Topic: The Economy in America . NOW on PBS

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Economic News and Analysis

Housing Starts Have Been Singing The Blues
An uptick in hiring is leading to more optimism about the economy. But housing remains stuck in a funk. New figures on housing starts are released Thursday. Morning Edition has a musical preview in this Planet Money report.

How the Stimulus Revived the Electric Car

by Michael Grabell

This story was adapted from "Money Well Spent?: The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History," which will be published Tuesday by PublicAffairs.

A common criticism of President Obama's $800 billion stimulus package has been that it failed to produce anything – that while the New Deal built bridges and dams, all the stimulus did was fill some potholes and create temporary jobs.

Don't tell that to Annette Herrera. She was 50 when the auto supplier she worked for in Westland, Mich., closed its factory and moved the work to Mexico. Then, after being unemployed for 2½ years, she got a job in October 2010 with A123 Systems, which had received $250 million in stimulus money to help open a new lithium-ion battery plant in nearby Romulus, Mich.

"The first thing I did was call my husband and tell him, 'You're never going to guess! I got a job!'" Herrera recalled. "And then it was like celebration time."

One success the Obama administration can duly claim is the rebirth of the electric-car industry in the United States. Automakers have unveiled a number of mass-market electric cars, which have seen small but rising sales. Battery and parts manufacturers are building 30 factories, creating thousands of new jobs. A123 has hired 700 workers at Herrera's plant and a second one in nearby Livonia, and plans to hire a couple thousand more people over the next few years.

If it wasn't for the stimulus, the companies say, they would have built these plants overseas.

It was all part of an effort to promote "green" manufacturing and put a million electric cars on the road by 2015.

The question is: Will it last?

Elkhart, Ind., once believed it would. It saw electric vehicles as its salvation after watching its unemployment rate hit 20 percent. Eager to seed a new industry, the county witnessed electric-vehicle ventures sprout out of nowhere as the stimulus took off in 2009.

But by late summer 2011, what had sprouted were weeds. The parking lot of the Think electric-car plant was full of them, some more than a foot high growing from the cracks. Out front were two pickups and a motorcycle.

Hundreds of laid-off factory workers were supposed to have found jobs churning out the Norwegian company's bug-like, plastic-bodied cars, which ran solely on electricity.

Today the Elkhart factory employs two. Its parent company filed for bankruptcy in June. Its largest shareholder and battery maker, Ener1, which received $118 million in stimulus money, did the same last week.

A second life

Electric cars began appearing on California roads in the mid-1990s after state regulators mandated that a certain percentage of automakers' fleets include zero-emissions vehicles.

But within a few years, they were deemed a failure by car companies, which stopped making them and took back those they had leased.

Much had changed in the eight years leading up the stimulus package. The lead-acid and nickel-metal hydride batteries that weighed as much as 1,200 pounds were replaced with lithium-ion batteries that weighed as little as 400 pounds.

In the early 2000s, gas hadn't even passed $2 a gallon. Less than a decade later, it was twice that. Toyota had proven the demand with its long waiting list for the Prius hybrid.

Government policy had changed, too, with a 2007 energy bill that increased fuel-efficiency standards and provided $25 billion in loans for automakers to upgrade their plants.

But until the economic stimulus package was passed in 2009, the manufacture of electric cars and their batteries in the United States was nearly nonexistent.

The United States had only two factories manufacturing less than 2 percent of the world's advanced batteries. Most were made in Korea and Japan. In America, only Tesla manufactured an electric car — which sold for a cool $100,000. Across the entire country, there were a mere 500 electric charging stations.

But as the stimulus kicked in, there was suddenly no better environment for the electric car to thrive.

With more than $2 billion in federal grants, matched by another $2 billion in private investment, the Obama administration was supporting electric cars from the mine to the garage.

Chemetall Foote Corp., which operates the only U.S. lithium mine, received $28 million to boost production at its plants in Nevada and North Carolina. Honeywell received $27 million to become the first domestic supplier of a conductive salt for lithium batteries. More than $1 billion was spent to open and expand battery factories, many of them in hard-luck towns across Michigan. Through a separate federal program, automakers received loans to retool their assembly lines.

Customers could receive a $7,500 tax credit for buying an electric car. The stimulus provided funding for 20,000 electric charging stations by 2013. In many cities, drivers could get a home charger for free.

Although electric cars would not make up for the generation-long loss of manufacturing jobs, at least not yet, it was novel to see companies creating jobs in the Rust Belt instead of outsourcing them.

In July, Johnson Controls opened the first U.S. factory to produce complete lithium-ion battery cells for electric vehicles. Compact Power is building a $300 million factory in Holland, Mich., to produce batteries for the Chevy Volt and the electric Ford Focus. A123 now supplies the luxury electric carmaker Fisker Automotive and the manufacturers of electric delivery trucks used by FedEx and Frito-Lay. "Quite simply, if we didn't get that grant, we wouldn't have built [the factory] in the U.S.," A123 spokesman Dan Borgasano said.

