Daniel P. Malone Director Global Automotive Practice Butzel Long - Detroit TREAD Act – 5 Years After Are We There Yet? Korean International Trade Association Seoul, South Korea October 25, 2005

© 2005 Butzel Long 2 Anyong Hasayo!

© 2005 Butzel Long 3 KITA/Butzel Long Thank you to KITA. Goal: Keep KITA’s automotive members apprised of developments of interest on select U.S. laws that apply to their company. Seventh presentation since Educational information - Not legal advice.

© 2005 Butzel Long 4 1. TREAD Act – What? Why? How? 2. Rule 579 (Emphasis on Suppliers) 3.ERW Reporting (Status) 4.Current Major Issues Funding Renewal Rule 512 TPMS 6.Strategies 6.Where to go from here? Q & A Presentation Overview

© 2005 Butzel Long 5 What does TREAD have to do with Korea? TREAD has applicability to foreign-based companies, too. Any supplier of vehicles or components (OE and after market) to the U.S. market may have TREAD Act reporting obligations. TREAD has very substantial penalty provisions for non-compliance. a) Civil – up to $15,000,000 for related series of violations, 5(a) b) Criminal – a person may face up to 15 years imprisonment for among other things, falsifying or withholding information, 5(b) Foreign recalls may be reportable to NHTSA.

© 2005 Butzel Long 6 I. TREAD - Historic Overview Vehicle Safety Act of 1966 Report safety related defect or non-compliance with FMVSS 1966 – vehicle recalls 259,500 million vehicles Nearly all voluntary MY million vehicles sold in U.S recalled for safety-related defects or failure to meet FMVSS MY million vehicles recalled Kevin McDonald, Esq. Volkswagen of America 49 Buffalo L. Rev. 1174

© 2005 Butzel Long 7 TREAD Historic Overview What happened? Ford Explorer / Firestone Tire - September 2000 Hearings -Reported data insufficient -NHTSA’s failure to detect alarming trend -Concern over overseas events

© 2005 Butzel Long 8 Five Congressional Concerns 1.Ineffectiveness and inefficiency of NHTSA’s process of gathering and analyzing data. 2.NHTSA’s failure to update the Federal motor vehicle safety standards. 3.Absence of a federal law requiring manufacturers to notify NHTSA of recalls or safety-related actions taken in foreign countries. 4.Absence of a routine “early warning” reporting system. 5.Need to increase civil penalties and enact criminal sanctions. TREAD Historic Overview

© 2005 Butzel Long 9 TREAD ACT - Purposes TREAD amended the Vehicle Safety Act of 1966, 49 USC § to provide early warning reporting requirements for manufacturers of motor vehicles and motor vehicle equipment. TREAD requires reporting information and submitting documents that may help identify: a) Defects related to motor vehicle safety; or b) Non-compliance with (U.S.) FMVSS TREAD required NHTSA to implement TREAD regulations within two years (by November 2002) through rulemaking, 5 USC § 101, et. seq.

© 2005 Butzel Long 10 TREAD ACT – Intended Outcomes Reporting intended to provide NHTSA with information with vehicle to identify trends at an early stage. TREAD reporting intended to address five concerns from September 2000 hearings.

© 2005 Butzel Long 11 TREAD ACT – Important Distinction Congress distinguished between EWR data (TREAD), which is not indicative of a defect or non-compliance, and defects and non-compliance data (e.g. Rule 573)

© 2005 Butzel Long 12 TREAD ACT - Data TREAD Act data must include: (1)claims data submitted to manufacturers regarding serious injury and death; (2)aggregate statistical data on property damage from alleged defects; (3)Information on manufacturers’ customer satisfaction complaints consumer advised, recalled, and other repair or replacement programs for defective equipment; and (4)any other data that NHTSA required to assist it in detecting auto safety defects. TREAD Act § 3; 49 U.S.C. § 30166(m)(3).

© 2005 Butzel Long 13 TREAD Highlights – Rule 579 Currently, manufacturers have three types of TREAD Act reporting with three distinct deadlines

© 2005 Butzel Long 14 TREAD Highlights 1. RULE – All companies U.S. Notices, Bulletins and Other Communications (whether safety related or not) and Customer Satisfaction Campaign (49 CFR 573.8) TREAD regulations expand U.S. reporting (49 CFR 573.8) (Within 5 working days after the end of month it was sent, issues, or made available)

© 2005 Butzel Long 15 TREAD Highlights – Reportable communications include: Notices, Bulletins, Customer satisfaction campaigns, Consumer advisories, Communiqués including those transmitted by computer, telefax, or other electronic means and including warranty and policy extension communiqués and product improvement bulletins, or Recalls or other safety activities involving the repair or replacement of motor vehicles or motor vehicle equipment.

