Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 77663

1Complaint Counsel’s position in the 

administrative proceeding was consistent with the 

position taken by the agency’s Acting Chief Counsel 

in a 1990 letter to the Chrysler Corporation setting 

forth the agency’s interpretation of the law as 

applied to Chrysler’s acquisition of AMC. Pursuant 

to 49 CFR part 501.8(d)(5), the NHTSA 

Administrator has delegated to the Chief Counsel 

the authority ‘‘to issue authoritative interpretations 

of the statutes administered by NHTSA and the 

regulations issued by the agency.’’

(b) Fee for direct hook-up. To the 

extent that a member of the public 

requests establishment of real-time 

integration of reporting services to run 

reports from another application, a onetime charge of $2,500 for the original 

integration must be paid by the 

requestor. This one-time charge covers 

the setup and certification required for 

an integrator to access the FPDS 

database and for technical assistance to 

help integrators use the web services. 

The fee will be paid to the FPDS 

contractor and credited to invoices 

submitted to GSA by the FPDS 

contractor.

[FR Doc. 04–28280 Filed 12–27–04; 8:45 am]

BILLING CODE 6820–61–S

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety 

Administration 

49 CFR Part 534 

[Docket No. NHTSA 2004–19940] 

RIN 2127–AG97 

Fuel Economy Standards—Credits and 

Fines—Rights and Responsibilities of 

Manufacturers in the Context of 

Changes in Corporate Relationships

AGENCY: National Highway Traffic 

Safety Administration (NHTSA), 

Department of Transportation.

ACTION: Final rule.

SUMMARY: This document establishes a 

new regulation governing the use of 

rights (credits) and liabilities (fines) 

under the Corporate Average Fuel 

Economy program in the face of changes 

in corporate relationships. This final 

rule fulfills a statutory responsibility to 

issue a regulation addressing these 

issues.

DATES: The rule is effective January 27, 

2005. 

Petitions for Reconsideration must be 

received by February 11, 2005. Petitions 

for reconsideration should refer to the 

docket and notice number of this 

document and be submitted to the 

Administrator of NHTSA 400 Seventh 

Street, SW., Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT: Mr. 

Otto Matheke, Office of the Chief 

Counsel, Suite 5219, National Highway 

Traffic Safety Administration, 400 

Seventh Street, SW., Washington, DC 

20590. (202–366–5263)

Table of Contents 

I. Introduction and History 

II. Applicable Statutory Provisions 

III. The Notice of Proposed Rulemaking 

IV. Public Comments 

V. Post-NPRM CAFE Considerations 

VI. The Final Regulation 

A. Definitions 

B. CAFE Credits 

1. Legal Considerations 

2. Policy Considerations 

C. Acquisitions During a Model Year 

VII. Rulemaking Analyses and Notices

I. Introduction and History 

This final rule establishes a regulation 

governing the treatment of corporate 

assets and liabilities arising from the 

agency’s Corporate Average Fuel 

Economy (CAFE) program in the face of 

changes in corporate relationships. It 

fulfills a statutory responsibility to 

define by regulation the use of CAFE 

credits and liabilities in light of changes 

in corporate structure. 

In December 1975, Congress enacted 

the Energy Policy and Conservation Act 

(EPCA). The EPCA established the 

Corporate Average Fuel Economy 

(CAFE) program by adding a new Title 

V to the Motor Vehicle Information and 

Cost Saving Act. Congress has made 

various amendments to the fuel 

economy provisions since 1975, and the 

fuel economy provisions are now 

codified in Chapter 329 of Title 49 of 

the United States Code. 

The CAFE statute requires that a 

manufacturer meet average fuel 

economy standards, as established by 

regulation, separately for fleets of light 

trucks, domestic passenger cars and 

imported passenger cars. A 

manufacturer’s average fuel economy for 

a particular model year is calculated in 

accordance with 49 U.S.C. 32904. The 

establishment of CAFE standards and 

the calculation of average fuel economy 

is statutorily tied to ‘‘automobiles 

manufactured by a manufacturer’’ for 

any given model year. (49 U.S.C. 32902, 

32904) 

The statute specifically provides that, 

with regard to each individual fleet, a 

manufacturer may earn credits by 

exceeding the applicable standard and 

may use those credits, for three years 

forward and three years back, to offset 

any shortfalls in CAFE compliance 

applicable in a particular model year. 

Again the statute makes clear that the 

number of credits earned is tied to the 

volume of automobiles manufactured by 

the manufacturer. (49 U.S.C. 32903) 

Manufacturers failing to meet the 

established fleet standard for a 

particular model year must, if they do 

not have credits available to offset their 

shortfall, pay fines to the United States 

Treasury. Over the history of the CAFE 

program, manufacturers have paid over 

140 fines totaling more than $600 

million. The highest fine ever paid by a 

single manufacturer was almost $28 

million, with the average approximating 

$4 million. 

The provisions of EPCA recognize 

that changes in corporate structures are 

common and that a ‘‘manufacturer,’’ as 

defined by the CAFE statute, may 

change in light of new corporate 

relationships. In 1980, Congress 

amended the definition of a 

manufacturer to explicitly contemplate 

corporate successors and predecessors. 

Congress recognized at that time that 

CAFE credits and responsibilities would 

become assets and liabilities in the 

course of such changes, and directed the 

Secretary of Transportation to 

promulgate regulations defining how 

such credits and responsibilities should 

be treated when corporate changes 

occur. (49 U.S.C. 32901(13)) 

The agency did not immediately move 

to establish the regulation Congress 

prescribed. Nonetheless, in 1991, the 

Administrator authorized the agency’s 

Complaint Counsel to initiate an 

administrative complaint against the 

Chrysler Corporation (Chrysler). As 

Congress anticipated, structural 

corporate change gave rise to issues 

relating to the application of CAFE 

rights and responsibilities. Chrysler had 

purchased the assets of American 

Motors Company (AMC) and Chrysler 

had fallen short of an applicable CAFE. 

AMC had available credits that Chrysler 

wished to apply to its existing shortfall. 

Chrysler took the position that AMC’s 

CAFE credits were available to the new 

corporate entity. Complaint Counsel 

disagreed and sought to impose CAFE 

fines for Chrysler’s failure to meet the 

applicable CAFE standard.1

On January 8, 1992, an Administrative 

Law Judge issued an Initial Decision 

and Order. While expressing in dictum 

support for Complaint Counsel’s 

position, the ALJ ruled that the agency 

could not enforce that position because 

it had not, as the statute anticipates, 

promulgated regulations in accordance 

with the Administrative Procedures Act. 

NHTSA’s Administrator terminated the 

prosecution and directed the agency to 

initiate rulemaking. In an order dated 

March 31, 1992, NHTSA’s 

Administrator found:

Upon further consideration of the matters 

at issue in this proceeding, I have decided 

that NHTSA should prescribe regulations 

77664 Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 

2The statutory language relating to predecessors 

and successor was added to the statute as part of 

the 1980 amendments. That same set of 

amendments extended the credit period from one 

year carry forward and carry back to three years 

forward and back. Although the phrase ‘‘automobile 

manufactured by a manufacturer’’ was in the statute 

previously, Congress added the definition of that 

phrase in 1990. We take all of those definitions and 

provisions into account in reaching our conclusions 

in this rulemaking.

pursuant to section 501(g) of the Act to 

define the extent to which predecessors and 

successors of manufacturers of automobiles 

should be included within the term 

‘manufacturer’ for the purposes of the Act. I 

have therefore directed the Associate 

Administrator for Rulemaking to promptly 

commence such a proceeding. 

While such a proceeding would provide 

helpful clarification and be consistent with 

the statute, in my view there is a great deal 

of doubt as to the correctness of the 

Administrative Law Judge’s view that, in the 

absence of such regulations, an enforcement 

proceeding against Chrysler cannot proceed. 

Therefore, I am unwilling to allow the I.D. 

(Initial Decision) to become the Final 

Decision of this agency. On the other hand, 

I believe that continuation of this proceeding 

under these circumstances could result in an 

unnecessary expenditure of the resources of 

the agency and of Chrysler. Therefore, I have 

decided to take steps to terminate the 

proceeding at this time, without prejudice to 

the possible filing of a new administrative 

complaint against Chrysler following the 

issuance of the regulatory definitions referred 

to above.

The agency did not act immediately. 

