Department of Energy
Advanced Technology Vehicle Loan Program Implementation Is Under Way, but Enhanced Technical Oversight and Performance Measures Are Needed Gao ID: GAO-11-145 February 28, 2011In the Energy Independence and Security Act of 2007, Congress mandated higher vehicle fuel economy by model year 2020 and established the Advanced Technology Vehicles Manufacturing (ATVM) loan program in the Department of Energy (DOE). ATVM is to provide up to $25 billion in loans for more fuel-efficient vehicles and components. Congress also provided $7.5 billion to pay the required credit subsidy costs--the government's estimated net long-term cost, in present value terms, of the loans. GAO was asked to review the ATVM program and agreed to (1) identify the steps DOE has taken to implement the program, (2) examine the program's progress in awarding loans, (3) assess how the program is overseeing the loans, and (4) evaluate the extent to which DOE can assess progress toward meeting its goals. GAO analyzed loan documents and relevant laws and regulations and interviewed DOE and ATVM officials.
DOE has taken several steps to implement the ATVM program. First, it set three goals: increase the fuel economy of U.S. passenger vehicles as a whole, advance U.S. automotive technology, and protect taxpayers' financial interests. DOE also set technical, financial, and environmental eligibility requirements. In addition, DOE established criteria for judging the technical and financial merits of applicants and projects deemed eligible, and policy factors to consider, such as a project's potential for supporting jobs. DOE established procedures for ATVM staff, aided by experts from within and outside DOE, to score applicants and projects. Finally, the Credit Review Board, composed of senior DOE officials, uses the scores and other information to recommend loan decisions to the Secretary of Energy. The ATVM program has made $8.4 billion in loans that DOE expects to yield fuel economy improvements in the near term along with greater advances, through newer technologies, in years to come. Although the loans represent about a third of the $25 billion authorized by law, the program has used 44 percent of the $7.5 billion allocated to pay credit subsidy costs, which is more than was initially anticipated. These higher credit subsidy costs were, in part, a reflection of the risky financial situation of the automotive industry at the time the loans were made. As a result of the higher credit subsidy costs, the program may be unable to loan the full $25 billion allowed by statute. Although the ATVM program has set procedures for overseeing the financial and technical performance of borrowers and has begun oversight, it has not yet engaged engineering expertise needed for technical oversight. To oversee financial performance, staff review data submitted by borrowers on their financial health to identify challenges to repaying the loans. Staff also rely on outside auditors to confirm whether funds have been used for allowable expenses. To oversee technical performance, ATVM staff analyze information borrowers report on their technical progress and are to use outside engineering expertise to supplement their analysis. According to our review, projects needing additional technical oversight are under way and the ATVM staff lack the engineering expertise called for by the program's procedures for adequately overseeing technical aspects of the projects. However, the program has not yet engaged such expertise. As a result, DOE cannot be adequately assured that the projects will be delivered as agreed. DOE has not developed sufficient performance measures that would enable it to fully assess the extent to which it has achieved its three program goals. For example, while DOE has a measure for assessing specifically the fuel economy gains for the vehicles produced under the program, the measure falls short of enabling assessment of progress in achieving DOE's broad goal of improving the fuel economy of U.S. passenger vehicles as a whole because it does not account for, among other things, the fuel economy improvements manufacturers would have made, in the absence of the loans, to remain in compliance with increasingly strict federal fuel economy requirements. Principles of good governance call for performance measures tied to goals as a means of assessing the extent to which goals have been achieved. To help ensure the effectiveness and accountability of the ATVM program, GAO recommends that DOE accelerate its efforts to engage the engineering expertise needed for effective technical oversight and develop sufficient, quantifiable performance measures for its program goals. DOE disagreed with GAO's recommendations. GAO continues to believe DOE should engage expertise and reaffirms its recommendation that DOE develop sufficient performance measures.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Franklin W. Rusco Team: Government Accountability Office: Natural Resources and Environment Phone: (202) 512-4597GAO-11-145, Department of Energy: Advanced Technology Vehicle Loan Program Implementation Is Under Way, but Enhanced Technical Oversight and Performance Measures Are Needed
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United States Government Accountability Office:
GAO:
Report to the Subcommittee on Energy and Water Development, Committee
on Appropriations, U.S. Senate:
February 2011:
Department of Energy:
Advanced Technology Vehicle Loan Program Implementation Is Under Way,
but Enhanced Technical Oversight and Performance Measures Are Needed:
Department of Energy:
GAO-11-145:
GAO Highlights:
Highlights of GAO-11-145, a report to the Subcommittee on Energy and
Water Development, Committee on Appropriations, U.S. Senate.
Why GAO Did This Study:
In the Energy Independence and Security Act of 2007, Congress mandated
higher vehicle fuel economy by model year 2020 and established the
Advanced Technology Vehicles Manufacturing (ATVM) loan program in the
Department of Energy (DOE). ATVM is to provide up to $25 billion in
loans for more fuel-efficient vehicles and components. Congress also
provided $7.5 billion to pay the required credit subsidy costs”the
government‘s estimated net long-term cost, in present value terms, of
the loans. GAO was asked to review the ATVM program and agreed to (1)
identify the steps DOE has taken to implement the program, (2) examine
the program‘s progress in awarding loans, (3) assess how the program
is overseeing the loans, and (4) evaluate the extent to which DOE can
assess progress toward meeting its goals. GAO analyzed loan documents
and relevant laws and regulations and interviewed DOE and ATVM
officials.
What GAO Found:
DOE has taken several steps to implement the ATVM program. First, it
set three goals: increase the fuel economy of U.S. passenger vehicles
as a whole, advance U.S. automotive technology, and protect taxpayers‘
financial interests. DOE also set technical, financial, and
environmental eligibility requirements. In addition, DOE established
criteria for judging the technical and financial merits of applicants
and projects deemed eligible, and policy factors to consider, such as
a project‘s potential for supporting jobs. DOE established procedures
for ATVM staff, aided by experts from within and outside DOE, to score
applicants and projects. Finally, the Credit Review Board, composed of
senior DOE officials, uses the scores and other information to
recommend loan decisions to the Secretary of Energy.
The ATVM program has made $8.4 billion in loans that DOE expects to
yield fuel economy improvements in the near term along with greater
advances, through newer technologies, in years to come. Although the
loans represent about a third of the $25 billion authorized by law,
the program has used 44 percent of the $7.5 billion allocated to pay
credit subsidy costs, which is more than was initially anticipated.
These higher credit subsidy costs were, in part, a reflection of the
risky financial situation of the automotive industry at the time the
loans were made. As a result of the higher credit subsidy costs, the
program may be unable to loan the full $25 billion allowed by statute.
Although the ATVM program has set procedures for overseeing the
financial and technical performance of borrowers and has begun
oversight, it has not yet engaged engineering expertise needed for
technical oversight. To oversee financial performance, staff review
data submitted by borrowers on their financial health to identify
challenges to repaying the loans. Staff also rely on outside auditors
to confirm whether funds have been used for allowable expenses. To
oversee technical performance, ATVM staff analyze information
borrowers report on their technical progress and are to use outside
engineering expertise to supplement their analysis. According to our
review, projects needing additional technical oversight are under way
and the ATVM staff lack the engineering expertise called for by the
program‘s procedures for adequately overseeing technical aspects of
the projects. However, the program has not yet engaged such expertise.
As a result, DOE cannot be adequately assured that the projects will
be delivered as agreed.
DOE has not developed sufficient performance measures that would
enable it to fully assess the extent to which it has achieved its
three program goals. For example, while DOE has a measure for
assessing specifically the fuel economy gains for the vehicles
produced under the program, the measure falls short of enabling
assessment of progress in achieving DOE‘s broad goal of improving the
fuel economy of U.S. passenger vehicles as a whole because it does not
account for, among other things, the fuel economy improvements
manufacturers would have made, in the absence of the loans, to remain
in compliance with increasingly strict federal fuel economy
requirements. Principles of good governance call for performance
measures tied to goals as a means of assessing the extent to which
goals have been achieved.
What GAO Recommends:
To help ensure the effectiveness and accountability of the ATVM
program, GAO recommends that DOE accelerate its efforts to engage the
engineering expertise needed for effective technical oversight and
develop sufficient, quantifiable performance measures for its program
goals. DOE disagreed with GAO‘s recommendations. GAO continues to
believe DOE should engage expertise and reaffirms its recommendation
that DOE develop sufficient performance measures.
View [hyperlink, http://www.gao.gov/products/GAO-11-145] or key
components. For more information, contact Frank Rusco at (202) 512-
3841 or ruscof@gao.gov.
