[Federal Register Volume 72, Number 67 (Monday, April 9, 2007)]
[Notices]
[Pages 17608-17614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-6549]


-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

[Docket No. NHTSA-2006-25546, Notice 2]


Koenigsegg Automotive AB; Response to Application for a Temporary 
Exemption From the Headlamp Requirements of FMVSS No. 108; Advanced Air 
Bag Requirements of FMVSS No. 208

AGENCY: National Highway Traffic Safety Administration (NHTSA), 
Department of Transportation (DOT).

ACTION: Grant of application for temporary exemption from certain 
provisions of Federal Motor Vehicle Safety Standard (FMVSS) No. 208, 
Occupant Crash Protection, and from certain provisions of FMVSS No. 
108, Lamps, Reflective Devices, and Associated Equipment.

-----------------------------------------------------------------------

SUMMARY: This document grants the Koenigsegg Automotive AB 
(``Koenigsegg'') application \1\ for temporary exemption from certain 
advanced air bag requirements of

[[Page 17609]]

FMVSS No. 208, Occupant Crash Protection, and from the headlamp 
requirements of FMVSS No. 108 through December 31, 2009. These 
exemptions apply to the Koenigsegg CCX. 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, and the exemption would have a negligible 
impact on motor vehicle safety.
---------------------------------------------------------------------------

    \1\ While Koenigsegg also petitioned for an exemption from the 
49 CFR Part 581 Bumper Standard, it subsequently withdrew that 
portion of its petition (see Docket No. NHTSA-2006-25546-4).
---------------------------------------------------------------------------

    In accordance with the requirements of 49 U.S.C. 30113(b)(2), we 
published a notice of receipt of the application \2\ in the Federal 
Register and asked for public comments.\3\ We received no comments on 
the application.
---------------------------------------------------------------------------

    \2\ To view the application, go to: http://dms.dot.gov/search/searchFormSimple.cfm and enter Docket No. NHTSA-2006-25546.
    \3\ See 71 FR 50974 (August 28, 2006) (Docket No. NHTSA-2006-
25546-1).

DATES: The exemption from the specified provisions of FMVSS No. 208 and 
FMVSS No. 108 is effective immediately and remains in effect through 
---------------------------------------------------------------------------
December 31, 2009.

FOR FURTHER INFORMATION CONTACT: Mr. Ed Glancy or Mr. Eric Stas, Office 
of the Chief Counsel, NCC-112, National Highway Traffic Safety 
Administration, 400 Seventh Street, SW., Room 5219, Washington, DC 
20590. Telephone: (202) 366-2992; Fax: (202) 366-3820.

I. Advanced Air Bag Requirements and Small Volume Manufacturers

    In 2000, NHTSA upgraded the requirements for air bags in passenger 
cars and light trucks, requiring what are commonly known as ``advanced 
air bags.'' \4\ The upgrade was designed to meet the goals of improving 
protection for occupants of all sizes, belted and unbelted, in 
moderate-to-high-speed crashes, and of minimizing the risks posed by 
air bags to infants, children, and other occupants, especially in low-
speed crashes.
---------------------------------------------------------------------------

    \4\ See 65 FR 30680 (May 12, 2000) (Docket No. NHTSA-2000-7013).
---------------------------------------------------------------------------

    The advanced air bag requirements were a culmination of a 
comprehensive plan that the agency announced in 1996 to address the 
adverse effects of air bags. This plan also included an extensive 
consumer education program to encourage the placement of children in 
rear seats. The new requirements were phased in beginning with the 2004 
model year.
    Small volume manufacturers (i.e., original vehicle manufacturers 
producing or assembling fewer than 5,000 vehicles annually for sale in 
the United States) were not subject to the advanced air bag 
requirements until September 1, 2006, but their efforts to bring their 
respective vehicles into compliance with these requirements began 
several years ago. However, because the new requirements were 
challenging, major air bag suppliers concentrated their efforts on 
working with large volume manufacturers, and thus, until recently, 
small volume manufacturers had limited access to advanced air bag 
technology. Because of the nature of the requirements for protecting 
out-of-position occupants, ``off-the-shelf'' systems could not be 
readily adopted. Further complicating matters, because small volume 
manufacturers build so few vehicles, the costs of developing custom 
advanced air bag systems compared to potential profits discouraged some 
air bag suppliers from working with small volume manufacturers.
    The agency has carefully tracked occupant fatalities resulting from 
air bag deployment. Our data indicate that the agency's efforts in the 
area of consumer education and manufacturers' providing depowered air 
bags were successful in reducing air bag fatalities even before 
advanced air bag requirements were implemented.
    As always, we are concerned about the potential safety implication 
of any temporary exemptions granted by this agency. In the present 
case, we are addressing a petition that seeks, in part, a temporary 
exemption from the advanced air bag requirements. As part of the same 
document, we are addressing the petitioner's request for temporary 
exemptions from the agency's headlamp requirements. The petitioner is a 
manufacturer of low volume, exotic sports cars.