In the early 1990s, the agency faced a 

variety of legal challenges raising 

numerous issues and focusing agency 

resources on the developing contours of 

the program. In April 1994, the agency 

began to consider a multi-year 

rulemaking to establish light truck 

CAFE standards for some or all of model 

years 1998–2006. (59 FR 16324). 

Congress responded by effectively 

‘‘freezing’’ light truck standards. On 

November 15, 1995, the Department of 

Transportation and Related Agencies 

Appropriations Act for FY 1996 was 

enacted. Pub. L. 104–50. Section 330 of 

that Act provided:

None of the funds in this Act shall be 

available to prepare, propose, or promulgate 

any regulations * * * prescribing corporate 

average fuel economy standards for 

automobiles * * * in any model year that 

differs from standards promulgated for such 

automobiles prior to enactment of this 

section.

Similar language in subsequent 

Appropriations Acts continued the 

freeze through model year 2003. 

Ongoing debate about the efficacy of the 

CAFE program also led Congress to 

require a review of the program. The 

conference committee report for the 

Department of Transportation and 

Related Agencies Appropriations Act for 

FY 2001 directed NHTSA to fund a 

study by the National Academy of 

Sciences to evaluate the effectiveness 

and impacts of CAFE standards (H.R. 

Conf. Rep. No. 106–940, at 117–118). 

On January 22, 2001, six months prior 

to submission of the NAS report to the 

Department of Transportation, the 

agency published a notice of proposed 

rulemaking (NPRM) advancing 

regulatory text intended to formalize 

Complaint Counsel’s positions in the 

1991–1992 administrative proceeding. 

(66 FR 6523) 

II. Applicable Statutory Provisions 

The CAFE statute provides that a 

‘‘manufacturer of automobiles commits 

a violation if the manufacturer fails to 

comply with an applicable average fuel 

economy standard under section 32902 

of this title. Compliance is determined 

after considering credits available to the 

manufacturer under section 32903 of 

this title.’’ (49 U.S.C. 32911(b)) 

Section 32903 provides that ‘‘when 

the average fuel economy of passenger 

automobiles manufactured by a 

manufacturer in a particular model year 

exceeds an applicable average fuel 

economy standard * * * the 

manufacturer earns credits.’’ Those 

credits may be applied to any of the 3 

consecutive model years immediately 

proceeding or following the model year 

during which the credits were earned. 

The statute defines a ‘‘manufacturer’’

as ‘‘(A) a person engaged in the business 

of manufacturing automobiles, 

including a predecessor or successor of 

the person to the extent provided under 

regulations prescribed by the Secretary; 

and (B) if more than one person is the 

manufacturer of an automobile, the 

person specified under regulations 

prescribed by the Secretary.’’ (49 U.S.C. 

32901(a)(13)) The statute defines ‘‘an 

automobile manufactured by a 

manufacturer’’ as including ‘‘every 

automobile manufactured by a person 

that controls, is controlled by, or is 

under common control with the 

manufacturer, but does not include an 

automobile manufactured by the person 

that is exported not later than 30 days 

after the end of the model year in which 

the automobile is manufactured.’’ 2

During the 1990s, the agency 

provided its interpretation of the term 

‘‘automobile manufactured by a 

manufacturer.’’ This term is crucial to 

this rulemaking because a manufacturer 

earns CAFE credits when the average 

fuel economy of the ‘‘automobiles 

manufactured by a manufacturer’’

exceeds the applicable CAFE standard 

for that model year. In response to a 

1996 letter from Ford Motor Company 

seeking clarification with regard to 

whether vehicles produced by certain 

corporate affiliates could appropriately 

be included in its CAFE fleet, the 

agency reviewed the meaning of the 

phrase ‘‘automobiles manufactured by a 

manufacturer,’’ which by statute 

‘‘includes every automobile 

manufactured by a person that controls, 

is controlled by, or is under common 

control with the manufacturer’’ (except 

those exported within 30 days of the 

model year). The agency stated:

The term ‘‘control’’ a used in 32902(a)(4) 

is not defined elsewhere in Chapter 329 or 

the legislative history of the Chapter and its 

predecessor, the Motor Vehicle Information 

and Cost Savings Act. In past interpretations 

the agency has indicated that the term as 

used in the CAFE context may have the same 

definition as it has when used in a corporate 

law context. In the corporate law context, the 

issue of control is important for determining 

whether the controlling persons have 

violated any fiduciary duties to the 

corporation and other shareholders. Control 

in that sense refers to ownership of a large 

enough bloc of a company’s stock to 

constitute effective voting control of the firm. 

For the purposes of Chapter 329, control is 

important for determining a company’s 

corporate average fuel economy and total 

production. For CAFE purposes, ‘‘control’’ is 

the ability to exercise a major influence over 

a company’s average fuel economy and 

production. In addition to the ownership of 

a controlling bloc of stock, control for our 

purposes could be shown by control over the 

design and availability of certain models and 

other factors affecting production, sales mix 

and technological improvements.

(Letter from John Womack, Acting Chief 

Counsel, to Timothy Green of Ford 

Motor Company, dated September 19, 

1996). 

In sum, the statute provides that a 

manufacturer may earn credits when its 

fleet (consisting of every vehicle built by 

a manufacturer that controls it, is 

controlled by it or is under common 

control with it) exceeds the applicable 

CAFE standard for that model year. The 

statute anticipates that predecessors and 

successors will be included and that the 

Department would define such entities 

through regulation. 

III. The Notice of Proposed Rulemaking 

In January 2001, the agency published 

its NPRM relating to the rights and 

responsibilities of manufacturers in 

light of changes in corporate 

relationships. The NPRM sought to 

formalize the agency’s position during 

the Chrysler enforcement action of the 

early 1990s and addressed a number of 

corollary issues.

The regulatory text proposed in the 

NPRM would have made successors 

responsible for any civil penalties 

arising out of fuel economy shortfalls 

Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 77665

3This language mirrors that in EPCA prior to its 

codification in 1994. The codification was not 

intended to have any substantive effect.

4The Revised Model Business Corporation Act (at 

§ 11.02), incorporates these general principles by 

stating that a ‘‘survivor corporation becomes vested 

with all the assets of the corporation(s)/entity that 

merged into the survivor and becomes subject to 

their liabilities.’’ The states in which the major 

motor vehicle makers are incorporated each apply 

the same concept in their respective statutes. See, 

e.g., 8 Del.C. § 259 (Delaware), Cal. Corp. Code 

§ 1107(a) (California) and N.J.S.A. 14A:10–6 (New 

Jersey).

incurred by predecessors, as well as any 

shortfall if the companies had combined 

within the last model year. Credits in 

existence at the time the predecessor/

successor relationship was established 

could only be used to satisfy the 

existing shortfalls of each company 

prior to the formation of the new 

corporate structure. Thus, the 

successor’s existing credits could only 

be used first to satisfy its existing 

shortfalls and the predecessor’s credits 

could only be used first to satisfy its 

existing shortfalls. Remaining credits 

could be used to offset future shortfalls 

of the new corporate entity. 

The proposed regulatory text also 

addressed companies within control 

relationships. It suggested that each 

company coming within a corporate 

control relationship within a model year 

should be jointly and severally liable for 

any CAFE liabilities incurred by any of 

the other companies coming within the 

control relationship within that model 

year. The NPRM then set forth a number 

of additional ‘‘specifications’’

attempting to define, in general terms, 

the use of credits and incurring of 

liabilities within control relationships. 

Each ‘‘specification’’ was subject to the 

agreement of the other manufacturers, 

the availability of the credits, and other 

general restrictions. 

The proposal presented in the NPRM 

was built upon the following notion: 

‘‘Credits earned by a particular 

manufacturer are only ‘available to be 

taken into account with respect to the 

average fuel economy of that

manufacturer,’ for any of the three 

model years before, or after, the model 

year in which the credits are earned’’ 3

(emphasis added).

NHTSA historically allowed 

successor manufacturers to use a 

predecessor’s existing credits to satisfy 

the newly merged corporation’s CAFE 

liabilities acquired after the merger has 

been finalized. By the same token, 

successors are generally responsible for 

predecessors’ liabilities, and NHTSA 

has maintained this is the case under 

the CAFE program. Thus, the only issue 

regarding credits in the NPRM was 

whether a successor is entitled to use 

the existing CAFE credits of either itself 

or its predecessors to satisfy the other’s 

existing CAFE liabilities. In the NPRM, 

the agency tentatively was of the view 

that the successor could not. 

