Administration's GROW AMERICA Proposal Reveals Expansion of NHTSA Powers

Friday, April 10, 2015

On March 30, 2015, the Obama administration proposed significant changes to NHTSA rights and OEM and Supplier obligations with respect to recalls. The proposal, included in the Generating Renewal, Opportunity, and Work with Accelerated Mobility, Efficiency, and Rebuilding of Infrastructure and Communities throughout America Act (the “GROW AMERICA Act”), reveals “improved tools to protect the public from dangerous vehicle and tire defects.[1] ” The administration’s proposal nearly triples the current budget of the Office of Defects Investigation (“ODI”) in its efforts to monitor data, find defects earlier and conduct investigations of vehicles with suspected defects. Further, several key changes appear in the draft legislation:

NHTSA would gain the authority to issue an imminent hazard order.

The Act provides NHTSA with the authority to issue imminent hazard orders that would require OEMs and suppliers to immediately take action when an imminent risk of injury or death exists in a vehicle. The agency would be empowered to create restrictions that would stop what it declares an unsafe condition or practice that causes an emergency situation involving death, personal injury, or significant harm to the public. These restrictions could be applied without prior notice or hearings.

New functional safety process requirements would be created for electronics and software.

The Act creates a new set of standards titled “Functional Safety Process” which would allow the Secretary to create requirements and guidelines for the design, process, verification, validation and development of electronics and software to insure they function properly and possess fail-safe features. This provision would significantly impact the design, development and launch of connected and autonomous vehicles along with all other electronic components currently in vehicles today.

The Act significantly changes recall obligations under bankruptcy for OEMs and suppliers.

The proposed changes would cascade liability to a bankrupt manufacturer’s successor regardless of whether the acquiring company merged, acquired stock, acquired assets or even acquired a single product line. Under current law, a manufacturer’s recall obligations are treated as a claim of the U.S. Government and are entitled to priority in the proceedings, but the obligations do not usually flow through to the post-bankruptcy successor.

Dealers and rental companies would have to address defects and noncompliance.

After a dealer or rental company receives notice of a defect or noncompliance, it must remedy the defect or noncompliance before it delivers the vehicle in a sale, lease or rental agreement. This provision does not impact individual sales of used vehicles unless they have sold at least 10 motor vehicles during the course of a year. The proposed legislation further requires dealers to notify each owner of any defects at the time of any services performed at the dealership. This requirement must be cascaded in a franchise agreement or operating agreement between the OEM and the dealer.

Civil penalties would be increased for violations of motor vehicle safety.

Individual violations of the Act increase from $5,000 for each violation to $25,000 for each violation. The maximum penalty is increased from $35,000,000 to $300,000,000. The Act limits liability, however, against an individual to situations where the individual has willfully caused or committed a violation. If an individual has been instructed to commit the act by a person with greater authority, that employee has not acted “willfully” under the proposed law.

Additional criminal penalties would arise for “tampering with motor vehicle safety.”

The criminal liability provisions under the Act would be enlarged to include those who tamper with motor vehicle safety elements. Anyone who either willfully intends to endanger the safety of a person on board a motor vehicle or acts with a reckless disregard for the safety of human life may be subject to criminal penalties.

Republicans, who proposed two short-term bills in the House of Representatives in March, announced plans to unveil a counter-proposal that will ensure long-term funding for highway transportation programs. Last year, Congressional leaders failed to act on the 2014 renewal bill, and it is uncertain whether the Administration’s proposal or a Congressional equivalent will receive sufficient support to pass both chambers. Regardless, the current federal funding authority expires on May 31 and the funding itself will run out in July if lawmakers do not act.

For further information on the GROW AMERICA Act, please contact the author of this client alert of a member of the Butzel Long Automotive Industry Team.

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