[End of section]
Contents:
Letter:
Background:
DOE Established Program Goals and Set Criteria for Applicant and
Project Eligibility and Merit:
The ATVM Program Has Awarded $8.4 Billion in Loans That Largely
Enhance Conventional Vehicle Technology, but the Program May Be Unable
to Lend the Full Authorized Amount:
The ATVM Program Has Begun Overseeing Loans to Ensure Borrowers Comply
with Financial and Technical Requirements but Has Not Engaged
Engineering Expertise That Would Help Ensure That Projects Are
Delivered as Agreed:
DOE Lacks Performance Measures That Would Enable It to Fully Assess
the Extent to Which the ATVM Program Has Achieved Its Goals:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Energy:
Appendix III: GAO Contact and Staff Acknowledgments34:
Table:
Table 1: ATVM Loan Program Expectations of Jobs to Be Created or
Preserved and Their Locations:
Abbreviations:
ATVM: Advanced Technology Vehicles Manufacturing:
CAFE: corporate average fuel economy:
CBO: Congressional Budget Office:
DOE: Department of Energy:
EERE: Office of Energy Efficiency and Renewable Energy:
EISA: Energy Independence and Security Act:
EPA: Environmental Protection Agency:
GPRA: Government Performance and Results Act:
mpg: miles per gallon:
mpgge: miles per gallon of gasoline equivalent:
NEPA: National Environmental Policy Act:
NHTSA: National Highway Traffic Safety Administration:
OMB: Office of Management and Budget:
PSAT: Powertrain System Analysis Toolkit:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
February 28, 2011:
The Honorable Dianne Feinstein:
Chairman:
The Honorable Lamar Alexander:
Ranking Member:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
United States Senate:
In recent years, concern about fluctuations in gasoline prices, along
with worries about the environmental impact of petroleum use, such as
increasing greenhouse gases, has prompted Congress to take steps aimed
at making passenger vehicles in use in the United States more fuel-
efficient. In December 2007, Congress enacted the Energy Independence
and Security Act (EISA), which made the nation's corporate average
fuel economy (CAFE) standards for newly manufactured passenger
vehicles more stringent by requiring significant increases in the fuel
economy of the vehicles being sold in the United States by 2020. In
addition, EISA authorized, but did not provide funding for, the
Advanced Technology Vehicles Manufacturing (ATVM) loan program, to
provide loans for projects to produce more fuel-efficient passenger
vehicles and their components. [Footnote 1] The fiscal year 2009
continuing resolution appropriated $7.5 billion from which the
Department of Energy (DOE) is to pay the program's credit subsidy
costs to support up to $25 billion in direct loans to manufacturers of
passenger vehicles and their components. Credit subsidy costs are the
estimated net long-term costs to the government, in present value
terms, of loans over the entire period the loans are
outstanding.[Footnote 2] In November 2008, DOE received and began to
review the program's first loan applications. In December 2008, under
the Troubled Asset Relief Program, the United States entered into loan
agreements with two of the major U.S. automakers--Chrysler Group, LLC
and General Motors Corporation--to provide $62 billion in
restructuring loans. In addition, in May 2009 the Administration
announced its National Fuel Efficiency Policy, which, to implement the
increase in fuel economy required by EISA, called for higher CAFE
standards for model years 2012 through 2016 for passenger cars and
light-duty trucks--surpassing those EISA required by 2020. On April 1,
2010, the National Highway Traffic Safety Administration (NHTSA) and
the Environmental Protection Agency (EPA) made final the rule putting
the more stringent CAFE standards in place[Footnote 3].:
In this context, you asked us to review the ATVM loan program.
Specifically, our objectives were to (1) identify the steps DOE has
taken to implement the ATVM loan program, (2) examine the ATVM
program's progress in awarding loans, (3) assess how the program is
overseeing the loans, and (4) evaluate the extent to which DOE can
assess its progress toward meeting program goals. To address these
objectives, we analyzed relevant legislation and regulations, Office
of Management and Budget (OMB) guidance on federal loan programs, our
prior work on implementing the Government Performance and Results Act
(GPRA),[Footnote 4] federal standards for internal control,[Footnote
5] and DOE's program guidance. In addition, we analyzed information on
applicants and documents DOE decision makers used to select borrowers.
We also reviewed the loan agreements DOE had executed as of February
24, 2011. We analyzed DOE data on the expected fuel economy of
vehicles to be produced by projects funded by ATVM loans and compared
them with data on future regulatory requirements; we examined
documentation on DOE's model and its process for generating these
data--we believe the data to be sufficiently reliable for our
purposes. In addition, we interviewed relevant DOE officials. We did
not evaluate the technical or financial soundness of the projects that
DOE considered for loans. We conducted this performance audit from
September 2009 through February 2011 in accordance with generally
accepted government auditing standards. Those standards require that
we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the
evidence obtained does so. A further discussion of the scope of our
review and the methods we used is presented in appendix I.
Background:
In recent years, concerns have arisen about fluctuations in gasoline
prices and the environmental impact of petroleum use. For example, the
price of gasoline increased significantly from 2002 to 2008,
negatively affecting consumers, domestic automakers, and the U.S.
economy in general. In addition, gasoline-fueled passenger vehicles
are a major source of greenhouse gas emissions, and public concern has
grown about the relationship between their greenhouse gas emissions
and global climate change. According to our analysis of EPA data,
passenger cars and light-duty trucks are responsible for a significant
share of greenhouse gas emissions in the United States--in 2007, their
use accounted for 18 percent of total greenhouse gas emissions. In
light of these concerns, in 2007, Congress enacted EISA, which, among
other things, increased CAFE standards, requiring that the nation's
automobile manufacturers' new vehicle fleets attain at least an
average of 35 miles per gallon by 2020.
In addition to increasing CAFE standards, EISA also authorized, but
did not provide funding for, the ATVM loan program to provide up to
$25 billion in loans to support projects to produce more fuel-
efficient passenger vehicles and components. Loans made under the
program are to be disbursed by the Federal Financing Bank,[Footnote 6]
have an interest rate equal to the government's cost of funds,
[Footnote 7] and be in force for a period of 25 years or the projected
life of the eligible project, whichever is less. Congress also
required that DOE, when making loans to manufacturers with existing
facilities, among other things, give priority to those facilities that
are the oldest or are at least 20 years old.
In addition to the negative effect that rising fuel prices had on
domestic automobile sales, the economic recession that began in late
2007 particularly affected the three major domestic automakers--
Chrysler Group, LLC; Ford Motor Company; and General Motors
Corporation--known as the Detroit 3. Rising fuel prices had negatively
affected the sales of domestic automakers as consumers shifted to
smaller, more fuel-efficient vehicles and away from less fuel-
efficient light trucks and sport utility vehicles. At the end of 2008,
several economic indicators, including economic growth and the
unemployment rate, worsened while credit markets tightened and
dampened consumers' demands for new passenger vehicles. Sales of new
vehicles had been trending downward since 2006, but the decrease was
markedly sharper in 2008 and 2009. For example, U.S. sales for the
Detroit 3 dropped by 49 percent from February 2008 through February
2009, whereas U.S. sales for American Honda Motor Co., Inc.; Nissan
North America, Inc.; and Toyota Motor North America, Inc., dropped 39
percent during this period. Additionally, the Detroit 3 had been
losing U.S. market share to foreign automakers for several years. For
instance, General Motors' U.S. market share for total light vehicle
retail sales--including passenger cars and light-duty trucks--fell
from 27.2 percent in 2004 to 22.1 percent in 2008, while the market
share of Japanese auto manufacturers grew from 29.8 percent to 38.9
percent during the same period. Furthermore, since the 1980s, the
Detroit 3 have relied heavily on sales of light-duty trucks and sport
utility vehicles, which were more profitable than passenger cars but
had relatively low fuel economy ratings. As a result of this reliance,
the Detroit 3 faced more difficulty in achieving substantial
improvements in fuel economy than most foreign-based manufacturers,
which historically had produced and sold more fuel-efficient vehicles.
When proposing the new, more stringent CAFE standards, NHTSA estimated
that the Detroit 3 would face significantly higher costs to meet
revised standards than the major Japanese automakers.
In September 2008, the Consolidated Security, Disaster Assistance, and
Continuing Appropriations Act provided $7.5 billion to DOE to pay the
credit subsidy costs of up to $25 billion in ATVM loans.[Footnote 8]
Congress also provided $10 million to DOE to administer the ATVM loan
program and required that DOE issue an interim final rule to establish
regulations necessary to implement the program. DOE issued an interim
final rule for implementing the program in November 2008.
DOE Established Program Goals and Set Criteria for Applicant and
Project Eligibility and Merit:
To implement the ATVM program, DOE established three goals and set, in
its interim final rule, certain technical and financial criteria and
environmental requirements that vehicle and component manufacturers
must meet to qualify to receive a loan under the program. DOE also
established criteria for determining the technical and financial
merits of projects once they have been deemed eligible.
DOE Established Three Goals for the ATVM Program:
Although DOE documents do not specifically identify the goals of the
ATVM loan program, DOE officials told us that they established three
broad goals for the program:
* increase the fuel economy of U.S. passenger vehicles as a whole,
* advance automotive technology in the United States, and:
* protect taxpayers' financial interests.
According to DOE officials, the program's first goal is to increase
the fuel economy of U.S. passenger vehicles as a whole. Specifically,
EISA calls for the program to make loans to provide funding to
automobile manufacturers and component suppliers for projects that re-
equip, expand, or establish manufacturing facilities in the United
States for the purpose of building more fuel-efficient passenger cars
and light-duty trucks. According to DOE's 2011 budget submission, the
first and second goals support the agency-level goal to build a
competitive, low-carbon economy by, among other things, funding
vehicles that reduce the use of petroleum-derived fuels and
accelerating growth in advanced automotive technology manufacturing.
According to DOE officials, the program's third goal is to protect
taxpayers' financial interests. This goal reflects EISA's requirement
that loans are to be made to financially viable borrowers.
Specifically, ATVM's interim final rule states that the program should
make loans only to borrowers who have a reasonable prospect of
repaying the loan. According to the Executive Director for DOE's Loan
Programs Office, whom we interviewed about ATVM as well as the
office's loan guarantee programs, identifying applicants with projects
for innovative technologies and strong prospects of repaying a loan is
particularly difficult because innovative technologies are typically
more risky than established technologies.
DOE Set Criteria to Determine Eligibility for Loans:
DOE set technical and financial criteria and environmental
requirements in its interim final rule that applicants and their
projects must meet to be eligible for an ATVM loan.[Footnote 9]
Technical Eligibility Criteria for Applicants and Their Projects:
To ensure that applicants meet the minimum fuel economy improvement
thresholds specified by EISA, DOE established a technical eligibility
criterion for vehicle manufacturers. An established vehicle
manufacturer--that is, a manufacturer that produced passenger vehicles
in model year 2005--must demonstrate that the adjusted average fuel
economy of the fleet of vehicles it produced for the most recent model
year is at least equal to the adjusted average fuel economy of the
fleet it produced in model year 2005.[Footnote 10] An applicant that
is not an established manufacturer--that is, one that did not produce
vehicles in 2005--must demonstrate that the fuel economy of its
proposed vehicles will at least equal the adjusted average fuel
economy of established manufacturers' model year 2005 vehicles in the
same vehicle class.
