Department of Energy Secretary Chu announced the first round of $8 billion in low-cost loans from its $25 billion Advanced Technology Vehicles Manufacturing Loan Program. The loans are going to Ford, Nissan and Tesla. This funding was set aside not by President Obama as a bailout to keep auto companies afloat—but in September 2008 by former President Bush in order to retool plants to build more advanced technology vehicles. The loans are intended to support hybrids, plug-in hybrids, and clean diesel cars, with a goal of boosting fuel efficiency by 25 percent.
The $5.9 billion going to Ford will help the company shift truck plants to production of cars, affecting about two million units of production and a dozen or more different models, including the Focus, Escape, Mustang, Taurus and F-150 pickup. Ford will also use the money to support development of a range of technologies such as improved internal combustion engines—which the company markets as “EcoBoost”—and hybrid technology. Nissan gets $1.6 billion in loans for plants in Tennessee to produce electric cars and the lithium ion batteries for those vehicles. Construction is expected to start in late 2012. The plant will have the capacity to make 150,000 electric vehicles a year, but Nissan said it will take some time to ramp up to that level. Tesla received a relatively small portion of the government money—$465 million to build plants, most likely in California, for its planned $57,000 Model S all-electric sedan and battery-electric drivetrain designed for Daimler’s Smart EV.
The low-cost loans will carry a discounted interest rate of about 5 percent—enough to save automakers more than $100 million for each $1 billion borrowed. Otherwise, the companies would face interest rates of 15 percent or more. Congress also approved $7.5 billion to cover the costs of insuring the loans.
“This is not a bailout,” said Walter McManus, auto economist at the University of Michigan. “Investing in new products and technologies takes cash. Without incentives to invest in the fuel-efficient products that consumers are now demanding, [carmakers] will continue to spend scarce resources to sell yesterday’s products instead of developing tomorrow’s cleaner products.” Automakers have up to 25 years to repay the money.
General Motors and Chrysler, which asked for $10 billion and $8 billion respectively, were left out of this round. The companies currently are considered ineligible because the loans are designed for viable companies, not ones in bankruptcy. But as they emerge from bankruptcy—as Chrysler has already done—they will negotiate with the government to get a share of the remaining loan money. Chrysler would most likely use the loans to accelerate production of electric cars and plug-in hybrids. GM wants to funds to develop the Chevy Volt and Chevy Cruze, its two most prominent upcoming fuel-efficient models. More than 70 other US automakers, parts makers, US subsidiaries of foreign companies and start-ups have also applied for loans.