II. Overview of Petition for Economic Hardship Exemption

    In accordance with 49 U.S.C. 30113 and the procedures in 49 CFR 
Part 555, Koenigsegg petitioned the agency for a temporary exemption 
from certain headlamp requirements of FMVSS No. 108 (S7), advanced air 
bag requirements of FMVSS No. 208 (S14), and bumper requirements of 49 
CFR Part 581. However, in a letter dated December 12, 2006, Koenigsegg 
advised the agency that recently completed testing had indicated that 
its modified bumper system complied with the Part 581 bumper standard 
and that it was withdrawing the portion of its petition requesting an 
exemption from that standard (See Docket No. NHTSA-2006-25546-4). 
Accordingly, we need not further discuss that portion of the Koenigsegg 
petition dealing with the now-superseded request concerning the bumper 
standard.
    The basis for each portion of the application is that compliance 
would cause substantial economic hardship \5\ to a manufacturer that 
has tried in good faith to comply with these standards. A copy of the 
petition \6\ is available for review and has been placed in the docket 
for this notice. The agency closely examines and considers the 
information provided by manufacturers in support of these factors, and, 
in addition, pursuant to 49 U.S.C. 30113(b)(3)(A), determines whether 
exemption is in the public interest and consistent with the Safety 
Act.\7\
---------------------------------------------------------------------------

    \5\ When considering financial matters involving companies based 
in the European Union (EU), it is important to recognize that EU and 
U.S. accounting principles have certain differences in their 
treatment of revenue, expenses, and profits. Public statements by EU 
manufacturers relating to financial results should be understood in 
this context. This agency analyzes claims of financial hardship 
carefully and in accordance with U.S. accounting principles.
    \6\ The company requested confidential treatment under 49 CFR 
Part 512 for certain business and financial information submitted as 
part of its petition for temporary exemption. Accordingly, the 
information placed in the docket does not contain such information 
that the agency has determined to be confidential.
    \7\ The Safety Act is codified as Title 49, United States Code, 
Chapter 301.
---------------------------------------------------------------------------

    A manufacturer is eligible to apply for a hardship exemption if its 
total motor vehicle production in its most recent year of production 
did not exceed 10,000 vehicles, as determined by the NHTSA 
Administrator (49 U.S.C. 30113). In determining whether a manufacturer 
of a vehicle meets that criterion, NHTSA considers whether a second 
vehicle manufacturer also might be deemed the manufacturer of that 
vehicle. The statutory provisions governing motor vehicle safety (49 
U.S.C. Chapter 301) do not include any provision indicating that a 
manufacturer might have substantial responsibility as manufacturer of a 
vehicle simply because it owns or controls a second manufacturer that 
assembled that vehicle. However, the agency considers the statutory 
definition of ``manufacturer'' (49 U.S.C. 30102) to be sufficiently 
broad to include sponsors, depending on the circumstances. Thus, NHTSA 
has stated that a manufacturer may be deemed to be a sponsor and thus a 
manufacturer of a vehicle assembled by a second manufacturer if the 
first manufacturer had a substantial role in the development and 
manufacturing process of that vehicle.
    Finally, while 49 U.S.C. 30113(b) states that exemptions from a 
Safety Act standard are to be granted on a

[[Page 17610]]

``temporary basis,'' \8\ the statute also expressly provides for 
renewal of an exemption on reapplication. Manufacturers are 
nevertheless cautioned that the agency's decision to grant an initial 
petition in no way predetermines that the agency will repeatedly grant 
renewal petitions, thereby imparting semi-permanent exemption from a 
safety standard. Exempted manufacturers seeking renewal must bear in 
mind that the agency is directed to consider financial hardship as but 
one factor, along with the manufacturer's on-going good faith efforts 
to comply with the regulation, the public interest, consistency with 
the Safety Act, generally, as well as other such matters provided in 
the statute.
---------------------------------------------------------------------------

    \8\ 49 U.S.C 30113(b)(1).
---------------------------------------------------------------------------

