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Officials: Obama to revive controversial auto loan program

Paul A. Eisenstein, CNBC Contributor
Wednesday, 28 Aug 2013 | 11:01 AM ET
A worker demonstrates the installation of a battery pack for a Ford Focus on the assembly line at the company's Michigan Assembly Plant.
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A worker demonstrates the installation of a battery pack for a Ford Focus on the assembly line at the company's Michigan Assembly Plant.

Senior officials from the Department of Energy have signaled the Obama administration is ready to restart a controversial automotive loan program designed to kick-start the development of alternative vehicles.

The program was effectively put on hold two years ago after several problems, and the halt in funding was blamed for the failure of several potentially promising recipients—while critics faulted poor oversight for the loss of money loaned to several other start-ups.

(More from The Detroit Bureau: August car sales on track to be best since 2006)

A total of $15 billion, or 60 percent of the original $25 billion set aside for the Advanced Technology Vehicle Manufacturing program is still set aside and there is no official end date the administration has to meet.

But proponents point to the need to rush new technologies to market to meet upcoming increases in fuel economy standards—and they point to California start-up Tesla Motors as a successful example of what the ATVM program was meant to achieve.

"We are actively looking at what might be an effective new" request for funding, Energy Secretary Ernest Moniz told The Detroit News. He recently took over the department from Steven Chu who put the program on hold during the second half of the Obama administration's first term.

The ATVM project came under intense criticism from Republicans, which notably included 2012 presidential nominee Mitt Romney, who referred to the companies that had been funded as "losers."

There have been problems, including Vehicle Production Group which defaulted on a $50 million loan in June, and Fisker Automotive, a California-based plug-in hybrid maker that is not expected to pay back most of the $193 million it received from the loan program.

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The DOE originally approved $529 million for Fisker before pulling the remaining loan when the automaker missed critical targets. And that triggered a decision to put other loans on hold, including one for another California venture, Next Auto, which wound up closing down when it couldn't get funding.

Several other promising projects also faltered without access to the low-interest government loans. And major automakers, including Chrysler and General Motors, eventually withdrew their own applications.

(Read more: US automakers fall further, says study)

There have been a number of successes, as well, and proponents of the ATVM program point out that even the best venture capital firms routinely succeed with only a handful of the projects they back.

Among the highlights of the advanced vehicle program, Tesla Motors recently used proceeds from a new stock offering to pay off its $465 million start-up loan nine years ahead of schedule. Tesla is now valued by investors at roughly $20 billion, or more than Fiat/Chrysler and PSA Peugeot Citroen combined.

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Other successful loans have included $5.9 billion to Ford, which has launched an array of battery-based vehicles. Nissan, which markets the Leaf battery car, also received $1.4 billion in loans.

(Read more: Musk: Tired but optimistic about Tesla's future)

The DOE initially received around 100 applications. But all remaining bids for funding have either been rejected or withdrawn. It remains to be seen how long it will take to fire the program back up—and who will be the next to apply.

By CNBC Contributor Paul A. Eisenstein. Follow him on Twitter @DetroitBureau or at thedetroitbureau.com.

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