The battery grants have created and saved more than 1,800 jobs for assembly workers, toolmakers and engineers, according to a ProPublica analysis of stimulus project reports filed by the companies. That number doesn't include the workers who constructed the plants or those hired by the matching private investment the companies had to make to get the grants.

Killed again?

The problem: Consumers have been slow to embrace the electric car.

The price of the battery is still too high, and the price of gas is still too low, the Government Accountability Office warned in June 2009 before the grants were awarded. The starting price for the all-electric Nissan Leaf is $33,000, while the hybrid Volt sells for about $40,000 before tax credits — far more than many middle-class families can afford.

About 40 percent of drivers didn't have access to an outlet where they park their vehicles, the GAO noted.

"Although a mile driven on electricity is cheaper than one driven on gasoline," the National Research Council reported, "it will likely take several decades before the upfront costs decline enough to be offset by lifetime fuel savings."

Perhaps the biggest obstacle, though, was what the automobile represents in the American psyche: the freedom of the open road. While most people drive less than 40 miles per day, consumers want cars that they can also take on summer vacations — and they don't want to have to constantly worry about looking for a charging station.

The Leaf's range is just 73 miles, according to the official government rating, well below the much-advertised 100 miles.

By the end of 2011, fewer than 18,000 Leafs and Volts had been sold in the United States.

A report by congressional researchers last year concluded that the cost of batteries, anxiety over mileage range and more efficient internal combustion engines could make it difficult to achieve Obama's goal of a million electric vehicles by 2015. Even many in the industry say the target is unreachable.

While the $2.4 billion in stimulus money has increased battery manufacturing, the congressional report noted that United States might not be able to keep up in the long run. South Korea and China have announced plans to invest more than five times that amount over the next decade. Even A123 had to lay off 125 workers in November — though Borgasano says the company plans to rehire them all by June — because Fisker reduced orders.

Dick Moore, the mayor of Elkhart, had hoped the area known for its recreational-vehicle factories would one day be not just the "RV Capital of the World" but the "EV Capital of the World" as well.

Navistar International had received $39 million in stimulus money to build 400 electric delivery trucks in the first year. But by early 2011, it had hired about 40 employees and assembled only 78 vehicles.

Think had rallied into 2011 with plans to start production in Elkhart earlier than expected. But in April, assembly work suddenly stopped as the plant awaited parts from Europe.

In June, Think's parent company filed for bankruptcy. The decision left the Elkhart plant slouching toward extinction until the American subsidiary was purchased by a Russian entrepreneur who promised to restart production in early 2012.

But on Thursday, its battery maker, Ener1, also filed for Chapter 11 bankruptcy, reporting that the demand for electric vehicles "did not develop as quickly as anticipated."

Elkhart's dream of becoming the EV capital?

Moore put it this way: "The fact that this hasn't moved very quickly, that doesn't bode well for that idea."

The future

The fate of the electric car depends greatly on whether sales take off soon.

There are other factors, such as the price of gas and whether Congress approves proposed standards requiring automakers to raise the average fuel economy of their vehicles to 55 miles per gallon by 2025.

The electric car has always struggled with a chicken-and-egg dilemma: Automakers have been reluctant to build electric cars without consumer demand. But consumers won't buy them until automakers develop cheaper, longer-range batteries.

One of the goals of the ongoing stimulus spending is to solve this problem. By 2015, the 30 battery and component factories will be able to produce 40 percent of the world's batteries, according to the administration.

The investments would help manufacturers increase the batteries' life from four years to 14 and cut their cost from $33,000 to $10,000, the administration said in a report on innovation. That would make the electric car more competitive.

Herrera noted that many people at the A123 factory believe they will never be able to afford the cars powered by the batteries they make. But, she says, "you never know."

"When the flat-screen TVs first came out, they were way expensive, and now they're reasonably priced," she said. "I think that's going to be the same thing with electric automobiles. This is a new product. It's going to take time."

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Finance 101

From the Gov.

Your Call

Commenter: mc
It is true that nothing major has changed in the American Economy. The Financial Institutions, such as banks are doing it again, exploiting the most the vulnerable. Foreclosures are on the rise and it will go up further. American Banks still make use of the call centers, exploiting innnocent and helpless clients with their accounts, debiting charges here and there. This is outrageous.We hear that some banks are charging even for cashing a simple check issued by their own account-holders. Banks are forcing people to open accounts. Otherwise, they would charge them for cashing their checks. This is the most ridiculous things ever happened to banks.

