Before the Trump administration took over in January, the National Highway Traffic Safety Administration (NHTSA) had just come off its most aggressive three years of recall and reporting enforcement. The agency was on a roll. Mostly under the watch of Administrator Mark Rosekind, NHTSA recalled over 150 million vehicles and issued hundreds of millions of dollars in civil penalties. The agency also made it clear that suppliers must independently report noncompliance and safety defects to NHTSA or face penalties. Since the election, NHTSA has been relatively quiet and the President has yet to appoint a new Administrator. Speculators last predicted the appointment of an industry insider, some suggesting the likes of GM CEO Mary Barra. While we wait, the agency continues to be run by Rosekind appointees and career civil servants. And, several vehicle manufacturers continue to be surveilled by independent NHTSA monitors implanted within the companies as part of previous penalties. Expectedly, these manufacturers continue to abide by the “when in doubt, report” mantra. As a result, suppliers must be more astute in recognizing and possibly reporting safety issues. So, what should suppliers be doing now?
Understand NHTSA reporting duties. To avoid enforcement, suppliers must know when to report product safety issues. Under 49 CFR 573:
These reports must be made within five working days of the supplier’s determination that a noncompliance or safety defect exists. The more difficult and subjective question in both scenarios is how to define “defect related to motor vehicle safety.” NHTSA’s definition is not much help: any defect that could in the future “cause an unreasonable risk of accidents or an unreasonable risk of death or injury in an accident.” But NHTSA considers some issues as “per se” safety defects, e.g. defects involving failure of a critical component, vehicle fire, loss of vehicle control and/or one that suddenly moves the driver away from steering, accelerator or brake controls.
While this adds some clarity, most potential safety issues are not that clear-cut and will involve analysis of the likelihood of potential conse-quences, injuries and sometimes interaction of the component with other vehicle parts. Because reporting to NHTSA creates its own snowball of effects with the agency and the vehicle manufacturer, it is critical for the supplier to properly analyze issues before doing so. Often, the sky isn’t really falling and experienced regulatory counsel is invaluable to help make that determination.
Understand contractual duties. Several vehicle manufacturer terms and conditions require suppliers to affirmatively report potential safety issues to the manufacturer regardless of whether an NHTSA reporting duty exists. Many of the recent large-scale recalls involving supplier components have been followed up by manufacturer allegations of damages caused by the supplier’s failure to inform the vehicle manufacturer of known safety issues in a timely manner.
Understand potential product liability risk. Failure to report and recall safety defects can result in product liability exposure. The supplier must understand the law to evaluate its potential risk.
Have a written plan. Suppliers should, along with counsel, prepare and implement a formal written product safety/recall plan. The plan should: (1) identify a coordinator and other members of a product safety/recall team charged with identifying, investigating and possibly reporting/recalling product safety defects; (2) require employees and divisions to report all potential product safety defects to the safety/recall team for evaluation; and (3) provide a procedure for the safety/recall team to investigate potential product safety issues.
Aggressively investigate potential issues. Don’t wait for the vehicle manufacturer to direct the investigation or request an 8D report. Upon learning of a potential safety issue, suppliers should immediately and diligently conduct their own independent investigation. Be proactive and have answers to the hard questions at-the-ready when the manufacturer or agency asks.
Engage outside counsel early in the process. To protect your investigation and related communications, suppliers should involve outside counsel early in the process. By doing so, suppliers can take advantage of certain privileges to protect information and communications from disclosure to third parties. Failing to involve outside counsel may leave your communications open to discovery by the agency, the manufacturer and product liability plaintiffs.
Be careful about internal and external communications. Employees should be trained (and regularly retrained) to avoid sending “bad documents” that could later be used against the company. Bad documents often include emails or reports that contain unnecessary exaggeration, incomplete or inaccurate information and/or statements made outside of one’s expertise.
Chris Predko is a partner and member of the Automotive Industry Group and is Co-chair of the firm’s Regulatory and Compliance Practice Group. He regularly counsels suppliers regarding NHTSA obligations and other product safety issues. Call or email him directly (616.752.2190 or email@example.com) to discuss your product safety questions or contact other members of the Automotive Group.