Karma of the Beholder

By Doug Magill

“Behind every great fortune there is a crime.”

 Honore de Balzac

Henrik Fister has a well-earned reputation as an automotive designer.  He not only helped with the design of vehicles for Aston Martin and BMW, but also became chief designer for and served on the board of Aston Martin. 

After founding an automotive-body design and manufacturing company, Fisker Coachbuild, he decided that he wanted to be in the automobile manufacturing business.  Fisker Automotive was founded in 2007.

Proving that Fisker had learned how to be a businessman as well as a designer, his eponymous company was started with someone else’s money.  The $500 million in private equity that the company has received includes funds from venture capital firm Kleiner Perkins Caufield & Byers, of which former Vice President Al Gore happens to be a partner. 

In 2009 Fisker Automotive also received a loan from the US Department of Energy for $529 million. 

The company’s first product is a $97,000 luxury electric-hybrid vehicle called the Karma.  Already a year behind schedule because of regulatory issues with the EPA and California’s Air Resources Board, the car was supposed to be produced at the former GM assembly plant in Wilmington, Del.  The home state, of course, of Vice President Joe Biden.

At the announcement of the purchase of the plant by Fisker, Vice President Biden stated that the loan to build the Karma “…is seed money that will return back to the American consumer in billions and billions and billions of dollars in good new jobs.”

In the same speech, Vice President Biden – the human gaffe machine – managed to blurt out Fisker’s new product plans, causing Judicial Watch to file a lawsuit to determine if there was a quid pro quo arrangement between the company and the Vice President.

The plant was purchased to fulfill a requirement in the loan from the DOE that a U.S. plant be built or renovated to assemble the vehicle.  The government has now loaned money to Fisker to buy a plant from General Motors – which the government owns – to build a car to compete with the Volt which is built by GM.   

One might conclude that the plant was a bargain for Fisker.  Even so, the company decided that the new vehicle couldn’t be produced in the US.  It will be built in Finland.

The company has promised that the next generation of vehicles – the Nina, which will only cost $54,000 – will be produced at the Delaware facility.  Unfortunately the delivery date for that vehicle has been pushed back to mid-2013.  Claims of annual production of 100,000 Nina’s per year have been met with skepticism.

Even worse, the results of the EPA analysis of the Karma are not encouraging.  Touted to achieve 67 MPGe (miles-per-gallon gasoline equivalent), and an all-electric range of 50 miles, the car will only achieve 52 MPGe and a range of 32 miles.  Running on gasoline alone, the car will only perform at 20 miles per gallon.

Forbes analyzed the EPA’s methodology for evaluating MPGe, and claims that the calculation grossly underestimates the amount of gasoline required to power the vehicle.  Their estimate of MPGe for the Karma is 19 – worse than the city rating for a Ford Explorer.  Forbes acidly proclaimed “Congrats to the Fisker Karma, which now joins corn ethanol in the ranks of heavily subsidized supposedly green technologies that are actually worse for the environment than current solutions.”

The Department of Energy justified the loan to Fisker by claiming “Fisker is producing high performance vehicles with an advanced hybrid electric powertrain that could significantly improve performance and fuel economy”.

Another government-sponsored green automotive company, Tesla Motors, has received a $465 million dollar loan to build a $57,000 all-electric vehicle.  A more diversified company than Fisker, Tesla is contracted to supply battery packs to Mercedes and powertrains to Toyota for the all-electric RAV4 EV which will be manufactured in Canada.

Tesla has already produced a $120,000 sports car, the Roadster.  The vehicle was only produced in small quantities, with the body manufactured by Lotus and final assembly performed in California.  Unfortunately, while having impressive performance the vehicle didn’t sell well and will no longer be manufactured.

The new vehicle, the model S, is to be assembled in California, with initial estimates of 20,000 per year.

Unsurprisingly, Tesla’s investors include a number of businessmen and celebrities that donated to the Obama campaign.  Steve Westly, a former Tesla board member was a bundler in 2008 for Obama and continues in that role for the 2012 campaign – similar to George Kaiser of Solyndra fame.  Tesla’s CEO, Elon Musk, is a heavy contributor to Democrats, as is Nick Pritzker, a Tesla investor and cousin of Penny Priztker – the national finance chair for Obama’s 2008 campaign.

Tesla has lost $522.8 million through the second quarter of this year, and has no experience in high-volume automotive manufacturing.  The company’s SEC filing states, “Our future business depends in large part on our ability to execute on our plans to develop, manufacture, market and sell our planned Model S electric vehicle.”

Precisely.

One has to wonder where the market will materialize for expensive luxury vehicles with technology that doesn’t perform as advertised.  And, in an economy where the similar, and much-discussed Chevy Volt will struggle to sell 10,000 vehicles this year.

It is distressing to realize how much taxpayer money is going to wealthy individuals and corporations to produce products that are unlikely to be widely accepted.  Of course the first Fisker Karma went to Leonardo DiCaprio, with Al Gore next on the customer list.  But, these gentlemen do not represent the majority of potential automobile purchasers. 

So, taxpayer money is used to subsidize production luxury vehicles to wealthy individuals who will also get additional taxpayer money in the form of tax credits.  This is in spite of the fact that the administration has spent billions on GM and Chrysler that will never be recovered, and has subsidized Ford’s electric-vehicle efforts.  And gave Ford several million dollars to improve the performance of some its standard internal-combustion engines.

As it does in so many other areas, the Obama administration is simultaneously trying to game the system.  By increasing statutory requirements for gas mileage for automobile manufacturers and implementing harsher emission rules, the government is effectively trying to penalize the internal-combustion engine out of existence.  And with it most of the automobile manufacturers that exist today.

This is capitalism in the world of Obama. The rich get subsidies and tax credits for vehicles that have no real market, and the rest of us will soon be walking.

Doug Magill has worked in the automobile industry and is a consultant, freelance writer and voice-over talent.  He can be reached at doug@magillmedia.net

 

 

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