New Energy Secretary Wants to Waste More Money on EV Loans
Just when you thought the Loan Program Office in President Obama’s Department of Energy might put its unused electric auto loan money back in the Treasury coffers, the government investor-crats are going to try to find some takers for the dollars of disrepute that have been tainted by the likes of inoperative, nearly bankrupt Fisker Automotive and Vehicle Production Group.
You might remember when we last heard about the condition of this program, it had trouble finding takers for the remaining $16.5 billion or so it had been allocated. According to a March report produced by the Government Accountability Office that reviewed DOE’s loan programs, those who might otherwise be interested in the financial help cited things like bureaucratic red tape, reporting requirements, uncertainty about credit subsidy costs, lengthy review times, and the expenditure of time and resources for an uncertain outcome as obstacles. But what stood out most – especially in the Advanced Technology Vehicles Manufacturing loan program – was that many electric vehicle entrepreneurs were deterred by bad publicity surrounding previous loans.
“Some applicants noted that the Solyndra default and other problems have created a negative public image and political environment for the program, which has made its future less certain and DOE more cautious about closing on loan guarantees,” reported Frank Rusco, GAO’s director for Natural Resources and Environment, to the House and Senate’s Appropriations subcommittees on Energy.
But asking a government agency to tell Congress “we don’t need that money after all” is the equivalent of asking it to lop off its own appendage or remove its own oxygen mask. So it probably shouldn’t surprise anyone that DOE is going to try again to push its loans – otherwise how can they justify all the “green jobs” they’ve added to their cabinet agency?
“With no sunset date and more than $15 billion in remaining authority, the program plans to conduct an active outreach campaign to educate industry associations and potential applicants about the substantial remaining funds available and the application process in general,” said DOE spokeswoman Aoife McCarthy to Bloomberg News.
Does that mean the governmental red tape has disappeared? Are the bureaucrat reviewers rapid and ready to go? Has all the bad publicity evaporated?
Of course not, but in the five months since the demoralizing GAO report the mainstream media told DOE they had a success: Tesla Motors. After all the maker of the luxurious electric Model S, which was able to substantially lower the vehicle’s cost for its mostly wealthy California customers, has already repaid its $465 million taxpayer backed loan! The fact that Tesla is owned and run by ultra-rich Elon Musk, who could have easily self-financed that sum anyway, is overlooked. So also is the fact that Tesla has only had two recent quarters of “profitability” because it sold California emissions credits to non-compliant automakers, and because it employed creative accounting; not because of it has sold a ton of its electric cars. So DOE’s “success” with Tesla is a mirage, and even the mirage did not appear because of $465 million loan it awarded.
But it won’t be the first time a government agency acted based upon a phony premise – after all, we’re talking about the green energy sector here, which was totally constructed based upon the global warming fraud.
There are other hurdles that might trip up DOE, despite the momentum it thinks it has from Tesla and also good credit customers Nissan (with its electric Leaf, $1.4 billion backed by taxpayers) and Ford Motor Company (many new “green” manufacturing plants with the help of $5.9 billion from the government). Bloomberg reported that low-interest government loans aren’t as attractive today as they were when first offered in 2009.
“I could see firms that are automotive suppliers that are trying to broaden their position in this marketplace,” said Alan Baum, an auto analyst at Baum & Associates in West Bloomfield, Mich. He told Bloomberg that private financing is available and inexpensive, and posited, “Is (government loan) money better than money you can obtain on the private side?”
Others are skeptical that DOE could ever overcome the innately sluggish nature of producing loan approvals in a reasonable time frame. In June automotive Web site Jalopnik identified 10 applicants (out of 18) for program funds that went bankrupt or ended operations (h/t Daily Caller). The findings were based on records obtained via a Freedom of Information Act request.
“When Carbon Motors was denied the loan, their CEO, William Santana Li, said that they spent years in the due diligence process with the government and were under the impression that they would get the loans,” Jalopnik reported. “They were far from the only company to make this claim.”
NLPC reported in March 2012 on another EV company that became fed up with the DOE loan approval process – Bright Automotive. The company had set up shop in Indiana and showed enough promise that General Motors pumped $5 million into it with its venture capital arm – a partnership that apparently DOE recommended to enhance Bright’s loan prospects. Even the Hoosier State was behind them, as former (“conservative”) Gov. Mitch Daniels said in January 2010 he planned to make Indiana “the electric vehicle state.”
Apparently someone at DOE told Bright in August 2010 that its loan would be approved “within weeks” if it formed the strategic partnership with GM, received private financing commitments, and reached other milestones. But CEO Reuben Munger and COO Mike Donoughe said they were continually strung along until they could no longer wait for DOE to commit one way or another. They gave up hope on winning a $450 million loan from DOE’s Advanced Technology Vehicle Manufacturing program in late February 2012, and afterward sent a scathing letter to then-DOE Secretary Steven Chu about the interminable process.
“Last week we received the fourth ‘near final’ Conditional Commitment Letter since September 2010,” the two executives wrote. “Each new letter arrived with more onerous terms than the last. The first three were workable for us, but the last was so outlandish that most rational and objective persons would likely conclude that your team was negotiating in bad faith. We hope that as their Secretary, this was not at your urging.”
Munger and Donoughe also told Chu, “we waited and waited; staying in this process for as long as we could after repeated, yet unmet promises by government bureaucrats. We continued to play by the rules, even as you and your team were changing those rules constantly – seemingly on a whim.
“Bright has not been explicitly rejected by the DOE – rather, we have been forced to say ‘uncle….’”
Which illustrates another negative consequence – which is rarely discussed – of government involvement in what is supposed to be the private, free market. Too often an agency will get a pot of money like DOE did, and it will hold it up like a dangling shiny object to lure businesses – usually ones struggling to get customers in the free market. Then once they’ve taken the bait, the plodding bureaucracy can be a killer.
But there’s always a politician or agency head that believes the problem isn’t government, but that the plan just hasn’t been executed well enough. In the case of the renewed outlook for the remaining $16.5 billion in Alternative Vehicle loans, Mr. Optimism is Obama’s new Secretary of Energy, Ernest Moniz (in photo). He told the Detroit News that the loan program has a “terrific” new executive director, Peter Davison, and that he is “pretty bullish” on EVs. Moniz added that while the U.S. isn’t going to reach the president’s goal of one million electric vehicles on the road by 2015, he still sees it in the relatively near future – “maybe a bit beyond mid-decade.” That will mean billions of dollars more in taxpayer subsidies.
“We are looking at what a new (loan) solicitation might look like. That’s an ongoing discussion,” Moniz said. “We are actively looking at what might be an effective new (request for proposals).”
There have been five recipients of ATVM loans: Two that failed (Fisker and Vehicle Production Group) and three that didn’t need it (Ford, Nissan and Tesla). Many more companies that saw the glimmer of the shiny object died in pursuit of it. Those that did catch it had to endure the headaches of public scrutiny that came along with borrowing public money, which is probably the biggest reason Elon Musk paid back Tesla’s loan so soon. Why otherwise would he give up the opportunity to use other peoples’ cheap money?
But the Obama administration is blind to failure, so we will get more.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.