Fisker Loan Failure Highlights Uncle Sam's Poor Investment History
May 13, 2013
The government is notoriously bad at choosing winners and losers in the private market. Despite the more than $500 million loss with Solyndra, the government bet heavily on green automaker Fisker Automotive. In 2009, the company was awarded a $529 million loan. Now, the company is teetering on the brink of complete failure and the taxpayer is on the hook, says Veronique de Rugy, a senior research fellow at the Mercatus Center.
- The company is now in bankruptcy after failing to produce a working vehicle.
- The one vehicle it did produce, the Fisker Karma, a $104,000 plug-in electric hybrid car, was so full of design flaws that many consumers returned the cars for a refund.
- More than 75 percent of the Fisker workforce has been fired and no vehicles have been produced since 2012.
Fisker relied on batteries from A123 Systems, another green company that received almost $250 million in 2009 stimulus money, as well as more than $140 million in tax credits and subsidies. According to some sources, the $529 million Fisker loan was granted in order to ensure a market for A123's batteries.
Many of the loans to green companies like Solyndra and Fisker were awarded through cozy relationships between politicians and the lobbyists who vied for the loans. The federal loans aided many new upstart companies in securing private investors, though many of the well-connected companies could have acquired private capital without the federal guarantee.
The loans also allow companies to borrow more money at lower interest rates. According to emails between Fisker executives and the Department of Energy, the federal loans were the only way that Fisker could attract private money.
- If a company succeeds only with an explicit financial backing from the federal government, it is not competitive in the free market.
- The result is distortions in the market that grant special privileges to special interests at the expense of other companies in the market.
- Crony capitalism and "green" loans have been popular under the Obama administration, the result of which has been billions of dollars of losses to taxpayers.
Along with Fisker, Ford received a $5.9 billion loan for electric vehicle production, while Nissan received $1.4 billion and Tesla received $400 million. The failure of the Fisker loan, like Solyndra, further highlights the government's poor decision making in choosing winners.
Source: Veronique de Rugy, "Get Uncle Same out of the Green Startup Loan Business," Washington Examiner, May 3, 2013.
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