For applicants deemed eligible, DOE also used statutory-based
technical criteria that a project must meet to be eligible for a loan
under the program:
* a proposed passenger vehicle must meet the fuel economy and
emissions requirements set forth in the definition of an advanced
technology vehicle, and a proposed component must be designed for a
specific advanced technology vehicle;
* a proposed passenger vehicle or component must be designed or
manufactured in the United States; and:
* applicants' proposed projects must meet federal prevailing wage
requirements for facility construction, alteration, and repair.
[Footnote 11]
For a project to meet the first criterion, a proposed vehicle, or a
vehicle in which a proposed component will be used, must meet the fuel
economy and emissions requirements for an advanced technology vehicle
as defined in EISA. EISA specifies that the vehicle, when produced,
must achieve at least 125 percent of the average fuel economy for all
manufacturers' vehicles with substantially similar attributes in a
base year. The vehicle must also meet EPA emissions standards in
effect at the time the vehicle is manufactured.[Footnote 12]
Conventional vehicles--that is, vehicles powered primarily by gasoline-
fueled internal combustion engines like those in wide use in the
United States today--can be considered advanced technology vehicles
under the law if they meet the fuel economy and emissions
requirements. In addition, vehicles with newer technologies--including
conventional hybrid vehicles, such as those that are powered by both
gasoline and a battery that is charged during driving; plug-in hybrid
vehicles, such as those that are powered by both gasoline and a
battery that is charged using an electrical outlet; and all-electric
vehicles, such as those powered by plug-in batteries alone--can be
considered advanced technology vehicles under the law. The interim
final rule calls for component projects to identify the specific
advanced technology vehicles in which the proposed components will be
installed. According to its interim final rule, DOE chose 2005 as the
base year because, among other reasons, model year 2005 CAFE
compliance fuel economy data for all manufacturers' vehicles were
fully available when the interim final rule was published, and using
model year 2005 as the base year "would promote efficient and
effective administration" of the program and would be consistent with
the technical eligibility criterion for vehicle manufacturers set
forth in EISA. To help the program determine whether vehicles share
"substantially similar attributes," the interim final rule set out
vehicle classes based on vehicle size and horsepower. DOE based these
classes largely on EPA's vehicle classes for 2005, which are size-
based.
For a project to meet the second technical eligibility criterion, the
interim final rule calls for proposed vehicles or components to be
either designed or manufactured in the United States. Furthermore, DOE
set limits on the types of design activities--that is, engineering
integration--that may be paid for using ATVM loan funds. In general,
engineering integration involves the design and layout of production
processes necessary to implement and build a new vehicle or component,
according to the ATVM Director. The interim final rule allows two
engineering integration activities: incorporating qualifying
components into the design of an advanced technology vehicle and
designing and developing production facilities for producing
qualifying components or vehicles.
Because of their technical expertise, staff in DOE's Office of Energy
Efficiency and Renewable Energy (EERE) are responsible for determining
whether applicants and proposed projects have met the program's
technical eligibility criteria. EERE staff perform most of the
technical eligibility analysis; for example, EERE staff determine
whether the adjusted average fuel economy of an applicant's current
production fleet is at least equal to the adjusted average fuel
economy of the applicant's comparable fleet in model year 2005. In
addition, EERE staff rely on the Argonne National Laboratory to
analyze applicant-provided data using a computer model developed by
the laboratory. The model estimates the miles per gallon (mpg) that a
proposed vehicle is likely to achieve.[Footnote 13] EERE uses the
results to determine whether the vehicle meets the program's fuel
economy eligibility criterion. According to EERE staff, laboratory
staff test one vehicle per project. In the case of a single-vehicle
project, laboratory staff analyze data provided for that vehicle
alone. For projects for which the borrower plans to produce multiple
variations of a vehicle, the applicant provides data on a vehicle it
has deemed to be "representative" of those it plans to produce under
the project.[Footnote 14] Our review of DOE's test results and
approved loan documents indicated that, in the event that the project
is approved for a loan, the vehicles produced may or may not have the
same specifications as the representative vehicle. According to EERE
staff, to judge whether the variations of the vehicle that were not
modeled are likely to meet the program's fuel economy eligibility
criterion, the staff compare applicant-submitted data on the expected
mpgs of those variations with that eligibility criterion.
Financial Eligibility Criteria for Applicants:
Applicants must also demonstrate financial viability to be selected
for an ATVM loan. According to DOE's interim final rule, an applicant
is financially viable if it has (1) a reasonable prospect of repaying
principal and interest in accordance with the proposed loan terms and
(2) a positive net present value--that is, estimated flow of future
income exceeds estimated flow of future costs when discounted and
expressed in today's dollars. Furthermore, by law, for the purpose of
determining its financial viability, a selected applicant must not
receive any additional federal funding associated with the proposed
project.
To determine whether an applicant has a reasonable prospect of
repayment, ATVM staff are to analyze an applicant's current financial
condition and develop a projection of its ability to repay the loan
over time. Specifically, ATVM staff are to analyze an applicant's
liquidity and debt-to-equity ratio at the time of the application, as
well as the applicant's balance sheet and income statements. ATVM
staff then build on this financial analysis to examine an applicant's
prospect of repayment by determining an applicant's net present value.
ATVM staff use an applicant's projected cash flows and underlying
assumptions, as well as the state of the automotive industry, to make
a net present value determination. The ATVM program uses accounting
and market analysis firms to help with its financial analysis,
according to ATVM officials. For example, the market analysts assess
whether an applicant's likely production volume and sales projections
are realistic given overall market conditions. ATVM officials also
told us the firms perform cost analyses to help verify the costs of
proposed projects.
Environmental Eligibility Requirements for Projects:
To comply with the National Environmental Policy Act (NEPA),[Footnote
15] DOE requires that ATVM applicants submit three environmental
impact reports for each project they propose. Specifically, applicants
are to submit reports on the following:
* the likely environmental impacts of the project, including the
construction and operation of the facilities to be associated with it;
* the likely socioeconomic impacts of constructing and operating the
proposed project, including the likely effects on nearby towns and
counties; and:
* a comparison of the environmental impacts proposed in the first
report with alternatives to the project, including a comparison of the
environmental benefits and costs with the economic benefits and costs.
Depending on the proposed activities, applicants may have to take
additional steps to mitigate the potential environmental impacts of
their projects. If, however, applicants demonstrate minimal impacts,
these reports may satisfy the NEPA requirements. For example, a
project may be ’categorically excluded“ from a more detailed
environmental analysis if it falls within a category of activities
that a federal agency has previously determined has no significant
environmental impact. To determine whether applicants meet the NEPA
requirements for a categorical exclusion or whether additional
analysis and, perhaps, mitigation are needed, specialists in DOE‘s
NEPA office review ATVM applicants‘ environmental impact reports. They
then share the results of their review with the ATVM Director and
staff.
DOE Also Set Criteria for Determining Eligible Projects' Technical and
Financial Merits:
To help choose among applicants and projects deemed eligible, DOE also
considers their technical and financial merits. According to DOE
officials, to determine technical merit, at least three experts from
EERE or the DOE national laboratories individually review each project
according to four criteria and provide written documentation of the
strengths and weaknesses in each area. The technical merit criteria,
as specified in the program's procedures, are (1) improved vehicle
fuel economy; (2) contribution to improved fuel economy of passenger
vehicles in use in the United States; (3) promotion of the use of
advanced fuels (e.g., electricity and ultra-low sulfur diesel); and
(4) reductions in petroleum use by the passenger vehicles in use in
the United States. After the individual reviews, the experts must
agree on a single final merit score. To the extent that a project
exceeds the fuel economy eligibility threshold for its vehicle class,
the project receives a correspondingly higher technical merit score.
According to program procedures for determining financial merit, the
ATVM program staff score an applicant on the basis of its likely
ability to repay a loan. As part of this effort, the Credit Division--
a separate group within DOE's Loan Programs Office--reviews the
financial soundness of applicants and their projects, producing both a
credit rating for applicants and an estimate of the applicants' credit
subsidy cost.[Footnote 16] ATVM staff rank an applicant's financial
merit by considering (1) the credit rating generated by the Credit
Division, (2) the Credit Division's estimated credit subsidy cost and
the proportion that cost represents of the funds available to the
program for paying credit subsidy costs, and (3) the loan's credit
subsidy rate, which is the ratio of the loan's credit subsidy cost to
the total amount of the loan. A loan with a relatively low credit
subsidy rate is considered the most desirable. The Credit Division
briefs OMB on its analysis and its credit subsidy cost estimate for
each applicant. OMB then reviews this analysis and produces the final
credit subsidy cost for the ATVM applicant.
In addition, the ATVM staff told us they gather information on how
applicants and their projects address six additional "policy factors:"
* a project's potential impact on the local economy, such as job
creation or job preservation;
* whether a project is likely to advance automotive technology;
* an applicant's significance to the overall well-being of the
automotive industry;
* the risk that an applicant may not be able to complete a proposed
project, including difficulty in translating plans for innovative
technology into manufactured vehicles and components;
* the geographic location that will be affected by a proposed project;
and:
* the age of any facilities that would be improved with the loan
proceeds.
The ATVM staff provide the information to the Credit Review Board, a
group composed of senior DOE officials charged with overseeing the
ATVM program and making recommendations to the Secretary of Energy on
whether to award ATVM loans.[Footnote 17] Finally, the program's
procedures call for the Credit Review Board to weigh an applicant's
technical and financial merit scores, the credit subsidy cost approved
by OMB, the six policy factors, and other information, such as a
summary of the financial analysis, to decide whether to recommend that
the Secretary of Energy award a loan.
