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$150M battery grant hasn't produced single cell

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By The Washington Post
Wednesday, Feb. 13, 2013, 8:30 p.m.

The Energy Department gave $150 million in economic recovery act funds to a battery company, LG Chem Michigan, which has yet to manufacture cells used in any vehicles sold to the public and whose workers passed time watching movies, playing board, card and video games or volunteering for animal shelters and community groups.

Those are the conclusions of a report released Wednesday by Energy Department Inspector General Gregory H. Friedman, who said that the grant to a subsidiary of South Korean giant LG “had not been managed effectively.”

Friedman said only three of five planned production lines were complete, less than half the expected 440 jobs had been set up, and battery production had not begun. General Motors, which was expected to buy batteries from the plant in Holland, Mich., is still buying the electric car batteries from LG Chem in South Korea.

LG Chem Michigan has reimbursed the Energy Department for $842,189 in costs the inspector general found to be “unreasonable and unallowable,” for time employees spent working for Habitat for Humanity, animal shelters and outdoor nature centers. Friedman said that the figure for those labor costs might have been higher, but it was hard to quantify workers' time spent on those activities because the company did not keep detailed records.

News of LG Chem Michigan's idle workers was reported by Michigan newspapers and television stations in October.

The 650,000-square-foot plant — which is eligible for more than $175 million in tax relief from state and local governments through 2025 — was supposed to produce lithium-ion batteries to support the manufacture of 60,000 electric vehicles by the end of 2013.

The July 15, 2010, groundbreaking was attended by President Obama and then-Gov. Jennifer Granholm, a Democrat, who said Michigan would become the “North American battery capital.”

Obama has spoken often of his desire for the United States to recapture global leadership in clean energy technologies, such as lithium-ion batteries for electric cars. He said that the LG Chem Michigan venture was “leading the way in showing how manufacturing jobs are coming right back here to the United States of America” and said that by 2012, batteries for the Chevy Volt and the electric Ford Focus could be “stamped made in America.”

But sales of electric vehicles have lagged expectations, especially those of Obama. Last year, the Volt, the best-selling electric vehicle, sold 30,090 cars worldwide, General Motors said.

For those cars, GM has been buying LG Chem lithium-ion batteries made in South Korea instead of Michigan. As a result, LG Chem has had its Michigan workers on rotating furloughs. At its peak, there were 215 jobs there; by the time of the inspector general's review, there were only 200.

The inspector general's report issued Wednesday was sharply critical of the company as well as of the Energy Department.

LG Chem blamed its failure to provide GM with batteries made in Michigan on low sales of the Volt, the inspector general wrote.

But the report said that even with the Volt's lackluster U.S. sales volume, batteries for the car “could have readily been produced by using the then built-out capacity of the Michigan plant.”

Cost overruns are another issue. Even though only three of the five production lines are complete, LG Chem Michigan had used 94 percent of the Energy Department funds, the report said.

Finishing the other lines would cost about $44 million, more than the remaining grant funds, the report added. The company had spent $30 million for the installation of equipment, twice as much as budgeted. The report said LG Chem said that the difference “was due to higher than expected labor costs.”

Friedman said that LG Chem defended its decision to pay workers for doing community activities, explaining that it did not want to lay off people after paying to train them.

But Friedman's report said that “the cost of business decisions made by LG Chem Michigan should be absorbed by the company, not the U.S. taxpayer.”

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