© 2005 Butzel Long 16 TREAD Highlights – That are: Sent to more than one manufacturer, dealer, distributor, lessee, lessor or purchaser in the United States, or Issued or made available to more than one manufacturer, dealer, distributor, lessee, lessor or purchaser in the United States.

© 2005 Butzel Long 17 TREAD Highlights – That refer to: Any defect, Any failure or malfunction beyond normal deterioration in use, Any failure of performance, or Any flaw or unintended deviation from design specifications, regardless of whether there are safety implications.

© 2005 Butzel Long 18 TREAD Highlights 2. Foreign Recalls & Other Safety Campaigns (49 CFR ) (Historic Report – December 12, 2002) A.Who Must Report: All manufacturers of motor vehicle equipment having identical or substantially similar products in foreign countries. B.What to Report: Safety recalls and other safety campaigns conducted in foreign countries. Manufacturers must report to NHTSA within five (5) working days of any order or decision to conduct a safety recall or other safety campaign in a foreign country that covers an item of motor vehicle equipment that is identical or substantially similar to an item of motor vehicle equipment sold or offered for sale in the United States.

© 2005 Butzel Long 19 TREAD HIGHLIGHTS 3.Early Warning Reporting (EWR) Rules NHTSA established different types of EWR requirements Group 1 - Manufacturers of 500 or more vehicles per year. a) light vehicles, ; b) medium heavy vehicles and buses ; c) motorcycles, ; or d) trailers,

© 2005 Butzel Long 20 TREAD HIGHLIGHTS Must report “historically” and, starting July 1, 2003, quarterly for the current year and previous nine years: a)Production numbers; b)Reports on incidents of inquiry or death in the U.S. alleged to have involved safety defects, specifying whether each incident was a fire or rollover and which of numerous coded component systems were involved; c)Number of property damage claims, consumer complaints, warranty claims and field reports implicating each coded system; and d)Copies of field reports, other than dealer reports, that implicate a potential safety defect in any coded system.

© 2005 Butzel Long 21 TREAD HIGHLIGHTS Group 1 - Manufacturers of Child Restraint Systems Must also report this information, but only for current year plus four previous years,

© 2005 Butzel Long 22 TREAD HIGHLIGHTS Group 1 - Tire Manufacturers Must provided data for the previous four years on production numbers, death and injuries, and warranty claims. a) lists of common green tires (tires produced to same specifications different external characteristics and sold under different names). b) Not required to submit data on consumer complaints or field reports

© 2005 Butzel Long 23 TREAD HIGHLIGHTS Group 2 – Rule (Suppliers/Small Volume Vehicle Manufacturers) Manufacturers of fewer than 500 vehicles, manufacturers or original and/or replacement equipment (other than child restraint systems and tires). Must report on claims or notices (U.S.) or claims (foreign) of: deaths; and identify the system involved in each incident

© 2005 Butzel Long 24 Primary Difference? Pre-TREAD Act – NHTSA requested information TREAD – Industry to report certain information as prescribed

© 2005 Butzel Long 25

© 2005 Butzel Long 26 Actual EWR Reporting How do I apply for an EWR account? To apply for an EWR account, you have to fill out an EWR Manufacturer Account application and submit it to the Office of Defects Investigation either via FAX ( ) or This is available on the NHTSA ODI website ( and from NHTSA ODI (202) or you can

© 2005 Butzel Long 27 Actual Reporting Where do I go to get EWR templates? Access the NHTSA ODI web site (URL: and click on EWR Information. The Early Warning Reporting (EWR) Downloads page appears. There are Microsoft® Excel templates and eXtensibleMarkupLanguage (XML) schema and instance files available for downloading to your local machine.URL: These templates, schema, and instance files are updated from time to time. You should check the following pages on the web site periodically to see if any information has changed.

© 2005 Butzel Long 28 Actual Reporting - Sample

© 2005 Butzel Long 29 Interpretations How do I find information regarding Interpretations of the “Early Warning Reporting” Final Rule (49 CFR Part 579 Subpart C)? Interpretations of the “Early Warning Reporting” Final Rule (49 CFR Part 579 Subpart C) can be found on the NHTSA ODI web site. Click on the EWR Information link in the menu to access the Early Warning Reporting Downloads page.

