GAO: Bad Publicity Scaring Prospects Away from Stimulus Money
The publicity surrounding President Obama’s failed strategy to stimulate the economy, by putting clueless manager Steven Chu in charge of the Department of Energy’s lending activities, has become so bad that few “green energy economy” entrepreneurs want to accept taxpayer money any more.
That’s according to a report published earlier this month by the Government Accountability Office, which reviewed DOE’s loan programs for a briefing to both the House and Senate’s Appropriations subcommittees on Energy. Amusingly though, the Web site of DOE’s Loan Programs Office still calls itself “The Financing Force Behind America’s Clean Energy Economy.” The minor blip that undermines that premise is that DOE is having trouble getting someone to borrow $55 billion.
GAO’s director for Natural Resources and Environment, Frank Rusco, undertook an audit/investigation that evaluated three types of DOE loans: the 1703, 1705, and Advanced Technology Vehicles Manufacturing programs. The 1705 program backed alternative energy projects such as Solyndra and Abound Solar, and had a sunset date of Sept. 30, 2011. The 1703 program supports “innovative clean energy technologies that are typically unable to obtain conventional private financing due to high technology risks,” and is still active. The ATVM program’s funds are also still available, and backs manufacturers producing vehicles (or “qualifying” components) that meet the governments fuel economy standards – for the most part, electric vehicles.
According to Rusco’s findings, DOE issued approximately $15 billion of the $18 billion that was authorized for the now-expired 1705 program. Under 1703, DOE had $34 billion in loans it could guarantee. For the ATVM program, Congress approved $25 billion that DOE could back.
For 1703, DOE has not made any loan guarantees, although four nuclear projects have received conditional commitments for $10.33 billion. Nine other applications are said to be in the due diligence stage. Technologies that are to be considered under the program include biomass, hydrogen, solar, wind/hydropower, “advanced fossil energy coal,” and carbon sequestration practices/technologies.
But it’s the ATVM program that is really getting the cold shoulder from electric vehicle entrepreneurs and overall automakers. Of the $25 billion that was made available, DOE only issued $8.4 billion in guarantees to five companies – the remainder has been mostly left unused. Rusco reported that DOE has seven applications totaling nearly $1.5 billion that it considers inactive for various reasons, has no others under consideration, and its last ATVM loan was closed in March 2011. DOE officials told Rusco they are not likely to use all of the remaining ATVM loan program resources.
Why? To find out, Rusco and his staff interviewed nine applicants at various stages for the loan guarantee program. But because no applicants were actively in pursuit of ATVM loans, they interviewed representatives of companies and manufacturers “based on their eligibility to apply, ensuring that we included current, former, and prospective applicants.”
Those interviewed cited predictable reasons for their regret, hesitance or refusal to accept government funding, including bureaucratic red tape, reporting requirements, uncertainty about credit subsidy costs, lengthy review times, and the expenditure of time and resources for an uncertain outcome. But now – with the benefit of hindsight of so many that went before them into the tortured realm of government dependency – apparently many have been 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,” Rusco reported to the committees, “which has made its future less certain and DOE more cautious about closing on loan guarantees.”
With the ATVM interviewees, Rusco noted a similar problem, explaining, “as the program is currently implemented by DOE, the costs of participating outweigh the benefits to their companies.” Respondents to his inquiries also say Solyndra-type problems tainted the ATVM program’s image.
“They believed the negative publicity makes DOE more risk-averse,” Rusco reported, “or makes companies wary of being associated with government support.”
Undoubtedly “Solyndra” is to the DOE stimulus scam what “Watergate” is to political scandals – you don’t even need to add “gate” – but the ATVM program publicity alone has been disastrous enough to ward off anyone in their right minds who may have considered them as lenders. NLPC has reported nearly ad nauseum on the four top recipients of loans under ATVM:
- Nissan received $1.45 billion to refurbish a plant in Smyrna, Tenn., to produce the all-electric Leaf model and its batteries. Despite all indicators and especially paltry sales, CEO Carlos Ghosn insisted for years that 1.5 million EVs would be sold by 2016, and that EVs would account for 10 percent of new car sales by 2020. But the Leaf never overcame its expensive cost (like all EVs, as well as the Chevy Volt) and inefficiencies, such as limited range and long charging times. Loss of battery life in vehicles based in extremely hot climates in the U.S. didn’t help either. The bad image finally took its toll to the point where Nissan cancelled its grand opening celebration of the Tennessee plant, after so much earlier build-up and fanfare. Finally last month Nissan admitted “we were a little bit arrogant” about prospects for the Leaf.
- Ford Motor Company received a $5.9 billion DOE loan guarantee to renovate its factories to produce vehicles (presumably) that are more fuel efficient, as the Loan Program Office boasted that 33,000 employees would suddenly be converted to “green manufacturing jobs.” While Ford hasn’t suffered as much bad publicity as others, there isn’t much to show for taxpayers’ “investment” in the company’s green efforts either. The biggest public rollout of any electric vehicle was the Focus Electric, whose sales are barely measurable, which an executive said the company wasn’t even trying very hard to sell. “The marketing of the Focus Electric is to people who buy electric vehicles, not to you and me,” said Jim Farley, Ford head of global marketing, to USA Today in April 2012. “We’re focused on the people who buy them."
- Tesla, which received $465 million under ATVM, has been hit hard more recently in the media. Billionaire CEO Elon Musk runs the company, which spent $480,000 from 2007 to 2011 to lobby various arms of government in support of pro-green stimulus programs, and Musk also donated handsomely to political candidates and committees of both parties, but mostly to Democrats. But like another loan recipient, Fisker (more in a moment), Tesla produces an electric car (the Model S) that sells for $101,000 – thus taxpayers are backing rich entrepreneur’s business that caters to wealthy customers. And the crowning blow is that last month Musk got into a dispute with a New York Times reporter over a horrible review of the Model S, in which the car ended up being towed away. Musk has been trying to recover ever since.
- Finally there is Fisker Automotive, founder Henrik Fisker, and the $102,000 Fisker Karma. It’s hard to imagine how a vehicle company with so much attention on it could have had a worse debut. In brief (because NLPC has reported on it so much) the car has had recalls because of design flaws and a failed battery supplier (A123 Systems, which went bankrupt), saw its $529 million DOE loan guarantee cut off after $193 million, and had Consumer Reports call it the worst luxury sedan on the market. After three CEO changes in less than a year, management started shopping for a “partner” (some say a buyer) in China. That strategy reached a crisis point recently when, in a dispute with the controlling executives, Henrik Fisker quit the company, reportedly over a disagreement whether to continue to seek the remainder of the allocated DOE/ATVM money. It’s quite clear he couldn’t stomach it any more.
“What happened after Solyndra obviously has shifted unfortunately the discussions — rather than talking about … that everybody wants America to be the leader in new technology, it shifted to being more political focused,” Fisker told The Detroit News after he resigned. “That’s a situation everyone’s going to have to deal with.”
Everyone will have to deal with it, that is, except those who won’t accept loans from the Obama administration.
[First Posted at National Legal and Policy Center]