This position was based on two 

premises, one legal and one policydriven. First, NHTSA maintained that 

EPCA established a priority of credit 

carryover that requires all credits first be 

used by the manufacturer earning the 

credits to satisfy its existing CAFE 

liabilities and before remaining credits 

are carried forward for use by that same 

manufacturer. NHTSA then stated that 

permitting a successor to use its 

predecessor’s remaining credits to 

satisfy other existing liabilities would 

permit the remaining credits to be 

carried forward and then carried back to 

a manufacturer that did not possess 

those credits when it incurred the 

liabilities the credits would satisfy. 

Although the agency did not conduct a 

rulemaking as Congress contemplated 

before taking a view, NHTSA’s tentative 

position since the Chrysler enforcement 

action has been that the statute does not 

support such a result. 

Second, while recognizing Congress’

intent to add flexibility to the CAFE 

program when amending the statute in 

1980, the agency expressed concern that 

a successor should not be permitted to 

‘‘merge’’ the CAFE credits of its 

predecessor companies because it 

believed that ‘‘permitting such use of 

credits would discourage energy 

conservation. For example, to the extent 

that a successor had been planning to 

exceed standards in the future to earn 

credits that could be carried back to 

cover pre-acquisition shortfalls, 

permitting the successor to use the 

predecessor’s previously earned credits 

to cover those shortfalls would remove 

the incentive to exceed those 

standards.’’ 66 FR 6528. 

As noted above, the agency proposed 

a number of ‘‘specifications’’ covering a 

variety of situations in which questions 

relating to the use of credits and 

liabilities might arise. The NPRM 

proposed the following definitions: 

• Control relationship means the 

relationship that exists between 

manufacturers that control, are 

controlled by, or are under common 

control with, one or more other 

manufacturers. 

• Identity means the relationship 

between a predecessor and a successor 

during the time in which the successor 

owns 50 percent or more of the assets, 

based on valuation, that had belonged to 

the predecessor. 

• Predecessor means a manufacturer 

whose rights have been vested in and 

whose burdens have been assumed by 

another manufacturer. 

• Successor means a manufacturer 

who has become vested with the rights 

and assumed the burdens of another 

manufacturer. 

As set forth in the NPRM, the 

definitions of ‘‘successor’’ or 

‘‘predecessor’’ are intended to reflect the 

ordinary corporate law meaning of those 

terms.4

IV. Public Comments 

The NPRM generated little public 

comment. Ford Motor Company raised 

fundamental objections to the 

definitional approach the agency had 

taken, pointing out that as applied to 

certain situations the approach created 

potentially unfair results inconsistent 

with the application of general 

principles of corporate law. 

Ford claimed that a successor should 

not be responsible for all vehicles 

manufactured by the predecessor for the 

entire model year (defined as October 1–

September 30). The company argued the 

NPRM would have forced companies to 

combine fleets before any control 

relationship had been established. Ford 

also noted that the NPRM stated its 

intent to be both simple and faithful to 

the overall statutory scheme and then 

argued that the agency had failed to do 

so. According to Ford, ‘‘NHTSA’s 

proposed rule short-circuits the statute 

and general principles of corporate 

successorship in its eagerness to achieve 

simplicity.’’

Ford and DaimlerChrysler also 

contested the agency’s proposed 

limitations on the use of predecessor’s 

pre-existing CAFE credits. Ford argued: 

‘‘[I]n the final analysis, we see no reason 

why allowing a successor corporation to 

use pre-existing credits as it sees fit 

would be contrary to the intent of 

Congress. Credits are not being doublecounted or being used for some 

improper purpose; no vehicles are being 

omitted from the CAFE calculations. 

The only real effect of this proposal 

would be to increase the likelihood that 

shortfalls will be subject to fines rather 

than covered with credits.’’

V. Post-NPRM CAFE Considerations 

Since the promulgation of the NPRM, 

the CAFE program has received 

considerable analytic attention. 

Particularly in response to 

Congressional concerns, studies of the 

CAFE program have emerged that help 

us better understand how policy 

decisions are likely to affect the goal of 

achieving energy independence.

Congress directed the National 

Academy of Sciences, in consultation

77666 Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 

5The CBO estimated that CAFE standards would 

need to increase by 3.8 mpg (to 31.3 mpg for 

passenger cars and 24.5 mpg for light trucks) in 

order to reduce the amount of gasoline consumed 

by new vehicles by 10 percent.

with the Department of Transportation, 

to evaluate the CAFE program and make 

recommendations to improve it. The 

NAS conducted a detailed review of the 

policies underlying the CAFE program 

and made recommendations for better 

achieving those policies. A draft of the 

NAS Report was available to the 

Department in June 2001 and the final 

report was published in January 2002. 

The NAS recommended ‘‘the CAFE 

system, or any alternative regulatory 

system, should include broad trading of 

fuel economy credits. The committee 

believes a trading system would be less 

costly than the current CAFE system; 

provide more flexibility and options to 

the automotive companies; give better 

information on the cost of fuel economy 

changes to the private sector, public 

interests groups, and regulators; and 

provide incentives to all manufacturers 

to improve fuel economy. Importantly, 

trading of fuel economy credits would 

allow for more ambitious fuel economy 

goals than exist under the current CAFE 

system, while simultaneously reducing 

the economic cost of the program.’’

More recently, the Congressional 

Budget Office released an issue brief 

focusing on the economic costs of CAFE 

standards and comparing them with the 

costs of a gasoline tax that would reduce 

gasoline consumption by the same 

amount. The CBO noted the NAS’s 

finding that enhancing the transfer of 

credits would encourage the creation of 

credits because firms able to produce 

them would be able either to use them 

as needed or to sell them to other firms. 

The CBO estimated that fuel economy 

credit trading could cut the cost of a 3.8 

mpg increase in the CAFE standards by 

16 percent, down from $3.6 billion per 

year to $3 billion per year.5

VI. The Final Regulation 

We have considered the issues raised 

in the NPRM in light of the comments 

filed by Ford Motor Company and 

DaimlerChrysler, applicable concepts of 

corporate law and the policy analyses 

provided by the National Academy of 

Sciences and the Congressional Budget 

Office. We have also reviewed the 

legislative history and considered the 

issues with an eye towards the 

Congressional intent of providing 

flexibility while enhancing overall fuel 

efficiency. While this regulation does 

not directly implicate credit trading, the 

policy considerations are similar and, as 

the NPRM suggests, relevant to deciding 

how best to achieve the overall intent of 

the CAFE program. 

Based on our review and 

consideration of all this information, we 

have decided to expand our initial 

stance on carry back credits so as to 

allow a successor to use a predecessor’s 

existing credits to satisfy the successor’s 

existing liabilities and vice versa. As 

proposed in the NPRM, the successor 

will be liable for all of the predecessor’s 

liabilities and credits not used to satisfy 

existing liabilities may be used to satisfy 

subsequent liabilities, consistent with 

statutory requirements. We have also 

decided to assess a successor’s CAFE 

assets and liabilities for the full model 

year during which the corporate merger 

occurred. In those instances in which 

the change in corporate relationships 

did not result in the establishment of a 

successor/predecessor relationship, but 

rather in a lesser form of corporate 

control, the corporations are free to 

determine which corporation will be 

responsible for the model year 

allocation of penalties, as long as they 

file a contract detailing respective 

responsibilities with NHTSA prior to 

the end of the model year. 

We no longer find tenable the 

proposed position we had taken limiting 

a successor corporation’s right to use 

CAFE credits earned by a predecessor 

corporation. As indicated above, the 

proposed position was based on two 

premises, one policy and one legal. The 

policy premise was a statement that 

permitting a successor corporation to 

use the CAFE credits of its predecessor 

corporation would not encourage CAFE 

credit building. Upon further 

consideration, we do not believe our 

tentative policy premise regarding 

incentives to earn additional credits is 

a valid reason for limiting successor 

corporations’ ability to use CAFE credits 

earned by a predecessor. 

Further, our preliminary legal 

analysis did not fully consider all the 

applicable statutory language nor did it 

apply the general corporate law 

principles it sought to instill in the 

definitions. The legal premise was 

explained in our proposal as an 

outgrowth of the statutory provision that 

credits earned by a particular 

manufacturer are ‘‘only available to be 

taken into account with respect to the 

average fuel economy of that 

manufacturer.’’ We proposed to 

conclude that a successor corporation 

could not be considered to be that 

manufacturer with respect to the 

predecessor corporation, and so the 

statute would prohibit the successor 

corporation from using CAFE credits 

earned by a predecessor corporation to 

address CAFE shortfalls the successor 

corporation had before it acquired the 

predecessor. 

