Lawsuit and a Congressional Hearing as Fisker Bankruptcy Nears

Lawsuit and a Congressional Hearing as Fisker Bankruptcy Nears
April 13, 2013

Paul Chesser

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes ... (read full bio)

As green energy stimulus recipients raked in billions of dollars the last few years, with President Obama declaring what a great “investment” they were for taxpayers, friends of mine would jokingly ask, “Where’s my dividend?” “Where are my stock certificates?” “Where’s my free electric car?!” 

In the case of our $193-million stake in Fisker Automotive, thanks to a Department of Energy loan guarantee, it looks like American shareholders will end up with the whole company itself.

 With the Anaheim non-automaker (no cars produced since last summer) firing about 160 of its 200 remaining employees on Friday, a bankruptcy law firm hired, and no buyer to pick over the $102,000 Karma model’s carcass, the Chicago Tribune reported Monday the imminent insolvency “could leave the federal government essentially owning” Fisker.

That would be quite a feat, since it’s been widely reported that Fisker drew more than $1 billion in private investment and has felt the love of celebrities such as Justin Bieber, Leonardo DiCaprio and Al Gore. Well-heeled Silicon Valley investment firm Kleiner, Perkins, Caufield and Byers also helped generate enthusiasm for the company launched by the well-known designer for BMW and Aston Martin, Henrik Fisker. For U.S. taxpayers to come away with a company that generated so much buzz, for so cheap, would be considered a steal.

Yet despite all the millions poured into the company, it has become essentially worthless.

“Expect the assets to be sold for pennies on the dollar,” said Dave Sullivan, manager of product analysis for industry consulting firm AutoPacific, to the Tribune.

That’s quite a contrast to what one of Fisker’s investors, Toby Smith, told Fox Business (with great certainty) in October 2011 about the company’s promise.

“Fisker is a company that has 3,000 of their cars pre-sold,” said Smith (video link, about 3:30 in), who was characterized by Fox host David Asman as “a savvy investor.” “They have deposits. They are going to be a company that’s going to go a billion dollars in sales in 2012 – the fastest-growth company in the history of commerce in the United States…selling at a profit every one of those cars. They have 47 dealerships. They have 700 new jobs that that DOE loan started.” 

Smith won’t go down as the first or last Wall Street false prophet, but his forecast woefully missed the mark. If the 3,000 deals did close (reports are they fell well short of that), revenues would not have exceeded $325 million just from those pre-sales. Even if Fisker doubled those numbers, sales would have fallen well short of his predicted $1 billion for 2012.

The fact is he was a cheerleader for a sorry company that extracted money from taxpayers thanks to the political connections of Kleiner Perkins and six-figure lobbying efforts for the Recovery Act. The idea that Fisker – selling a single model that only extremely rich people would buy – would soar as a company was pure fantasy.

And now the reality is at least 660 workers – plus hundreds more in Delaware who were promised future employment at a former General Motors plant – have been let down. Soaring political rhetoric and delusions of grandeur by the likes of Smith and Vice President Joe Biden unjustifiably raised their expectations, and now they are looking for jobs again.

Many of them aren’t just swallowing the decision, which was delivered on Friday without forewarning or severance pay. The same day a lawsuit was filed in California by employees, alleging Fisker violated the federal Worker Adjustment and Retraining Notification Act and a similar state law by not providing 60 days advanced written notice, which the plaintiffs said is required in mass layoff situations. The complaint seeks two months of pay and benefits for the fired workers.

“It happens when a company is circling the drain,” said a lawyer with the firm that brought the lawsuit, Outten and Golden, which won a $3.5 million decision for terminated Solyndra workers in a similar situation.

After blunders and stumbles that included fires, recalls and bad reviews for the Karma, media scrutiny has intensified over Fisker in recent months. Many outlets appear to want to get the scoop on the bankruptcy announcement even before it’s official. Reporters can’t come right out and say it themselves, so they find “experts” to say it for them in their stories. Examples:

  • “This is going to be another Solyndra, a poster child for perhaps a lack of due diligence on the part of the federal government when it’s investing funds.” – Jeremy Anwyl of auto research firm Edmunds.com, to Bloomberg
  • “The fact that some of these companies fail is because companies make mistakes. Fisker made mistakes.” – director of the Institute of Transportation Studies at the University of California, Davis, also to Bloomberg
  • “Without cash coming in they can’t pay bills, they can’t do development on the next vehicle. The race is over for them now.” – the aforementioned Sullivan to the Chicago Tribune

While the watchdog “experts” emphasized Fisker’s gurgling, the ever-optimistic Department of Energy looked on the bright side.

“Despite Fisker’s difficulties, our overall loan portfolio of more than 30 projects continues to perform very well, and more than 90 percent of the $10 billion loan loss reserve that Congress set aside for these programs remains intact,” said a DOE spokeswoman to the Wall Street Journal.

Feel better? That means only $1 billion of taxpayer money has evaporated thanks to bad DOE loans. That’s how the stewards of your money, who seize it from you, see the world.

At least some in Washington are taking Fisker’s failure a little more seriously. Ohio Rep. Jim Jordan, a Republican, has called an April 24 hearing before a subcommittee of the House Oversight and Government Reform Committee to examine the Energy Department’s decision to award stimulus money to Fisker. Among those he wants to testify are founder Henrik Fisker, who resigned last month after disagreements with the executive leadership. In an interview with the Detroit News, Mr. Fisker said he would testify, even if he had to travel to Washington at his own expense – despite having received no severance or lingering benefits from the company that was named for him.

“I have nothing to hide,” he said.

The News reported that Mr. Fisker said he paid full price for a Karma after his departure from the company last month.

“I wanted to support my local dealer,” he told the newspaper.

That’s one less vehicle the taxpayer-owners will have to unload.

[First Published at National Legal and Policy Center]

Paul Chesser

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes ... (read full bio)