The TREAD Act: “Early Warning Reporting” and What it Means to YOU!

1. The TREAD Act:“Early Warning Reporting” and What it Means to YOU! September 10, 2002 Seoul, South Korea Part III

3. TransportationRecallEnhancement, Accountability, And Documentation Act (“TREAD”) • Signed into law November 1, 2000 • Not just tires

4. Purpose of Presentation Discuss the Latest on the TREAD Act “Early Warning Reporting” and What it Means to YOU!

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7. Overview of Presentation • “Early Warning” Reporting Requirements and Developments Since April 9, 2002 Presentation • Who needs to report? • What to report? • When to report? • How Korean Companies Should Prepare • Questions and Answers

8. The Arrival Of “TREAD” • International Scope • More than just OEMs have duty to report • Coordination • Record-keeping • Reporting

9. TransportationRecallEnhancement, Accountability, And Documentation Act (“TREAD”) • Signed into law on November 1, 2000 • “Early Warning” reporting is here!

10. TREAD: “Early Warning” Rulemaking Process • Congressional Legislation does not define details or substance of reporting • Rulemaking delegated to NHTSA Administrator to provide details of what to report

11. “Early Warning” History • TREAD Act signed into law November 1, 2000 • NHTSA issues ANPRM January 22, 2001 • KITA Presentation I May 22, 2001 • NHTSA issues NPRM December 21, 2001 • KITA Presentation II April 9, 2002 • Final rule statutory deadline June 30, 2002 • NHTSA issues final rule July 3, 2002 • Effective date of final rule August 9, 2002 • KITA Presentation III September 10, 2002 • First reporting period begins April 1, 2003

12. Purpose of TREAD Act “Early Warning” • TREAD requires an elaborate system of “Early Warning” reporting • Legislative Intent: To develop an efficient means of identifying safety related defects without imposing unreasonable burdens on the industry.

13. Purpose of TREAD Act “Early Warning” "Under this rule, motor vehicle and motor vehicle equipment manufacturers will be required to report information that will assist NHTSA in promptly identifying defects related to motor vehicle safety." – Dr. Jeffrey Runge, NHTSA Administrator

14. The Focus Of TREAD • Reporting requirements • Legislative and regulatory follow-up • Civil and criminal penalties

15. Key Issues • Who needs to report? • What to report? • When to report?

16. CurrentReporting Requirements • Overseas Experience • Regarding motor vehicles or motor vehicle equipment identical or substantially similar to a vehicle or vehicle equipment sold in the U.S., the manufacturer must report: (1) a decision by a foreign government to conduct a safety recall or safety campaign; and (2) a determination by the U.S. manufacturer to conduct a safety recall or safety campaign in a foreign country

17. “Early Warning Reporting” • TREAD requires an elaborate matrix of “Early Warning Reporting” • Information to be reported includes: • Warranty and claims data • Incidents involving serious injury or death alleged or proven to be caused by vehicle or equipment defects • Other data that may assist in identifying safety-related defects

18. Who Must Report Under “Early Warning?” • All manufacturers of motor vehicles and motor vehicle equipment are within the scope of the “Early Warning” reporting requirements • U.S. vehicles and equipment and • “Substantially similar” foreign vehicles and equipment

19. Final Rule • Divide manufacturers into 2 groups • Different reporting requirements

20. Division Of Manufacturers Into Two Groups Group 1: • Manufacturers of motor vehicles who produce, import, offer for sale or sell in the U.S. 500 or more of a particular vehicle category annually • 4 categories of vehicles: • light vehicles • medium-heavy vehicles and buses • motorcycles • trailers • All manufacturers of child restraint systems(CRS) • All manufactures of tires

21. Division Of Manufacturers Into Two Groups Group 2: • Manufacturers of motor vehicles who produce, import, offer for sale or sell in the U.S. 499 or less vehicles annually • All manufacturers of original motor vehicle equipment and replacement equipment (other than CRS and tires)

22. Examples of Group 2 Manufacturers • A steering wheel assembly may include: • air bag • horn control • turn signal control • wiper control • ignition switch • cruise control • lighting controls • as well as associated wiring • Many of these units are assembled by a supplier, often with components from various manufacturers. • Each of these fabricators or assemblers is considered a manufacturer of motor vehicle equipment.

23. Different Reporting Requirements Group 1: • Each claim or notice of death in the U.S. potentially caused by a defect • Each claim of death in a foreign country potentially caused by a defect in a product identical or substantially similar to a product offered for sale in the U.S. • Customer Satisfaction Campaigns, Consumer advisories, recalls, or activities regarding repair/replacement (production of documents) • Each claim or notice of injury occurring in the U.S.

24. Different Reporting Requirements Group 1(continued): • Claims for property damage occurring in the U.S. (certain compounds; excluding CRS) • Aggregate number of consumer complaints and warranty claims occurring in the U.S. • Total number of field reports from employees, dealers and fleets related to potential defects in the U.S. • Production information

25. Different Reporting Requirements Group 2: • Each claim or notice of death in the U.S. potentially caused by a defect • Each claim of death in a foreign country potentially caused by a defect in a product or in an identical or substantially similar product offered for sale in the U.S.

