TREAD Increases Reporting Burden

April 14, 2003
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DETROIT — The Transportation Recall Enhancement Accountability and Documentation (TREAD) Act went into full gear April 1.

The question is, are you ready for it?

Signed into law on Nov. 1, 2000, the legislation was a direct result of the Ford/Firestone tire fiasco.

With that came the decision of the House of Representatives Committee on Energy and Commerce that the National Highway Traffic Safety Administration (NHTSA) could have detected problems with the tires more quickly had it received reports about problems sooner. The act was designed to strengthen U.S. motor vehicle safety laws by giving NHTSA early warning of troubling trends.

The legislation went into effect April 1 and applies to virtually any company in the automotive industry.

“The hope is that this program will make American highways safer,” said Daniel P. Malone, a shareholder with Butzel Long law firm. “The TREAD Act really saddles companies in the automotive industry with three types of reporting requirements.”

The first and best known among them is the Early Warning Reporting System, which divides manufacturers into two groups.

Group I consists of the vehicle manufacturers, tire manufacturers and child safety restraint system manufacturers that sell more than 500 units a year in the United States.

The system imposes numerous requirements that the firm must report to NHTSA on fatalities, injuries, property damage, consumer complaints, warranty claims, field reports and production.

The firms also must retain documents relevant to all reports for nine years.  

Group II consists of the manufacturers that produce or sell less than 500 units per year in the United States. The category includes Tier I and Tier II suppliers and all the other component manufacturers in the industry — both original equipment and replacement parts. They are required to report accidents involving fatalities and to retain relevant documents for four years. 

Malone said he recently read estimates that Group I probably requires early warning reporting of 87 companies, and roughly 24,000 companies fit within Group II.

He said the first quarter for TREAD Early Warning Reporting began April 1.

The second type of reporting deals with the servicing of a defect or flaw, whether safety related or not, and requires companies to submit to NHTSA documentation of service notices, service bulletins and customer satisfaction campaigns.

The third type of reporting is foreign recall reporting.

“If a company makes a determination that a product it’s selling or distributing in a foreign country contains a defect and should be recalled, then the company that makes the determination has five days to notify NHTSA of that development,” Malone explained.

“On the flip side, if a foreign government notifies a company it is recalling its product, the company needs to notify NHTSA and submit a copy of the recall announcement within five days.”

Group I manufacturers also are required to submit a one-time historic report covering all claims, complaints, warranty data, field reports, etc. that occurred from the beginning of the TREAD Act in November 2000 up to the present.

That report will be due by Sept. 30 this year and will be a significant undertaking, Malone said.

Under the TREAD reporting scheme, what a manufacturer fails to report can result in penalties, and failure to comply with any reporting responsibility in a timely manner can lead to severe financial penalties, Malone observed.

He said he believes timely reporting will require a considerable amount of work to put information-gathering and retention systems in place. 

Though Group I has far more reporting responsibilities than Group II, Malone believes Group I manufacturers are ready to deal with TREAD requirements.

He said, however, that a recent survey estimated that only 8 percent of Group II manufacturers covered by TREAD are prepared to comply with new requirements.

“The largest companies — the major vehicle manufacturers and major Tier I suppliers — already have very sophisticated systems that just need adjusting.

“But the smaller companies may be in a position where they’re not staffed and need to hire staff to meet these reporting requirements.”

As Malone sees it, compliance is costly for all companies affected — large or small — and that the cost increases come at a time when OEM’s are imposing formidable cost-reduction demands upon all suppliers.

ARM Research indicated last December that the process of complying with TREAD Act reporting mandates would run the typical OEM $3 million to $10 million in labor and systems initially and $1 million to $2.5 million annually after that.

Will these reporting mandates really help turn out safer products?

“I think the industry certainly supports the congressional intent of trying to improve highway safety,” Malone said. “I think where some may have different opinions as to whether this particular reporting scheme is going to materially advance that goal, theoretically it will result in companies in the industry, as well as the government, looking more closely at trends — looking for alarming trends at an early stage.

“NHTSA is of the opinion that if we get this information from companies and do statistical analyses of the database we compile, we will be able to identify the ‘spikes’ — the product lines that are demonstrating more alarming trends than others.” 

Should all companies in the automotive industry be saddled with such reporting responsibilities? Malone thinks probably not, but says he applauds any reasonable effort to try to improve highway safety.

What’s the upside for companies affected?

“Companies that are aware of product liability exposure, for example, will benefit if they take steps to help reduce highway accidents, which theoretically would result in fewer lawsuits. That would be a tangible way that TREAD could be beneficial to the industry.”

For companies not yet prepared for the new reporting mandates, Malone offered these suggestions:

  • Get familiar with TREAD.

  • Develop a comprehensive and formal TREAD compliance program.

  • Consider NHTSA’s Early Warning Reporting rules as an ongoing compliance effort that will take team effort.

  • Be mindful that information submitted to NHTSA may have other legal ramifications, e.g. in product liability cases, and should be reviewed by legal counsel.

  • Remember that, given NHTSA’s limited resources and the volume of information it is compiling, the agency’s focus will likely be looking for alarming trends in product performance.

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