You have read my arguments about why the Department of Energy’s 1705 loan-guarantee program should be abolished — the government shouldn’t be in the business of lending money to private companies or providing particular incentives for banks to do so; the resources sometimes go to companies that wouldn’t get credit otherwise, and that’s how we get debacles like Solyndra; etc.
But in most cases, the money is actually going to well-connected companies that would have been able to get capital without the government’s help. The fact that these companies don’t go under shouldn’t be seen as evidence that the government was right to offer or guarantee the loans in the first place; rather, it’s another example of the rampant corporate welfare going on in Washington. Of course, any recipient company loves the handout because it gives them a significant advantage over the competition: It helps attract private investors who now see the projects as safe, and allows the company to borrow more money at lower interest rates.
Now, another DOE loan program is under scrutiny. The Advanced Technology Vehicles Manufacturing (ATVM) program guaranteed some $8.4 billion since 2009 to companies such as Ford, Nissan, and Fisker. Yesterday, the House Committee on Oversight and Government Reform, led by Representative Jim Jordan, held a hearing about the Solyndra of the electric-car industry: Fisker Automotive.
In 2009, Fisker received a $529 million federal loan from the Department of Energy’s ATVM program. According to the New York Times, two years after receiving the loans, the company repeatedly missed production targets and other deadlines. They’ve now fired 75 percent of their workforce and hired bankruptcy advisers. It has not built a car since July 2012. That lead the DOE to suspend their support, after having guaranteed $192 million of the $529 million loan. Like Solyndra, taxpayers will foot that bill, minus the $21 million that the government managed to seize from the company’s cash reserves.
What did Fisker do with our money? It didn’t create the permanent jobs promised by Vice President Biden and founder Henrik Fisker. It did produce — at least until last year — the Karma sedan, hawking it for the hefty price of $104,000. But the car wasn’t just expensive, it actually wasn’t working. A test drive for the Consumer Reports ended with the Karma breaking down and having “to be hauled away on a flatbed truck.”
To add insult to injury, the company used batteries from A123 Systems, another company that went under after receiving government help — $249 million in 2009 stimulus money, a $9 million grant from the state of Michigan, and another $100 million in tax credits and $41 million in tax breaks and subsidies. In fact, it looks like the Fisker loan was meant “to ensure there was a market for A123’s batteries.” A123 was ultimately purchased by Chinese investors, but there is no sign that anyone is interested in buying Fisker.
So Fisker is pretty much the Solyndra of the electric-car industry. It’s bad news for taxpayers, but the worst part of this story, once again, is that most of the money guaranteed by the Department of Energy will go to companies that could have borrowed money on their own, that the government continues to play venture capitalist with our money, introducing systematic distortions and unintended consequences to the market. Loan guarantees are privileges granted to special interests – in other words, cronyism — whether the companies that benefit from the loans go under or stay afloat.
As my colleague Matt Mitchell documented in an excellent paper, “The Pathology of Privileges,” “whatever its guise, government-granted privilege is an extraordinarily destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector.”