The ATVM Program Has Awarded $8.4 Billion in Loans That Largely
Enhance Conventional Vehicle Technology, but the Program May Be Unable
to Lend the Full Authorized Amount:
The loan funds the ATVM program has awarded largely enhance
conventional vehicle technology and, according to DOE, are expected to
result in improved fuel economy. The remainder of the funds support
vehicles with newer technologies--specifically, conventional hybrid
vehicles, plug-in hybrid vehicles, and all-electric vehicles--that are
also expected to result in improved fuel economy. In addition, DOE
officials cited other benefits that could result from the projects.
The loans the ATVM program has made to date have used almost half of
the $7.5 billion available to pay credit subsidy costs. At this rate,
the program may not be able to provide the full $25 billion in loans
allowed by statute.
The Loan Funds Largely Support Projects for Enhancing Conventional
Vehicle Technology, with the Remainder Supporting Newer Technologies:
Of the about $8.4 billion in loans the ATVM program has awarded to
date, $5.9 billion went to the Ford Motor Company; $1.4 billion to
Nissan North America; $529 million to Fisker Automotive, Inc.; and
$465 million to Tesla Motors, Inc.[Footnote 18] About $5.2 billion--62
percent of the loan funds awarded so far--is for projects that largely
enhance the technologies of conventional vehicles powered by gasoline-
fueled internal combustion engines. These projects include such fuel-
saving improvements as adding assisted direct start technology to
conventional vehicles, which reduces fuel consumption by shutting off
the engine when the vehicle is idling (e.g., while at traffic lights)
and automatically restarting it with direct fuel injection when the
driver releases the brake. According to DOE's analysis, the projects
will result in vehicles with improved fuel economy that will
contribute in the near term to improving the fuel economy of the
passenger vehicles in use in the United States as a whole because the
conventional vehicles are to be produced on a large scale relatively
quickly and offered at a price that is competitive with other vehicles
being offered for sale. We are not reporting details on DOE's
expectations for production of the enhanced conventional vehicles or
those vehicles' expected prices because of concerns raised by Ford
about the proprietary nature of this information.
DOE used data from the borrowers in its modeling software--the
Powertrain System Analysis Toolkit (PSAT)--to estimate the fuel
economy of the vehicles being considered for ATVM loans. For
conventional vehicles and conventional hybrid vehicles, fuel economy
was estimated in terms of mpg. For all-electric and plug-in hybrid
vehicles, fuel economy was estimated in terms of the number of miles
the vehicles can drive with the energy equivalent of one gallon of
gasoline. The PSAT model, in an effort to be consistent with CAFE mpg
ratings (which are calculated after vehicles have been produced),
estimates a vehicle's fuel economy using two drive-cycle tests--
commonly referred to as the Highway and City tests. EPA's CAFE mpg
ratings are typically higher than its ratings that appear on new car
window stickers, in part because, since 2008, the window sticker
ratings have been calculated using three additional drive-cycle tests--
commonly referred to as the High Speed, Air Conditioning, and Cold
Temperature tests. Furthermore, EPA has not yet made final a standard
calculation for reporting the fuel economy of plug-in hybrids and all-
electric vehicles. EPA expects to issue a regulation standardizing
fuel economy calculations for plug-in hybrid and all-electric vehicles
that it will use when reporting the estimated fuel economy of new
vehicles to the public, such as on a new car's window sticker.
According to our calculations using DOE's modeled estimates of fuel
economy, the projects for enhanced conventional vehicles are expected
to result in vehicles with improved fuel economy that exceed both the
program's eligibility requirements and the CAFE targets that will be
in place at the time the vehicles are produced.[Footnote 19] We
calculated the extent to which the vehicles are expected to exceed the
program's fuel economy eligibility requirements by comparing DOE's
estimated fuel economy for the vehicles it used to establish the
projects' eligibility for the program to the fuel economy of the
comparable vehicle class for model year 2005. Taken together, the
average expected fuel economy of the enhanced conventional vehicle
projects is 33.5 mpg. This is about 42 percent better than the average
2005 baseline of 23.6 mpg for the respective vehicle classes and
exceeds the 25 percent improvement over the 2005 baseline required to
be eligible for the program.[Footnote 20] We also used DOE's fuel
economy estimates to calculate the extent to which the funded vehicles
are expected to exceed the CAFE targets that will be in place at the
time the vehicles are produced. According to our calculations, the
projects for enhanced conventional vehicles as a whole are expected to
achieve fuel economy that exceeds the CAFE targets by, on average, 21
percent.
The remaining funds--$3.1 billion, or about 38 percent of the $8.4
billion--support projects for vehicles and components with newer
technologies. Fisker has received a loan for two plug-in hybrid
projects: the Karma, a sedan classified by DOE as a subcompact-
performance sedan at the time its eligibility was established; and the
Nina, classified by DOE as a subcompact sedan.[Footnote 21] Tesla
received a loan to manufacture an all-electric midsize sedan, the
Model S, and Nissan received a loan to manufacture an all-electric
vehicle, the LEAF, classified by DOE as a small wagon at the time its
eligibility was established.[Footnote 22] Finally, a portion of the
loan to Ford supports projects for manufacturing conventional hybrid
and all-electric vehicles. In addition, there are two advanced
technology components projects: Nissan has a project to build a
manufacturing facility to produce batteries for the LEAF and
potentially other vehicles, and Tesla has a project to build a
manufacturing facility to produce electric battery packs, electric
motors, and electric components for the Tesla Roadster and vehicles
from other manufacturers. In contrast to the projects supporting
enhancements to conventional vehicles, DOE's and the borrowers'
analyses indicate that the projects with newer technologies will
result in vehicles with far greater fuel economy gains per vehicle but
that these vehicles will be sold in smaller volumes, thereby having a
less immediate impact on the fuel economy of total U.S. passenger
vehicles. For example, DOE's analysis estimates that the Fisker Nina
subcompact sedan will achieve the equivalent of about 111 mpg. Fisker
has stated production of the Nina will begin in late 2012, with
expected production capacity of 70,000 to 100,000 vehicles per year.
The Fisker Karma is estimated by DOE to achieve fuel economy that is
the equivalent of 86 mpg. Fisker has stated that production of the
Karma will begin in 2011 and that the company will have a production
capacity of 15,000 vehicles per year. The Karma has a base price of
$95,900, prior to any federal tax credit. Similarly, DOE's analysis
estimates that the Tesla Model S will achieve the equivalent of about
111 mpg, with production planned to begin in 2012. According to Tesla
officials, the company plans to produce as many as 7,000 vehicles in
2012 and up to 20,000 vehicles per year thereafter. In addition, DOE's
analysis indicates that the Nissan LEAF is estimated to achieve the
equivalent of about 165 mpg.[Footnote 23] The LEAF is currently listed
to sell for about $33,000 each, and Nissan has accepted 20,000
reservations for the vehicle in the United States.[Footnote 24] The
company expects to have a production capacity in the United States of
150,000 vehicles per year once the ATVM-funded manufacturing facility,
scheduled to open in 2012, reaches full capacity in 2015. Finally, for
Ford, we are not reporting information on expected production levels
or prices for conventional hybrids or all-electric vehicles to be
produced with ATVM loan funds because the company is concerned about
the proprietary nature of this information.
According to our calculations, the projects for vehicles with newer
technologies, like the projects for enhanced conventional vehicles,
are expected to result in improved fuel economy that exceeds the
program's eligibility requirements, as well as CAFE targets. The
average expected fuel economy of the vehicles with newer technologies
is 78.1 mpg. This is about 181 percent better than the average 2005
baseline of 27.8 mpg for the respective vehicle classes and exceeds
the 25 percent improvement over the baseline required to be eligible
for the program. Using DOE's fuel economy estimates to calculate the
extent to which the funded vehicles are expected to exceed the CAFE
targets that will be in place at the time the vehicles are produced,
we calculated that the vehicles' fuel economy is expected to be about
161 percent better than the 29.9 mpg CAFE target average for the
respective vehicles.
The extent to which DOE's and borrowers' projections of gains in fuel
economy and reductions in petroleum use will prove accurate depends on
a number of factors. These include the borrowers' ability to overcome
technical challenges they may face in producing vehicles that achieve
the intended fuel economy gains and the extent to which the vehicles
are sold in numbers that meet the initial projections, which itself
depends largely on whether consumers consider the vehicles to be
competitive in price and costs to operate when compared with vehicles
offered by competitors, including conventional vehicles and those with
newer technologies. Moreover, the extent to which the vehicles that
are sold actually replace older vehicles currently on the road will
affect the accuracy of the projected gains in fuel economy and
reductions in petroleum use; similarly, how much consumers use the new
vehicles compared to their use of the replaced vehicles will affect
the accuracy of the estimates.
DOE Officials Also Cited Benefits Other than Improved Fuel Economy
That Projects Could Provide:
In addition to improved fuel economy, ATVM program staff identified
other potential benefits projects could provide. Benefits cited by the
program staff include the geographic location of proposed projects--
that is, whether a project would benefit an area that had not
otherwise received funding under the program--and the potential impact
of the projects in creating or sustaining economic development--in
particular, creating or sustaining jobs (see table 1). In the case of
Fisker, the program staff also identified the extent to which the
company's projects would support U.S. parts suppliers, noting that
over 65 percent of the parts for Fisker's Karma are expected to come
from U.S. parts suppliers.
Table 1: ATVM Loan Program Expectations of Jobs to Be Created or
Preserved and Their Locations:
Borrower: Ford;
Locations of facilities funded by ATVM loans: 13 factories in
Illinois, Kentucky, Michigan, Missouri, and Ohio;
Borrowers' estimates of jobs created or preserved: 33,000.
