Thomas White Global Investing
Green Reports

June 29, 2009

The Green Report

U.S. Government Introduces Loan Program for Green Cars
Green Cars

It is about time for fuel guzzling and environment-unfriendly vehicles to move over. In a pioneering initiative, the U.S. Department of Energy (DOE) has announced a $25 billion loan program for the development of fuel-efficient cars under its Advanced Technology Vehicles Manufacturing Loan Program (ATVM). This scheme, which stems from a bill signed by President Bush last September, is not associated with the Troubled Asset Relief Program (TARP), meant to strengthen the financial sector of the economy.

The ground-breaking measure comes as welcome news to automotive companies involved in the production of fuel-efficient cars. Fuel-efficient cars most often require a higher initial investment, almost four times the average cost of traditional fossil fuel automobiles.

To launch the initiative, the government is awarding $8 billion worth of loans to three auto companies. While Ford gets the $5.9 billion lion’s share, Japan’s Nissan will receive $1.6 billion, and California-based vehicle manufacturer Tesla has bagged $465 million. Ford plans to implement a range of projects that include retooling factories across the states of Illinois, Kentucky, Michigan, Missouri and Ohio, to enable the production of 13 more fuel-efficient models. And in a nod toward the growing support of electric cars, Nissan purports to refurbish its Tennessee plant for electric car production, and Tesla will be building production facilities for its recently announced electric sedan.

The AVTM initiative took shape at a time when crude oil prices reached dizzying heights of over $145 a barrel. Prices of crude oil have increased more than nine times over the period from 1999-2008. Having peaked in the middle of the last year, oil prices bottomed to about $35 a barrel, and then rose to $70 as the global economic slowdown gathered steam. But not before policy-makers as well as automobile companies had awakened to the need for a reduced dependency on oil.

Automotive companies have to shape-up before they become eligible partners in this green program. In what looks as a promising start, the Department of Energy has received more than 70 applications from companies interested in developing greener cars. But loans will be doled out only to the financially viable as determined by the DOE, which may mean that financially troubled automobile companies could be left out in the cold, at least for the time being.

As Energy Secretary Steven Chu points out, “These investments will come back to our country many times over by creating new jobs, reducing our dependence on oil, and reducing our greenhouse gas emissions.” Long overdue, the U.S. is now cruising towards a greener future.




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