III. Petition of Koenigsegg

    Background. Koenigsegg Automotive is a Swedish corporation formed 
in 1999 to produce high-performance sports cars. This application 
concerns the Koenigsegg CCX which was developed as the next generation 
of Koenigsegg vehicles after production of the CCR model ended on 
December 30, 2005. The CCX model (the company's only model at this 
point) is scheduled to go into production in 2006 and to continue at 
least through the end of 2009. Originally, Koenigsegg planned to sell 
vehicles only in the European, Mid-East, and Far-East markets, but the 
company decided in late 2005 to seek entry to the U.S. market for 
reasons related to ongoing financial viability. The retail price for 
the CCX is reported to be over $700,000 per vehicle.
    As discussed in further detail below, the petitioner argued that it 
tried in good faith, but could not bring the vehicle into compliance 
with the headlamp and advanced air bag requirements, and would incur 
substantial economic hardship if it cannot sell vehicles in the U.S. 
after January 1, 2007.
    Eligibility. Koenigsegg is a small, privately-owned company with 30 
full-time staff members and several part-time employees. The company is 
a small volume manufacturer whose total production is less than 50 cars 
per year, having produced between four and eight vehicles per year for 
the past four years. According to the company, its sales revenues have 
averaged approximately $3.7 million per year. Koenigsegg is not 
affiliated with any other automobile manufacturer.
    According to its current forecasts, Koenigsegg anticipates the 
following number of CCX vehicles would be imported into the United 
States, if its requested exemptions were to be granted: 25 in calendar 
year (CY) 2007; 30 in CY 2008, and 30 in CY 2009.
    Requested exemptions. Koenigsegg stated that it intends to certify 
the CCX as complying with the rigid barrier belted test requirement 
using the 50th percentile adult male test dummy set forth in S14.5.1 of 
FMVSS No. 208. The petitioner stated that it previously determined the 
CCX's compliance with rigid barrier unbelted test requirements using 
the 50th percentile adult male test dummy through the S13 sled test 
using a generic pulse rather than a full vehicle test. Koenigsegg 
stated that it, therefore, cannot at present say with certainty that 
the CCX will comply with the unbelted test requirement under S14.5.2, 
which is a 20-25 mph rigid barrier test.
    As for the CCX's compliance with the other advanced air bag 
requirements, Koenigsegg stated that it does not know whether the CCX 
will be compliant because to date it has not had the financial ability 
to conduct the necessary testing.
    As such, Koenigsegg is requesting an exemption for the CCX from the 
rigid barrier unbelted test requirement with the 50th percentile adult 
male test dummy (S14.5.2), the rigid barrier test requirement using the 
5th percentile adult female test dummy (belted and unbelted, S15), the 
offset deformable barrier test requirement using the 5th percentile 
adult female test dummy (S17), the requirements to provide protection 
for infants and children (S19, S21, and S23) and the requirement using 
an out-of-position 5th percentile adult female test dummy at the driver 
position (S25).
    Koenigsegg further requested exemption from the headlamp 
requirements set forth in S7 of FMVSS No. 108.
    Koenigsegg stated its intention to produce a second generation of 
the CCX model by late 2009, which would be certified as complying with 
all applicable U.S. standards, including ones for head lamps (FMVSS No. 
108, S7) and advanced air bags (FMVSS No. 208, S14). Accordingly, the 
company is requesting exemption from the enumerated requirements for 
the period from January 1, 2007 through December 31, 2009.
    Economic hardship. Publicly available information and also the 
financial documents submitted to NHTSA by the petitioner indicate that 
the CCX project will result in financial losses unless Koenigsegg 
obtains a temporary exemption.\9\
---------------------------------------------------------------------------

    \9\ During the course of the agency's consideration of 
Koenigsegg's petition, certain minor discrepancies were discovered 
between the company's Part 555 application and its supporting 
financial statements. These discrepancies were ultimately determined 
to be the result of the company's inadvertent error in failing to 
convert Swedish kronas to U.S. dollars. Koenigsegg subsequently 
submitted two errata sheets to correct these errors (see Docket No. 
NHTSA-2006-25546-3); we note that these corrections did not 
substantively change the company's underlying financial position as 
would affect the agency's determination of economic hardship under 
49 CFR Part 555. This document utilizes the company's updated 
figures denominated in U.S. dollars.
---------------------------------------------------------------------------

    In the past three years (2003 to 2005), the company has had losses 
totaling $1,637,398, and during this time period, the company's factory 
burned to the ground and had to be rebuilt. Koenigsegg did make a 
profit of $58,341 in 2003 and $722,406 in 2004, but it incurred a 
substantial loss of $2,418,145 in 2005.
    As of the time of the application, Koenigsegg has invested over 
$3.2 million in the CCX project in order to have the vehicle meet U.S. 
standards--not including the provisions which are the subject of the 
present petition for temporary exemption. The company has stated that 
it cannot hope to attain profitability if it incurs additional research 
and development expenses at this time.
    Koenigsegg stated that costs for external assistance with 
developing an advanced air bag system would cost over $3 million (over 
$9 million if internal costs are included for interior redesign, 
testing, and tooling), and meeting the headlamp requirements would 
entail an additional expenditure of at least $500,000.
    In its petition, Koenigsegg reasoned that worldwide sales 
(including the U.S. market) of the current CCX in higher volumes over 
the next three years is necessary to reduce production costs and to 
make available funding for development of the next generation of the 
CCX, which would be compliant with all U.S. air bag and headlamp 
requirements. In essence, Koenigsegg argued that the exemption is 
necessary to allow the company to ``bridge the gap'' until fully 
compliant vehicles can be funded, developed, tooled, and introduced.
    If the exemption is denied, Koenigsegg projects a net loss of over 
$10.5 million over the period from 2006-2009. However, if the petition 
is granted, the company anticipates a profit of nearly $3.5 million 
during that same period. The petitioner argued that a denial of this 
petition could preclude entry into the U.S. market until 2010 or later, 
a development which would have a highly adverse impact on the company. 
According to the petitioner, if

