Q&A with TREAD Act expert

YOU'VE heard of “must-see TV”? Well, this was “must-see NTEA.”

Erika Jones, a partner in Mayer, Brown, Rowe and Maw in Washington, DC, hosted a three-hour workshop on the Early Warning Reporting requirements mandated by the Transportation Recall Enhancement, Accountability, and Documentation (TREAD) Act.

Jones, who spent four years with the National Highway Traffic Safety Administration (NHTSA) — including four as chief counsel — is regarded as one of the premier motor vehicle industry experts on the subject.

She presented an overview of the EWR regulations requiring that all manufacturers of motor vehicles, including trailers and motor-vehicle equipment, report certain information regarding problems associated with an extensive list of vehicle components to NHTSA every quarter beginning with the second quarter of this year.

Just as crucially, she answered dozens of questions from attendees, many of whom wanted clarification on specific situations relating to their companies or somebody they knew.

Q: As of right now, the regulation requires manufacturers of 500 or more units to meet the most stringent reporting requirements. Is there a chance the threshold could be changed by NHTSA?

A: There is a petition regarding the volume threshold filed by NTEA and others. NHTSA has not made a decision on that petition. “Manufacture,” for this purpose, includes completing it into a final stage. So if you complete 500 incomplete vehicles or more into final, or you have a combination business where you complete 250 and manufacture 250 from scratch, you've hit the 500.

Q: Are a power unit and a trailer considered separate?

A: Yes, but if they are offered for sale to the public as a single unit and you just happened to build them in two different stages in a factory, it is one unit. If you complete just the engine power unit and you sell that to someone else who puts that into a vehicle, you're an equipment manufacturer and not a vehicle manufacturer, and you'll be responsible for fatality reports and foreign recalls, but won't have other significant reporting obligations.

Q: My understanding is that the 500 volume includes the final-stage manufacturing of an incomplete vehicle, and that does not include vehicles that are serviced or vehicles that are accessorized by the addition of a toolbox.

A: That is correct. Accessory and service work does not count toward the 500. I want to put an asterisk next to that: Significant alterations of a vehicle do constitute, in NHTSA's lexicon, manufacturing — and that's the addition of components that are not readily attachable. A tool box is readily attachable. But if you take a completed vehicle and substantially change it into a different type of vehicle such that NHTSA calls that an alteration requiring a new certification label, NHTSA has considered those to be manufacturers and has not been entirely clear about their status under the TREAD Act. They have the impression that those are not done in quantities of 500 or more, so I think they don't believe that's a substantial issue.

Q: If you attach a final-stage certification label or alterer label, are you the manufacturer in the eyes of NHTSA?

A: Yes.

Q: What is the time period for measuring the 500 units?

A: If you were manufacturing 500 on April 1, 2000, then you qualify. If you're close to the 500 line, you probably need to talk to NHTSA about working that out. You don't want to be fluctuating in and out of this reporting area. I checked with the NHTSA head of enforcement, and there was no status report there. There wasn't even a target date for when they expect to provide that information.

Q: Who is a manufacturer?

A: It is an assembler, fabricator, or importer of a motor vehicle. NHTSA did define the manufacturer to include a parent company, subsidiary company, or an affiliate company. But these related companies do not have to make separate reports if they're not themselves manufacturers, unless that's where you, the manufacturer, store your Early Warning information in the ordinary course of business.

Q: There are four different entities in four different states — separate businesses, separate record-keeping — commonly owned by a paper holding company that does not itself have any of these records. Will NHTSA require that holding company to aggregate into separate reports?

A: No. NHTSA prefers it, but doesn't require it. An example on a much larger scale: Ford Motor Co owns Volvo, Mazda, Jaguar, and Land Rover. Jaguar keeps its records separate. Mazda keeps its records separate. The only caution I would say: If each was 125 units, NHTSA will add them up to reach the 500.

Q: When is the first reporting period, and how difficult will it be to do?

A: The first reporting period begins April 1, 2003, and it covers reports you receive in April, May, and June of 2003. The first report is due Aug. 31. The obvious implication of this is that you can't get a couple of clerks to sit there the day before it's due and start counting up the incidents you received in that quarter. Not only do you have to count them, but you have to code them into the component that is covered in that report. And they have to be reported electronically on Excel spreadsheets or comparable software with a specific format you can find on the NHTSA Web site. This is not something you can do the day before it's due. The only way this will work is to have the information coded as it comes into your business, unless your volume is so small that you really can sit there on a Friday morning and count them.

