Do not pass go, do not collect $24 million: That’s the card played by auto supplier Tenneco (s TEN), which withdrew from a Department of Energy loan program in March 2010, less than six months after securing a coveted conditional loan commitment from the agency.
In October 2009, when the DOE announced the $24 million conditional loan commitment for Tenneco to build emission control systems for cars and light trucks, the typical praise for this type of incentive came from the usual sources. “We’re very proud to have our advanced emission control technology recognized as critical to the development of more energy-efficient cars and light trucks,” Tenneco Chairman and CEO Gregg Sherrill said at the time.
U.S. Rep. Mark Schauer (D-Mich.) commented, “At a time when businesses are struggling to obtain credit to expand their operations and create jobs, this public-private partnership is welcome news.” But when Tenneco withdrew from the DOE’s Advanced Technology Vehicles Manufacturing program (ATVM) before closing on the low-interest direct loan, it left without a murmur.
Unlike some of the other companies awarded loans under the ATVM program, the $24 million loan was a drop in the bucket for Tenneco’s business, which reported a net loss of $72 million for 2009 and did $3.6 billion in sales to auto manufacturers that year. For comparison, another loan winner, venture capital-backed plug-in car startup Tesla Motors (s TSLA), secured a $465 million ATVM loan, while generating $108.2 million in revenues, reporting a deficit of $236.4 million, and having sold fewer than 1,000 cars.
Tesla’s ATVM award basically boosted the company into a different league. Tenneco, meanwhile, was already in the big leagues.
We’ve learned from the DOE this week that Tenneco withdrew from the negotiation process in March 2010, choosing to take a different route. We’ve reached out to the company and are waiting to hear back on the specifics of that decision. The fact that the first, and so far the only, auto supplier given a green light under ATVM walked away without sealing the deal is a sign of the difficulty in picking which companies should receive, and would benefit best, from these loans.
The ATVM program is one of three incentive programs run by the Energy Department’s Loan Program Office, which former venture capitalist Jonathan Silver has headed up since November 2009. The other two branches (section 1705 and 1703) offer loan guarantees for clean energy projects.
Created under Section 136 of the Energy Independence and Security Act of 2007, the ATVM program holds authority to award up to $25 billion in direct loans. Projects can include re-equipping or expanding existing manufacturing facilities, establishing new plants in the U.S., or dealing with the engineering integration associated with these types of projects. Under the program rules, ATVM-funded vehicle projects from new companies have to deliver fuel economy improvements of at least 25 percent over the average for that vehicle class in 2005. For a manufacturer that already had cars on the market five years ago, its own 2005 fleet average serves as the base.
Following years of delays and neglect in the DOE loan programs, the agency kicked into high gear to accelerate awards under the Obama administration. And by May 2009, thin-film solar startup Solyndra had scored the program’s first loan guarantee (the company applied back in 2006). Soon ATVM had some winners, too, with conditional loan commitments announced for Tesla, Nissan North America and Ford Motor Co. (s F) in June 2009.
The $24 million loan offered on a conditional basis to Tenneco last year was meant to help finance the design, engineering integration and production of parts such as diesel particulate filters, catalytic converters, and diesel oxidation catalysts, with engineering taking place at Tenneco’s Grass Lake, Mich. engineering center. According to Tenneco’s initial press release about the award, the DOE-funded systems were slated for manufacturing at its facilities in Ligonier, Ind., Litchfield and Marshall, Mich., and Seward, Neb., for use in vehicles as early as the 2010 model year.
By April of this year, however, Tenneco had secured a tax credit from the Michigan Economic Growth Authority valued at $1.8 million over seven years, and it announced plans to consolidate its diesel emission control operations in the state. So much for building those parts in Indiana and Nebraska.
While the Tenneco loan didn’t go through, Silver, the DOE loan chief, told us this month that some component deals will be among the next several awards coming out of ATVM. And Uncle Sam, along with other governments around the world, is indirectly helping Tenneco by implementing stricter standards for vehicle emissions, thereby boosting demand for emission control systems like those built by Tenneco. The company ranked #4 on Fortune’s list of the year’s top-performing Fortune 500 stocks this week, having seen its share price more than double.
Image courtesy of Tenneco
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