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. DOE Established Three Goals for the ATVM Program

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. DOE Also Set Criteria for Determining Eligible Projects’ Technical and Financial Merits

To help choose among applicants and projects deemed eligible, DOE also  considers their technical and financial merits. 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. The remaining funds—$3.1 billion, or about 38 percent of the $8.4 billion— support projects for vehicles and components with newer technologies. 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

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. 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. 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

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. DOE Lacks Performance Measures That Would Enable It to Fully Assess the Extent to Which the ATVM Program Has Achieved Its Goals

DOE lacks sufficient performance measures that would enable it to fully  assess whether the ATVM program has achieved its three goals. 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. 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. 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. 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. By not setting sufficient performance measures for  its three program goals, DOE is unable to assess its progress in  accomplishing them. Appendix I: Objectives, Scope, and Methodology

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. 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.
Why GAO Did This Study

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.

What GAO Found

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.

What GAO Recommends

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.