We also proposed to define successors 

and predecessors in accordance with 

general principles of corporate law. Yet, 

even while doing so, we proposed a 

tentative conclusion different than the 

one that would result from applying 

those definitions and the same general 

principles. Under ordinary principles of 

corporate law, the reference to that 

manufacturer would not be read as 

prohibiting a successor from putting 

itself in the position of a predecessor 

corporation. Nor did we consider the 

import of the statutory phrase 

‘‘automobiles manufactured by a 

manufacturer’’ when developing our 

preliminary analysis. 

The agency proposed a reading of the 

CAFE statute contrary to ordinary 

principles of corporate law based on our 

preliminary policy conclusion that 

permitting the normal application of 

successor/predecessor principles of 

corporate law would frustrate the 

policies underlying the CAFE statute. In 

such circumstances, the proposed 

interpretation of the statute was 

intended to ensure that the underlying 

policies of the law were effectuated. 

However, we have now concluded that 

our policy view as to the impact of our 

reading of the statute does not in fact 

further the goals of the CAFE statute. 

Accordingly, we have no reason to read 

the CAFE statute in a way that is 

contrary to general principles of 

corporate law and we are not doing so 

in this final regulation. 

A. Definitions 

The NPRM proposed four definitions: 

Control relationship, Successor, 

Predecessor and Identity. The comments 

did not take issue with these 

definitions, but did object to the 

agency’s proposal regarding the use of 

credits upon corporate restructurings. 

As explained in the NPRM, the term 

‘‘identity’’ was proposed solely to 

provide structure to the agency’s 

proposal that credits earned by a 

company that subsequently becomes 

part of another should expire and no 

longer be available to the acquiring 

manufacturer. 

We are adopting in this Final Rule 

definitions of the terms ‘‘successor’’, 

‘‘predecessor’’ and ‘‘control 

relationship’’ as proposed in the NPRM. 

As amended in 1980, the EPCA 

specifically directed the agency to 

develop regulations to include 

successors and predecessors within the 

structure of manufacturer’s carry-back 

and carry-forward CAFE credit plans. 

The proposed definitions incorporate 

into that regulatory structure the 

Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 77667

6The question as to whether the statute permits 

credit trading, either between manufacturers or 

between classes of light trucks, was raised in the 

agency’s Advanced Notice of Proposed Rulemaking 

exploring CAFE reform options. See 68 FR 74908 

(December 29, 2003).

common definition of successors and 

predecessors used in corporate law, 

providing successors with the rights and 

burdening them with the liabilities of 

their predecessors. 

We believe it is necessary to define a 

control relationship because in many 

instances manufacturers are engaged in 

the corporate operations of another 

manufacturer to such an extent that they 

may have control over vehicle design or 

production but do not have so much 

control as to establish the successor/

predecessor relationship contemplated 

under corporate law. We have decided 

against defining the term ‘‘identity’’

because under today’s rule, the 

successor is not limited in using credits 

generated by the predecessor or in 

satisfying the predecessor’s CAFE 

liabilities. To the extent a nonsuccessor/predecessor control 

relationship is established, the 

allocation of rights and liabilities will be 

governed by contract. 

The Final Rule also includes the 

following provision to help implement 

these definitions:

• ‘‘Reporting Corporate 

Transactions.’’ Manufacturers who have 

entered into written contracts 

transferring rights and responsibilities 

such that a different manufacturer owns 

the controlling stock or exerts control 

over the design, production or sale of 

automobiles to which a Corporate 

Average Fuel Economy standard applies 

shall report the contract to the agency as 

follows: 

(a) The manufacturers must file a 

certified report with the agency 

affirmatively stating that the contract 

transfers rights and responsibilities 

between them such that one 

manufacturer has assumed a controlling 

stock ownership or control over the 

design, production or sale of vehicles. 

The report must also specify the first 

full model year to which the transaction 

will apply. 

(b) The manufacturers may seek 

confidential treatment for information 

provided in the certified report in 

accordance with 49 CFR Part 512. 

B. CAFE Credits 

1. Legal Considerations 

NHTSA has been provided with wide 

latitude to confer rights and develop 

constraints within the context of the 

successor/predecessor relationship. In 

light of this broad statutory authority, 

we have determined that our previous 

interpretation of § 32903 as prohibiting 

successor corporations from using a 

predecessor’s existing credits to satisfy 

the successor’s existing liability is too 

narrow. 

The fuel economy credit provisions 

are set forth in 49 U.S.C. 32903, Credits 

for exceeding average fuel economy 

standards. Paragraph (a) of this section 

reads as follows:

(a) Earning and period for applying credits. 

When the average fuel economy of passenger 

automobiles manufactured by a manufacturer 

in a particular model year exceeds an 

applicable average fuel economy standard 

under section 32902(b)–(d) of this title 

(determined by the Secretary of 

Transportation without regard to credits 

under this section), the manufacturer earns 

credits. The credits may be applied to—

(1) Any of the 3 consecutive model years 

immediately before the model year for which 

the credits are earned; and 

(2) To the extent not used under clause (1) 

of this subsection, any of the 3 consecutive 

model years immediately after the model 

year for which the credits are earned.

The language of the statute suggests 

that a manufacturer may use credits in 

any manner it chooses as long as 

existing liabilities are first satisfied and, 

potentially, those credits are not sold or 

otherwise traded to another 

manufacturer.6 However, the language 

of § 32903 changed when the 

predecessor Motor Vehicle Information 

and Cost Savings Act, which was 

codified into § 32903 by Pub. L. 103–

272 (July 5, 1994). Section 1(a) of that 

law stated that the laws being codified 

were being done so ‘‘without 

substantive change.’’ Therefore, it is 

appropriate to look to the language of 

the earlier statute when determining 

whether Congress intended to compel 

the agency to further restrict 

manufacturer use of credits.

Section 502(l)(1)(B) of the Motor 

Vehicle Information and Cost Savings 

Act stated:

Whenever the average fuel economy of the 

passenger automobiles manufactured by a 

manufacturer in a particular model year 

exceeds an applicable average fuel economy 

standard * * *, such manufacturer shall be 

entitled to a credit calculated under 

subparagraph (C), which—

(i) Shall be available to be taken into 

account with respect to the average fuel 

economy of that manufacturer for any of the 

three consecutive model years immediately 

prior to the model year in which such 

manufacturer exceeds such applicable 

average fuel economy standard, and 

(ii) To the extent that such credit is not so 

taken into account pursuant to clause (i), 

shall be available to be taken into account 

with respect to the average fuel economy of 

that manufacturer for any of the three 

consecutive model years immediately 

following the model year in which such 

manufacturer exceeds such applicable 

average fuel economy standard.

NHTSA has historically maintained 

that this language of the Motor Vehicle 

Information and Cost Savings Act means 

that a credit earned by a particular 

manufacturer (or group of related 

manufacturers) is only available to be 

taken into account with respect to the 

average fuel economy of that 

manufacturer (or group of related 

manufacturers). In the NPRM (as well as 

in previous agency articulations of the 

issue), NHTSA maintained that this 

language allows only a manufacturer 

exercising control at the time the credit 

is earned to use the credit to satisfy a 

contemporaneous or preexisting 

liability. 

However, support for this position 

cannot be found in the 1980 

amendments to the statute that codified 

this provision, or indeed to its 

predecessor language in EPCA. 

Additionally, this position largely 

ignores the fact that the 1980 

amendments, which adopted not only 

this language but amended the 

definition of a manufacturer to include 

successor/predecessor relationships 

which were to be defined by NHTSA, 

were made to increase the degree of 

manufacturer flexibility while retaining 

the overall intent of the original statute 

to promote fuel efficiency. Thus, in 

defining the terms ‘‘successor’’ and 

‘‘predecessor’’ consistent with Congress’

intent at the time, we must look not 

only to the overarching goal of 

improving fuel efficiency, but more 

specifically to the goal of increasing 

manufacturing flexibility. 

CAFE standards were established in 

1975 as part of a far-reaching piece of 

legislation designed to address growing 

dependency on foreign oil and 

dwindling domestic petroleum reserves. 

