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US Department of Energy Issues Rules for $25B Automaker Loan Program

6 November 2008

The US Department of Energy (DOE) issued an Interim Final Rule for implementing the $25-billion retooling loan program authorized by EISA 2007 and funded by the FY09 Continuing Resolution. (Earlier post.)

The program is to provide direct loans to eligible applicants for the costs of reequipping, expanding, and establishing manufacturing facilities in the United States to produce advanced technology vehicles, and components for such vehicles. These vehicles must provide “meaningful” improvements in fuel economy performance, defined as at least a 25% improvement in fuel economy over a baseline established for vehicles of a given class.

Congress has appropriated $7.5 billion to cover the subsidy costs of direct loans issued to automobile manufacturers and component suppliers. The actual amount of loans that DOE will be able to issue with this funding, up to the statutory ceiling of $25 billion in loans, will depend on the particular circumstances of specific borrowers and proposed projects.

Additionally, the Department must comply with statutory requirements including the National Environmental Policy Act (NEPA) in connection with the issuance of any loans to be made under the EISA section 136 program. The Department intends to act quickly to review and evaluate any applications it receives from eligible applicants under the program.

Section 136 of EISA 2007 authorizes the DOE to issue grants and direct loans to applicants for the costs of re-equipping, expanding or establishing manufacturing facilities in the US to produce qualified advanced technology vehicles, or qualifying components. Section 136 also authorizes grants and loans for the costs of engineering integration performed in the US of qualifying advanced technology vehicles and qualifying components.

An advanced technology vehicle is defined as a light duty vehicle that meets

  • Tier 2 Bin 5 emissions standards or better;

  • Any new emissions standard in effect for fine particulate matter; and

  • At least 125% of the average base year combined fuel economy for vehicles with substantially similar attributes.

Baseline fuel economy eligibility by vehicle class
Vehicle class 2005 FE average Baseline
(2005 FE x 125%)
Two-seater 25.3 31.6
Two-seater performance 22.2 27.8
Minicompact sedan 29.3 36.7
Minicompact performance sedan 22.4 28.0
Sedan 22.4 28.0
Subcompact sedan 29.6 37.0
Subcompact performance sedan 22.8 28.5
Compact sedan 33.8 42.2
Compact performance sedan 23.6 29.5
Mid-size sedan 29.4 36.7
Mid-size performance sedan 23.1 28.9
Large sedan 26.2 32.7
Small wagon 32.7 40.8
Mid-size and large wagons 26.7 33.4
Small and standard pickup 19.7 24.6
Minivan 24.3 30.4
Passenger van 19.0 23.8
Cargo van 24.2 30.2
SUV 21.8 27.2

To calculate the fuel economy baselines, DOE is adopting definitions and provisions contained in the current CAFE regulations (not the new CAFE, the rule for which is soon to be announced by NHTSA). The new CAFE rules will not impact the regulations in the loan program, although DOE says that it may amend the interim final rule in a future rulemaking document in response to the coming CAFE regulations.

DOE has defined adjusted average fuel economy for the purposes of the rule to mean a harmonic production-weighted average of the combined cycle fuel economy of the vehicles within an OEM’s vehicle fleet.

To be eligible for the loans, automakers must be able to show a history of maintaining or improving the fuel economy of their fleets. The adjusted average fuel economy of a fleet for the most recent year for which CAFE compliance data are available must be no less than the adjusted average fuel economy of that automaker’s fleet in MY 2005.

In assessing whether or not the vehicles in a project meet the baseline 25% improvement, DOE will compare fuel economies without consideration of whether the vehicles are flex-fuel vehicles—i.e., DOE is not considering flex fuel capabilities under the criteria for identifying an advanced technology vehicle.

Financial eligibility. The DOE is stipulating a number of factors to be considered in determining the financial viability of any applicant for the program. Considerations will include the debt-to-equity ratio; EBITDA; debt-to-EBITDA ratio; interest coverage ratio (EBITDA divided by interest expenses); fixed charge coverage ratio (EBITDA plus fixed charges divided by fixed charges plus interest expenses); liquidity; statements from lenders saying that the applicant is current with all payments; and financial projects demonstrating solvency through the period of the time that the requested loan is outstanding.