[[Page 17611]]

the exemption request is not granted, the company would face a 
``virtually insurmountable problem'' in terms of funding and 
introducing a vehicle that meets all applicable U.S. requirements, and 
it might ultimately drive the company out of business because the rest 
of the world export market would be inadequate to ensure profitability.
    Good faith efforts to comply. As stated above, Koenigsegg initially 
planned to produce vehicles for the European, Mid-East, and Far-East 
markets, but once it was determined in 2005 that entry into the U.S. 
market was a necessary part of its business plan, the company invested 
over $3.2 million in research and development and tooling for its U.S. 
CCX program. In 18 months, the company was able to bring the vehicle 
into compliance with all applicable NHTSA regulations other than those 
which are the subject of the present exemption petition, as well as the 
emissions regulations administered by the Environmental Protection 
Agency (EPA).
    In light of limited resources, the petitioner stated that it was 
necessary to first develop the vehicle with a standard U.S. air bag 
system (i.e., one meeting the requirements of FMVSS No. 208, other than 
the advanced air bag requirements). The company reengineered the CCX 
with an Audi TT driver air bag system and developed a new passenger air 
bag system, a $641,000 project.
    According to its petition, Koenigsegg anticipates that two years 
will be needed to install an advanced air bag system on the CCX. 
Modifications would involve development of new components, such as 
changes to the instrument panel design and incorporation of advanced 
air bag installation components such as mountings and brackets. Vehicle 
testing would also be conducted during that time.
    Furthermore, because the vehicle was not originally designed for 
the U.S. market, it likewise did not have headlamps that comply with 
U.S. requirements. According to Koenigsegg, achieving compliance with 
those requirements will necessitate a redesign of the headlamps. 
Koenigsegg explained that it has undertaken significant efforts in 
pursuit of CCX compliance with the headlamp requirements of FMVSS No. 
108, but problems have stemmed from the company's inability to find a 
supplier. The petitioner stated that given the unique shape of the CCX, 
there is no available ``off-the-shelf'' headlamp system available, and 
efforts to find a supplier willing to undertake the project to produce 
a FMVSS No. 108-compliant headlamp for the CCX have been unavailing, 
presumably due to the ultra-low quantity of vehicles involved.\10\
---------------------------------------------------------------------------

    \10\ In an August 10, 2006 supplement to its application 
(included in this docket, following the Koenigsegg petition), 
Koenigsegg stated that it may have now identified a large lighting 
manufacturer interested in developing a FMVSS No. 108-compliant 
headlighting system for the CCX, but it would be ``at a price higher 
than the $500,000 thus far estimated.''
---------------------------------------------------------------------------

    Instead, Koenigsegg decided to produce a headlamp for the CCX in-
house (homologated to European Union requirements), utilizing a 
lighting source from a major lighting manufacturer (Hella). The 
petitioner stated that the plexiglass lens of the headlamp box is an 
integral part of the vehicle body and design. The company explained 
that despite its good faith efforts, the headlamps for the CCX as yet 
do not fully comply with the headlamp requirements of FMVSS No. 108. 
Specifically, while the CCX headlamps have been designed to pass the 
geometry requirements of FMVSS No. 108, the required aerodynamic lens 
will not pass environmental testing and must be re-engineered.
    According to Koenigsegg, the company did explore the possibility of 
developing an ``interim U.S. headlamp'' without a polycarbonate cover. 
However, that alternative was determined to be unworkable for the 
following reasons. First, there were concerns that the absence of the 
polycarbonate lens ``ruins the design of the body,'' a result which 
customers were deemed unlikely to accept and which was expected to 
result in decreased sales.\11\ Second, the petitioner determined that 
an interim headlamp without a polycarbonate lens would have 
unacceptable aerodynamic effects which would negatively impact vehicle 
performance. Third, there were concerns that by engineering an interim 
headlamp exclusively for the U.S. market, the company would lose the 
advantages associated with producing a ``world car'' which can be 
introduced into any market, something of great importance for an ultra-
low-volume manufacturer. In addition, Koenigsegg determined that the 
cost of developing the interim headlamp could not be justified when 
amortized over the small number of units involved.
---------------------------------------------------------------------------

    \11\ The petitioner asserted that such considerations were a 
factor in the agency's earlier decision to grant a ``waiver'' for 
the headlamp of the Lotus Elise (see 69 FR 5658 (Feb. 5, 
2005)(Docket No. NHTSA-2003-16341-5)).
---------------------------------------------------------------------------

