Electric Fiasco

In a follow up to the Solyndra case, The House Committee on Oversight and Government Reform took testimony from several high-ranking Fisker Automotive executives. Fisker took $192 million dollars from the Department of Energy and immediately went bankrupt. Republicans are dragging the Obama administration and Democrats across the coals on the Fisker debacle. The republicans hope the failure of the electric auto company will be a beacon of government overspending and make voters return to the Republican ticket in the next election year.

In my opinion, loaning Fisker $192 million dollars was a mistake. Startup auto companies are an extremely volatile financially speaking. In my mind, professional private-equity or venture capital firms should handle the financing of these industries. Now this is not to say the bailout was bad. The support of already existing firms is safe enough to be considered logical while a startup with no prior experience is very illogical.

Source: http://autos.aol.com/article/feds-go-after-fisker-automotive-about-192-million-taxpayer-loan/?ncid=dynaldusauto00000002/

9 comments to Electric Fiasco

  • gradyb13

    I haven’t made my mind up about Fisker, but just to play devil’s advocate, isn’t it good for the government to push for important technologies, such as electric cars, if the free market doesn’t appear to want such technologies? I think the argument is basically that if the government doesn’t pour money into green tech, we will forever be reliant on unclean technologies. That doesn’t sound like a great future.

  • gradyb13

    Also as a follow-up: it shouldn’t be all that surprising that some of these green companies fail. Companies of this sort do fail all the time, as you mentioned. The question instead, as I see it, is whether the occasional failure of the companies is offset by the benefit produced by all of the other companies which don’t fail.

  • kuveke

    The government’s job is to provide infrastructure which no one else will provide. In a sense if the government wants to promote greener technologies it should focus not on the companies that are looking to make the technologies but on facilitating growth through the creation of refueling facilities across the country for greener technologies. One example of this was the creation of highways by Eisenhower. The creation of highways (infrastructure) facilitated markets for distance travel and fast food which probably would never have blown up in popularity without the infrastructure in place.

  • gradyb13

    While I like your point, if there are fueling stations across the country, but no cars to use them – or very few of them, where would that put us?

  • gradyb13

    To rephrase: I imagine that it would be as if Eisenhower had built all of those highways, but before there were cars to drive on them.

  • kuveke

    Eisenhower didn’t create the highways for solely for public transportation. He knew the importance of roads from the army and knew that good roads were important for moving military vehicles as well as public transportation. If the government bought cars that used greener fuels it could bypass the lack of cars for the fueling centers. Considering the amount of subsidies that the government provides oil companies who knows the long term cost to the government?

  • gradyb13

    Not to completely hijack Andrew’s post, but what would the government’s buying green vehicles accomplish? Do you mean that government vehicles would all be green? How would that facilitate a long-term green movement?

  • The government spends roughly 10 billion dollars a year on subsidies for fossil fuels most of this being gas and coal. Natural gas which is cheaper than gas and is plentiful in the U.S might limit the amount of subsidies the government would have to provide in the long term. President Obama has tried to motion for gas subsidies to be removed but has had almost no success. By moving the greener cars which use a cheaper fuel the government will facilitate consumers to move to greener cars as well. In the long run the government can stop subsidizing gas for transportation because there are alternative fuel sources.

  • The history likely goes back further, but Clinton put in place the Parternship for a New Generation Vehicle (PNGV) and after campaigning against it, Bush transfered it to the Department of Energy as FreedomCar / FreedomFuel and (unless I’m mistaken) gave it more money. So the policy behind new energy-related technologies has a long bipartisan history. The brouhaha over Solyndra did however delay loans, and the policy had been in place long enough for start-ups to build their business plans assuming loans would be forthcoming.

    A venture headed a W&L alumnus was caught in this way. Bright Automotive, with solid purchase commitments in place for delivery vans, needed working capital to start production. (Remember Mr. Cosgrove on how the industry eats cash!) The company had raised equity capital to cover development costs, but starting production required $200 million or so, well beyond what such sources could supply. Government loans were to cover that. Bright Automotive was never turned down for a loan, instead it was delayed again and again. Eventually Bright ran out of cash, even though it had working prototype vans and customers who had signed on the dotted line.

    See an earlier blog post: Lights Turned Off at Bright Automotive

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