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November 6, 2008 in Fuel Efficiency, Policy | Permalink | Comments (33) | TrackBack (0)

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The Prius is getting over 40 mpg and it is not even plug-in or electric. Taxpayers money is essentially spend on make old cars that are a little bit more efficient. Why not demand that the loans are restricted to manufacture of vehicles that can do at least 40 mpg and are minimum 25% more efficient than similar sized models? That will ensure we get a lot of PHEVs and electric vehicles on the street fast and not just subsidizing essentially old vehicle technologies that can’t do much to reduce emissions and foreign oil dependence.

Could they have made the target any lower? All they need to do is emissions-tweak the turbo-diesels that they already offer in the EU and they'll exceed the requirement.

Nothing ground breaking there. Why won't Detroit launch a game-changer instead of just playing catch-up?

Henrik, I agree completely. The automakers could take these handouts and work hard to have SUVs achieve 27 mpg, but that would miss the oil addiction point entirely. Having separate categories for different vehicles only reinforces the hope by some automakers that they can continue to make larger vehicles. CAFE should be based purely on automaker fleet averages on vehicles under 10,000 lbs. And with Prius already achieving 48 mpg overall, the 35 mpg CAFE 2020 "target" is a joke. Is should be closer to 75 mpg and have equivalent (or proportional) values for electricity consumption for BEVs and PHEVs.

amen, Henrik.
Why spend $25b of taxpayer money to just 'tweek' the crap they're building now.
This money should only go toward new development...perhaps the next generation Volt. Or, to new companies building all-new technology.

The US Tax-payer should demand more bang for their buck!

For $25,000,000,000 (+$10,000,000,000 more to aid a GM-Chrysler merger?) I want nothing short of AFFORDABLE 100mpg-capable and safe vehicles.

In light of our addiction to foreign oil, the goal we need to shoot for is fossil-fuel-free transportation. Detroit, please stop tweaking your turds at the expense of the US taxpayer! We want something revolutionary yet affordable.

Uh-ho, this just in:

http://www.motorauthority.com/house-democrats-push-for-another-25-billion-in-auto-industry-loans.html

Dems are pushing for an ADDITIONAL $25,000,000,000 for Detroit.

For ++$50,000,000,000 we should demand that the US automakers pump out nothing but fossil-fuel-free vehicles!

Sheesh! Where will all this money come from? Is there a new printing press in Washington? Taxpayers, stand-by!

Why is it that these same manufacturers and others can and do produce vehicles in Europe that achieve 60mpg+ but not here?? Do they not realize or not care that they could sell as many as they produce?? I agree with the above posters that a CAFE target of 35mpg especially in light of the taxpayer being fleeced to the tune of 50 BILLION dollars for them is a joke.

The automakers lawsuits against the government should also be dropped in order to qualify for any money.

Another stupid act by u.s goverment, u.s car consumers, u.s car manufacturers, u.s scientists, u.s agencies. It's a castastrophy. 25 other billions to incompetants.I said before to adopt natural gas as an option to gasoline and diesel. U.s car manufacturers are just unable to improve their actual car architecture. Only natural gas conversion is reachable and can be a bi-fuel option, gasoline and natural gas or only natural gas. No u.s car compagny is competant enouph to reach impossible to reach anyway diesel tier 2 bin 5 diesel norm, it's just a dream this F&?%(*g norm. They start with a dirty fuel called diesel and say to expel it cleanly at the exhaust tip. Gm, chrysler, ford and u.s goverment are just working for big oil gasoline and diesel and ignoring an efficient and 10 less polluting fuel called natural gas that is plenty here in north-america. CRIMINALS.

Seems to be a lot of $$$ for very little or even less than many manufacturers sell already.

Is this a way to protect the oil industry for a few more decades?