    In light of the above, the company again stated that because of the 
cost and length of this project, such headlighting efforts must await 
the second generation of the U.S. CCX.
    In short, Koenigsegg argued that, despite good faith efforts, 
limited resources prevent it from bringing the vehicle into compliance 
with all applicable requirements, and it is beyond the company's 
current capabilities to bring the vehicle into full compliance until 
such time as additional resources become available as a result of U.S. 
sales. With funding from sale of the current generation of U.S. CCX, 
the company expects that additional development efforts could start in 
2007, thereby allowing production of a fully compliant vehicle in late 
2009.
    Koenigsegg argues that an exemption would be in the public 
interest. The petitioner put forth several arguments in favor of a 
finding that the requested exemption is consistent with the public 
interest. Specifically, Koenigsegg argued that the vehicle would be 
equipped with a fully-compliant standard U.S. air bag system. As to 
headlamps, Koenigsegg stated that the CCX's current headlamps (designed 
to European specifications) are very close to meeting the photometric 
requirements of FMVSS No. 108, and consequently, they do not pose a 
safety risk. In all other areas, Koenigsegg emphasized that the CCX 
will comply with applicable FMVSSs.
    As additional bases for showing that its requested exemption would 
be in the public interest, Koenigsegg offered the following. The 
company asserted that there is consumer demand in the U.S. for the CCX, 
and granting this application will allow the demand to be met, thereby 
expanding consumer choice. The company also suggested another reason 
why granting the exemption would not be expected to have a significant 
impact on safety, specifically because the vehicle is unlikely to be 
used extensively by owners, due to its ``sporty (second car) nature.'' 
Koenigsegg reasoned that given its very low production volume and 
customer base, the possibility of any child being in the vehicle is 
extremely small. Finally, Koenigsegg indicated that the CCX 
incorporates advanced engineering and certain advanced safety features 
that are not required by the FMVSSs, including racing brakes with anti-
lock capability and traction control. In addition, the company argued 
that the CCX has enhanced fuel efficiency due to its highly aerodynamic 
design.

IV. Agency Decision on Koenigsegg Petition

    The following discussion provides our decision regarding 
Koenigsegg's temporary exemption requests

[[Page 17612]]

pertaining to the advanced air bag requirement of FMVSS No. 208 and the 
headlamp requirements of FMVSS No. 108. These exemption requests will 
be discussed separately, in order to examine the engineering challenges 
and the good faith efforts that the manufacturer has made to meet the 
applicable requirements. However, because the agency's analyses related 
to economic hardship and the public interest are essentially the same 
for these requested exemptions, a single discussion of those matters is 
provided at the end of our decision.
    Advanced Air Bag Requirements. We are granting the Koenigsegg 
petition to be exempted from portions of the advanced air bag 
regulation required by S14.2 (specifically S14.5.2, S15, S17, S19, S21, 
S23, and S25). The exemption does not extend to the provision requiring 
a belted 50th percentile male barrier impact test (S14.5.1(a)). In 
addition to certifying compliance with S14.5.1(a), Koenigsegg must 
continue to certify to the unbelted 50th percentile barrier impact test 
in force prior to September 1, 2006 (S5.1.2(a)). We note that the 
unbelted sled test in S13 is an acceptable option for that requirement. 
The agency's rationale for this decision is as follows.
    The advanced air bag requirements present a unique challenge 
because they would require Koenigsegg to undertake a major redesign of 
its vehicles, in order to overcome the engineering limitations of the 
CCX. Specifically, Koenigsegg would be required to undertake 
significant interior redesign in order to upgrade the vehicle's 
standard air bag system to an advanced air bag system. While the 
petitioner was aware of the new requirements for some time, its 
business plans did not initially involve sales in the U.S. However, 
Koenigsegg subsequently determined that it would be necessary to 
introduce the CCX into the U.S., thereby raising the problem of 
compliance with the advanced air bag requirements. Once the 
determination was made to seek entry into the U.S. market in late 2005, 
Koenigsegg undertook significant homologation efforts in order to meet 
applicable U.S. requirements, but compliance with the advanced air bag 
provisions of FMVSS No. 208 are beyond the company's capabilities at 
the present time. Koenigsegg plans to utilize proceeds from sales of 
the current generation of CCX vehicles to finance the development of a 
fully compliant successor vehicle.
    Koenigsegg explained the main engineering challenges precluding 
incorporation of advanced air bag into the CCX at this time, as 
follows. The company must undertake redesign work to the vehicle's 
instrument panel and must incorporate a number of advanced air bag 
installation components. Furthermore, the petitioner stated that it 
would need an additional two years time to work with an advanced air 
bag supplier (because very low volume manufacturers have had to wait 
for technology to ``trickle down'' from larger manufacturers and 
suppliers), to make the necessary changes, and to conduct testing. 
Koenigsegg has made clear that such a prospect would pose a unique 
challenge to the company, due to the high cost of development and its 
extremely small sales volumes.
    Based upon the information provided by the petitioner, we 
understand that Koenigsegg made good faith efforts to bring the CCX 
into compliance with the applicable requirements until such time as it 
became apparent that there was no practicable way to do so. As a small 
specialty manufacturer, the company had a difficult time in gaining 
access to advanced air bag systems and components (which presumably 
reflects restraint system suppliers' initial focus on meeting the needs 
of large volume manufacturers), so alternative means of compliance were 
not available as a practical matter. Small manufacturers such as 
Koenigsegg are dependent upon air bag suppliers for the engineering 
expertise and technology transfer necessary for compliance with FMVSS 
No. 208. This further reduced the lead time available for development.
    Furthermore, because Koenigsegg is an independent automobile 
manufacturer, there was no possibility of technology transfer from a 
larger parent company that also manufactures motor vehicles. 
Consequently, no viable alternatives remain. The petitioner is unable 
to redesign its vehicle in time to meet the new advanced air bag 
requirements that became effective on September 1, 2006 for small 
volume manufacturers.
    Headlamp Requirements. We are granting the Koenigsegg petition to 
be exempted from the headlamp requirements of FMVSS No. 108 (S7). We 
understand that vehicle design involves numerous complex design, 
engineering, and production challenges. To some extent, small volume 
manufacturers may face difficulties in situations where they must wait 
for advanced technologies to ``trickle-down'' from major suppliers 
(e.g., advanced air bag systems), but we do not expect that every 
vehicle component or system would fall in that category. Accordingly, 
the agency will carefully consider the modifications to the vehicle 
necessary to achieve compliance with the relevant safety standard(s), 
as well as the good faith efforts made by the manufacturer to meet 
those requirements.
    In the present case, we agree that it may be desirable for 
Koenigsegg to incorporate a specialized headlamp for a variety of 
reasons, including aesthetics and aerodynamics. While we acknowledge 
that the company undertook good faith effort to comply with the 
headlamp requirements of FMVSS No. 108 and that current financial and 
production limitations would make compliance impractical in the near 
term, we expect that it would be possible to achieve compliance with 
all applicable headlamp requirements by the conclusion of the exemption 
period requested by Koenigsegg. We do not believe that the required 
modifications would be as complex as those associated with advanced air 
bags. Our reasoning is explained in further detail below.
    To start, we would note that passenger vehicles generally are not 
designed to accommodate ``off the shelf'' headlamp systems, but instead 
incorporate specialized headlamp designs dedicated to the specific 
vehicle. Thus, developing a specialized headlamp for the CCX may be 
necessary, but it is not an unusual event. Furthermore, as discussed 
below, we believe that it would be possible to make modifications to 
the headlamp independent of changes to the bumper system.
    As noted above, there are several reasons why we believe that 
Koenigsegg should install FMVSS No. 108-compliant headlamps on the CCX 
as rapidly as possible, even for the small numbers involved here. 
First, one should not lose sight of the fact that headlamps are safety 
devices intended to illuminate the roadway and overhead signs for the 
driver and to also make the vehicle visible to other drivers and 
pedestrians. Accordingly, styling characteristics of the headlamp are a 
secondary consideration. We further note that the petitioner did not 
provide any basis for its speculative arguments regarding decreased 
sales that would be expected to result from installation of an interim 
headlamp without a polycarbonate lens, but which would comply with 
FMVSS No. 108. The petitioner also provided no details as to the 
negative impact on vehicle performance that would be expected from 
incorporation of an FMVSS No. 108-compliant interim headlamp design or 
support for its contention that such a headlamp would ``ruin the design 
of the body.''

