Posted on 06/21/2013 10:59:37 AM PDT by jazusamo
As NLPC has covered Fisker Automotive’s catastrophic flop over the last few years since it was granted a $529-million taxpayer-guaranteed loan from the Department of Energy, one big question that repeatedly came up was: How could a company that produced only one electric car model burn through $1.4 billion in investment so quickly?
Reuters uncovered a number of reasons in a report published earlier this week. Citing documents and some sources, mostly anonymous, the news syndicate painted a disturbing picture of mismanagement, incompetence, disinformation, and squander. While businesses stumble and go out of business every day, Fisker’s case illustrates why government bureaucrats are only accidental successes as investors of public money at best, but often are horrific decision makers at worst.
“Fisker’s undoing had numerous causes,” Reuters reported. “Fundamentally, say suppliers and some insiders, executives simply couldn’t orchestrate the complex dance that leads from a design sketch to the production and sale of a profitable car. Spending was lavish; engineering blunders rife.”
Those points have already been verified by circumstantial evidence in past NLPC reporting: company layoffs, investor lawsuits, halting of its DOE loan, vehicle fires, recalls, breakdowns, poor reviews, executive turnover, and attempts to sell the company. But Reuters’s report uncovered more deeply disturbing information that reflects horribly on the Obama administration and its green energy program, and its waste of taxpayer money.
The news agency said its discoveries were culled from interviews with more than 30 people “close to the company” and five-years’ worth of confidential investor presentations it had viewed. Most of the interviewees wanted to remain anonymous. Founder Henrik Fisker, who left the company in March, and other executives still on the bare bones staff would not comment to Reuters.
Mr. Fisker was able to gain traction in early 2008 for his start-up luxury electric vehicle company thanks to investment and support from former Oracle president Ray Lane, who almost immediately embraced the technology and business plan as a senior partner for powerful venture capital firm Kleiner, Perkins, Caufield and Byers. The Silicon Valley-based partnership, as NLPC has reported extensively, is extremely well connected with the political Left, and boasts former Vice President and global warming activist Al Gore as a partner.
“Kleiner Perkins had bankrolled the likes of Google and Amazon,” Reuters reported. “Their backing was a coup for any startup.”
True, but it doesn’t matter how much faith investors have in a company, nor are their power and resources relevant, if the subject in which they place their trust proves irresponsible or undependable. Such was the case with Fisker.
Unfortunately while Lane and Kleiner Perkins’s outlays were voluntary, taxpayers’ were not. The Department of Energy – which has exhibited its investment lack-umen with unproven firms such as Solyndra, Abound Solar, Beacon Power, Ener1, A123 Systems and others – delivered its now-famous $529 million loan guarantee to Fisker only 18 months after Lane was on board. One of the conditions of the government backing was for the automaker to develop and build domestically, which led the company to buy a former GM plant in Delaware for $20 million, according to Reuters. But while Fisker churned out a few units of its first model, the $102,000 (base price) Karma (assembled at Valmet Automotive in Finland), plans for its second model – the lower-priced Atlantic – never got off the ground. The Delaware plant where it was to be manufactured was never used and sits empty while state taxpayers pay its utility bills.
That DOE granted the loan at all is bewildering, if Reuters’ report is accurate. Only launched as a company in 2007, Fisker was already desperate for cash.
“We are oversubscribed in this equity round with the Energy Department support — and nowhere without it,” wrote Barny Koehler, a business partner of Henrik Fisker’s, in an August 2009 email to Energy Department officials.
The First State follies were not Fisker’s only waste. According to Reuters the DOE move opened a “flood” of investment for the company, but all that meant was the company had more money to fritter away – an estimated $1 billion through 2012. Fisker lost $35,000 on each of the 2,450 Karmas it produced the last two years (none were made in the past year), and the report quoted a former executive who said the Karma “cost far more to produce than we could ever charge for it.”
Why? Because, as Reuters explained, excessive tinkering – some by necessity, some probably not – contributed to hiccups in the development and production process, which led to repeated delays. Also, because Fisker was not mass-producing several lines of vehicles that shared parts and components, but only a single model, there were no economies of scale to be employed.
“Repeated delays in the start of Karma production and a drastic curtailment in volume meant that Fisker was paying higher-than-budgeted prices for many components and sub-systems,” Reuters reported, “as well as contractual penalties to suppliers and to Valmet, which built the Karma under contract in Finland.”
Last-minute design changes, engineering fixes, delayed delivery of components, over-ordering, stockpiling of parts, and vehicle flaws all were cited as contributions to cost overruns. An anonymous source knowledgeable about Fisker’s financial details “estimated that last-minute tweaks rendered between $50 million and $100 million of Fisker’s parts inventory obsolete,” Reuters reported.
And then there were what might be called “excesses,” to say the least. Several sources in-the-know said Henrik Fisker and Koehler were paid $600,000-$700,000 annually, even after the company started reducing payroll the last couple years. And in May 2011, only weeks before the Department of Energy severed its loan, Fisker hosted a grand prix-themed party aboard a 146-foot yacht on Monte Carlo harbor. The price tag for the shindig was estimated at $80,000-$100,000.
“Guests drank glasses of champagne served with flecks of gold,” Reuters reported. “Clad in a dark pinstripe suit and open-neck white shirt, Henrik Fisker navigated a crowd that included Prince Albert of Monaco, whom he described as the inspiration for the Karma.”
While such activities illustrate the attitude of entitlement and elitism that made up Fisker’s management, the biggest dollars were squandered simply because of inexperienced, incompetent leadership, as Reuters’s report detailed. It should be read in its entirety.
If Fisker had been left to its own devices with only its stockholders to answer to, only they should be the ones who care. But because the Obama administration and the Energy Department led by former Secretary Steven Chu made themselves investment strategists with taxpayer money, they deserve far greater public scorn than Fisker. Bets on private companies of any stripe are not proper stewardship of the public dollar.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com , an aggregator of North Carolina news.
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Exactly right and we’ll see far more of this with this scam administration.
Sounds just like the Obama Administration.
There was another automobile company, back in 1948, that foundered early on. They had come up with a really advanced automobile, that was powerful, one of the most safety-conscious of the time (this was 1948, remember), and with a number of innovations which were later adopted in much of the rest of the industry.
Preston Tucker took over a vacated airplane factory in Michigan, and had designed a rear-engined, modern (for 1948, again), and interesting looking vehicle, the Tucker Torpedo. It had a six-cylinder opposed engine, adapted from a helicopter power plant, that had been further modified by turning it from an air-cooled to a liquid-cooled engine, and a hydraulically controlled valve timing. There were some irregularities in the financing, and a LOT of negative pressure from Congress, so the enterprise finally folded, after hand-building something like fifty or sixty vehicles, most of which are operable today.
Chances are, the examples of Fiskar vehicles now in existence will not be in any condition to be operable some sixty-five years from now.
Albert?
Was pedobear there too?
There are two nations within our borders. One is The United States of America. It has a Constitution. The citizens of this nation are known as Americans. The other nation is Democratland. It has a plan to raid the public treasuries of The United States of America. The citizens of this nation are known as Democrats. Which nation will survive?
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