© 2005 Butzel Long 30 Early Warning Reporting

© 2005 Butzel Long 31 Three Current Major Issues

© 2005 Butzel Long 32 Financial Review of TREAD (January 2006 – Why?) Current Major Issue 1  Arguments:  “Not ONE new ODI file opened from TREAD reporting vs.  “More voluntary recalls in 2004 than ever before!”  Is TREAD working?  New system – imperfect  Not unduly burdensome at this point  Estimated 24,000 Companies - only 500 – 900 (why?) have reported A manufacturer may choose to obtain more than one ID and password NO reported sanctions  Threshold consideration  “Tinker”; or  Wholesale Re-do

© 2005 Butzel Long 33 Rule 512 – Confidential Business Information Current Major Issue 2 Before TREAD NHTSA had a Confidential Business Information (CBI) rule that established procedures and standards for determining whether data submitted to NHTSA should be treated as confidential pursuant to FOIA § USC § 552(b), 49 CFR 512.

© 2005 Butzel Long 34 This type of information, if disclosed, would reveal to competitors a manufacturer’s production and marketing strategies, and future product design plans, among other things. Rule 512 – Why?

© 2005 Butzel Long 35 Rule Challenges April 30, 2002 – NPRM (how to apply Rule 512 to TREAD?)  Public comment  Revisions July 28, 2003 NHTSA issues final Rule 512.  “class determinations” of confidentiality for production numbers, common green tire data, and warranty adjustments (FOIA Exemption 4).  Other information, case-by-case.

© 2005 Butzel Long 36 For other reasons, NHTSA afforded automatic confidential status to the following categories of information: 1.Reports and data relating to warranty claim information; 2.Reports and data relating to field reports, including dealer reports and hard copy reports; and 3.Reports and data relating to consumer complaints. Rule 512

© 2005 Butzel Long 37 Rule Expansion NHTSA extended automatic confidential status protection to reports of production numbers for child restraint systems, tires, and vehicles other than light vehicles.

© 2005 Butzel Long 38 Rule Developments March 22, 2004 Public Citizen files lawsuit. Why? RMA and Automotive Alliance intervene in May and June 2004, respectfully. October 1, 2004 – NHTSA grants administrative stay. Respective Positions  Public Citizen  RMA  Alliance Ford Roof Crush - Example

© 2005 Butzel Long 39 Tire Pressure Monitoring Systems Current Major Issue 3 Chronology NPRM Final Rule – June 5, 2002 (Direct & Indirect Systems) Court Reversal – (New York) New NPRM Final Rule – April 8, 2005 Petition to Reverse – June 6, 2005 (Washington, D.C.) Stay Tuned!

© 2005 Butzel Long 40 TREAD - Strategies 5. Strategies A. NHTSA Strangely Quiet – Why? B. What we know – 1. No Reported 579 sanctions 2. NO ODI investigations 3. Personnel considerations 4. Financial review – January ’06 5. Needle in Haystack 6. ODI – Recall Investigations LOW 7. “Belts and Booze”

© 2005 Butzel Long 41 TREAD - Strategies C. Practical Suggestions 1. Organization / Training / Preparation 2. Adopt a TREAD policy 3. Establish a TREAD program 4. Designate TREAD Coordinators 5. Have a Rapid Response Plan in place 6. Consider virtual “Crisis Rooms” (e.g. secured internet system to allow exchange of real time information) 7. Have a clear and clearly communicated, understood Crisis Management Plan.

© 2005 Butzel Long 42 D.View As Multi-Faceted  Legal, but also  Educational  training  “chain link”  Technical (Global Compatibility)  Business Organization  Policy  Accountability  Continued Improvements (KIA Motors) E. Stay Low!

© 2005 Butzel Long 43 6.Are We There Yet? Where Do We Go From Here? TREAD NOT GOING AWAY Prediction (s)?  Modest changes  Keep Group 1 intact  Tighten definitions (e.g. field reports, brakes) January 2006 Financial Review – Stay tuned! Add to list?

© 2005 Butzel Long 44 Kamsahapnida!

© 2005 Butzel Long 45 Questions and Answers Daniel P. Malone Butzel Long 150 West Jefferson Suite 100 Detroit, MI Office Fax