[[Page 17613]]

    Likewise, we disagree with the petitioner's contention that 
construction of an FMVSS No. 108-compliant headlamp would deprive the 
manufacturer of the advantages associated with building a ``world 
car.'' On the contrary, developing a headlamp for the CCX that meets 
the requirements of the Economic Commission for Europe (ECE) 
regulations, as well as FMVSS No. 108, provides the opportunity to 
build the CCX as a world car. As the Koenigsegg petition suggests, 
these two sets of regulations are quite similar, with a primary 
difference being the requirement in FMVSS No. 108 for photometric test 
points intended to ensure illumination of overhead signs. However, it 
is possible to manipulate the headlamp's beam pattern to achieve 
compliance with the photometric requirements for both sets of 
regulations.
    In support of its request for a temporary exemption from the 
headlamp requirements of FMVSS No. 108, Koenigsegg argued that the 
agency granted a similar exemption to Group Lotus Plc (Lotus) (see 69 
FR 5658 (Feb. 5, 2004) (Docket No. NHTSA-2003-16341-5)). As discussed 
in that notice, Lotus made many of the same arguments that Koenigsegg 
is currently making regarding engineering challenges, aesthetic 
concerns, loss of performance, and decreased sales. However, as 
compared to the Koenigsegg headlamp, there were significant differences 
in the headlamp for the Lotus Elise, which supported the agency's 
decision to grant a temporary exemption for nearly three years. 
Specifically, Lotus stated that not only were its headlamp's 
photometrics very close to the requirements of FMVSS No. 108, but the 
lamp also had been subjected to relevant environmental testing and 
exhibited a strong warranty record for this aspect of the vehicle.
    In contrast, Koenigsegg stated that the CCX's current headlamps are 
designed to pass the geometry requirements of FMVSS No. 108, but they 
would not pass the environmental requirements of the standard.\12\ 
Thus, even if the CCX headlamps were to meet all the photometric 
requirements of the standard at the time of vehicle certification, 
performance could deteriorate if the lenses on those headlamps could 
not meet the applicable weathering, vibration, or abrasion 
requirements. Such degraded performance (resulting from the lamp's 
failure to meet relevant photometric test points) could negatively 
impact the vehicle's forward illumination and increase glare for 
oncoming drivers. Choosing to grant Koenigsegg's requested exemption 
from FMVSS No. 108's headlamp requirement required considerable 
deliberation within the agency, and it was only after careful balancing 
of the manufacturer's good faith efforts, the small number of vehicles 
involved, and the potential safety consequences that we decided to do 
so. Because we are hesitant to set a precedent in terms of granting 
temporary exemptions for vehicles whose headlamps do not meet the 
environmental requirements of the standard, we would state that the 
agency will carefully examine and decide such petitions on a case-by-
case basis.
---------------------------------------------------------------------------

