Canada Proposing Joint Climate Change Pact to President-Elect Obama
Estonian and Finnish Companies Establish Oil Shale JV

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

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.

Resources

Comments

Herm

It is true, the majority of the american public will not buy (maybe that has changed) small economical cars.. and for political/economical reasons we cant tax fuel at the same level as the europeans do.

Maybe we should make a small class of cars with relaxed pollution and safety equipment, and government rebates.. at $7k to $10k those cars would sell well. I suspect multiple airbags are not cheap.

Herm

I should say the Japanese have no trouble making/selling small cars in the US, the problem is that GM/Ford cant make any money selling them.

HarveyD

Just a suggestion or two to accellerate PHEVs mass production in USA and help the Big-3 and USA.

If the government is going to invest in the Big-3, could up to 50% to the help $$B be allocated to design and mass produce affordable 100 mpg PHEVs such as:

1) Up to $5B to GM to mass produce an affordable PHEV Volt + a PHEV utility vehicle.

2) Up to $5B to Ford to mass produce an afforable Escape PHEV + a PHEV utility vehicle or small PHEV car such as the Focus.

3) up to $5B to Chrsyler to mass produce an affordable PHEV Van and a PHEV Jeep.

With something between $15B and $20B the Big-3 could produce 8 to 10 affordable PHEVs in USA within about 3 years or less.

However, the Big-3 would have to better manage, curtail or progressively close most of their pure ICE production units if they can't sell them with acceptable profits. They should have forseen and planned for that anyway.

Simultaneously, up to $10B could be allocated for the mass prodution of affordable ESSUs from at least 5 or 6 USA battery pack manufacturers for PHEVs and future BEVs.

Another $5B to $10B could be allocated for the mass production of affordable e-motors and associated control systems and e-sub-systems for PHEVs and BEVs in USA.

The total subsidies (or government loans or equity investment) may reach $50+ B but that's what may be required for the accellerated transition from pure ICE to PHEVs and BEVs.

Some of the side benefits would be the accellerated elimination of Oil imports, reduced GHG and maintenance/creation of a few million essential jobs in USA.

Canada and Mexico should contribute proportionnally.

Nate H.

Harvey,

I dont want any bailout because of the one little ingredient that you're missing that changes the whole product:

GM is broke. Giving them $5B to do something with fuel economy isnt going to help cash flow. Its not going to pay cushy retirement benefits or medical benefits for the retirees.

This whole notion that putting Dollars into one end of a failing company some money and great products will come out the other end is crazy.

Leave the auto companies alone, and bite a horrid bullet for two years and things will calm down as Toyota, Honda, Nissan, Hyundai and their dirivitives consume the GM, Ford, Chrysler losses.

Throwing Dollars to them will just extend the inevitable. Where are their sales going to materialize from to pay back the $25B ??? They can't sell anything NOW let alone with more money!

Nate H.
Dover, Ohio

Aaron

I think 1 billion of this should be given to the automotive X-prize foundation so they can expand their awards to include the 2nd to 10th place winners. They've got entrants like the Aptera and the Venture one vehicle. Which are both up there at 100mpg.

Another billion should be loaned (which is very likely to get paid back) to the new company called Sapphire Energy that has that genetically modified algae that makes oil so that they can rapidly scale up to millions of barrels a day of "green crude." They plan on dotting the South West California deserts with lots of these oil production facilities. That would create a lot of jobs and begin the elimination of foreign oil dependence and lower the cost and price of gasoline.

HarveyD

Nate H.

You may be right.

There's a movement in Canada to let the Big-3 (their managers and agressive unions) die quickly but to support better managed more responsive manufacturers such as Honda-Toyota-VW + new electrified vehicles + battery manufacturers.

Would such a major change be economically managemable?

Of course Canada's PM and all the Oil producing areas + Ontario + Auto Unions are against purging the Big-3.

In other words, the majority of the elected administrations are still strongly in favor in the Big-3 & Oil producers. Is there a financial support reason behind that cleavage? Powerful lobbies + Unions are at work to protect their interests.

That being said, the USA + Canadian Administrations will pour $$ B into the Big-3 to protect jobs (for the short 4-year term) regardless of the outcome.

EP

Any reason why this money couldn't go towards smaller companies (Tesla, etc) with more progressive tech?

Engineer-Poet

According to a rep on Talk Of The Nation yesterday, Tesla has applied for part of the $25 billion in R&D funds to make highly-efficient vehicles.

Selling them a passenger car plant may not be a bad idea.

The comments to this entry are closed.