Saturday, December 08, 2012

Your Government Money At Work... On a Sports Car

I was out walking at night in River North when I came upon a cool looking sports car outside on the street. I hadn't seen one of these before so I took a photo to look it up.



When I woke up in the morning and was reading my old-school paper copy of the Wall Street Journal, I saw on the front page of the finance section an article titled "Its Battery Drained, Fisker Hunts for Partner" with a picture of my Fisker Karma in color. Per the article:
Fisker Automotive, the troubled maker of a battery-powered sports car, is accelerating a global search for a strategic partner to keep its business going...Fisker has taken steps to reduce its cash use. In July, it halted production of its sole vehicle, the $110,000 Karma, to lower production costs. The Karma has been hobbled by recalls and quality problems.
Who thought that we needed another sports car, in a market glutted with them? Why the US Government, of course. Per wikipedia:
In 2010, the Department of Energy awarded Fisker a $529 million green-energy loan, primarily to assist the company in transitioning the Karma, which is assembled in Finland, into the American markets. Fisker collected nearly $200 million until February this year, when the government froze the loan because the company was failing to meet the government's milestones
What is also apparently hurting Fisker is that they can't obtain batteries from A123 Systems, Inc. Bizarrely, the Wall Street Journal didn't even mention that NOT ONLY did the US government bankroll Fisker on their futile plan to create another un-neeed sports car, but they also bankrolled A123 System in their battery development, per Wikipedia:
The company received US$249 million grant from the Department of Energy for building battery production facilities. As of June 2012, $129M of the grant has been used to build the 550 MWh Livonia plant and the Romulus plant. Remaining untapped $120M grant's expiry date has been extended from end of 2012 to end of 2014. The company laid off 125 workers in December 2011 as demand for partner Fisker's automobiles has been slack.
It is astounding to me that the government decided to build up an entirely vertically integrated chain of industry in order to produce a sports car that is unreliable that no one apparently wants to buy. And yet this is likely one of the most tangible "products" that the stimulus package delivered.

Also I am still shaking my head that the normally OK WSJ (for main stream media) didn't see the further lunacy beyond just Fisker's imminent demise in that it was linked to the troubles of A123 Systems. A Wikipedia search like yours truly could have figured that out.

Back when I took courses on economics and socialism they spoke of the government's inability to allocate capital as a core problem with top down socialism. This is exhibit A. It is one thing to prop up an already existing business like the auto industry or banks (not always a good idea) which needs restructuring or a short term cash infusion, but starting an integrated value chain industry from scratch is beyond a longshot, it is lunacy.

Update - a Chinese company now won the bidding for A123 batteries which was on the ropes. So now we are officially starting companies for China. Awesome.

Cross posted at Chicago Boyz

4 comments:

Anonymous said...

Only worse is the yearly 35 billion corporate welfare handout the oil industry receives from our Govt. Makes the Fisker loan look like peanuts. That's real lunacy, and it goes on year after year...

Unknown said...

I assume that you are aware that the "corporate welfare handouts" to the oil, coal, and gas industries are the same ones available to all corporations, including Fisker?

That wouldn't make quite as good a howl of outrage, though, would it?

Carl from Chicago said...

Unknown

You are incorrect. I worked in the energy industry for many years.

There is not a precedent where the government gives direct loans and handouts to start industries, and selects individual companies to receive those loans.

The failure rate with this method will be very high.

Gerry from Valpo said...

In case you haven't noticed, America now rewards and re-elects failure. Failure is cool.