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Energy > 13. Advanced Technology Vehicles Manufacturing Loan Program

Unless the Department of Energy can demonstrate demand for new Advanced Technology Vehicles Manufacturing loans and viable applications, Congress may wish to consider rescinding all or part of the remaining $4.2 billion in credit subsidy appropriations.

Why This Area Is Important

Faced with concerns over the nation’s reliance on imported oil, volatile energy costs, and greenhouse gas emissions, federal policymakers have established several programs and appropriated billions of dollars to promote advanced energy technologies to help meet our nation’s energy needs.  In December 2007, Congress passed the Energy Independence and Security Act (EISA), which made the nation’s corporate average fuel economy standards more stringent by requiring significant increases by 2020 in the fuel economy of newly manufactured passenger vehicles being sold in the United States. In addition, EISA authorized the Advanced Technology Vehicles Manufacturing (ATVM) loan program to provide up to $25 billion in loans (loan authority) for projects to produce more fuel-efficient passenger vehicles and their components.  The fiscal year 2009 continuing resolution appropriated $7.5 billion to the Department of Energy (DOE) to support the program’s direct loans to manufacturers of passenger vehicles and their components by paying the credit subsidy costs of the loans. Credit subsidy costs represent the estimated net long-term cost of extending or guaranteeing credit, in present value terms, over the entire period the loans are outstanding (not including administrative costs).

Of the $7.5 billion in appropriations, DOE has used $3.3 billion to cover credit subsidy costs for five ATVM loans worth $8.4 billion. This leaves $4.2 billion in credit subsidy appropriations and $16.6 billion in loan authority remaining, as shown in the table below. The program accepts applications on a rolling, ongoing basis. DOE closed on its most recent ATVM loan in March 2011. The credit subsidy appropriations and loan authority for the ATVM loan program do not expire.

ATVM Loan Program Remaining Appropriations and Loan Authority

 

Provided

Remaining

Credit subsidy appropriations

$7.5 billion

$4.2 billion

Loan authority

$25 billion

$16.6 billion

Source: GAO analysis of DOE information.

 

What GAO Found

GAO reported in March 2013 that DOE was not actively considering any applications for using the remaining $4.2 billion in credit subsidy appropriations or $16.6 billion in loan authority available under the ATVM loan program. DOE considered the seven ATVM loan program applications it had at that time, requesting a total of $1.48 billion, to be inactive for reasons including insufficient project equity or technology that was not ready. Since GAO’s March 2013 report, DOE has received one additional application, which seeks a loan of approximately $200 million. However, according to DOE officials in November 2013, the application remained in the initial phase of DOE’s review because the application—which was received in July 2013—was not complete. In commenting on this report section in February 2014, DOE said that it has moved the application to the due diligence phase of review.[1]  

Many of the applications previously received by DOE did not meet all the project, technical, and financial eligibility requirements of the program. To be eligible for loans, projects must (1) meet the fuel economy and emissions requirements set forth in the definition of an advanced technology vehicle or be designed for a specific advanced technology vehicle; (2) be designed or manufactured in the United States; and (3) meet federal prevailing wage requirements. Applicants must also meet technical and financial eligibility requirements. Manufacturers must meet sufficient fleet fuel economy standards or make qualifying components, and be financially viable without the receipt of additional federal funding for the proposed project. In November 2013, DOE officials told us that the department planned to conduct renewed outreach to component manufacturers regarding the program requirements and application process. In commenting on this report section in February 2014, DOE said that the agency has conducted this outreach and, as a result, has recently received several expressions of interest from potential applicants.

GAO also reported in March 2013 that most ATVM loan program applicants and other auto manufacturers GAO spoke with noted that there remains a need to promote advanced technology for increasing fuel economy. However, in many cases they said that, as the program is currently implemented by DOE, the costs of participating outweigh the benefits to their companies.  Most applicants and manufacturers we spoke to cited lengthy and burdensome application and review processes or restrictive loan and reporting requirements as challenges.  In addition, most applicants and manufacturers noted that problems with the Solyndra default and other DOE programs have tarnished the ATVM loan program.[2]  According to these applicants and manufacturers, the negative publicity makes DOE more risk-averse or makes companies wary of being associated with government support.

Determining whether funds will be used is important, particularly in a constrained fiscal environment, as unused appropriations could be rescinded or go toward other government priorities. Although the ATVM loan program accepts applications on an ongoing basis, DOE officials said in March 2013 that DOE is not likely to use all the remaining ATVM loan program authority given the current eligibility requirements.



[1]During the due diligence phase, DOE performs a detailed examination of the project’s technical, financial, legal, and other qualifications and negotiates the terms of the loan with the applicant.

[2]Solyndra, a solar panel manufacturer and the first recipient of a DOE loan guarantee under the Title XVII Loan Guarantee Program, declared bankruptcy in September 2011.

Actions Needed

Unless DOE can demonstrate a demand for new ATVM loans and viable applications, Congress may wish to consider

  • rescinding all or part of the remaining $4.2 billion in credit subsidy appropriations.

How GAO Conducted Its Work

The information contained in this analysis is based on findings from products listed in the related GAO products section and additional work GAO conducted.  For the March 2013 report, GAO reviewed DOE documents and interviewed five ATVM loan program applicants and other auto manufacturers. We selected applicants and auto manufacturers based on their eligibility to apply, ensuring that we included current, former, and prospective applicants.  In addition, in November 2013, GAO interviewed DOE officials to obtain updated information on the status of the ATVM loan program.

Table 11 in appendix IV lists the programs GAO identified that might have opportunities for cost savings.

Agency Comments & GAO Contact

In commenting on the March 2013 report on which this analysis is based, DOE generally agreed with GAO’s findings. DOE also provided technical comments that were incorporated, as appropriate. GAO provided a draft of this report section to DOE for review and comment.  DOE provided written comments, including updated information on the status of the program, which was incorporated as appropriate. In its comments, DOE strongly disagreed with GAO’s suggested action. DOE asserted that its new outreach efforts to potential applicants, such as meetings and presentations with senior management at component manufacturers, will increase awareness and interest in the program and lead to additional applications in 2014. DOE also commented that market trends toward fuel-efficient technologies and constrained manufacturing capacity will encourage automotive manufacturers to seek additional sources of capital in the United States.

Although DOE said that it has received several expressions of interest from potential applicants since November 2013, DOE has not received any new applications.  Additionally, DOE did not comment on how it planned to address challenges cited by previous applicants, including lengthy and burdensome application and review processes. Although the expressions of interest by potential applicants are encouraging, GAO maintains that all or part of the remaining $4.2 billion in credit subsidy appropriations should be considered for rescission because DOE has not further demonstrated a demand for ATVM loans, such as new applications that meet all the project, technical, and financial eligibility requirements of the program and involve amounts sufficient to justify retaining the remaining credit subsidy appropriations.

For additional information about this area, contact Frank Rusco at (202) 512-3841 or ruscof@gao.gov.

Related Products

Department of Energy:

Status of Loan Programs
GAO-13-331R:
Published: Mar 15, 2013. Publicly Released: Mar 15, 2013.

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