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Tuesday, November 1, 2011

The Advanced Technology Vehicles Manufacturing (ATVM) Loan Program: Status and Issues

Brent D. Yacobucci
Specialist in Energy and Environmental Policy

Bill Canis
Specialist in Industrial Organization and Business

Congress has supported a wide range of research, development, and production incentives for new domestic energy sources for several decades, as part of an overall commitment to reduce imported petroleum and, in the case of automobiles, raise fuel-efficiency levels.

The Advanced Technology Vehicles Manufacturing (ATVM) Loan Program is one such incentive program at the Department of Energy (DOE). In 2007, when the Detroit 3 automakers—General Motors, Ford, and Chrysler—faced financial difficulties and U.S. fuel economy standards were raised, Congress established the ATVM program within DOE. It provides direct interest-bearing loans to automakers and parts suppliers to construct new U.S. factories or retrofit existing factories to produce vehicles that achieve at least 25% higher fuel economy than model year 2005 vehicles of similar size and performance.

The ATVM program is authorized to award up to $25 billion in loans; there is no deadline for completing such loan commitments. The program was not funded by Congress until 2009, when it appropriated $7.5 billion to cover the subsidy cost for the $25 billion in loans, as well as $10 million for program implementation. Since the start of the program, DOE has awarded $8.4 billion in loans to five companies (Fisker, Ford, Nissan, Tesla, and The Vehicle Production Group). As of mid-October 2011, ATVM has $16.6 billion in remaining loan authority.

Of the final loan agreements, DOE estimates that the projects funded will create or save 38,700 jobs at facilities in nine states. DOE estimates that annually the projects will displace 282 million gallons of gasoline (roughly 18,000 barrels per day, or about 0.2% of U.S. consumption) and will avoid about 2.4 million tons of carbon dioxide emissions (about 0.04% of total U.S. emissions).

Appropriations for the program do not cover the entire value of the loans but instead cover the “subsidy cost” (i.e., the risk of default). For the original appropriation, Congress assumed a subsidy rate of 30%, meaning that $7.5 billion would be sufficient to fund $25 billion in total loan value. However, as noted by the Government Accountability Office (GAO), the actual subsidy rate of approved loans has been higher (around 39% on average). Unless the subsidy rate for future loans is significantly lower (around 25%), the original appropriation will not be sufficient to fund the full $25 billion authorized. GAO estimates that a total of $3.3 billion in subsidy costs has been paid to date, with approximately $4.2 billion unobligated.

Recently, the unobligated funds remaining for the program were a point of contention in the debate over continuing appropriations for FY2012. The House-passed version of H.R. 2608 would have taken $1.5 billion away from ATVM’s balance sheet ($1 billion would be used for disaster relief and $500 million would be rescinded). The Senate-passed version of H.R. 2608 and the final bill signed by the President did not contain this language. In the end, no changes were made to the ATVM program.

Several concerns have been raised about the program. GAO has recommended that, in evaluating automaker progress, DOE should use experienced engineers and apply new financial and technology assessments. In addition, questions have been raised about whether ATVM effectively subsidizes automakers’ compliance with higher corporate average fuel economy (CAFE) standards and whether the range of advanced technologies being supported is too narrow.

This report discusses the history of the program, outlines the projects receiving loans, discusses some of the key issues, and reviews the U.S. motor vehicle industry’s involvement.

Date of Report: October 2
8, 2011
Number of Pages:
Order Number: R420
Price: $29.95

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