Congress determined that the best way 

to encourage the automotive sector to 

increase the fuel efficiency of its 

vehicles was to create a system under 

which manufacturers would be required 

to meet federally established fuel 

standards. These standards were to be 

sufficiently rigorous to promote the 

development of more fuel efficient 

vehicles, but not so rigorous as to result 

in the loss of employment in the 

automotive sector, then responsible for 

1 out of every 9 jobs in the U.S. 

economy. 

As part of that legislation, Congress 

established a limited credit program in 

which a manufacturer could earn credits 

for enhanced fuel efficiency. As part of 

its enforcement program, the 

Department of Transportation would 

determine a manufacturer’s liability and

77668 Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 

then would determine whether the 

manufacturer had earned any credits the 

previous year. If so, those credits were 

to be applied to the liability and 

penalties would be reduced by existing 

credits on a one-to-one basis. Any 

credits not used to satisfy a previous 

year’s liabilities could be retained to 

meet liabilities incurred in the following 

year, either as a direct reduction if 

penalties had not yet been paid, or as a 

refund. 

A manufacturer was defined as ‘‘any 

person engaged in the business of 

manufacturing’’ and the Secretary of 

Transportation was ordered to 

‘‘prescribe rules for determining, in 

cases in which more than one person is 

the manufacturer of an automobile, 

which person is to be treated as the 

manufacturer’’ 15 U.S.C. 2002 (1976 

Ed.). 

Five years later, domestic U.S. 

automobile manufacturers were in the 

midst of financial difficulties and one 

major manufacturer, Chrysler, was on 

the verge of bankruptcy. Congress 

decided the CAFE program needed to be 

amended so as to provide vehicle 

manufacturers with greater flexibility, 

thus decreasing the likelihood of layoffs 

in the automotive sector, while 

generally retaining the program’s 

commitment to increased fuel 

efficiency. 

As part of the 1980 amendments, 

Congress took several steps to increase 

manufacturer flexibility. First, it 

allowed low-volume manufacturers to 

request alternative CAFE standards for 

two or more years and exempted them 

from reporting requirements. Second, it 

provided additional flexibility in the 

CAFE standards for foreign 

manufacturers so as to encourage them 

to expand manufacturing operations 

into the U.S. Finally, and most 

importantly for this discussion, it 

provided manufacturers with greater 

flexibility in achieving CAFE standards 

in any particular year by allowing 

manufacturers to earn credits that could 

be used to offset liabilities incurred up 

to three years before and three years 

after the credits were earned. 

Manufacturers without credits that 

discovered they were likely to end the 

model year with a shortfall were 

permitted to file a plan with NHTSA 

demonstrating how they would make up 

any shortfall within three years. Unless 

the plan was deemed unreasonable, 

NHTSA was to approve the plan, and 

penalties were deferred until the plan 

failed to produce the anticipated credits. 

As part of this legislation, the term 

‘‘manufacturer’’ was amended to 

‘‘include[s] any predecessor or 

successor of such a manufacturer to the 

extent provided under rules which the 

Secretary shall prescribe.’’

Under the scheme proposed in the 

NPRM, a successor’s use of the CAFE 

credits of its predecessor corporations 

would be limited, placing a significant 

constraint on manufacturer flexibility. 

Yet, the successor would be held 

responsible for any CAFE liabilities of 

its predecessor companies. A successor 

corporation could well find itself 

responsible for previously incurred 

CAFE obligations, but without 

previously earned CAFE credits. Despite 

the statutory language, a 

‘‘manufacturer’’ would no longer 

include the concept of successor and 

predecessor corporations as generally 

defined in corporate law. Instead, it 

would be subject to a different set of 

rules applicable only in the context of 

the CAFE program. 

Further, the preliminary analysis set 

forth in the NPRM focused only on the 

statutory term ‘‘manufacturer,’’ but did 

not give due consideration to the import 

of the statutory term ‘‘automobiles 

manufactured by a manufacturer.’’ This 

latter term is the fulcrum of determining 

the CAFE performance of a particular 

vehicle fleet and, by statute, 

incorporates any vehicle manufactured 

by a manufacturer in a control 

relationship with another manufacturer. 

By definition, then, the statute 

anticipates including in a 

manufacturer’s fleet vehicles sold by 

manufacturers other than the particular 

corporate entity that produced or sold 

the vehicle when there is a control 

relationship. 

We believe it is unlikely that Congress 

expected the agency to develop a 

scheme under which there is no 

incentive to earn credits other than to 

make up for existing shortfalls. Nor is it 

a policy encouraging the development 

and sale of vehicle fleets exceeding 

applicable CAFE standards. 

Indeed, as discussed above, Congress 

adopted amendments to the CAFE 

statute to provide for three-year carryforward and carry-back compliance 

plans using credits to offset liabilities 

expressly to give manufacturers 

additional flexibility. Rather, it is more 

likely that Congress was well aware 

when it enacted provisions to extend 

CAFE credit planning that compliance 

with CAFE standards was premised on 

the fleet of ‘‘automobiles manufactured 

by a manufacturer,’’ and further that any 

individual fleet would include vehicles 

manufactured by companies in various 

control relationships. Congress chose to 

provide additional flexibility to 

manufacturers to meet CAFE standards 

while maintaining the ability of a 

manufacturer in a control relationship 

to calculate its corporate average fuel 

economy with regard to the automobiles 

sold by companies within that control 

relationship. 

2. Policy Considerations 

The NPRM was premised on the 

agency’s preliminary belief that tight 

constraints on existing credits are 

necessary to encourage vehicle fleets to 

exceed applicable CAFE standards. The 

agency reasoned that allowing the 

transfer of CAFE credits as part of a 

corporate merger would not encourage 

good CAFE performance. Indeed, the 

agency believed that permitting the 

transfer of CAFE credits would 

discourage the development and sale of 

more fuel-efficient vehicles. 

The NPRM offered the following 

example: ‘‘To the extent that a successor 

had been planning to exceed standards 

in the future to earn credits that could 

be carried back to cover pre-acquisition 

shortfalls, permitting the successor to 

use the predecessor’s previously earned 

credits to cover those shortfalls would 

remove the incentive to exceed those 

standards.’’ 66 FR 6528. It did not, 

however, consider the incentive to 

companies to exceed standards in order 

to gain assets valuable to potential 

investors and acquirers. 

The agency issued the NPRM without 

the benefit of the policy input and 

economic analysis developed during the 

NAS’s review of the CAFE program. The 

NAS study is instructive in that it raises 

the prospect that treating credits as an 

asset that is potentially of value to 

others provides an increased incentive 

to create the asset. The preliminary 

conclusions stated in the NPRM did not 

consider that a successor company’s 

ability to use CAFE credits might create 

valuable assets enhancing the value of a 

corporation to another. 

In the NPRM, the agency only 

considered the prospect encountered in 

the earlier Chrysler enforcement action, 

i.e., the successor possesses a shortfall 

that the predecessor’s credits can 

alleviate. It did not consider the reverse 

situation in which a credit-rich 

manufacturer is acquiring a predecessor 

with sizeable CAFE liability. Ford raised 

this scenario in its comments. Ford 

offered the following example:

If A, whose fleet is CAFE-positive, acquires 

B, whose fleet is CAFE-negative, it may not 

be possible for A to generate sufficient credits 

in the next three years to cover B’s preexisting shortfalls. A’s product plans for the 

next three model years are basically set, and 

there is little A can do in the short term to 

improve its CAFE performance. Nor can A do 

anything to change B’s CAFE-negative past. 

As a result, A may have no choice but to 

address B’s shortfall by paying a fine—even 

Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 77669

though A may have enough past credits to 

offset B’s past shortfall. This outcome may 

add to the coffers of the U.S. Treasury, but 

it unfairly penalizes A and does nothing to 

serve CAFE’s overall purpose of promoting 

energy conservation.

While Ford expressed its concerns in 

terms of equity, we believe the ability of 

a successor corporation to use its 

existing credits actually has the 

potential to encourage greater fuel 

efficiency. That is to say, a manufacturer 

has an incentive to earn credits above 

and beyond its actual need because a 

credit-rich manufacturer can use excess 

credits to reduce the cost of merging 

with an otherwise attractive 

manufacturer that is laden with CAFE 

liabilities. 

The concern expressed in the NPRM 

was also premised on the notion that 

allowing a successor corporation to use 

credits by one of its predecessors to 

offset the liabilities of any other 

predecessor amounted to trading credits 

between manufacturers. This concern 

was premised on a preliminary belief 

that allowing a successor to use within 

the control relationship the credits 

earned by one of its constituent parts 

would ‘‘retroactively’’ apply credits to a 

‘‘manufacturer’’ that did not earn them. 