    \12\ It is unclear from the petition whether the CCX headlamps 
would meet all applicable geometric and photometric requirements in 
Standard No. 108.
---------------------------------------------------------------------------

    In further support of expediently achieving compliance with the 
headlamp requirements of FMVSS No. 108, we understand from the petition 
that Koenigsegg now has identified a large lighting manufacturer 
willing to develop a FMVSS No. 108-compliant headlighting system for 
the CCX. Having identified such a supplier, we would expect this 
arrangement to accelerate Koenigsegg's efforts to develop a FMVSS No. 
108-compliant headlamp.
    In sum, the information supplied by the petitioner demonstrates 
that the company to date has made good faith efforts to achieve 
compliance with the headlamp requirements of FMVSS No. 108 and that it 
would not be economically or technically feasible to meet these 
requirements until late 2009. We are also cognizant of the very small 
number of vehicles at issue here, many of which will probably have 
limited road use. For these reasons, we have decided to grant 
Koenigsegg a temporary exemption from the headlamp requirements of 
FMVSS No. 108 through December 31, 2009. However, we urge the company 
to achieve full compliance with FMVSS No. 108 earlier, to the maximum 
extent possible.
    For the reasons discussed above, we believe that this period should 
provide sufficient time to engage with the identified lighting 
manufacturer and to conduct any necessary retooling of components 
related to the headlamps. We also believe that it would be possible to 
modify the CCX's headlamps in a manner that would not change the shape 
of the outer lens; accordingly, it should be possible to undertake 
headlamp and bumper modifications independently. In addition, we note 
that achieving compliance with FMVSS No. 108 would benefit the company 
by allowing the CCX to attain ``world car'' status sooner. Finally, in 
terms of economic feasibility, the petitioner's financial submissions 
demonstrated that if its requested temporary exemptions are granted, it 
anticipates profits of nearly $3.5 million over the period from 2006-
2009, so a portion of the profits expected to be generated during the 
first year of the exemption period (nearly $2.5 million in 2007) could 
be channeled into headlamp development.
    Economic Hardship. We now turn to our analysis more broadly to the 
issues of the economic hardship facing the petitioner and the impact on 
motor vehicle safety surrounding the requested temporary exemptions 
from the advanced air bag and headlamp requirements discussed above. 
After review of the income statements provided by the petitioner, the 
agency notes that the company has faced ongoing financial difficulties, 
experiencing net operating losses of about $1.6 million over the past 
three years (2003-2005). The company did turn a small profit in 2003 
(about $58,000) and a larger profit in 2004 (about $722,000), but these 
were overwhelmed by an over $2.4 million loss in 2005. These figures 
suggest that the company's current profitability situation is somewhat 
precarious. If the petitioner's request for a temporary exemption is 
denied, the company will be precluded from selling any vehicles in the 
U.S. market at this time. The resulting loss of sales would cause 
substantial economic hardship within the meaning of the statute, 
potentially amounting to the difference between a profit of nearly $3.5 
million (if an exemption is granted) and a loss of over $10.5 million 
(if an exemption is denied) over the period from 2006-2009. Ultimately, 
denial of the exemption request could preclude development of a U.S.-
compliant vehicle and jeopardize the continued existence of Koenigsegg.
    According to Koenigsegg, absent the exemption, the company 
anticipates being unable to enter the U.S. market until 2010 or later. 
However, Koenigsegg's problems would be compounded without its 
requested temporary exemption, because it needs the revenue from sales 
of the CCX over the next two years to finance development of a fully 
compliant vehicle for delivery to the U.S. market. Granting the 
exemption will allow Koenigsegg to earn the resources necessary to 
bridge the gap in terms of development of a successor vehicle for the 
current generation of the CCX that meets all U.S. requirements.
    While some of the information submitted by Koenigsegg has been 
granted confidential treatment and is