The way banks are run today is only adding more fuel to the fire, exploiting the vulnerable. The banks got $30 Billion from the taxpayers but they have tightened the credit, which is the shame. Banks are not willing to help even the genuine American taxpayers looking for simple loans at a reasonable rate of interest.

The Senate Banking Committee should do something worthwhile to correct the failing and exploiting banking institutions. If they don't correct this problem sooner, American Taxpayers will end up in debts and have more and more problems. Americans are already suffering. Many of them are not gainfully employed. In a tough times like this, banks should come forward and give them assistance for a reasonable rate. Jobs are not being created and hospitals are not functioning well as planned. Educational institutions are also closing. Teachers are being laid off or given notice.

Is this the sorry state of American Economy? Is this how the Americans live in this country?

No one plans to fail, we fail to plan.

Commenter: Ric
"The national debt is now approximately $40,000 for every American citizen, or $113,000 for each tax payer." March 2010 (ICMJ Vol 79 #7)
Hey, Americans wake-up we can not afford this foolishness any longer. NO government creates value or worth of it's currency. That is done by stability of national GDP, and ours is failing fast. Our government can affect short term dollar value by printing to much money or reducing prime rates at the federal reserve. We need to get America working again. Problem is NO government program actually creates any real jobs. Government only regulates the ecconomic environment for job growth to be created by private sector employers. (That's where our GDP actually comes from.)
Wake-up America, we borrowed $28,000,000,000 and gave it to GM to prevent bankruptcy. 5 months later they went bankrupt anyway. Stupid is as stupid does. We did the same with Chrysler. Repeat: Stupid is as stupid does.
AIG gave $68,000,000,000 of our borrowed TARP money to banks in Germany; after the German Chancellor stated she would not bail-out German banks because financial markets need to adjust unaided by government capital influence. Billions more of our taxpayer borrowed TARP money has now funneled into Greece. If Germany and EU leaders can see the obvious economic disaster ahead caused by borrowed money bailouts, why are we so arrogant in the USA as to waste borrowed money in this way?
Repeat: Stupid is as stupid does.
God Bless America, and help our leaders mature.

Commenter: RAF
President Obama wants to "freeze discretionary spending on non-security-related programs and government agencies". Excellent idea, he can start by stop spending his "discretionary stimulus" program money, and "discrstionary TARP" program money. That money doesn't really exist anyway, it's all borrowed and adds greatly to US taxpayer deficit. My 4 month old grandchild better start looking for work now to repay his fair-share of our discretionary national debt.
What happens when USA gets upside down between our GDP growth and US deficit liability? China won't bail us out again, and our bond value is dropping fast. Remember gold prices aren't actually going up. Our US Dollar value is really going down. The UN and 5 major international markets are working on a plan to drop the US Dollar as their currency of international trade. When that finally occurs our economy can tank, and it might. What nation would borrow money to send the USA some foreign aid? None!
Buckle your seatbelts folks, if we don't stop all this wild discretionary spending now, we will surely fall off that cliff. It's only about two steps in front of us. It's time to stop making emotion based decisions in Congress and use some pragmatic reasoning for a change.

Commenter: Bruce Cuttler
I hope some stimulus money reaches a budding entrepreneur that repairs communicators at a reasonable price. I urgently need to beam up, especially after hearing of the negation of campaign limits.

Free speech, as a Constitutional right, should not be applied to corporations. The legal definition of a person should be a single human being. The privileges afforded corporations by being deemed a "person" were for certain economic protections. Historically this was a worthy effort so that unlimited liability didn't wipe out a company. This reasoning, I'm confident, wasn't meant to give an artificial "person" other rights. A corporation, as a "person", cannot vote. Nor can it throw itself out of a high floor of a building in despair to commit suicide.

The right of citizens to petition the government should be just that: A petition. Let GM, AIG, and so forth, go about obtaining signatures on a paper (or even electronic, for that matter) petition for whatever, and the try to present it to an elected representative, preferably one who hasn't already been corrupted.

I feel that there is an answer to this problem: Elected officials should receive "bonus"-level pay, that no money may be used by any corporate entity to in any way obtain favored access, or buy influence.

If members of Congress were all paid, let's say $25-$50 *million* a year, then they wouldn't need to curry the favor of entities that can give them money (regardless of the subterfuges used to cover this fact). And, when push comes to show, the cost to the taxpayer I'm confident would be less than the costs of the greed and malfeasance of those who pervert the democratic (ha ha!) process. Corporations are not one of the "people." We, the real "people", and not a legal construct, but flesh and blood.

Our experiment in democracy is failing. The fact that the r-e-a-l information about the assassination of President Kennedy will not be divulged until at least the generation alive at that time has died was the first indication of something gone wrong.