Borrower: Nissan;
Locations of facilities funded by ATVM loans: 2 factories in Tennessee;
Borrowers' estimates of jobs created or preserved: 1,300.
Borrower: Fisker;
Locations of facilities funded by ATVM loans: 1 factory in Delaware;
Borrowers' estimates of jobs created or preserved: 2,000.
Borrower: Tesla;
Locations of facilities funded by ATVM loans: 2 factories in
California;
Borrowers' estimates of jobs created or preserved: 1,500.
Total:
Borrowers' estimates of jobs created or preserved: 37,800.
Source: ATVM analysis of borrower data.
[End of table]
ATVM program officials also noted other benefits the projects could
provide after the loans had been awarded. For example, the ATVM
Director stated that awarding loans to all-electric vehicle
manufacturers has influenced major automakers to enter the advanced
automobile technology market in order to remain competitive.
Specifically, he noted that the recently announced partnership between
Tesla and Toyota to build components for all-electric vehicles may
have been encouraged by the ATVM loan to Nissan supporting the all-
electric LEAF. Additionally, DOE has announced that Nissan is forming
partnerships with states, counties, cities, and electric utilities to
install charging stations needed to introduce and sustain all-electric
vehicles.
Moreover, ATVM officials noted that all of the funded projects could
result in environmental benefits--for example, by reducing petroleum
consumption, they could reduce emissions of greenhouse gases and air
pollutants. However, the extent of the environmental benefits will
depend a number of factors, including the number and type of ATVM-
funded vehicles consumers buy, the number and type of vehicles
currently on the road that consumers replace with the ATVM-funded
vehicles produced, and the extent to which consumers use the new
vehicles compared with the vehicles they replaced. These benefits will
also depend on the vehicles that the borrowers actually deliver to the
market. DOE's estimates of fuel-economy gains were calculated using
the information the borrowers provided on the vehicles they plan to
produce; however, the loan agreements allow the borrowers to alter
their production plans for individual vehicles as long as the projects
as a whole comply with the program's eligibility requirements.
Furthermore, consumers may be deterred from buying ATVM-funded
vehicles if they are not competitive in terms of their purchase prices
and their costs to operate when compared with vehicles available from
competitors, including conventional vehicles and those with newer
technologies (such as all-electric vehicles) that were not funded by
the ATVM program. The competitiveness of the three types of vehicles
with newer technologies, in particular, will be determined largely by
the cost of batteries and, for plug-in hybrid and all-electric
vehicles, by trends in the price of gasoline relative to the price of
electricity and the available infrastructure for charging batteries.
Moreover, because the plug-in hybrid and all-electric vehicles rely on
electricity, the extent to which they will reduce greenhouse gases and
air pollution depends on, among other things, whether producing the
electricity they use leads to fewer emissions of greenhouse gases and
pollutants than the gasoline the electricity replaces. For example,
hydroelectric plants produce significantly fewer greenhouse gases and
pollutants than coal-burning plants. In June 2009, we reported on
these and other issues related to consumer adoption and the
environmental effects of advanced technology vehicles.[Footnote 25]
The ATVM Program Has Used about Half of the Funds Available to Pay
Credit Subsidy Costs, Which May Limit the Program's Ability to Loan
the Entire $25 Billion Allowed by Statute:
In order to make loans, federal agencies are required by the Federal
Credit Reform Act of 1990 to set aside the estimated net long-term
costs of the loans to the government over the life of the loans in
present value terms--that is, the loans' credit subsidy costs. In
September 2008, the Congressional Budget Office (CBO) was tasked with
determining the amount of funds needed by the ATVM program in order to
pay the credit subsidy costs that would enable the program to award
$25 billion in loans--the full amount of the program's loan authority.
CBO estimated that a total of $7.5 billion would be needed to pay
credit subsidy costs. This would amount to an average credit subsidy
rate of 30 percent per loan ($7.5 billion divided by $25 billion
equals 30 percent). In line with CBO's estimate, Congress appropriated
$7.5 billion to be used to pay credit subsidy costs for the ATVM
program. However, the average credit subsidy rate for the $8.4 billion
in loans awarded as of February 24, 2011, was 39 percent--a total of
roughly $3.3 billion in credit subsidy costs. At this rate, the $4.2
billion remaining to be used to pay credit subsidy costs will not be
sufficient to enable DOE to loan the full $25 billion in loan
authority. For DOE to make loans that use all of the remaining $16.6
billion in loan authority, the credit subsidy rate for the loans would
have to average no more than 25 percent ($4.2 billion divided by $16.6
billion).
A primary reason for the high credit subsidy rate for the loans made
thus far is that they were made at a time of particularly difficult
economic conditions for the automotive industry. For example, in
September 2008, by the time CBO made its credit subsidy cost estimate,
Ford's credit rating was B-, indicating the company was more
vulnerable to adverse business, financial, and economic conditions
than higher-rated companies but had the capacity to meet its financial
commitments.[Footnote 26] However, when the ATVM program considered
Ford's application in June 2009, Ford's credit rating had dropped to
CCC+ as a result, in part, of the severe economic downturn. Since the
ATVM loan recipients first applied to the program, the economic
standing of the U.S. automotive industry has improved. For example,
Ford's credit rating had risen to B+ in August 2010. The improved
economic conditions within the industry suggest that the loans awarded
to date might not have reached an average credit subsidy rate of 39
percent had their credit subsidy costs been determined at a more
economically favorable time. The Federal Credit Reform Act of 1990 and
OMB guidance call for initial credit subsidy rates to be updated or
"reestimated" annually to reflect any changes in assumptions related
to future loan performance, such as the recent changes in the economic
conditions of the U.S. automotive industry. However, reestimates that
result in lower credit subsidy costs do not return funds to the
program--once funds for credit subsidy costs have been apportioned for
a loan, they are no longer available to support other loans.
Therefore, it remains unclear whether the ATVM program will have
sufficient funds remaining to loan the full amount allowed by statute.
The ATVM Program Has Begun Overseeing Loans to Ensure Borrowers Comply
with Financial and Technical Requirements but Has Not Engaged
Engineering Expertise That Would Help Ensure That Projects Are
Delivered as Agreed:
ATVM program staff have set procedures and have begun using those
procedures to oversee borrowers' compliance with the financial and
technical requirements of the loans. ATVM staff share responsibility
for financial oversight of the loans with external auditors engaged
for that purpose. Although ATVM program procedures call for sufficient
expertise to help oversee borrowers' compliance with the loans'
technical requirements, the ATVM program has not yet engaged such
engineering expertise and without it, cannot be sure that the projects
are being delivered as agreed.
To help ensure that borrowers are complying with the financial
requirements of the loans, the ATVM program calls for staff and
external auditors to share oversight duties. ATVM officials developed
monitoring procedures and a plan for each borrower that specifies the
financial information to be collected and analyzed by ATVM staff. The
ATVM program staff, as called for in the procedures and plans, oversee
the loans' financial requirements by monitoring the financial health
of borrowers to help identify potential challenges they might face in
repaying the loans. To do this, ATVM staff analyze market trends and
conditions that could affect the borrowers and information on the
financial standing of the companies. For example, according to the
procedures, ATVM staff collect and analyze information on market
trends in the automobile industry that may affect the borrowers'
liquidity, as well as analyze a variety of information provided by
borrowers, such as their income statements, debt levels, changes to
credit ratings, and the value of pledged collateral. If ATVM staff
determine that a borrower is facing financial challenges but remains
financially viable, they are to develop a plan for restructuring the
loan, among other steps, to protect the investment. In the event that
the steps fail and the borrower is deemed to be no longer financially
viable, the ATVM program may foreclose on a loan if it concludes that
doing so would offer the best protection of the taxpayers' financial
interests.
The ATVM program is also using external auditors to oversee borrowers'
financial performance by verifying that loan funds are being spent as
intended, as called for by the program's procedures. To date, the
auditors have reported instances in which three of the four borrowers
did not spend funds as required, with, for example, two borrowers
spending some loan funds outside the United States and the third
spending some loan funds on ineligible payroll expenses. ATVM
officials told us these instances were minor because the amounts were
small relative to the total value of the loans and that the
inappropriate use of funds has been corrected in these cases.
Moreover, the officials stated that the borrowers have made
corrections to their practices in light of these findings. We did not
evaluate the extent to which borrowers have complied with requirements
for use of ATVM funds or the sufficiency of the borrowers' corrections
of the instances noted by the auditors.
The ATVM program's procedures also specify technical oversight duties,
a primary purpose of which is to confirm that borrowers have made
sufficient technical progress before the program disburses additional
funds. ATVM staff are to periodically review information borrowers
submit on projects' progress to determine whether they are adhering to
the technical requirements of the loan agreements. The procedures also
call for "heightened [technical] monitoring" when borrowers are (1)
constructing or retrofitting manufacturing facilities or (2)
performing engineering integration--that is, designing and building
vehicle and component production lines. Further, the procedures call
for engaging independent engineering expertise to provide independent
validation of project progress when ATVM staff determine it is needed.
ATVM officials have indicated independent engineering expertise is an
important aspect of heightened technical monitoring.