Q: Does anything have to be sent in hard copy?

A: Certain field reports — ones prepared by your employees that contain assessments of malfunctions or failures in vehicles — must be sent in hard copy. NHTSA wants to read those. Frankly, I think they are not contemplating the volume they are going to get and the staff they will need to read those. I think the volume is going to be overwhelming.

Q: What are one-time historic reports?

A: Most manufacturers are required to submit two historic reports. The first covers any previously unreported foreign recalls or other safety campaigns conducted in a foreign country on or after Nov. 1, 2000, involving a vehicle or item of motor vehicle equipment that is substantially similar to a vehicle or item of equipment sold in the US. Although reporting of foreign recalls has been mandatory since Nov. 1, 2000, the implementing regulations provided guidance about the meaning of some of the terminology, such as “substantially similar” vehicles or equipment. Accordingly, some campaigns may now be subject to the rules, but were not previously reported. This one-time report was due on Dec. 12, 2002.

The second historic report is required from the manufacturers of 500 or more vehicles, child restraints, and tires, and must include the numbers of warranty claims or warranty adjustments, and field reports, that the manufacturer received in each calendar quarter from April 1, 2000, to March 31, 2003, for vehicles manufactured in model years 1994 through 2003, child restraint systems manufactured on or after April 1, 1998, and tires manufactured on or after April 1, 1998. The report must separately report by each make/model/model year combination, in the same format as the Early Warning reports. This one-time report is due Sept. 30, 2003. Note that petitions for reconsideration are pending with respect to several aspects of this requirement, and these rules may change.

Q: A complaint is received in 2002 about a vehicle built in 1991. Is that reportable?

A: No. But a complaint received in 2002 about a vehicle built in 1998 will be reportable. Even though 1998 is more than three years ago, it's less than 10 years ago. The three-year historic report covers complaints about vehicles built in the last 10 years.

Q: Will competitors be able to access data we report?

A: We don't know yet. There's a separate rulemaking proceeding going on at NHTSA on how to treat this data for the purposes of public disclosure. There was substantial industry support to keep most of this confidential, and we don't know whether NHTSA is going to grant this or not. We will know this before Aug. 1. It's likely that NHTSA will decide that fatality data is not sensitive, because NHSTA investigates every fatality in the US involving a motor vehicle anyway, and they have a publicly available report on every fatality. But these reporting categories that you'll have to do in count form — which is warranty claims, consumer complaints, property damage, and field reports — are going to give a quick quality snapshot of your business and your product. That was argued by the industry to be very competitively sensitive.

There are arguments on the other side, primarily from consumer groups who are probably less interested in your reports than they are in the personal transportation market, but there is a strong push from consumer advocacy groups to make it all public in real time on the Internet. As the electronic submission goes to NHTSA, it would go straight to the Internet.

Q: A customer expresses dissatisfaction. Even if it had nothing to do with safety, is that reportable?

A: Yes. NHTSA thought about, and then rejected, an idea of letting us filter the non-safety complaints. They said, “We don't always agree with the industry about when something is safety-related. So if they're in one of the categories, we want it reported. If it turns out later that it's not really safety-related, we'll figure that out in the course of any subsequent investigation.” My prediction is, that's going to be a big problem in a lot of categories. Brakes, for example. Most brake complaints have nothing to do with safety. They have to do with noise or chatter or other things that have nothing to do with stopping distance or the performance of the brake. I think NHTSA is going to regret that decision.

Q: A final-stage manufacturer receives a warranty claim, but it's on a component of the chassis and therefore it's passed through to the chassis manufacturer, such as GM. Who has the reporting obligation?

A: In the case of a consumer complaint, it's both of you. In the case of a warranty claim, it's going to depend on who pays it. If you pay it and you pass it back to GM for reimbursement, you report it and GM also will. If you do not handle those warranty claims on the chassis component and they are directed to GM in the first instance and you step out of that loop, you do not have to report that. That's between your end-use customer and GM.

Q: How closely is NHTSA monitoring us?

A: I don't think your sector is highest on their priority (list). I think it's going to be the personal transportation vehicle. But you are on the radar screen. They are going to be looking at your vehicles. You can expect either informational phone calls or more formal defect investigations. They're going to look at trends, spikes, data that appears to be out of line with your peers.

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