26. “Substantially Similar”Defined (49 CFR 579.4 (d)(2)) • Motor vehicle equipment that is sold or in use outside the U.S. and: • Contains one or more components or systems that are the same as in the U.S. • Performs the same function • Regardless of whether the part numbers are identical

27. Is it “Substantially Similar?” Industry Question: “[I]f the only commonality is a single type of fastener that neither failed nor contributed to the incident, are the components or equipment substantially similar?” NHTSA’s Answer: “[T]he equipment incorporating the fasteners would be substantially similar for early warning reporting unless the claim specifically identified a non-common component as the source of the failure.”

28. Example of Claim that Must be Reported Please Remember… • The following slide is just a hypothetical • Every case is unique • The statutory intent is very broad • Consider seeking legal counsel

29. Example of Claim that Must be Reported Question: Must a Korean component manufacturer report under “Early Warning” if it receives notice of a death in a written requestfor relief based on allegations of the failure of a component? Answer: YES! The term “claim” is defined very broadly.

30. Definition of “Claim” • Awritten request or written demand for relief, including money or other compensation, assumption of expenditures, or equitable relief, related to a motor vehicle crash, accident, the failure of a component or system of a vehicle or an item of motor vehicle equipment, or a fire originating in or from a motor vehicle or a substance that leaked from a motor vehicle.

31. Definition of “Claim” • Claim includes, but is not limited to, ademandin the absence of a lawsuit, a complaint initiating a lawsuit, an assertion or notice of litigation, a settlement, covenant not to sue or release of liability in the absence of a written demand, and a subrogation request.

32. Definition of “Claim” • A claim existsregardless of any denial or refusal to pay it, and regardless of whether it has been settled or resolved in the manufacturer's favor. The existence of a claim may not be conditioned on the receipt of anything beyond the document(s) stating a claim.

33. Definition of “Claim” • Claim does not include demands related to asbestos exposure, to emissions of volatile organic compounds from vehicle interiors, or to end-of-life disposal of vehicles, parts or components of vehicles, equipment, or parts or components of equipment.

34. Example of Claim that Must be Reported Question: what information must a Korean component manufacturer report under “Early Warning?”

35. Information that Must Be Reported • Information about deaths to be reported for each incident: • make, model, and model year of the vehicle or equipment • date of the incident • number of deaths and injuries that occurred • name of the State in the United States or the foreign country in which the incident occurred • identification of each component or system that allegedly contributed to the incident or the death reported • the VIN of the vehicle (or the TIN of the tire, as applicable)

36. NHTSA “Early Warning” TemplatesGeneral Reporting Information http://www.nhtsa.dot.gov/cars/rules/EWR/MiscEquipmentVehicles.xls

37. NHTSA “Early Warning” TemplatesDeath Reporting ONLY! http://www.nhtsa.dot.gov/cars/rules/EWR/MiscEquipmentVehicles.xls

38. Record Keeping • Record retention requirements expanded • Equipment manufacturers to retain records related to incidents referred to in claims and notices involving deaths for 5 years • Applies to records in your possession, generated or acquired on or after August 9, 2002

39. Documents Must Be Submitted49 CFR 579.5 (former 573.8) • Equipment manufacturers must furnish to NHTSA copies of: • All notices, bulletins and other tangible communications (i.e., non-verbal) • Sent to more than one manufacturer, distributor, dealer or purchaser

40. Documents Must Be Submitted49 CFR 579.5 (former 573.8) • Equipment manufacturers must furnish to NHTSA copies of any communication regarding any defect in its equipment including: • any failure or malfunction beyond normal deterioration in use, or • any failure of performance, or • any flaw or unintended deviation from design specifications • Whether or not such defect is safety related

41. Documents Must Be Submitted49 CFR 579.5 (former 573.8) • Reporting requirements are not avoided by making common communications to customers in separate months • Timing for the report is triggered by the issuance of the communication to a second customer • Law Department should be consulted in all cases in advance of issuing bulletins or other tangible communications to multiple customers

42. Summary Of Reporting Requirements

43. Procedural Requirements How And When “Early Warning” Information Must Be Reported

44. How and When “Early Warning” Information Must Be Reported • Electronic submission in specified format • 4 reporting periods each calendar year • Documents must be submitted no later than 30 days after the end of the calendar quarter • First report covers second quarter of 2003

45. How and When “Early Warning” Information Must Be Reported • One-time requirement(currently Group 1 only): • By quarter, warranty claims, adjustments and field reports for three-year period April 1, 2000 through March 31, 2003 • Due September 30, 2003

46. Important “Early Warning” Dates

47. Important “Early Warning” Dates

48. Other Important Tread Provisions CIVIL and CRIMINAL PENALTIES

49. Civil and Criminal Penalties • TREAD expands current penalty provisions: • Stiffer fines and penalties for corporate failure to comply with the Act • Provides for criminal liability for falsifying or withholding information

50. TREAD Provides A “Safe Harbor” To Encourage Reporting and “Whistleblowers” • No criminal penalties if: • The violator at the time did not know that the violation would result in an accident causing death or serious bodily injury • The violator corrects any improper reports or failure to report within a reasonable time