$139 Million in Lost Taxpayer Dollars? Chump Change!
Okay… I agree, $139 million is a lot of money down the drain. That's the tab on the U.S. Department of Energy's $159 million outstanding loan to Fisker Automotive, which has now -- finally -- declared Chapter 11 bankruptcy. As a result, certain in the media are screaming bloody murder: it's just another example of President Obama's failed policies; this one to put 1 million electric cars on America's roads by 2015.
Before it cut off further payments to Fisker, as the company struggled and failed to meet agreed milestones and deadlines, the Energy Department had loaned the Anaheim, California-based company some $192 million, according to Reuters.
As fate would have it, the company launched its Karma electric-hybrid sports sedan, designed by Henrik Fisker, months behind schedule. Quality problems, car fires, and 300 Hurricane Sandy flooded vehicles at the Port of New Jersey later, the company started laying off more and more staff, but to no avail. It also found itself the butt of snarky political comments during the 2012 Presidential campaign.
The company has been teetering for months now on the brink of insolvency with various investor groups giving it the once-over like used car dealers at a Mannheim auction.
Finally, a group called Hybrid Technologies LLC, plunked down $25 million to buy the rights to the company, leaving the federal government -- and us taxpayers -- holding the bag for that $139 million. The Feds had earlier recouped some $53 million of the loan, which originally amounted to $529 million. Only a fraction of that was ever distributed to Fisker, whose plan was to build their follow-on to the Karma called the Atlantic at a shuttered GM auto plant in Vice President Joe Biden's home state of Delaware. The idea was to foster advanced vehicle technology and stimulate good paying jobs in a sector of the economy that in the 2009-2010 timeframe was still struggling to survive.
If the company was successful, it was hoped, it would repay the loan with interest, like Tesla did this year. It would have been a good thing, certainly for Delaware, and clearly for the federal government in terms of tax dollars. Nationally, it would have put America in the forefront of global competitiveness in the advanced automotive sector.
Now with the DOE accepting the final $25 million, it has effectively washed it hands of deal. Fisker is just another promising startup gone bad, which is not all that uncommon: Tesla being the rare exception if you talk with venture capitalists and investment bankers.
But in the larger context, that $139 million is, to put it bluntly, 'chump change.' Corporations and governments gamble, win and lose with taxpayer dollars all the time, especially it seems in the automotive sector. Before the recent rescues of GM and Chrysler - both doing nicely now, thank you - there was.. well.. Chrysler in 1980. The feds loaned it $1.7 billion. In this case, it paid the loan back seven years early and theTreasury profited by $660 million, according to Propublica. That was, one could argue, I suppose, a worthwhile investment/gamble.
Nearly as costly as the $139 million Fisker fiasco is the $100 million the residents of New York have been compelled pay out in a kind of legalized extortion meant to keep Wall Street on Wall Street and not moving across the Hudson to Hoboken or somewhere else in New Jersey, this according to the Atlantic Cities article, "Great Moments in the History of Boondoogles."
The real question is, should government make any large-scale investments on our behalf in the future? If it does, can they ever be 'risk-free'? In Fisker's case, it seems to me that the DOE acted prudently. They set milestones and when those weren't met, they turned off the tap. Then they appear to have done what they could to recoup as much of the outstanding funds as feasible, collecting, by my calculation, $78 million of the original $192 million paid out. That's 40%: not an insignificant rate of recapture, where shareholders often end up with just pennies on the dollar in most Chapter 11 or Chapter 7 events.
Still, we all wish it hadn't come this; that the company had succeeded, and it might yet. It sort of depends on what the new owner's plans are, and for that, we'll have to wait and see.
And if it's any consolation, at least Uncle Sam wasn't left holding the bag on Better Place -- once valued at $2 billion -- whose assets in Israel just went for less than half a million dollars.
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