To date, according to ATVM officials, the program's technical
oversight for all the funded projects has largely consisted of ATVM
staff reviewing borrower-submitted information on the projects'
technical progress. Although the expertise of program staff is largely
financial, rather than technical, ATVM officials told us that their
technical reviews have been sufficient so far, including those reviews
for the one borrower officials identified as having projects at a
stage requiring heightened technical monitoring. In that regard, the
program staff responsible for overseeing the ATVM loan to Ford has
been reviewing Ford's quarterly reports on the progress of production
and engineering integration activities, visiting facilities, and
meeting regularly with company officials to discuss the projects'
progress. According to the ATVM Director and staff, established
manufacturers such as Ford will require little additional independent
engineering expertise to supplement the oversight performed by ATVM
staff because those manufacturers have experience with successfully
bringing vehicles from concept to production. In contrast, the
Director and staff explained that the start-up manufacturers are less
experienced with the complexities of setting up new production
processes and, therefore, their projects may be riskier. For this
reason, ATVM officials told us, they plan to engage independent
engineering expertise in the months ahead to monitor the activities of
the start-up companies and Nissan once they reach a phase requiring
heightened technical monitoring. According to ATVM staff, as of
September 2010, they were in the process of evaluating one
consultant's proposal to provide engineering expertise and were
working with DOE's Loan Guarantee Programs to make those programs'
manufacturing consultants available to assist the ATVM program.
According to documents we reviewed, however, all four borrowers--
rather than the single borrower that the ATVM program staff asserts--
have one or more projects that, according to the program's procedures,
have already reached the stage requiring heightened technical
monitoring. Specifically, Nissan has begun constructing its new
battery manufacturing facility, and Fisker, Ford, and Tesla are
performing engineering integration. Because ATVM staff, whose
expertise is largely financial rather than technical, are so far
providing technical oversight for the loans without the assistance of
independent engineering expertise, the program may be at risk of not
identifying critical deficiencies.
DOE Lacks Performance Measures That Would Enable It to Fully Assess
the Extent to Which the ATVM Program Has Achieved Its Goals:
DOE lacks sufficient performance measures that would enable it to
fully assess whether the ATVM program has achieved its three goals.
Principles of good governance indicate that agencies should establish
quantifiable performance measures to demonstrate how they intend to
achieve their program goals and measure the extent to which they have
done so.[Footnote 27] These performance measures should allow agencies
to compare their programs' actual results with desired results and
should be linked to program goals.
For the program goal of increasing the fuel economy of total passenger
vehicles in use in the United States, the ATVM program has established
two performance measures that assess the performance of ATVM-funded
vehicles relative to the performance of similar vehicles in model year
2005, the base year. However, the measures do not enable DOE to assess
the program's success in increasing the total fuel economy of U.S.
passenger vehicles. The current ATVM program performance measures
assess (1) the extent to which the average fuel economy of vehicles
manufactured through projects funded by the ATVM program has increased
over the average fuel economy of similar vehicles in model year 2005,
expressed in percentage terms, and (2) the extent to which the
petroleum used by vehicles manufactured through projects funded by the
ATVM program has decreased from the amount used by similar vehicles in
model year 2005, expressed in millions of gallons of fuel per year.
While these two performance measures will enable DOE to assess the
fuel economy improvements of ATVM-funded vehicles specifically, the
measures stop short of enabling DOE to fully determine the extent to
which it has accomplished its overall goal of improving the fuel
economy of all passenger vehicles in use in the United States. The
measures stop short, in part, because neither isolates the
improvements resulting from the program from those due to other
factors. For example, the final rule effective July 6, 2010,
implementing new CAFE standards requires that automakers selling
vehicles in the United States produce more fuel-efficient passenger
cars and light-duty trucks starting in model year 2012. In light of
these new standards, in the future, ATVM borrowers might have acted to
increase fuel economy and reduce the petroleum use of their vehicles
in order to meet the more stringent CAFE standards--even without the
ATVM funds. Without knowing the actions these companies might have
taken in the absence of ATVM funding, the program will not be able to
measure the extent to which the improvements in fuel economy and
reductions in petroleum used by ATVM-funded vehicles resulted directly
from the program. In prior work, we noted that it can be difficult to
isolate the improvements resulting from a federal program when
external factors also play a role, and this can hinder agency efforts
to identify meaningful performance measures. In situations where a
federal program is one factor among many contributing to an intended
result of a program, measuring the effect of the other factors may
help the agency measure the effect of the program. CAFE standards are
one external factor affecting automakers' decisions about improving
the fuel economy of their vehicles. Facing new CAFE standards
beginning in model year 2012, automakers will need to improve the fuel
economy of their vehicles to bring them in line with the new
standards, and U.S. automakers in most cases have historically
complied with increases in CAFE standards. For those ATVM-funded
vehicles that will have achieved fuel economy that exceeds the CAFE
targets in place at the time they are delivered, the extent to which
their fuel economy exceeds the CAFE targets could indicate the maximum
amount of improvement in fuel economy that could be attributed to the
program.
Furthermore, the two performance measures stop short of enabling DOE
to account for the effect of the ATVM program on the fuel economy of
the passenger vehicles in use in the United States as a whole because
they do not put the fuel economy improvements of vehicles funded by
the program into the broader context of total U.S. passenger vehicle
fuel economy. The two measures will enable DOE to take critical steps
toward assessing its achievement of the overall goal by accounting for
the fuel economy improvements and petroleum use reductions specific to
ATVM-funded vehicles. However, assessing achievement of the overall
goal would require DOE to put those specific achievements into the
context of the fuel economy of all passenger vehicles in the United
States and would require accounting for several factors, including the
number and type of ATVM-funded vehicles consumers buy, the number and
type of vehicles currently on the road that consumers replace with
ATVM-funded vehicles, and the extent to which consumers use the ATVM-
funded vehicles as compared with the vehicles they replaced. Our prior
work has highlighted the importance of developing performance measures
that provide a basis for comparing actual results with goals. Although
problems with isolating program contributions make it difficult to
develop performance measures that account for program effects with
precision, a link between goals and measures is needed to provide
important information for decision makers on the effectiveness of a
program. In the case of the ATVM program, this would mean not only
isolating the contribution of the program when it accounts for the
fuel economy improvements and reductions in petroleum used for ATVM-
funded vehicles, but also taking into account the numbers and types of
ATVM vehicles that consumers have bought, the numbers and types of
vehicles consumers have replaced, and the extent to which the new
vehicles have been used by consumers relative to the old vehicles.
In addition, the ATVM program lacks performance measures that will
allow DOE to assess the extent to which it has achieved the other two
goals of the program--advancing automotive technology and protecting
taxpayers' financial interests. ATVM program managers told us they
believe that supporting the first generation of all-electric vehicles
will further the program's second goal of advancing automotive
technology by providing a springboard for industry to expand
production of that technology in future years. However, the ATVM
program does not have measures that will enable DOE to assess the
extent to which the technologies it has supported have been adopted in
the marketplace. Similarly, officials have said that to achieve the
program's third goal of protecting taxpayers' financial interests, the
program must award loans only to borrowers who are financially viable--
that is, have reasonable prospects of repayment. However, the ATVM
program has not identified related performance measures. When
overseeing the loans, ATVM program procedures call for program staff
to periodically review the borrowers' financial condition, examining
such factors as borrowers' liquidity and debt service coverage ratios--
used when the program established the borrowers' eligibility--as well
as other indicators of borrowers' performance, such as timeliness of
payments. However, the program has not set targeted levels of
performance for all of these factors to be used to judge the financial
condition of the borrowers and the extent to which taxpayers'
financial interests have been protected.
Conclusions:
DOE established the ATVM program so that it would, according to
program estimates, result in fuel economy gains for the nation's
vehicle fleet, advance the availability of innovative automotive
technology to consumers, and protect the taxpayers' financial
interests. In making its first loans, the ATVM program has injected
significant funds into the U.S. automotive industry for promoting
improved fuel efficiency of conventional vehicles and encouraging the
development of vehicles with newer technologies that rely less, or not
at all, on petroleum.
Technical oversight of the program is important to ensure that it
delivers on its promises of advanced vehicles and components, thereby
providing U.S. taxpayers what they paid for through the loans.
However, the program's current approach of using ATVM staff to monitor
the technical progress of the projects may not be sufficient to ensure
that the vehicles are delivered as agreed because their expertise is
largely financial and not technical--that is, ATVM staff lack the
engineering expertise called for in the program's procedures, which
cite the need for independent engineering expertise to validate
project progress. Without qualified oversight to analyze the
information submitted by the borrowers and to provide technical
monitoring, the ATVM program cannot be adequately assured that the
borrowers are delivering the vehicle and component projects as
required by the loan agreements.
Further, assessing the extent to which the ATVM program has delivered
on its promises requires the discipline of using quantifiable
performance measures tied to program goals as a means of charting the
program's direction and assessing its achievement. Although the ATVM
program has performance measures tied to DOE's first goal of
increasing the fuel economy of passenger vehicles in use in the United
States, because these measures do not isolate the net effect of the
program--that is, the improvements in fuel economy achieved by ATVM-
funded vehicles that are the direct result of the program and that
would not have occurred for other reasons, such as complying with new
CAFE standards--gains in fuel economy and reductions in petroleum use
that the program reports could be inaccurate. The extent to which the
ATVM-funded vehicles achieve fuel economy that exceeds the CAFE
targets in place at the time the vehicles are delivered, and
associated reductions in petroleum use, may indicate the maximum
amount of improvement in fuel economy that could be attributed to the
ATVM program and could provide a useful metric for assessing program
performance. Further, because the performance measures for the fuel
economy goal stop short of quantifying the impact of the program on
total U.S. passenger vehicles--by not taking into account the number
and type of ATVM-funded vehicles consumers may purchase, the number
and type of vehicles that may be replaced, and the relative usage of
the new vehicles compared with that of the old ones--DOE will be
unable to assess the extent to which the program has achieved this
goal. Moreover, because DOE does not have quantifiable measures for
assessing the extent to which the advanced technologies supported by
the program have been adopted in the marketplace, DOE will not be able
to assess its achievement of this second goal. Similarly, DOE's
ability to assess its achievement of its third goal--protecting
taxpayers' financial interests--is limited because DOE has not
identified measures for quantifying indicators of borrowers' financial
condition or other indicators of borrower performance.