After reviewing the comments and 

applicable corporate law, we find that 

acknowledging the purchase and sale of 

corporate assets, including CAFE 

credits, or corporate liabilities, 

including CAFE obligations, does not 

amount to trading credits between 

manufacturers. Nor does it imply any 

retroactive application of credits. At any 

particular point of time, CAFE 

responsibility is gauged in accordance 

with the corporate structure in existence 

at that time. 

If a company purchases the assets and 

liabilities of another manufacturer, in 

accordance with the contract between 

them, the successor manufacturer may 

be entitled to use the assets of its 

constituent parts as one company. If the 

successor has purchased the assets and 

liabilities of its constituent parts, it is 

entitled (consistent with its contract) to 

use those assets and liabilities to 

address the responsibilities of the 

company as they exist as of that time. 

For example, if Company A has CAFE 

liability in Year 1 and purchases the 

assets and liabilities of Company B 

midway through Year 2, combined 

Company C’s assets and liabilities for 

CAFE purposes are determined with 

regard to its position, in terms of its 

CAFE responsibilities, as of Year 3. If 

the contract provides, combined 

Company C incurs all the liabilities and 

is entitled to all of the assets of its 

predecessor corporations. If within the 

three-year carry-forward carry-back time 

frame, the company is responsible for 

the liabilities and may use the credits 

applicable to the corporation as a whole. 

Consistent with the express statutory 

terms construing a manufacturer’s 

corporate average fuel economy in terms 

of the ‘‘automobiles manufactured by a 

manufacturer,’’ and consistent with 

general principles of corporate law, a 

successor corporation is entitled to use 

the assets and is responsible for the 

liabilities of its predecessor corporations 

as defined by their contractual relations. 

This includes the rights and 

responsibilities of companies in a 

position of control over, or who are 

controlled by, another corporation. 

Our purpose, as set forth in the 

NPRM, is to encourage CAFE 

compliance in the vehicle fleet as a 

whole to reduce consumption of 

gasoline and to enhance the nation’s 

energy independence. We now believe 

that the ability of successor corporations 

to use more freely the CAFE credits 

earned by each of their predecessor 

corporations enhances the value of 

those companies to others. And, 

perhaps more compelling, the ability of 

a successor corporation to use its own 

credits to satisfy the liabilities of a 

predecessor provides the successor with 

a valuable mechanism to reduce the 

overall cost of the acquisition. Thus, the 

effect of today’s rule is to encourage 

companies on the one hand to maximize 

the number of credits it earns and on the 

other to join in corporate structures that 

help advance overall fleet fuel economy. 

The NPRM also addressed other types 

of changes in corporate relationships, 

including the potential for corporate 

relations to dissolve. We believe our 

regulation properly addresses such 

dissolutions by focusing on the 

contractual agreements and by applying 

(as suggested in the NPRM) general 

principles of corporate law. Thus, we 

have included in the Final Rule a 

provision simply stating that 

dissolutions—like combinations—are 

subject to contractual agreements and 

should be available for use consistent 

with general principles of corporate law. 

We have, therefore, simplified the final 

regulation without altering the basic 

policy underlying the need to enhance 

energy independence.

C. Acquisitions During a Model Year 

In the NPRM, we proposed to specify 

that ‘‘(i)f one manufacturer becomes the 

successor of another manufacturer 

during a model year, all of the vehicles 

produced by those manufacturers 

during the model year are treated as 

though they were manufactured by the 

same manufacturer.’’ The proposed 

specification also provided that ‘‘(a) 

manufacturer is considered to have 

become the successor of another 

manufacturer during a model year if it 

is the successor on September 30 of the 

corresponding calendar year and was 

not the successor for the preceding 

model year.’’

Ford argued that the proposed 

specification ‘‘is clearly inconsistent 

with the CAFE statute.’’ It noted that, as 

currently codified, 49 U.S.C. 32901(4) 

defines the term ‘‘automobile 

manufactured by a manufacturer’’ as 

including every automobile 

manufactured by a person that controls, 

is controlled by, or is under common 

control with a manufacturer * * *’’

Ford argued that a problem with 

NHTSA’s proposed rule is that it forces 

manufacturers to combine fleets before 

any control relationship has even been 

established. It cited the example of A’s 

acquiring or taking control of B on 

August 1, 2002. Under the proposed 

rule, the fleets of A and B would be 

combined for all of model year 2002. 

However, Ford argued that it is 

improper to force A to include in its 

model year 2002 fleet a vehicle 

produced by B on October 2001. 

Ford noted the agency’s statement 

that fuel economy standards must apply 

to ‘‘particular model years as a whole’’

and not to ‘‘separate parts of a model 

year.’’ It stated that the agency is 

worried that, absent such a provision, 

‘‘one or both manufacturers would have 

two separate CAFE values * * * for the 

same model year.’’ Ford claimed this is 

an implausible assumption. According 

to Ford, simply put, both manufacturers 

would file CAFE reports; manufacturer 

A would include those models 

produced after ‘‘control’’ was 

established and manufacturer B would 

include those vehicles produced before 

‘‘control’’ was established. This would 

be the case even if B ceased to exist after 

the ‘‘control’’ date. 

That company argued that a scheme 

which pretends that Manufacturer A 

‘‘controls’’ Manufacturer B for an entire 

model year, even though the actual 

control relationship existed only for the 

last two months (or even the very last 

day) of that model year, is contrary to 

the statutory scheme. Ford argued that 

in setting up the ‘‘control’’ criterion, 

Congress intended to count in a 

manufacturer’s CAFE fleet only those 

vehicles for which the manufacturer 

could fairly be held responsible. Ford 

argued that the fairest and most 

transparent way to address the issue is 

to have A take responsibility for only 

those vehicles produced by B after the 

control relationship is established. 

77670 Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 

We disagree. First, CAFE compliance 

and any remaining obligations are based 

on the total volume of vehicles sold 

during the course of the model year and 

are not determined until the end of the 

model year. (49 U.S.C. 32903(b)(1)) No 

administrative mechanism currently 

exists to separate CAFE compliance to 

account for mid-year changes in 

corporate relationships and we see no 

need to craft one. Under today’s rule, an 

acquiring corporation inherits all CAFE 

liabilities and credits of the predecessor 

corporation for a period dating back 

three years. These assets and liabilities 

would be considered by both parties 

when negotiating the transfer of 

corporate interests, as would any assets 

and liabilities. 

Accordingly, we do not believe that 

the successor corporation is in any way 

injured by the existing administrative 

structure. A successor corporation may, 

upon acquisition, take steps to mitigate 

any projected CAFE shortfall for its total 

fleet for that model year, including 

filing a plan to make up any shortfalls 

within the next three model years. 

Given today’s determination that a 

predecessor’s CAFE liabilities need not 

be satisfied solely through the payment 

of penalties, there is no imposition of an 

unreasonable burden. 

Further, to ensure that the agency 

properly allocates CAFE credits and 

liabilities to the appropriate 

manufacturer in accordance with their 

corporate transaction, we have decided 

to include in the regulation a provision 

similar to that used in many of our 

Federal Motor Vehicle Safety Standards 

(FMVSS). New or upgraded FMVSS 

often include a ‘‘phase-in’’ schedule 

during which the standard becomes 

applicable to an increasing percentage 

of each manufacturer’s new vehicle 

fleet. The agency has accounted for 

corporate transactions in this context by 

providing that a vehicle will be 

attributable as between manufacturers 

in accordance with express written 

contracts submitted to NHTSA. (See, 

e.g., FMVSS 225 § 14.2.2 and 49 CFR 

part 596.6(b)(3)). 

We have included a similar provision 

in this Final Rule to help the agency 

identify when a corporate transaction 

has resulted in the transfer of rights and 

responsibilities between manufacturers. 

To effect the corporate transaction, 

manufacturers are to submit a certified 

report to the agency stating that the 

transaction has or will transfer 

controlling stock interest or otherwise 

vest a new corporate entity with control 

over the design, production or sales of 

automobiles manufactured by another 

manufacturer. 

Likewise, to the extent that a group of 

manufacturers within a control 

relationship allocates the group’s CAFE 

credits and liabilities among the 

manufacturers within the group, the 

group of manufacturers shall file a copy 

of the agreement controlling the 

allocation at the end of each model year. 