Let's hope that the new administration will revise this program to make it more effective.

a.b., if T2B5 Diesels are a dream, why does that Jetta TDI at the local VW dealer look so real? If VW can do it, so can GM and Ford and I don't think it would take them $25 billion, much less $50 billion to make that happen. What it would take is an admission that no matter what they do, a Chevy Suburban will never be a fuel-efficient vehicle and therefore they had better start bringing over (or building here) some nice 4 cylinder turbo-diesels.

Detroit never delivered on PNGV. Why is this any different?

the rules are so loose because its GM welfare and GM doesnt want to try very hard. the funny thing is that they will ask for further relaxations because they will find they cant even make these rules ( but they will take as much money as they can before they complain about not being able to meet the rules). Obama has no choice since the UAW got out the vote to support him.
Meaningful rules would be MPG targets without convoluted CAFE rules already adjusted to make GM look good. Fortunately for all of us, GM can lie about their mpg all they want, people arent going to buy them once its obvious that its all smoke and mirrors.

This is probably a good investment for the govt considering that if the companies don't go bankrupt they will get the money back and if they fail the govt will probably be on the hook for massive healthcare and pension costs, and that ignores what the job cuts would do.

I am European, as the european union is mentioned here. First of all: The EU is a hated bureaucratic institute in Europe (except by Greenpeace). Second: cars are designed in Germany, France and Italy here, not by the EU bureaucrats. Third: There are no 60 mpg cars in Europe (mayby a bike). A Volkswagen Passat 2.0 TDI sedan (140 BHP) does 39 mpg diesel in reality. (6L/100km). With an manual transmission of course, no automatic. And has adequate performance. The smell of the diesels has improved. But I am sure all of you heat your houses on heating oil and not on electricity. A VW Touareg SUV 3.0 V6 TDI automatic something like 21 to 23 mpg diesel. (240 BHP)

Agreed that these proposed mileage figures are sorry excuses for what they ought to be.

And now I think I know why.

Going over the website, I found a section for industry comments and submissions, but there appears to be no place in the process for public comments and submissions.

It's time to lobby Congress to override these sorry excuses for economy standards.

@plop
"There are no 60 mpg cars in Europe"

Beester may be refering to the Smart car which does get over 60 mpg but can't be bought as a diesel in the US.
Or he could mean something like the Volkswagen Lupo or Audi A2 1.2 TDI which were built as 3L cars [100km/3litre].

Let them go bankrupt. That probably would make all of you Detroit bashers happier than hell.

http://www.treehugger.com/files/2008/07/ford-econetic-fiesta-diesel-63mpg.php
Here's another over 60mpg car that they make in Europe but don't sell in America.

The real question is how much "retooling" is needed to tweak ICE production lines for 25% improvement in MPG? Not very much. Meaning that the loan criterion rests more on the need for new manufacturing equipment (e.g. automated Li-ion battery production, 1.0-2.0L ICE, (Stirling) gensets, electronic power controls, electric motor production, etc.

With the Congress asking for double the initial amount and a further focus on new manufacturing equipment - the money will be better spent. But by all means, let's keep up the negative drumbeat as it is entirely the nature of GCC.

*We must mandate that all new gasoline-powered passenger vehicles sold in the U.S. must, at minimum, have the ability to burn the common ratios of ethanol (and/or methanol/butanol) and gasoline.

We may have missed a chance to tie this mandate to these huge loans to auto industry. Maybe we can forego the interest on these loans in exchange for the mandate. Whatever it takes.

How much we spend on defense both here and abroad to maintain consistent sources of transportation energy (Oil)?

If we make the mandate described above, we will, in relatively short order, accomplish two extremely important strategic goals:
1. Break the OPEC oil monopoly.
2. Give consumers the ability to choose what fuel they wish to use.

Important notes regarding my convictions:

1. The cost to make this change to the average passenger vehicle in the factory is currently around $100 per vehicle. Any pain to the consumer or manufacturer could be mitigated directly through subsidies or indirectly through tax breaks (either at the corporate or consumer level). As a responsible citizen, I’m willing to pay for that kind of grease to pass the mandate, either through higher taxes, or reduced services – it’s that important.

