April 9 2013

Fisker's Fiscal Fires

Emily Wismer

 

 

Fisker, the electric car company that received $200 million in government loans, laid off 75 percent of its workforce of 200 employees late last week, raising concerns the company may soon enter bankruptcy. 

The company’s namesake, cofounder, and chairman Henrik Fisker recently resigned over disagreements regarding the company’s future. 

According to CNN, "Fisker has been struggling since May of last year when the Department of Energy announced it was cutting off a promised $529 million in loan guarantees citing Fisker's failure to meet production goals. Since then Fisker has been seeking investors and strategic partners but has been unable to get back on track with the planned production of a smaller, less expensive plug-in sedan.” Yet the company has not produced a single vehicle since last July.

Vice President Biden had claimed Fisker’s loan guarantee would provide thousands of American manufacturing jobs. Instead, the company is down to around 40 domestic employees, and any manufacturing jobs that were created were located in Finland.

Fisker’s troubles not only suggest the electric car company is on federal-dollar life support, but they also confirm the foolishness of investing taxpayer money in such enterprises and the fundamental defects in the Department of Energy’s loan guarantee program. The DOE also supported A123 Systems (we lost $249 million) and Solyndra (who received $535 million before going bankrupt).

Mercatus’s Veronique de Rugy explains that the loan guarantee program transfers loan risk from lenders to taxpayers, inhibits innovation, and increases the overall cost of borrowing:

At a minimum, such guarantees distort crucial market signals that determine where capital should be invested, causing unmerited lower interest rates and a reduction of capital in the market for more worthy projects. At their worst, they introduce political incentives into business decisions, creating the conditions for businesses to seek financial rewards by pleasing political interests rather than customers. This is called cronyism, and it entails real economic costs.

Federal loan guarantees fund enterprises that have difficulty receiving loans elsewhere because investors have determined they aren’t worth the risk.  The Federal government should be just as careful with taxpayer money and not be in the business of risky betting.

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