Meet the Solyndra of the electric car industry: Fisker Automotive. In 2009, the company was awarded a $529 million loan through the Advanced Technology Vehicles Manufacturing program. It is in bankruptcy, and has now fired 75 percent of its workforce.
The reality, however failed to meet this goal. It did produce -- at least until last year -- the Karma sedan, a $104,000 plug-in electric hybrid car. But the car wasn't just exclusive and expensive, it didn't even work. According to a recent New York Times article, a Consumer Reports test drive ended with the Karma breaking down and having "to be hauled away on a flatbed truck."
Adding insult to injury, the company used batteries from A123 Systems, another company that went belly-up 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 as well as $41 million in tax breaks and subsidies.
In fact, by some accounts, the Fisker loan was meant to ensure a market for A123's batteries. A123 was ultimately purchased by Chinese investors, but there is no evident interest from anyone in buying Fisker today.
This is bad news for taxpayers who will foot that bill, minus the $21 million that the government managed to seize from the company's cash reserves. The silver lining, if we must find one, is that the company was actually doing so poorly and missed so many deadlines that the Department of Energy suspended its support after having guaranteed $192 million of the $529 million loan.
But it gets worse, if you ask me. While the failures of these green-energy loan programs like Fisker or Solyndra are widely publicized, the public and lawmakers pay very little attention to the fact that most of the DOE loans are actually going to well-connected companies that would have been able to get capital without the government's help or are not startups at all.
Under the 1705 loan program, under which Solyndra was funded, the money went to companies like Goldman Sachs and energy giants like NRG Energy. Under the ATVM program, most of the money went to Ford and Nissan (87 percent of the $8.4 billion guaranteed under the program).
Unfortunately, the fact that these companies don't go under after getting a DOE loan is often cited by advocates of these loan programs as evidence of their success. It's nonsense. In fact, the large amount of taxpayer money being funneled to these companies simply highlights the rampant corporate welfare in Washington.
Of course, any recipient company loves the handout because it gives them a significant advantage over the competition. For one thing, it helps attract private investors who now see the projects as safe regardless of their merits.
The Washington Post's Chuck Lane reported earlier this week that, according to public records, "A green-energy loan was the only hope, Fisker executive Bernhard Koehler explained in an e-mail to the Department of Energy -- because it would help bring in private money."
Lane cites Koehler pleading that the company was "oversubscribed in this equity round with the DOE support -- and nowhere without it." And in fact, that's another benefit of these government loans. They allow the recipient company to borrow more money at lower interest rates.
Unfortunately, this favoritism introduces some serious 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.
The government shouldn't be in the business of lending money to private companies or providing particular incentives for banks to do so. Besides, as Lane reminded us, former Obama administration chief economic adviser Larry Summers rightfully noted in 2011 that "government is a crappy V[enture] C[apitalist]."
It is time to abolish all government loan guarantee programs. All of them.