2. If we mandate this to our domestic auto manufacturers with appropriate subsidies they could enjoy a marketplace advantage over foreign manufacturers. Not only will they have a highly marketable feature that will be desired by the public but they won’t have to cover the cost of that feature. It may prove a nice shot in the arm to lagging demand of domestic vehicles. More grease.

3. The chips (circuitry), fittings and sensors for this change are readily available now and are in commercial use. This is not new technology. It only gets cheaper as volume increases. These chips can be made to easily and dynamically handle any ratio of meth/eth/butanol, and gasoline. The same chip can even handle CNG, though obviously, storage is a different matter.

4. As these cars hit the road the potential demand alone will encourage distributors to install the pumps and upgrade the infrastructure to handle the new formulations. I can foresee some entrepreneurial distributor selling Patriot Petrol in Peoria and another selling Enviroctane in San Francisco.

5. The demand for fuels other than gasoline will promote huge private investment into commercialization of cellulosic alcohol and other technologies we’ve wisely incubated though your representatives yea votes for alternative fuel incentives. Turn them loose. Bring the strengths of capitalism to bear. Our meritocracy tends to reward the entrepreneurial spirit when we allow it. The people and entities that can take smart ideas and turn them into better, faster, cheaper energy will be there if given a chance to compete.

6. We’ve seen price spikes in corn (for example). I’ve heard a number of times that this is caused by the increased demand for ethanol. I must ask (rhetorically) why then did we end up a 1.8 billion+ bushel surplus this year? I’ll tell you why, in reverse order of importance; 1. speculation, 2. cost of fertilizer, and 3. cost of fuel. The third item being the most important and most ironic. It is the price of fuel that is causing the rise of corn prices more than everything else combined. We are extremely lucky to live in a country with an enormous reusable resource of arable land. We haven’t come close to fully utilizing it. We pay farmers to let land go fallow so that crop prices don’t free-fall. So even without new technologies in cellulosic alcohols, we’ve got plenty of headroom. I prefer to put my hard-earned dollars into a farmers pocket rather than send it to some country that has more oil than respect for human rights.

7. If somehow farmers do not respond to the increase in demand and we begin to see higher prices for corn, simply remove the .$54/gallon tariff from imported ethanol. I’d still rather put money in Brazil’s coffers than in some country run by religious extremists. Let the farmers in Brazil share the demand with the farmers in America.

8. Make the blenders tax credits more consistent, extend and increase them to other second-generation biofuels (like cellulosic alcohol or a Fischer-Tropsch-type projects like the one in Mahanony City). I think it’s also important to tie these breaks to the price of gasoline/diesel and phase them out over time. This will tend to stabilize fuel prices and force alternate fuel suppliers to continually become more efficient and competitive.

9. Use drilling in ANWR and off the coasts as the grease to calm the oil lobby. Tie it to this mandate if necessary. I agree that we’ll need to open our domestic oil spigots wider to accomplish energy independence. It won’t be enough though. It will take about the same amount of time to begin reaping benefits of these additional reserves as it will the benefits of consumer fuel choice. The average lifespan of the family car today is 17 years. If we started yesterday it will take 7-10 years before the demand curve for oil is broken. It will take an estimated 7-10 years before continental shelf drilling will bear any fruit at all. All that time, each year, we’re putting hundreds of billions of dollars into the pockets of governments (or more accurately, penny-ante dictators, self-appointed kings and radical religious theocracies) that hate the western culture in general and the United States in particular.

10. This should be an easy sell. To both the right-wing security-conscious and left-wing environment-conscious. The security and environmental aspects of this mandate are numerous and obvious. Tree-huggers and hawks living in harmony…oh my… The farming community is already on-board. Marketing the mandate as a consumer choice issue along with the environment and security aspects will bring along the rest of middle-America. I suspect it would improve the image of congress in the eyes of the average citizen as well.