The dilemma, as I see it, is how did Earth ever join the Federation of Planets? How did we get as far as building interplanetary space ships? "2001: A Space Odyssey" might have been a reality if we didn't waste money through corruption, stupid wars, and other fiascos.

So: How can I possibly have a (preferably working) communicator) to request beaming up? It's a conundrum worthy of Dr. Who, H.G. Wells, Isaac Asimov, Stephen Hawking, Albert Einstein, and Mr. Peabody's Way-Back machine.

"Pogo" was not only right, but way ahead of his time.

Commenter: Christine
Hope: President Obama and his administration will heed those who voted Obama into office. Obama will make his mark and truly become a strong leader. He will aggressively push for strong legislation regarding bank regulation. He will vocalize our hopes. He will become the strong, progressive leader whom we voted into office in 2008.
Fear: Democrats in congress will continue to cow to fear. They will not follow the lead of Marcy Kaptur and Bernie Sanders, who truly represent average Americans, who aggressively defend and promote the rights of we, the people, whose life, liberty and pursuit of happiness have been choked by the greed of the oligarchy in this country: Big business executives, big banks and the politicians who bow to them for fear of losing their next elections.
Expectation: I am cautiously optomistic that perhaps the MA election of republican Scott Brown to the US Senate has taught the democratic politicians a few lessons: Don't be complacent, taking your grassroots support for granted; BE DEMOCRATS - Stop pretending; Get out of bed with bank and insurance lobbyists; LISTEN to the people who elected you; STOP thinking about your own interests - that is not what we hired you to do; Pay the people you represent the due we deserve: Regulate the banks so that they stop regulating us and relegating us to lives of insecurity, situations that prevent us from living life, enjoying liberty and pursuing happiness.
Live the Declaration of Independence and pledge your sacred honor to each other and to us.

Commenter: Edward Scanlin (edscan)
My hopes are for a return to the sanity of the "Fifties".
My fears are that we are overcome with fear.
My expectations are that we will revive the
"Fourth Estate" It is necessary,you know,
to keep the Fascists from overthrowing our government.
We must curb their greed. We must drive the
"Moneychangers" from the "Temple" again

Commenter: Mo Cameron
For 2010 the first wave of 250 banks will fail prompting a taxpayer infusion of cash into the FDIC to prop up the banks. Prolonged high unemployment in 2010 will lead to credit card defaults and a wave of personal bankruptcies that will be exacerbated by the changes to the bankruptcy laws in Oct 2005. As interest rates begin to move up by the end of Q3 the prime mortgage Alt-A & ARM resets will set off another mortgage default crisis that will be every bit as large as the 2008 sub-prime mortgage crisis. By Nov 2010 mid-term elections unemployment will be in the 9¼ to 9½% range and an anti-incumbency movement will change Congress in a profound way. While Wall Street will hold its own, Main Street will continue to suffer until mid-decade eliminating much more wealth as many will be under water in their home mortgages. Then the commercial real estate default and commercial martgage crisis hits.
As the Treasury finds itself with a near-insolvency crisis it will not be able to raise enough money from foreign lenders compelling massive spending cuts especially entitlement programs while drastically raising taxes. Soon Congress and the people will realize that the past surpluses of Social Security has been spent each year as general revenue necessitating a 25% cut in benefits because the government cannot raise the money by increase borrowings. This economic malaise will last well into this decade because of America's insatiable addiction to foreign crude oil and its structural $400 billion trade deficit.
The next crisis will be the States and local governments requirements of a federal government bailout which will not happen because Uncle Sam is broke. Everyone's debt got us into this mess and more debt is not the answer.

Commenter: Janet Hudgins
It seems to me that nothing much has changed, that financial institutions are at it again, nothing has been put in place to control them and stop them from exploiting the most vulnerable. So I'm not optimistic that the work force will come back into its own again any time soon.

Commenter: Star
Foreclosures will be double the number in 2009, unless something is done with the banks. They are pouring gasoline on that fire with credit tightening, and more highly leveraged investments. Jobs are not being created, the population is growing, and hospitals are closing. I think a lot more Americans are going to suffer this year.

Commenter: Michael Villacres
It will slowly recover from this recession. America will begin to see the unemployment rate go down point by point in the middle to the end of the year. And finally, the saddest part is that the American people will NOT demand that our government hold the banks and the rest of the financial industry accountable and make the financial world more understandable for the average non-401K hard working American who thinks that a Hedge fund is Wall Street for Eco-green investment but doesn't understand that the banks have a major influence, from before and still now on their government. History repeating itself.

Commenter: Jeff
I've been out of work for more than a year, my younger sister just two years ago started a retail business and she's struggling, my older sister is a science teacher in another state and she is going to lose funding next year.

The only thing keeping us afloat is income from land in a trust. We are very, very lucky.