[[Page 17614]]

not detailed in this document, the petitioner made a comprehensive 
showing of its good faith efforts to comply with the requirements of 
S14.2 of FMVSS No. 208 and S7 of FMVSS No. 108 and detailed engineering 
and financial information demonstrating that failure to obtain the 
exemption would cause substantial economic hardship. Specifically, the 
petitioner provided the following:
    1. Chronological analysis of Koenigsegg's efforts to comply, 
showing the relationship to the rulemaking history of the advanced air 
bag requirements.
    2. Itemized costs of each component that would have to be modified 
in order to achieve compliance.
    3. Discussion of alternative means of compliance and reasons for 
rejecting these alternatives.
    4. A detailed OEM price-volume quotation from an advanced air bag 
supplier, including detailed costs for the necessary components for 
each stage of the development program.
    5. Explanations as to why components from newer, compliant vehicle 
lines could not be borrowed.
    6. Corporate income statements and balance sheets for the period 
from 2002-2005, and projected income statements for the period from 
2006-2009 (analyzing alternative scenarios in which the petition is 
granted and denied).
    We believe that this exemption will have negligible impact on motor 
vehicle safety because of the limited number of vehicles affected 
(approximately 85 to be imported for the duration of the requested 
three-year exemption). Furthermore, as discussed in previous decisions 
on temporary exemption applications, the agency believes that the 
public interest is served by affording consumers a wider variety of 
motor vehicle choices.
    We also note that the CCX features several advanced ``active'' 
safety features. These features are listed in the petitioner's 
application.\13\ While the availability of these features is not 
critical to our decision, it is a factor in considering whether the 
exemption is in the public interest.
---------------------------------------------------------------------------

    \13\ See page 16 of Koenigsegg's petition.
---------------------------------------------------------------------------

    We note that, as explained below, prospective purchasers will be 
notified that the vehicle is exempted from the specified advanced air 
bag requirements of Standard No. 208 and the headlamp requirements of 
Standard No. 108. Under Sec.  555.9(b), a manufacturer of an exempted 
passenger car must affix securely to the windshield or side window of 
each exempted vehicle a label containing a statement that the vehicle 
conforms to all applicable Federal motor vehicle safety standards in 
effect on the date of manufacture ``except for Standard Nos. [listing 
the standards by number and title for which an exemption has been 
granted] exempted pursuant to NHTSA Exemption No. --------.'' This 
label notifies prospective purchasers about the exemption and its 
subject. Under Sec.  555.9(c), this information must also be included 
on the vehicle's certification label.
    We note that the text of Sec.  555.9 does not expressly indicate 
how the required statement on the two labels should read in situations 
where an exemption covers part but not all of a Federal motor vehicle 
safety standard. Specifically in the case of FMVSS No. 208, we believe 
that a statement that the vehicle has been exempted from Standard No. 
208 generally, without an indication that the exemption is limited to 
the specified advanced air bag provisions, could be misleading. A 
consumer might incorrectly believe that the vehicle has been exempted 
from all of Standard No. 208's requirements. Moreover, we believe that 
the addition of a reference to such provisions by number without an 
indication of its subject matter would be of little use to consumers, 
since they would not know the subject of those specific provisions. For 
these reasons, we believe the two labels should read in relevant part, 
``except for S14.5.2, S15, S17, S19, S21, S23, and S25 (Advanced Air 
Bag Requirements) of Standard No. 208, Occupant Crash Protection, 
exempted pursuant to * * *''. We note that the phrase ``Advanced Air 
Bag Requirements'' is an abbreviated form of the title of S14 of 
Standard No. 208. Similarly, regarding the temporary exemption for the 
CCX's headlamps, we believe that the two labels should read in relevant 
part, ``except for S7 of Standard No. 108, Lamps, Reflective Devices, 
and Associated Equipment, exempted pursuant to * * *.'' We believe it 
is reasonable to interpret Sec.  555.9 as requiring this language.
    In sum, the agency concludes that Koenigsegg has demonstrated good 
faith effort to bring the CCX into compliance with the advanced air bag 
requirements of FMVSS No. 208 and the headlamp requirements of FMVSS 
No. 108 and has also demonstrated the requisite financial hardship. 
Further, we find these exemptions to be in the public interest.
    In consideration of the foregoing, we conclude that compliance with 
the advanced air bag requirements of FMVSS No. 208, Occupant Crash 
Protection, and the headlamp requirements of FMVSS No. 108, Lamps, 
Reflective Devices, and Associated Equipment, would cause substantial 
economic hardship to a manufacturer that has tried in good faith to 
comply with the standard. We further conclude that granting of an 
exemption from these provisions 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), the Koenigsegg CCX 
is granted NHTSA Temporary Exemption No. EX 06-10, from S14.5.2, S15, 
S17, S19, S21, S23, and S25 of 49 CFR 571.208 and from S7 of 49 CFR 
571.108. The exemption is effective immediately and continues in effect 
through December 31, 2009.

    Issued on: March 29, 2007.
Nicole R. Nason,
Administrator.
 [FR Doc. E7-6549 Filed 4-6-07; 8:45 am]
BILLING CODE 4910-59-P