Recommendations for Executive Action:
To help ensure the effectiveness and accountability of the ATVM
program, we recommend that the Secretary of Energy direct the ATVM
Program Office to take the following two actions: (1) accelerate
efforts to engage sufficient engineering expertise to verify that
borrowers are delivering projects as agreed and (2) develop sufficient
and quantifiable performance measures for its three goals.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Secretary of Energy or his
designee for review and comment. In his comments, the Executive
Director of DOE's Loan Programs Office responded that he was pleased
that we reported on the progress DOE has made in awarding loans that
promise to deliver gains in fuel economy, but that DOE did not agree
with either of our two recommendations.
DOE disagreed with our recommendation that the agency accelerate its
efforts to engage sufficient engineering expertise to verify that
borrowers are delivering projects as agreed. According to the
Executive Director, the program will use engineering expertise to help
monitor projects under certain circumstances, such as during the
construction of manufacturing facilities. However, he explained in his
comments that the projects for the four loans DOE has made to date are
in the very early stages of engineering integration--at drafting
tables and on computers--and therefore such expertise has not yet been
required to monitor them. We disagree. That the work may be in its
early stages does not diminish the need for independent engineering
expertise. In fact, the ATVM program's procedures state that
engineering integration and construction activities require heightened
technical monitoring, and, as DOE officials have previously told us,
independent engineering expertise is an important aspect of such
monitoring--particularly since ATVM staff expertise is largely
financial, rather than technical. Moreover, three of the four loans
have one or more projects that have been in the engineering
integration phase for at least 10 months, and the other loan has at
least one project that has begun construction--suggesting that DOE's
assessment of the projects' status may not be up to date. By not
engaging engineering expertise to aid ATVM staff in monitoring the
projects, DOE has not taken appropriate steps to become adequately
informed about the technical progress of the projects. Thus, DOE
cannot be assured that the projects are on track to deliver the
vehicles as agreed nor be in a position to require the borrowers to
make any corrections in a timely and efficient manner. We maintain
that DOE should accelerate its efforts to engage sufficient
engineering expertise for monitoring technical aspects of the projects
as soon as possible.
DOE also disagreed with our recommendation to develop sufficient and
quantifiable performance measures for its three ATVM program goals. In
his comments, the Executive Director stated that the performance
measures suggested by GAO would greatly expand the scope of the ATVM
program and do not appear to be consistent with the intent of Congress
in authorizing the program. However, he did not explain how measuring
the performance of the program would expand its scope or be
inconsistent with Congress' intent beyond pointing out that measuring
performance as we recommended would require research efforts by
program staff and that Congress did not specify the performance
measures. Principles of good government, as specified in the
Government Performance and Results Act, require agencies to establish
goals for their programs and performance measures that provide a basis
for comparing program goals with the results. DOE rightly established
performance goals for the program, which are to (1) increase the fuel
economy of U.S. passenger vehicles as a whole, (2) advance automotive
technology in the United States, and (3) protect taxpayers' financial
interests. Furthermore, as we reported, DOE established two
performance measures for its first goal--the extent to which the
average fuel economy of ATVM-funded vehicles has increased over that
of similar vehicles from model year 2005 and the extent to which the
vehicles have consumed petroleum in comparison to similar vehicles
from model year 2005. These performance measures fall short, in part,
because they address only improvements at the program level and do not
put those improvements into the broader context of total U.S.
passenger vehicle fuel economy, which is necessary for assessing
progress toward the national-level goal. For example, DOE's measure
for assessing the petroleum saved by vehicles in the program provides
a first step in determining whether the program is making progress
toward its national-level goal of increasing fuel economy of U.S.
passenger vehicles as a whole. However, to put DOE's estimates of
petroleum to be saved by program vehicles into the context of U.S.
vehicles as a whole, DOE would need to determine such additional
factors as (1) the extent to which program vehicles become part of the
U.S. fleet as a whole, (2) the number of vehicles that the program
vehicles replace, and (3) the number of miles the new vehicles are
driven as compared with the miles driven by the vehicles they replace.
Furthermore, DOE's two performance measures do not isolate the effects
of the program from other factors. Although this can be difficult to
do with precision, accounting for the effects of other factors could
help the agency more accurately determine the effects of the program.
We note in our report that, because automakers selling cars in the
United States have to meet increasingly stringent CAFE targets, DOE
could approximate the effects of the program by measuring the extent
to which the ATVM-funded vehicles achieve fuel economy that surpasses
those CAFE targets. However, in his comments, the Executive Director
stated that DOE will not create new performance measures for any of
its three program goals. By not setting sufficient performance
measures for its three program goals, DOE is unable to assess its
progress in accomplishing them. Assessing the extent to which the ATVM
program is accomplishing its goals is particularly important given the
current economic climate and constrained federal budget. DOE's failure
to develop and use appropriate performance measures means that
Congress lacks important information on whether the funds spent so far
are furthering the program's goals and, consequently, whether the
program warrants continued support. It also means that U.S. taxpayers
do not know whether they are getting what they paid for through the
loans.
DOE's letter commenting on our report is presented in appendix II. DOE
also provided more details and technical comments, which we
incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to appropriate
congressional committees, the Secretary of Energy, and other
interested parties. In addition, the report will be available at no
charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions
to this report are listed in appendix III.
Signed by:
Frank Rusco:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
To identify the steps the Department of Energy (DOE) has taken to
implement the Advanced Technology Vehicles Manufacturing (ATVM) Loan
Program, we analyzed relevant provisions of the Energy Independence
and Security Act of 2007 (EISA) and the Consolidated Security,
Disaster Assistance, and Continuing Appropriations Act, 2009; the ATVM
program's 2008 interim final rule; the ATVM program's credit policies
and procedures manual; and other documentation provided by DOE. We
discussed the interim final rule and program implementation with
officials from the ATVM program; the Office of Energy Efficiency and
Renewable Energy; the Office of the Secretary of Energy; the Office of
the Chief Financial Officer; and the Credit Review Board, which is
charged with overseeing the ATVM program and making recommendations to
the Secretary of Energy on whether or not to award loans. We also
compared the interim final rule with applicable requirements contained
in EISA and the Office of Management and Budget Circular A-129,
Policies for Federal Credit Programs and Non-Tax Receivables.
To examine the ATVM program's progress in awarding loans, we analyzed
documents DOE decision makers used to select borrowers; minutes of
Credit Review Board meetings; the loan agreements made as of February
24, 2011, and other relevant documents. We also interviewed cognizant
DOE and ATVM officials to gain further information on the loans. We
did not evaluate the technical or financial soundness of the projects
that DOE considered for loans.
In addition, we compared the program's fuel economy estimates for the
funded vehicles with (1) the average fuel economy of the comparable
vehicle class for model year 2005 and (2) data on future CAFE targets.
For each vehicle project that has received funding from the ATVM
program, we compared the miles per gallon (mpg) or miles per gallon of
gasoline equivalent (mpgge) result from DOE's Powertrain System
Analysis Toolkit (PSAT) model for the representative vehicle used to
establish the project's eligibility to the average mpg for the
comparable vehicle class for model year 2005 as defined under ATVM's
interim final rule. We also compared the mpg or mpgge result from
DOE's PSAT model, which is a single mpg rating for a particular model
year, with the mpg target under corporate average fuel economy (CAFE)
standards for a vehicle with the same footprint in the same model
year. We did not compare the estimated mpg or mpgge to CAFE targets in
years subsequent to the first year of expected production for that
model. We determined that these data were sufficiently reliable for
our purposes.
To assess how the ATVM program is overseeing the loans, we analyzed
the ATVM program's credit policies and procedures manual, the
program's credit monitoring plans for borrowers, borrowers' progress
reports, and the external auditors' reports available for the three
borrowers who have had external audit reports as of September 16,
2010. In addition, we discussed loan oversight and monitoring with
officials from the ATVM program and the Office of Energy Efficiency
and Renewable Energy. Finally, we consulted GAO's Standards for
Internal Control in the Federal Government.
To evaluate the extent to which DOE can assess its progress toward
meeting program goals, we analyzed relevant provisions of EISA, DOE's
budget request documents, and other documentation provided by the ATVM
program. We also analyzed relevant provisions of the Government
Performance and Results Act (GPRA), as well as our prior work on GPRA
and federal standards for internal control. Finally, we discussed
strategic planning and program implementation and evaluation with
relevant ATVM officials.
We conducted this performance audit from September 2009 through
February 2011 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
[End of section]
Appendix II: Comments from the Department of Energy:
Department of Energy:
Washington, DC 20585:
February 2, 2011:
Mr. Frank Rusco:
Director, Natural Resources and Environment:
Government Accountability Office:
Washington, DC 20548:
Dear Mr. Rusco:
Thank you for the opportunity to comment on the Government
Accountability Office's (GAO) draft report on the Department of
Energy's (DOE or Department) Advanced Technology Vehicles
Manufacturing Incentive Loan Program (ATVM), Advanced Technology
Vehicle Loan Program Implementation Is Underway but Enhanced Technical
Oversight and Performance Measures Are Needed.
The Department is pleased that the GAO recognizes the progress of the
ATVM program in making $8.4 billion in loans that will yield fuel
economy improvements in the near and long-term while creating or
saving an estimated 37,800 jobs. ATVM loans are fostering the
development of a variety of advanced automotive projects including
those that offer improved internal combustion technology as well as
those utilizing electric and hybrid technologies.
DOE is very proud of the fact that the program was set up in record
time. Authorized under Section 136 of the Energy Independence and
Security Act of 2007 (P.L. 110-140) (EISA), the program was not funded
until the Fiscal Year 2009 Continuing Resolution was approved by
Congress in October 2008. On November 5, 2008, DOE issued the Interim
Final Rule in approximately half of the 60-day expedited timeframe
mandated by Congress. The ATVM program has been enthusiastically
received by the automobile industry. Over 130 applications for nearly
290 projects have been submitted to the ATVM program. These
applications have come from both automobile manufacturers and
component makers. It is also important to note that the funding
provided by ATVM came at a critical time in the development of plug-in
hybrid and electric vehicles providing long-term capital for these
efforts when private financing was not available.
