Why are taxpayers forced to underwrite a loan for the producer of a $107,000 toy vehicle for the wealthy, the majority of which is assembled at a European auto plant?
Two weeks ago Republican Sens. Charles Grassley of Iowa and John Thune of South Dakota asked Energy Secretary Steven Chu those and some other pointed questions about his department’s decisions, in granting a $529 million taxpayer loan guarantee to Fisker Automotive, a luxury electric car manufacturer.
The politically connected automaker has stumbled a number of times in delivering its six-figure Karma to market, with two recalls related to battery defects, an investigation of its top venture capital raisers, and layoffs of dozens of “green jobs” that had been bragged about by the Obama administration.
The senators questioned the wisdom of extending the loan – which has now been suspended after issuance of $193 million because of Fisker’s troubles – in the first place.
“The statute which created the (Advanced Technology Vehicles Manufacturing) program did not specify a retail price range for vehicles that are financed by Federal dollars, but it would seem questionable how financing $100,000 luxury class automobiles would be the best use of taxpayer money,” the senators wrote in a letter to Chu, dated April 20. “The Department of Energy appears to have decided otherwise.”
The senators then asked a series of questions which sought to “bring sunlight and transparency” to DOE’s loan process. Among their queries:
1. Why did the department fail to grasp the concept that money is “fungible,” when considering that Fisker planned to assemble the Karma in Finland at Valmet Automotive? As much as $169 million in taxpayer guaranteed funds were dedicated to production of the Karma – allegedly for U.S. operations – allowing Fisker to commit its precious private resources to Finnish operations.
2. How did DOE calculate that its $529 million guarantee would produce 2,000 permanent jobs ($264,500 per job)? From the time it initiated plans in California and Delaware until DOE halted the loan, Fisker laid off at least 77 U.S. employees.
3. DOE estimates that the equivalent of 30,000 fewer cars would be on the road as a result of the Fisker loan. Only 1,500 Karmas are expected to be sold by the end of this year, and plans for a $50,000 sedan – the Atlantic – are on hold, as is renovation at a planned plant to produce it in Delaware.
In addition, the senators asked Chu “what technical expertise” DOE used “to evaluate, originate and monitor the loan to Fisker.” According to the Recovery.gov Web site, international law firm Debevoise and Plimpton, LLC, received $1.8 million to provide legal advice, conduct due diligence, and review documents for the loans to Fisker and to Ford Motor Company.
According to data compiled by the Center for Responsive Politics, employees of the law firm gave $199,944 to Sen. Barack Obama for his 2008 presidential campaign, and over the last three congressional election cycles (two cycles for the presidency, including this year), Debevoise staff members have donated $746,535 to Democrat candidates and political committees, including $284,420 to the Obama campaign. Debevoise’s media relations manager, Suzanne Elio, is a former Democratic National Committee fundraiser, and top lawyer David Rivkin reportedly served on President Obama’s National Finance Committee, even hosting a fundraiser for presidential candidate Obama in his home in 2007.
Maybe Debevoise staffers have “technical” expertise too.
Sens. Grassley and Thune could ask a few other questions also. For example, did top investors in Fisker like co-owner Kleiner, Perkins, Caufield and Byers receive special consideration because its employees donated $2.6 million to candidates and political action committees, mostly to Democrats? And was Fisker granted favor because KPCB spent $50,000 per quarter throughout 2009 and 2010 lobbying Congress – in addition to Fisker’s expenditure of $480,000 for lobbying of Congress, the White House and the Departments of Energy and Defense to seek funds through DOE’s loan program?
The senators also might ask about the reputation of the private capital raisers for Fisker, Advanced Equities. Its primary partners, Keith Daubenspeck and Dwight Badger, have been accused of “foisting junky startups on investors” and are now the subjects of a Securities and Exchange Commission investigation.
And related to Fisker, the senators could ask what DOE grant makers were thinking when they awarded its battery supplier, A123 Systems, a grant for $249.1 million. Fisker has had at least two recalls due to A123’s product flaws, and the Massachusetts battery maker took a loss of $85 million in the 4th quarter last year, partly because of a $11.6 million write-down of its ownership stake in Fisker. Clearly something happened that made A123 executives realize they would never recover that investment.
Of course Sens. Grassley and Thune are appropriately focused on the absurdity of taxpayers subsidizing a risky start-up company that produces six-figure toy vehicles for rich people. DOE justified the loan by calling attention to plans to produce a less expensive vehicle, the Atlantic, for an approximate retail price of $50,000.
“This complaint misses the mark in several respects. First, both manufacturers plan to start with high end vehicles and then quickly move to more affordable product lines,” said DOE spokesman Dan Leistikow, also referencing a $465 million loan to EV newbie Tesla.
But $50,000 a car is not exactly accessible for low-income consumers, or the even broader 99 percent. The Chevy Volt, which retails for $41,000 before a $7,500 buyer tax credit, has sold to customers (and not very many of them) who on average earn $170,000.
Corporate cronyism, fudgy government numbers, and subsidies of the wealthy – a lot to explain for Steven Chu’s Department of Energy.
Paul Chesser is an associate fellow for the National Legal and Policy Center.