Department of Energy: Advanced Technology Vehicle Loan Program Implementation Is Under Way, but Enhanced Technical Oversight and Performance Measures Are Needed
Published: 2011-02-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.
section_title: What GAO Recommends
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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. 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.
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),  federal standards for internal control, 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.
subsections: section_title: Background
paragraphs: 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, have an interest rate equal to  the government’s cost of funds, 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. 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.
section_title: DOE Established Program Goals and Set Criteria for Applicant and Project Eligibility and Merit
paragraphs: 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.
subsections: section_title: DOE Established Three Goals for the ATVM Program
paragraphs: 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.
section_title: DOE Set Criteria to Determine Eligibility for Loans
paragraphs: 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.
subsections: section_title: Technical Eligibility Criteria for Applicants and Their Projects
paragraphs: 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. 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.
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. 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. 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. 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.
section_title: Financial Eligibility Criteria for Applicants
paragraphs: 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.
section_title: Environmental Eligibility Requirements for Projects
paragraphs: To comply with the National Environmental Policy Act (NEPA), 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.
section_title: DOE Also Set Criteria for Determining Eligible Projects’ Technical and Financial Merits
paragraphs: 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. 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    whether a project is likely to advance automotive technology;    an applicant’s significance to the overall well-being of the automotive  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. 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.
section_title: 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
paragraphs: 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.
subsections: section_title: The Loan Funds Largely Support Projects for Enhancing Conventional Vehicle Technology, with the Remainder Supporting Newer Technologies
paragraphs: 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. 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. 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. 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. 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. 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. 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. 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.
section_title: DOE Officials Also Cited Benefits Other than Improved Fuel Economy That Projects Could Provide
paragraphs: 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.
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.
section_title: 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
paragraphs: 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.  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.
section_title: 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
paragraphs: 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  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.
section_title: DOE Lacks Performance Measures That Would Enable It to Fully Assess the Extent to Which the ATVM Program Has Achieved Its Goals
paragraphs: 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. 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.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendations for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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  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.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: 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.
section_title: Appendix II: Comments from the Department of Energy
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: 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.