed 20 months and approximately $3,000,000 to bring the S7 into compliance with Standard No. 208.^[3] In the absence of sales until March of 2003, Saleen did not generate the necessary funds to bring the S7 into compliance as scheduled. According to the petitioner: “development delays almost completely exhausted all of our economic resources necessary to stay in business, let alone the development of air bags.” In the meantime, NHTSA has implemented new regulations pertaining to advanced air bags (49 CFR 571.208; S14). Petitioner has now asked for a three-year extension of its original two-year exemption in order to generate funds that would allow it to fully comply with the new, advanced air bag requirements of Standard No. 208. Petitioner now estimates, based on projected sales, that it will be financially able to begin developing advanced air bags by July 2004. Saleen anticipates that the project will take 24 months and cost an estimated $3,800,000. Petitioner expects full compliance with the requirements of ( printed page 3193) Standard No. 208 by September 1, 2006.^[4]

Why Compliance Would Cause Substantial Economic Hardship and How Saleen Has Tried in Good Faith To Comply With the Requirements of Standard No. 208

As previously stated, after commencing development of the Saleen S7 in 2000, petitioner has only recently received the necessary approval to begin deliveries to customers. Based on financial records accompanying the petition, Saleen lost $3,480,372 in the fiscal year 2000. In the fiscal year 2001, Saleen lost $4,738,588. In the fiscal year 2002, Saleen lost an additional $614,039. For a three-year period, petitioner experienced a cumulative net loss of $8,832,999.^[5] In the spring of 2003, Saleen was finally able to begin recouping its losses by delivering the first eight S7 vehicles to customers. If this petition is denied, Saleen will have to immediately cease production and sales of the S7. Petitioner estimates that denial of the petition would decrease the earnings before taxes from $2,707,000 to $7,000. Further, denial of the petition would cast serious doubt over the long-term financial viability of the company, and would likely result in downsizing of the current workforce.

In order to comply with the requirements of Standard No. 208, petitioner would have to redesign the following equipment: (1) Steering wheel; (2) Steering column; (3) Dash panel (4) Gauge pod; (5) Seats and seat brackets; (6) Center console; (7) Interior trim panels; and (8) Wiring harness. Petitioner expects to rely on the continuous sales of S7 vehicles in order to fund a redesign of the above components. As previously stated, sales of the vehicle were delayed until March of 2003. As a result, petitioner did not have the resources necessary to bring the S7 in compliance with the non-advanced air bag requirements of Standard No. 208.^[6] Petitioner notes that there are no available alternative means of compliance.

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

Petitioner argues that a renewal of a temporary exemption is in the public interest because the S7 is a unique “super-car,” the only one of its kind to be designed and produced in the United States. An exemption would allow Saleen to continue producing these unique vehicles and to maintain its payroll of 96 full time employees. Petitioner notes that the S7 also utilizes many U.S.-sourced components. According to Saleen, production of the S7 indirectly provides employment for several hundred Americans who work for S7 domestic suppliers. Petitioner contends that an exemption would be consistent with vehicle safety objectives because the S7 will otherwise conform to all applicable Federal motor vehicle safety standards.

Comments Received on the Saleen Petition

The agency received a single comment in response to the notice requesting comment on the petition. The commenter, identified as Alan, H., was in favor of granting the petition. Specifically, Alan H. commented that Saleen S7 is the only U.S.-built “super car,” and that it compared favorably to such vehicles as Ferrari and Porsche. With respect to vehicle safety objectives, Alan H. noted that a $395,000 vehicle produced in very limited numbers would most likely be purchased as an “investment,” and would be subject to very infrequent and especially careful use.

The Agency's Findings

Saleen is typical of small volume manufacturers who have received temporary exemptions in the past on hardship grounds. With limited resources, petitioner developed a high-priced automobile for a specialty market. Unfortunately, Saleen was unable to take advantage of the original exemption, granted on June 21, 2001, due to regulatory and production delays. Petitioner had anticipated using the profits it derived from sales of S7 automobiles to bring the vehicle into compliance by July 30, 2003. Because the sales did not commence until March of 2003, petitioner was unable to do so. Accordingly, Saleen has asked for additional time to bring the S7 into compliance with Standard No. 208.

If the petition is denied, the sale of S7 automobiles will cease immediately and the petitioner will be unable to derive financial resources necessary to bring the S7 into compliance with Standard No. 208. Saleen's financial statements show a net loss for the previous three fiscal years. Thus, it appears the petitioner does not have immediate resources available to bring the vehicle into compliance with Standard No. 208. Additionally, Saleen will be required to meet the new, advanced air bag requirements of Standard No. 208 once the exemption expires. In evaluating Saleen's current situation, the agency finds that to require immediate compliance with Standard No. 208 would cause petitioner substantial economic hardship.

Traditionally, the agency has found that the public interest is served in affording continued employment to a small volume manufacturer's work force and to those of its U.S.-sourced component suppliers. 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 put Saleen's current payroll of 96 people in jeopardy. Denial of the petition may also affect the payrolls of U.S.-sourced component suppliers.

The vehicle in question will be manufactured in extremely limited quantities.^[7] The current Manufacturer's Suggested Retail Price is $395,000. In light of these factors, the agency anticipates that the S7 vehicles will be operated on a very limited basis and will 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 Standard No. 208 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), NHTSA Temporary Exemption No. 2001-6, exempting Saleen S7 from the requirements of 49 CFR 571.208; Standard No. 208, Occupant Crash Protection, is hereby extended until September 1, 2006.