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Fuel-efficient car investment pays off

Marketplace Staff Jun 23, 2009

Fuel-efficient car investment pays off

Marketplace Staff Jun 23, 2009


Kai Ryssdal: The auto industry got another injection of government cash today. But hold on a second before you sit down to write your Congressman because the cast of characters is different this time around. The Department of Energy is giving Ford almost $6 billion dollars and another $2 billion to Nissan and Tesla, so they can build more fuel-efficient cars. Justin Hyde is a reporter for the Detroit Free Press. He’s based in Washington D.C. Justin, good to have you with us.

JUSTIN HYDE: Thanks for having me, Kai.

Ryssdal: Give us the background on this investment. It didn’t just come out of the blue, did it

HYDE: No, this has been in the works for a couple of years now. Back in 2007, the auto industry agreed to a new set of fuel-economy standards with a target of 35 miles per gallon by 2020 on average. As part of that agreement, Congress and the Bush administration set aside $25 billion in loans that would help the auto industry retool its plants and do the engineering to build those vehicles in the United States. Now Congress only got around to paying for those loans last year, and as the economy worsened, there was a great human cry from the industry and its supporters to speed up the outlay of these loans. So this first tranche of loans for Ford, Nissan, and Tesla came about a lot faster than what the industry originally thought might be necessary.

Ryssdal: Faster, I assume, to help a struggling economy.

HYDE: Right. To help with the struggling economy, create jobs or save jobs, as the formulation goes with some of the stimulus money. The Obama administration said today that just the loan to Ford could help save some 35,000 jobs at more than 11 Ford plants spread across five states. The industry is facing its worst sales years now in a couple of decades, and these improvements are going to be expensive. Since the agreement with the Bush administration, the industry has come back into new agreement with the Obama administration that 35 mpg target is now set for 2016. The automakers have torn up their plans, gone back to the drawing board, planning a lot more fuel-efficient vehicles. A lot more electric and alternative vehicles, and those will cost even more money to develop.

Ryssdal: So we’ve got Ford, Tesla, and Nissan from Japan. As a U.S. taxpayer and thus a shareholder of another couple of car companies in this economy, say General Motors and Chrysler, I couldn’t help but notice that they’re not on the list.

HYDE: Well, General Motors and Chrysler didn’t qualify for the loans. One of the original standards when the loan program was created was that the automaker or the parts company that received this money had to financially viable. It’s hard to be financially viable when you are bankrupt as General Motors is right now, and as Chrysler was until recently. The new Chrysler and new GM that are expected to be created out of bankruptcy are counting on some of this loan money to come to them in the future. Roughly about $6 billion a piece to help them fund their development of more fuel-efficient models, things like the Chevrolet Volt. Just as Ford is doing with the money right now.

Ryssdal: Let me ask you about Tesla, this small start-up, all-electric vehicle out here in Southern California. Is there an element of picking winners here? I mean this company gets a half-a-billion dollars from the government.

HYDE: It’s an interesting allotment. It does signal some sort of vote of confidence in Tesla by the government, that the company is going to be around long enough to return this $465 million. Now, that said, Tesla already had backing from Daimler AG. It’s doing a deal to help develop smart, electric vehicles. It’s producing electric roadsters right now. The money that it will be getting from the government will go towards to building this Model S electric sedan and creating a plant that it would use to provide electric motors and technology to other automakers. The point of the program wasn’t necessarily so much to pick winners and losers, but to speed the development of vehicles from whoever was best positioned. In this case right now it’s Ford, Nissan, and Tesla. There’s some 100 companies that have applied for this money, and more awards should be coming soon.

Ryssdal: Justin Hyde in Washington for the Detroit Free Press. Justin, thanks a lot.

HYDE: Thank you, Kai.

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