In this way, NHTSA will be better able 

to administer its CAFE compliance 

program. All manufacturers in a control 

relationship shall be jointly and 

severally liable for any CAFE liabilities 

that are not collected from the 

manufacturer allocated responsibility 

for those liabilities. 

VII. Rulemaking Analyses and Notices 

A. Executive Order 12866 and DOT 

Regulatory Policies and Procedures 

NHTSA has considered the impact of 

this rulemaking action under Executive 

Order 12866 and the Department of 

Transportation’s regulatory policies and 

procedures. This rulemaking document 

is not economically significant. It was 

reviewed by the Office of Management 

and Budget under E.O. 12866, 

‘‘Regulatory Planning and Review.’’ The 

rulemaking action has been determined 

to be significant under the Department’s 

regulatory policies and procedures, 

given the public interest in the 

automotive fuel economy program. 

The new regulation does not create 

any new obligations, other than the 

obligation to file with NHTSA evidence 

of a contractual relationship allocating 

CAFE credits and liabilities among 

various parties exercising control over 

the manufacture of a fleet of vehicles. It 

expands upon the same positions 

concerning predecessors and successors 

as we have previously taken in 

interpretation letters by permitting 

existing credits to be used to satisfy the 

existing liabilities of either party to a 

transaction establishing a successor/

predecessor relationship.

As discussed earlier in this notice, if 

we did not adopt regulations governing 

the use of CAFE credits by predecessors 

and successors, a predecessor’s unused 

credits would simply expire, since the 

only manufacturer that could use them 

would no longer exist. Similarly, there 

would be no way of offsetting a 

predecessor’s remaining CAFE shortfalls 

in the absence of some provision 

concerning successors. The successor 

would thus be required to pay the 

predecessor’s penalties, a responsibility 

which it assumed with the rest of the 

predecessor’s obligations, but would 

have no ability to earn future credits to 

offset the predecessor’s shortfalls. 

To address this inequity, the 

regulation gives the successor all the 

rights the predecessor had with respect 

to the use of preexisting credits and the 

ability to earn future credits. 

The provisions concerning the rights 

and responsibilities of manufacturers in 

other situations in which there have 

been changes in corporate relationships, 

e.g., changes in control, are essentially 

a statement of our interpretation of the 

statute and reflect the same principles 

as the provisions relating to 

predecessors and successors. 

B. Regulatory Flexibility Act 

We have considered the effects of this 

rulemaking action under the Regulatory 

Flexibility Act (5 U.S.C. 601 et seq.) I 

hereby certify that proposed rule does 

not have a significant economic impact 

on a substantial number of small 

entities. Therefore, a regulatory 

flexibility analysis is not required for 

this action. As discussed above, the 

regulation does not create any new 

obligations but simply adopts the same 

positions concerning predecessors and 

successors as we have previously taken 

in interpretation letters. Similarly, the 

provisions concerning the rights and 

responsibilities of manufacturers in 

other situations in which there have 

been changes in corporate relationships, 

e.g., changes in control, are essentially 

a statement of our interpretation of the 

statute and reflect the same principles 

as the provisions relating to 

predecessors and successors. Moreover, 

as a practical matter, the acquiring 

corporations most likely to be affected 

by this regulation are not small 

businesses. 

C. National Environmental Policy Act 

NHTSA has analyzed this rule for the 

purposes of the National Environmental 

Policy Act and determined that it does 

not have any significant impact on the 

quality of the human environment. 

D. Executive Order 13132 (Federalism) 

The agency has analyzed this 

rulemaking action in accordance with 

the principles and criteria set forth in 

Executive Order 13132 and has 

determined that it does not have 

sufficient federalism implications to 

warrant consultation with State and 

local officials or the preparation of a 

federalism summary impact statement. 

The rule has no substantial effects on 

the States, or on the current FederalismState relationship, or on the current 

distribution of power and 

responsibilities among the various local 

officials. 

E. Unfunded Mandates Act 

The Unfunded Mandates Reform Act 

of 1995 requires agencies to prepare a 

Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 77671

7 Voluntary consensus standards are technical 

standards developed or adopted by voluntary 

consensus standards bodies. Technical standards 

are defined by the NTTAA as ‘‘performance-based 

or design-specific technical specifications and 

related management systems practices.’’ They 

pertain to ‘‘products and processes, such as size, 

strength, or technical performance of a product, 

process or material.’’

written assessment of the costs, benefits 

and other effects of proposed or final 

rules that include a Federal mandate 

likely to result in the expenditure by 

State, local or tribal governments, in the 

aggregate, or by the private sector, of 

more than $100 million annually 

(adjusted for inflation with base year of 

1995). The rule does not result in the 

expenditure by State, local or tribal 

governments, in the aggregate, or by the 

private sector, of more than $100 

million annually. 

F. Executive Order 12778 (Civil Justice 

Reform) 

This rule does not have any 

retroactive effect. However, as we noted 

in the NPRM, we would, as a practical 

matter, consider the regulation in any 

enforcement action regarding 

predecessors and successors that 

involved conduct that occurred before 

the regulation became effective. 

As discussed earlier, the regulation 

does not create any new obligations but 

expands the same positions concerning 

predecessors and successors as we have 

previously taken in interpretation letters 

and have previously applied in our 

administration of the statute. If we did 

not adopt special provisions governing 

the use of CAFE credits by predecessors 

and successors, a predecessor’s unused 

credits would simply expire, since the 

only manufacturer that could use them 

would no longer exist. Similarly, there 

would be no way of offsetting a 

predecessor’s remaining CAFE shortfalls 

in the absence of some provision 

concerning successors. 

The rule addresses this inequity and 

gives the successor all the rights the 

predecessor had with respect to credits.

We would similarly consider the 

regulation in any enforcement action 

regarding other situations in which 

there have been changes in corporate 

relationships, e.g., changes in control, 

that involved conduct that occurred 

before the regulation became effective. 

However, the provisions are essentially 

a statement of our interpretation of the 

statute. 

States are preempted from 

promulgating laws and regulations 

contrary to the provisions of this rule. 

The rule does not require submission of 

a petition for reconsideration or other 

administrative proceedings before 

parties may file suit in court. 

G. Paperwork Reduction Act 

The agency has prepared the 

necessary paperwork under the 

Paperwork Reduction Act and 

submitted it to the Office of 

Management and Budget. PRA clearance 

is necessary because the final regulation 

includes a provision requiring the 

submission of agreements between 

companies in certain circumstances. 

H. Regulation Identifier Number (RIN) 

The Department of Transportation 

assigns a regulation identifier number 

(RIN) to each regulatory action listed in 

the Unified Agenda of Federal 

Regulations. The Regulatory Information 

Service Center publishes the Unified 

Agenda in April and October of each 

year. You may use the RIN contained in 

the heading at the beginning of this 

document to find this action in the 

Unified Agenda. 

I. Executive Order 13045 

Executive Order 13045 (62 FR 19885, 

April 23, 1997) applies to any rule that: 

(1) Is determined to be ‘‘economically 

significant’’ as defined under E.O. 

12866, and (2) concerns an 

environmental, health or safety risk that 

NHTSA has reason to believe may have 

a disproportionate effect on children. 

This regulatory action does not meet 

either of those criteria. 

J. National Technology Transfer and 

Advancement Act 

Section 12(d) of the National 

Technology Transfer and Advancement 

Act (NTTAA) requires NHTSA to 

evaluate and use existing voluntary 

consensus standards 7 in its regulatory 

activities unless doing so would be 

inconsistent with applicable law (e.g., 

the statutory provisions regarding 

NHTSA’s vehicle safety authority) or 

otherwise impractical. This requirement 

is not relevant to this rulemaking action.

List of Subjects in 49 CFR Part 534 

Fuel economy, Motor vehicles.

■ In consideration of the foregoing, 

chapter V of title 49 of the Code of 

Federal Regulations is amended by 

adding a new Part 534 to read as follows:

PART 534—RIGHTS AND 

RESPONSIBILITIES OF 

MANUFACTURERS IN THE CONTEXT 

OF CHANGES IN CORPORATE 

RELATIONSHIPS

534.1 Scope. 

534.2 Applicability. 

534.3 Definitions. 

534.4 Successors and predecessors. 

534.5 Manufacturers within control 

relationships. 

534.6 Reporting corporate transactions. 

535.7 Situations not directly addressed by 

this part.

Authority: 49 U.S.C. 32901; delegation of 

authority at 49 CFR 1.50.

