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. 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. 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. 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. 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.