As noted in your report. the Department has taken numerous steps to
successfully implement the ATVM program. The Department set three
goals: increase the fuel economy of U.S. passenger vehicles as a
whole, advance U.S. automotive technology, and protect taxpayers'
financial interests. DOE also set technical, financial, and
environmental eligibility requirements. Additionally. DOE established
criteria for judging the technical and financial merits of applicants.
A paramount concern is protecting the American taxpayer. To that end,
the ATVM program undertakes a rigorous screening for technical merit,
financial viability, including a thorough credit underwriting of the
project, and then negotiates a commitment term sheet. The project then
enters the approval process which, if successful, leads to negotiation
of a loan agreement. After closing loans, the Department monitors the
financial conditions of borrowers through comparisons of actual
performance to the established financial covenants and other key terms
and conditions associated with the loan to ensure taxpayers are
protected.
GAO's report makes two recommendations. With respect to the first, DOE
agrees that engineers should be engaged to monitor certain aspects of
ATVM loans as part of a comprehensive monitoring program, and in fact,
the Loan Programs Office has already engaged independent engineers to
review certain aspects of ATVM applications. DOE takes exception with
GAO's assertion that all Our outstanding ATVM loans made to date
should have had independent engineers reviewing initial stages of
engineering integration work. This is done primarily at drafting
tables or on computers and as such would be difficult to appraise.
Engaging engineers at this stage would likely not yield the insights
which would increase effectiveness of the ATVM program. DOE engineers
will provide more extensive oversight of start-up companies including
monthly on-site inspections. However, DOE believes that established
original equipment manufacturers which have large staffs of highly
experienced engineers and other experts require less frequent
inspection unless there is a problem achieving performance
specifications of new vehicles or in case there are manufacturing cost
issues. DOE will utilize engineering expertise on a regular basis
during the construction of all vehicle assembly and component
manufacturing facilities supported by ATVM loans.
With respect to the second recommendation regarding performance
measures, DOE believes that the ATVM program has faithfully adhered to
the requirements of the EISA as more fully developed in its
implementing regulations. Performance measures suggested by the GAO
greatly expand the scope of the program and do not appear consistent
with the intent of Congress in authorizing this program. We do not
intend for the program to create new performance measures that
Congress did not specify. Furthermore, isolating the contribution of
the ATVM program by taking into account the numbers and types of ATVM
vehicles that consumers might have bought, the numbers and types of
vehicles consumers have replaced, and the extent to which the new
vehicles have been used by consumers relative to the old vehicles as
GAO suggests would require a significant research effort which would
divert resources and produce no benefit.
Enclosed are the Department's detailed response to GAO's specific
recommendations and separate technical and factual comments on
specific language in the draft report. We look forward to working with
your team on future engagements.
Sincerely,
Signed by:
Jonathan M. Silver:
Executive Director:
Loan Programs Office:
Enclosures:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Frank Rusco, (202) 512-3841 or ruscof@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Karla Springer, Assistant
Director; Marcia Carlsen; Elizabeth Curda; Nancy Crothers; Brandon
Haller; Joah Iannotta; Terence Lam; Rebecca Makar; Reina Nunez; Madhav
Panwar; Mick Ray; Ray Sendejas; Kiki Theodoropoulos; and Barbara
Timmerman made key contributions to this report.
[End of section]
Footnotes:
[1] In Section 136 of EISA, Congress also authorized the ATVM program
to make grants, but to date, this has not been funded.
[2] Credit subsidy costs exclude administrative costs and any
incidental effects on governmental receipts or outlays. Present value
is the worth of the future stream of returns or costs in terms of
money paid immediately. In calculating present value, prevailing
interest rates provide the basis for converting future amounts into
their "money now" equivalents.
[3] EPA is responsible for developing and executing CAFE testing and
calculation procedures. NHTSA uses EPA data to determine if a
manufacturer's fleet is in compliance for a given model year. The
final rule was published in the Federal Register on May 7, 2010.
[4] GAO, Effectively Implementing the Government Performance and
Results Act, [hyperlink, http://www.gao.gov/products/GAO/GGD-96-118]
(Washington, D.C.: June 1996).
[5] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[6] The Federal Financing Bank is a government corporation, created by
Congress, under the supervision of the Department of the Treasury.
[7] The government's cost of funds is the interest cost that the
federal government must pay for the use of the money it lends to ATVM
borrowers--that is, the interest rate on Treasury notes at the time
the funds are disbursed.
[8] The Federal Credit Reform Act of 1990 requires that the credit
subsidy costs of federal loan programs be paid; for the ATVM program,
they are paid by congressional appropriations.
[9] DOE evaluates proposed projects individually. Applicants may
submit loan requests for multiple projects in a single application,
but each proposed project must include all necessary information
specific to that project.
[10] The interim final rule defines the "most recent" year as the year
for which the most recent CAFE compliance data are available. DOE
defines "adjusted average fuel economy" as the average of the combined
CAFE fuel economy ratings--adjusted by production volume--of all the
relevant vehicles in a manufacturer's vehicle fleet.
[11] The federal prevailing wage requirements, commonly known as Davis-
Bacon requirements, are codified at 40 U.S.C. §§ 3141-3148 and apply
to borrowers, contractors and subcontractors.
[12] Pub. L. No 110-140, § 136(a), 121 Stat. 1492, 1514 (2007),
codified at 42 U.S.C. § 17013.
[13] To determine the expected fuel economy of proposed vehicles, DOE
laboratory staff analyze applicant-provided data on the specifications
of a proposed vehicle using the Powertrain System Analysis Toolkit,
which DOE uses as its primary fuel-efficiency simulation tool for a
number of vehicle-related projects.
[14] Manufacturers may produce multiple versions of a model within a
project that have varying technical specifications--that is, for a
sedan model, manufacturers might plan to produce versions with
automatic and manual transmissions that vary in their fuel economy.
[15] Under NEPA, federal agencies evaluate the likely environmental
effects of projects that are proposed using an environmental
assessment or, if projects are likely to significantly affect the
environment, a more detailed environmental impact statement. See 42
U.S.C. §§ 4332(2)(C), (E).
[16] The ATVM program's credit rating for applicants is based, in
part, on any publicly available credit ratings.
[17] Prior to the review by the Credit Review Board, the Credit
Committee--a group composed of the Director of the Loan Guarantee
Program and senior staff of the Chief Financial Officer's Office--
reviews the financial analysis and makes recommendations to the
Director of the ATVM program and the Credit Review Board on whether to
award loans.
[18] Loan amounts awarded to each company do not add up to the total
loan amount the ATVM program awarded to date because of rounding.
[19] The CAFE standards for 2012 to 2016 will subject passenger cars
and light trucks to target levels of fuel efficiency based on the
vehicles' "footprints." A vehicle's footprint is a measure of its size
calculated by multiplying its wheelbase (the distance from the center
of the front wheels to the center of the rear wheels) by its average
track width (the average of the width between the two front wheels and
the width between the two rear wheels). The vehicle-level mpg targets
generally become more stringent with each new model year.
[20] We calculated harmonic averages, which are often used for
determining the average of a set of rates, such as, in this case,
mpgs. DOE used harmonic averages to calculate the combined average
fuel economy for its vehicle classes under the ATVM interim final rule.
[21] For the purpose of establishing eligibility, DOE used the
classifications in the interim final rule. According to Fisker
officials, while these classifications accurately reflect the
vehicles' footprints and are appropriate for judging the fuel economy
of the vehicles, the classifications do not accurately reflect the
type of vehicles to be produced by Fisker under the program. More
specifically, the officials characterized the Karma as a "premium-
luxury sedan" and the Nina as a "near-luxury performance sedan,"
noting that vehicles that are known in the industry as "subcompacts"
generally are not luxury vehicles.
[22] Nissan officials told us that the LEAF that will be produced will
be a midsize sedan, differing slightly from the design classified by
DOE as a small wagon that was used to establish eligibility. DOE's
projected fuel economy for the LEAF also exceeds the eligibility
requirements for the midsize sedan classification.
[23] Nissan has announced that EPA has approved a fuel economy window
sticker for the LEAF for model year 2011 with a rating of the
equivalent of 99 miles per gallon of gasoline equivalent (mpgge),
resulting from the five-cycle testing regimen EPA is using until it
makes final its regulation.
[24] For sales occurring after December 31, 2009, the cost to
consumers of plug-in hybrid vehicles and all-electric vehicles is
reduced by a federal tax credit ranging from $2,500 to $7,500,
depending on the battery capacity of the vehicle. The credit begins to
phase out for a manufacturer after it has sold at least 200,000
qualifying vehicles for use in the United States.
[25] See GAO, Federal Energy and Fleet Management: Plug-in Vehicles
Offer Potential Benefits, but High Costs and Limited Information Could
Hinder Integration into the Federal Fleet, [hyperlink,
http://www.gao.gov/products/GAO-09-493] (Washington, D.C.: June 9,
2009).
[26] The credit rating was determined by Standard and Poor's.
[27] GAO, Agencies' Annual Performance Plans under the Results Act: An
Assessment Guide to Facilitate Congressional Decisionmaking,
[hyperlink, http://www.gao.gov/products/GAO/GGD/AIMD-10.1.18]
(Washington, D.C.: February 1998) and GAO, The Results Act: An
Evaluator's Guide to Assessing Agency Annual Performance Plans,
[hyperlink, http://www.gao.gov/products/GAO/GGD-10.1.20] (Washington,
D.C.: April 1998).
[End of section]
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