§ 534.1 Scope. 

This part defines the rights and 

responsibilities of manufacturers in the 

context of changes in corporate 

relationships for purposes of the 

automotive fuel economy program 

established by 49 U.S.C. Chapter 329.

§ 534.2 Applicability. 

This part applies to manufacturers of 

passenger automobiles and nonpassenger automobiles.

§ 534.3 Definitions. 

(a) Statutory definitions and terms.

All terms used in 49 U.S.C. Chapter 329 

are used according to their statutory 

meaning. 

(b) As used in this part—

‘‘Control relationship’’ means the 

relationship that exists between 

manufacturers that control, are 

controlled by, or are under common 

control with, one or more other 

manufacturers. 

‘‘Predecessor’’ means a manufacturer 

whose rights have been vested in and 

whose burdens have been assumed by 

another manufacturer. 

‘‘Successor’’ means a manufacturer 

that has become vested with the rights 

and assumed the burdens of another 

manufacturer.

§ 534.4 Successors and predecessors. 

For purposes of the automotive fuel 

economy program, ‘‘manufacturer’’

includes ‘‘predecessors’’ and 

‘‘successors’’ to the extent specified in 

paragraphs (a) through (d) of this 

section.

(a) Successors are responsible for any 

civil penalties that arise out of fuel 

economy shortfalls incurred and not 

satisfied by predecessors. 

(b) If one manufacturer has become 

the successor of another manufacturer 

during a model year, all of the vehicles 

produced by those manufacturers 

during the model year are treated as 

though they were manufactured by the 

same manufacturer. A manufacturer is 

considered to have become the 

successor of another manufacturer 

during a model year if it is the successor 

on September 30 of the corresponding 

calendar year and was not the successor 

for the preceding model year. 

(c) Credits earned by a predecessor 

may be used by a successor, subject to 

availability of the credits and the 

general three-year restriction on 

carrying credits forward and the general 

77672 Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Rules and Regulations 

three-year restriction on carrying credits 

backward. 

(d) Credits earned by a successor may 

be used to offset a predecessor’s 

shortfall, subject to availability of the 

credits and the general three-year 

restriction on carrying credits backward.

§ 534.5 Manufacturers within control 

relationships. 

(a) If a civil penalty arises out of a fuel 

economy shortfall incurred by a group 

of manufacturers within a control 

relationship, each manufacturer within 

that group is jointly and severally liable 

for the civil penalty. 

(b) A manufacturer is considered to be 

within a control relationship for an 

entire model year if and only if it is 

within that relationship on September 

30 of the calendar year in which the 

model year ends. 

(c) Credits of a manufacturer within a 

control relationship may be used by the 

group of manufacturers within the 

control relationship to offset shortfalls, 

subject to the agreement of the other 

manufacturers, the availability of the 

credits, and the general three-year 

restriction on carrying credits forward 

or backward. 

(d) If a manufacturer within a group 

of manufacturers is sold or otherwise 

spun off so that it is no longer within 

that control relationship, the 

manufacturer may use credits that were 

earned by the group of manufacturers 

within the control relationship while 

the manufacturer was within that 

relationship, subject to the agreement of 

the other manufacturers, the availability 

of the credits and the general restriction 

on carrying credits forward or 

backward. 

(e) Agreements among manufacturers 

in a control relationship related to the 

allocation of credits or liabilities 

addressed by this section shall be filed 

with the agency within 60 days of the 

end of each model year in the same form 

as specified in section 534.6. The 

manufacturers may seek confidential 

treatment for information provided in 

the certified report in accordance with 

49 CFR Part 512.

§ 534.6 Reporting corporate transactions. 

Manufacturers who have entered into 

written contracts transferring rights and 

responsibilities such that a different 

manufacturer owns the controlling stock 

or exerts control over the design, 

production or sale of automobiles to 

which a Corporate Average Fuel 

Economy standard applies shall report 

the contract to the agency as follows: 

(a) The manufacturers must file a 

certified report with the agency 

affirmatively stating that the contract 

transfers rights and responsibilities 

between them such that one 

manufacturer has assumed a controlling 

stock ownership or control over the 

design, production or sale of vehicles. 

The report must also specify the first 

full model year to which the transaction 

will apply. 

(b) Each report shall—

(i) Identify each manufacturer; 

(ii) State the full name, title, and 

address of the official responsible for 

preparing the report; 

(iii) Identify the production year being 

reported on; 

(iv) Be written in the English 

language; and 

(v) Be submitted to: Administrator, 

National Highway Traffic Safety 

Administration, 400 Seventh Street, 

SW., Washington, DC 20590. 

(c) The manufacturers may seek 

confidential treatment for information 

provided in the certified report in 

accordance with 49 CFR part 512.

§ 534.7 Situations not directly addressed 

by this part. 

To the extent that this part does not 

directly address an issue concerning the 

rights and responsibilities of 

manufacturers in the context of a change 

in corporate relationships, the agency 

will make determinations based on 

interpretation of the statute and the 

principles reflected in the part.

Issued on: December 20, 2004. 

Jeffrey W. Runge, 

Administrator.

[FR Doc. 04–28237 Filed 12–27–04; 8:45 am] 

BILLING CODE 4910–59–P

DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric 

Administration

50 CFR Part 300

[I.D. 122104C]

Notification of U.S. Fish Quotas and an 

Effort Allocation in the Northwest 

Atlantic Fisheries Organization (NAFO) 

Regulatory Area

AGENCY: National Marine Fisheries 

Service (NMFS), National Oceanic and 

Atmospheric Administration (NOAA), 

Commerce.

ACTION: Final rule; notification of U.S. 

fish quotas and an effort allocation.

SUMMARY: NMFS announces that fish 

quotas and an effort allocation are 

available for harvest by U.S. fishermen 

in the Northwest Atlantic Fisheries 

Organization (NAFO) Regulatory Area. 

This action is necessary to make 

available to U.S. fishermen a fishing 

privilege on an equitable basis.

DATES: All fish quotas and the effort 

allocation are effective January 1, 2005, 

through December 31, 2005. Expressions 

of interest regarding U.S. fish quota 

allocations for all species except 3L 

shrimp will be accepted throughout 

2005. Expressions of interest regarding 

the U.S. 3L shrimp quota allocation and 

the 3M shrimp effort allocation will be 

accepted through January 12, 2005.

ADDRESSES: Expressions of interest 

regarding the U.S. effort allocation and 

quota allocations should be made in 

writing to Patrick E. Moran in the NMFS 

Office of Sustainable Fisheries, at 1315 

East-West Highway, Silver Spring, MD 

20910 (phone: 301–713–2276, fax: 301–

713–2313, e-mail: 

pat.moran@noaa.gov).

Information relating to NAFO fish 

quotas, NAFO Conservation and 

Enforcement Measures, and the High 

Seas Fishing Compliance Act (HSFC) 

Permit is available from Sarah 

McLaughlin, at the NMFS Northeast 

Regional Office at One Blackburn Drive, 

Gloucester, Massachusetts 01930 

(phone: 978–281–9279, fax: 978–281–

9135, e-mail: 

Sarah.McLaughlin@noaa.gov) and from 

NAFO on the World Wide Web at

http://www.nafo.ca.

FOR FURTHER INFORMATION CONTACT:

Patrick E. Moran, 301–713–2276.

SUPPLEMENTARY INFORMATION:

Background

NAFO has established and maintains 

conservation measures in its Regulatory 

Area that include one effort limitation 

fishery as well as fisheries with total 

allowable catches (TACs) and member 

nation quota allocations. The principal 

species managed are cod, flounder, 

redfish, American plaice, halibut, 

capelin, shrimp, and squid. At the 2004 

NAFO Annual Meeting, the United 

States received fish quota allocations for 

three NAFO stocks and an effort 

allocation for one NAFO stock to be 

fished during 2005. The species, 

location, and allocation (in metric tons 

or effort) of these U.S. fishing 

opportunities, as found in Annexes I.A, 

I.B, and I.C of the 2005 NAFO 

Conservation and Enforcement 

Measures, are as follows:

(1) Redfish NAFO Division 3M 69 mt

(2) Squid 

(Illex)

NAFO Subareas 3 

& 4

453 mt

(3) Shrimp NAFO Division 3L 144 mt

(4) Shrimp NAFO Division 3M 1 vessel/

100 days

Additionally, U.S. vessels may be 

authorized to fish any available portion