Fisker, Energy Department face tough Congressional hearing on federal loansThu, 25 Apr 2013 00:00:00 -0700
Struggling Fisker Automotive took a bludgeoning Wednesday on Capitol Hill from top congressional Republicans who compared Fisker to failed automotive startups of the past and lambasted the Department of Energy for allowing the electric-car producer to draw down nearly $200 million in taxpayer-funded loans.
House Oversight Chairman Darrell Issa, R-Calif., told Fisker founder Henrik Fisker that he will be remembered fondly for his design work for BMW and Aston Martin. But he compared Fisker to Malcolm Bricklin, John DeLorean and Preston Tucker -- three entrepreneurs known for their failed startup car companies.
"Quite frankly, innovative cars have a history of failing," Issa said.
At a hearing to investigate the company's $529 million loan from the Department of Energy, Rep. Jim Jordan, R-Ohio, said Fisker should never have received taxpayer money.
"Taxpayers have effectively subsidized luxury novelty vehicles for the likes of Justin Bieber, Leonardo DiCaprio and Al Gore," Jordan said. "Fisker was not a well thought out startup. It had a fancy design and big names behind it, but no real business acumen.
"It was never destined to be a company of job creators, rather skillful rent-seekers."
Fisker Automotive has appeared to be on the brink of bankruptcy for the past few weeks. On April 5, Fisker dismissed 75 percent of its employees to preserve cash. The company has also consulted with bankruptcy firm Kirkland & Ellis as partnership negotiations with a pair of Chinese automakers failed to yield a deal.
Rep. Elijah Cummings, the committee's ranking Democrat, said that both DOE and Fisker asked committee Republicans to postpone the hearing because it could harm Fisker's ability to raise money and avoid bankruptcy.
Republicans on the committee said their qualms were not with Fisker, but with the Energy Department, which approved the $529 million credit line to Fisker in April 2010 under a program that also provided loans to Ford, Nissan and Tesla Motors.
The loan was cut off in 2011, after $192 million had been disbursed, when DOE judged that Fisker had not met sales and production milestones.
On Monday, Fisker missed the first payment due on the U.S. loan, though the Energy Department has recovered $21 million from a reserve account at the company.
Republicans said DOE should not have granted the loan in the first place and missed opportunities to cut off the funding.
Democrats on the committee and Nicholas Whitcombe, the former acting director of the Advanced Technology Vehicle Manufacturing loan program at DOE, said that the loan to Fisker was one of many, and that loans granted to other car companies through the program have been successes.
About 98 percent of loan guarantees under this program appear on track to be repaid, said Rep. Matt Cartwright, D-Pa.
Fisker, who abruptly resigned from the automaker last month, citing disagreements with top executives, held out hope that the company could avoid bankruptcy and build on its work.
"We engineered and brought to market an exceptional new vehicle technology that won acclaim from customers and reviewers alike," Fisker said in his opening statement to the committee, adding that the company may still manage to "secure financial and strategic resources."
Fisker testified that the company was approached and encouraged to apply for a loan by the department.
The Karma, a $100,000 plug-in hybrid electric car, was assembled in Finland through last summer.
Energy Department officials recommended that if Fisker was willing to build and create jobs in the United States, the agency would fund the development of the Karma and the company's proposed second, less expensive model, The Wall Street Journal reported Wednesday, citing people familiar with the situation.
The company's plans eventually included building a less expensive sedan at a former General Motors plant in Delaware.
Fisker Automotive COO Bernhard Koehler said in his prepared opening statement that he does not know "whether the company will find new investors or whether the company may be obliged to seek bankruptcy protection."
The vehicle loan program was created in a law passed by Congress, and signed by President George W. Bush, to spur development of more fuel- efficient vehicles including plug-in electrics.
President Barack Obama's administration announced a conditional loan approval for Fisker in September 2009, eight months after he took office.
“The department has acted decisively to protect the taxpayers' interest since it became evident that Fisker faced financial difficulties,” Whitcombe, who now works in a different loan office at the agency, said in his testimony. “The department is continuing to communicate with Fisker regarding its obligations under the loan agreement, and is committed to ensuring that the taxpayers' interests are protected to the maximum extent possible.”
Whitcombe said there were about 150 applications to the vehicle loan program. Five loans were granted.
In June 2010, less than two months after Fisker's loan was finalized, Sandra Claghorn, then an Energy Department loan official, said in an email released by the committee that the company's request to draw money might not be honored because it wasn't meeting loan requirements.
The “Fisker draw request may be in limbo due to lack of compliance with financial covenants,” Claghorn said in the June 2, 2010 email.
“The document shows that one person at a meeting discussed the possibility that Fisker might not meet a financial commitment, which had to be certified as met by the company before a loan disbursement,” Aoife McCarthy, an Energy Department spokeswoman, said in an email. “The department received that certification five days later, and subsequently disbursed on the loan.”
The same email from Claghorn talked about the status of loan applications from other companies seeking funding from the vehicle loan program, which last granted a loan when it had $4 billion remaining.
Ryan Beene and Bloomberg contributed to this report.
(Fisker, Energy Department blasted over loan to struggling firm originally appeared on Automotive News, sub. req.)
By Gabe Nelson- Automotive News