US Department of Energy Issues Rules for $25B Automaker Loan Program

Jose Michael

The US Department of Energy (DOE) issued an Interim Final Rule for implementing the $25-billion retooling loan program authorized by EISA 2007 and funded by the FY09 Continuing Resolution. (Earlier post.)

The program is to provide direct loans to eligible applicants for the costs of reequipping, expanding, and establishing manufacturing facilities in the United States to produce advanced technology vehicles, and components for such vehicles. These vehicles must provide “meaningful” improvements in fuel economy performance, defined as at least a 25% improvement in fuel economy over a baseline established for vehicles of a given class.

Congress has appropriated $7.5 billion to cover the subsidy costs of direct loans issued to automobile manufacturers and component suppliers. The actual amount of loans that DOE will be able to issue with this funding, up to the statutory ceiling of $25 billion in loans, will depend on the particular circumstances of specific borrowers and proposed projects.

Additionally, the Department must comply with statutory requirements including the National Environmental Policy Act (NEPA) in connection with the issuance of any loans to be made under the EISA section 136 program. The Department intends to act quickly to review and evaluate any applications it receives from eligible applicants under the program.

Section 136 of EISA 2007 authorizes the DOE to issue grants and direct loans to applicants for the costs of re-equipping, expanding or establishing manufacturing facilities in the US to produce qualified advanced technology vehicles, or qualifying components. Section 136 also authorizes grants and loans for the costs of engineering integration performed in the US of qualifying advanced technology vehicles and qualifying components.

An advanced technology vehicle is defined as a light duty vehicle that meets

  • Tier 2 Bin 5 emissions standards or better;

  • Any new emissions standard in effect for fine particulate matter; and

  • At least 125% of the average base year combined fuel economy for vehicles with substantially similar attributes.

Baseline fuel economy eligibility by vehicle class
Vehicle class 2005 FE average Baseline
(2005 FE x 125%)
Two-seater 25.3 31.6
Two-seater performance 22.2 27.8
Minicompact sedan 29.3 36.7
Minicompact performance sedan 22.4 28.0
Sedan 22.4 28.0
Subcompact sedan 29.6 37.0
Subcompact performance sedan 22.8 28.5
Compact sedan 33.8 42.2
Compact performance sedan 23.6 29.5
Mid-size sedan 29.4 36.7
Mid-size performance sedan 23.1 28.9
Large sedan 26.2 32.7
Small wagon 32.7 40.8
Mid-size and large wagons 26.7 33.4
Small and standard pickup 19.7 24.6
Minivan 24.3 30.4
Passenger van 19.0 23.8
Cargo van 24.2 30.2
SUV 21.8 27.2

To calculate the fuel economy baselines, DOE is adopting definitions and provisions contained in the current CAFE regulations (not the new CAFE, the rule for which is soon to be announced by NHTSA). The new CAFE rules will not impact the regulations in the loan program, although DOE says that it may amend the interim final rule in a future rulemaking document in response to the coming CAFE regulations.

DOE has defined adjusted average fuel economy for the purposes of the rule to mean a harmonic production-weighted average of the combined cycle fuel economy of the vehicles within an OEM’s vehicle fleet.

To be eligible for the loans, automakers must be able to show a history of maintaining or improving the fuel economy of their fleets. The adjusted average fuel economy of a fleet for the most recent year for which CAFE compliance data are available must be no less than the adjusted average fuel economy of that automaker’s fleet in MY 2005.

In assessing whether or not the vehicles in a project meet the baseline 25% improvement, DOE will compare fuel economies without consideration of whether the vehicles are flex-fuel vehicles—i.e., DOE is not considering flex fuel capabilities under the criteria for identifying an advanced technology vehicle.

Financial eligibility. The DOE is stipulating a number of factors to be considered in determining the financial viability of any applicant for the program. Considerations will include the debt-to-equity ratio; EBITDA; debt-to-EBITDA ratio; interest coverage ratio (EBITDA divided by interest expenses); fixed charge coverage ratio (EBITDA plus fixed charges divided by fixed charges plus interest expenses); liquidity; statements from lenders saying that the applicant is current with all payments; and financial projects demonstrating solvency through the period of the time that the requested loan is outstanding.

Resources

  • Interim Final Rule for Advanced TEchnology Vehicles Manufacturing Incentive Program

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