11. We need a good government acronym for this. O.F.F. or something. Open Flex-Fuel Standard. Market it as “Get OFF oil”… Ok so it’s not “Don’t tread on me”, but you get the idea. I’ll get to work on it right away ;-)

I’m not a proponent of unnecessary government regulation, in fact it galls me when government gets in the way of legitimate commerce and free trade. But history has shown us time and time again that the right regulation applied to a monopoly can be enormously beneficial to the country as a whole and the average citizen in particular.

Now that we’re in the throes of a credit meltdown, I’m sure energy policies will take a short-term back seat. Though I see the Senate version of the ‘bailout’ (now law) had some important energy items tacked on. Good job. Who says pork is always bad? It appears that we’ve all been awakened to the fact that we must become more energy independent if we and our children are to enjoy an ever-increasing quality of life that America offers to anyone willing to work for it. In addition, If we can break the oil monopoly of OPEC we will have made the job of our esteemed government representatives, entrusted with our security, much easier.

"We must mandate that all new gasoline-powered passenger vehicles sold in the U.S. must, at minimum, have the ability to burn the common ratios of ethanol (and/or methanol/butanol) and gasoline."

A better idea is to mandate that all new passenger vehicles sold in the U.S. must have a gauge that continuously displays MPG. When you have a constant reminder of your mileage you can adjust your driving habits to save fuel. And if you had this reminder during your test drive it would adjust your buying habits as well.

@ae_vn - I like the idea of the MPG gauge. Sure, add that in too. It's included in many new cars now (I have it in my van) and the information is available from the engine control systems. They are available in the aftermarket as a plug in module for some models and if you have a geek bent, it's a simple matter to add one of your own creation with programmable IC kits available.

It still doesn't give me the ability to choose what fuel I use though.

It's certainly not enough to get to energy indepenence either.

So we're shipping more than $300 billion a year overseas just for the oil. A big percentage of that is going to countries that simply don't like western culture. So then we add a few hundred billion more to defend ourselves from the radicals that we've bankrolled. How much sense does that make?

Man if we could just put 10% of that back towards renewable fuel development...

I see the ignorant ranters are out in force, with self-righteous idiocies.

If it was as easy as you say, they would have done it already. You have no appreciation of just how far auto engine technology has advanced since 1975. A VW beetle, the definitive fuel efficient small car of the era, got 16 mpg CAFE in 1975, while producing all of 42 HP. Using todays EPA sticker methods, the VW bug would have been rated at about 8-9 mpg combined. Can you find any gargatuan SUV that doesn't double that, today?

The car companies you so hate, produce those improved mileage and smaller vehicles in the EU. They don't bring them here despite building them there, for two reasons.

1) Your fellow Americans wouldn't buy very many.
2) They are illegal on American roads, lacking lots of emissions capacity and
3) tehy are missing lots of safety equipment demanded by Law.

They also only face today EU emissions levels that equate to late 1970s levels here in the USA.

If you are so damn insistent on better mileage, why then you should be advocating a rollback of weight adding safety standards, the rejection of any more weight adding safety satndards, now scheduled for imposition, and the roll back of emissions standards to their current European equivalents? It OK, since the sainted Green socialists of Europe would hardly advocate something truly improper, or would they?

Why aren't you doing so? Because your beloved Big Brother and his infinitely wise bureaucrats can do no wrong or harm?

Who forced the US automakers to spend ten of Billions of dollars to research, develop, design and find ways to manufacture all the safety and emissions equipment, without lifting a finger to help or pay for it? Who forced them to license these technologies to foreign aautomakers, but forbade them to share the technology amongst the American makers, essentialy making all three spend equivalents amounts of money, three times over?

Why the government bureaucrats and the lefty Statists who put them in power did.

Incidently, if you actually did start advocating such a course of action, I would fight the relaxation of emssisions standards and safety standards. We have fought too hard to put them in place. I might agree to a moratorium on new ones like the new marginally-beneficial but weight adding, rollover standard, or all the idiotic, and assinine proposed CO2 standards that treat a necessary plant food fertilizer as a toxic. But it is beneficial to have ABS and anti-skid systems as standard equipment on all cars as the forthcoming federal regulations demand.

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