Fisker And The Folly of Private Sector Subsidies

Fisker Automotive is a smaller-scale Solyndra that occurred under the Obama administration, but so few people in the general right-wing community know about it. The saga of Fisker ends in this electric luxury car company being a complete flop and a complete waste of taxpayer money. Furthermore it serves as another example of why the federal government needs to cut off loans to private companies entirely.

You may refer to this government interference in the private sector as “crony capitalism” or “corporate welfare.” I’m of the mind that all private subsidies that are not direct contracts with the federal government should be cut off immediately. I don’t care whether it’s an oil, green energy, blah blah blah whatever subsidy to a private company that should participate in free market competition rather than be propped up by public funds.

Fisker Automotive is another glaring example of why “special” companies approved by the federal government should not be exempt from natural competition. Just like Solyndra.

Fisker Automotive claims that its Fisker Karma model is “luxury that’s electric.” It’s so lovely that the Department of Energy (DOE) gave Fisker a $528.7 million loan – one of four auto companies that received loans in the DOE’s $25 billion Advanced Technology Vehicles Manufacturing program in 2009 (the other three were Tesla Motors, Ford, and Nissan). The loan was officially awarded to Fisker in April 2010.

Bear in mind that that is half a billion dollars for cars that are pretty much built in Finland. On the other hand, a Fisker spokesman stated that more than 50% of its parts were designed and developed in (and are manufactured in) the United States. $359 million of this loan was earmarked to be spent on revamping a former GM factory in the state of Delaware.

I’m not of the “you must build/buy American” stripe, but this is information that many Americans would want to know. Fisker Automotive received $850 million in private equity financing as well.

Even before the Fisker Karma was released, the company had its government loan suspended in May 2011. When Fisker ran out of the initial government funds in February 2012, they had to lay off workers

In between the loan suspension and the layoffs, the company had even more trouble when the Karma finally arrived. The Fisker Karma showed up in dealerships at the end of 2011 after many production delays. Despite these delays, Fisker raised the prices of their vehicles by 6%, that increased the price of Fisker’s least expensive model from $80,000 to $95,000. The price of the highest end model rose to $108,900.

Yes. Really.

And, hey, you can really knock that price down with the $7,500 tax credit for purchasing the car.

That right there is the punchline to this joke.

Many (most?) conservatives and libertarians can rationalize federal scientific research grants and the like. But what the heck is the widespread benefit of giving a company half a billion dollars to make super high-end electric cars that can only be purchased by wealthy and elite individuals who can afford them? The Fisker Karma is not the Chevy Volt your random bearded neighbor down the street owns.

Fisker Automotive did receive attention from some activists. In 2012, Judicial Watch demanded the that the Department of Energy release records of Fisker’s economic milestones and other details about the project. Judicial Watch went on and filed a Freedom of Information Act lawsuit on February 1st of that year. They demanded that the DOE cut off government funding to a failing company who built their cars in Finland.

When Fisker announced the layoffs, they did discuss their financial status in more detail.

By March of 2012, complaints about the 2012 Fisker Karma were rolling in. The number of complaints wasn’t very high, but bear in mind that at this point only 500 of these cars were sold. Dashboard warning lights blinking on and off, issues with the trunk and heat shield, reports of a driver ending up stranded with only 160 miles on the vehicle, and multiple reports of the car just turning off in the middle of the drive. One customer said he noticed a lot of his problems went away when he stopped using the parking brake.

Yes. Really.

When Consumer Reports first tested out the Fisker Karma in March of 2012, it broke down before their test drive even began. They did end up test driving the Karma a couple days later, but the damage was done. Fisker responded to the incident by saying that they had many satisfied customers. They also had people whose cars turned off while they were driving. No great shakes.

At this point Fisker had only laid off 26 out of 600 workers, but the loan suspension is what got the attention of investors when the layoffs occurred. They worked on renegotiating their federal loan to receive the remaining $336 million of funds. The layoffs occurred in February 2012. In April 2012, they laid off most of the workers at the factory project in Delaware. For some reason, they decided to blame Mitt Romney for this and went on to “delay” the whole Delaware plant to 2014. And by the time December 2012 rolled around, Fisker looked for European investors and partners after having their federal loan cut off entirely.

Only a few weeks ago, on March 13th, it was announced that Fisker’s founder Henrik Fisker was stepping down. Geely, the company that owns Volvo, “pulled out of the bidding process.” Fisker Automotive is trying to gloss over these events, but at this point with no government funds and little trust from investors, Fisker is probably going to sink completely.

One might argue, Fisker Automotive did not receive a huge amount of money from the federal government. It was a small specialty company that came up and faded away quickly.

But it’s a small anecdote within the larger idea of cutting off private industry subsidies.

Due to poor setup and management, one can surmise that Fisker Automotive was going to flop with or without government funds. They were initially given attention via government loans, propped up by investors, and failed.

Why should a niche company like Fisker Automotive even receive an okay on a federal loan, or any other company for that matter? Start-ups like these should have to compete in the private market, on their own, through investors. The government shouldn’t influence these circumstances by pointing a finger at a particular corporation and saying, “Check this one out.”

For those interested, the 2013 Fisker Karma is on the market.

But do you really want one?