By on June 18, 2013
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If the Carbon Motors business model was so bad, how did the company last as long as it did? To paraphrase an especially sharp-tongued commentor from one of the many Carbon E7 threads I’ve followed on the web over the years, the company’s business plan seemed to revolve around borrowing money from the government to build cars that they would then sell exclusively to the government. Only the government would be dumb enough to fall for such a scheme and the government of Indiana apparently did.

But did they do so out of malice or out of a desperate attempt to kick-start the economy in a depressed region of the state? Once known as “little Detroit,” Connersville was a Ford factory town up until the joint Ford/ Visteon plant closed in  2007.  890 jobs went directly down the drain and city leaders were left wondering what to do in response to keep the town afloat.

Into the void stepped Carbon Motors, which was looking for a place to build its super police cruiser and promising up to 1,500 jobs. The Visteon plant was available, but as a start-up company with no cash, Carbon couldn’t buy it. They needed Connersville (which was just one of several desperate towns looking for someone, anyone, to employ some of their unemployed citizens) and the state of Indiana to make it worth their while.

The first step was for Connersville to buy the plant, which the city was able to do for the low, low price of $500 plus an agreement to take responsibility to the tune of an additional $4 million to clean the site up.  In order to do that, Connersville had to borrow $3.5 million dollars with the remaining $500,000 coming from realocated money in a state environmental trust fund. If Carbon Motors been able to secure the DOE loan, or an equal amount of funding from other sources, Connersville would have straight up given them the plant.

So Connersville was ready to play, but the state of Indiana had to kick in as well. It did so in two ways. The first was a $5 million grant through a regional development fund paid for by the sucker tax riverboat casino gambling in Lawrenceburg, IN, which is about 15 minutes down I-275 from Cincinnati. The second was a $2 million grant from the Indiana Economic Development Corporation, which is the state’s primary economic development agency.

That $2 million figure from the IEDC doesn’t include $16 million in tax breaks that were to be granted to Carbon Motors over ten years. The cost to state coffers per job would have been a little over $10,000. That was higher than the average cost per job of approximately $8,700 in similar arrangements with other employers and the IEDC.

This is as good a place as any to take a moment and direct you to an investigative report by the Indianapolis Star first published on May 20. It’s a rather long piece but it paints a very thorough and detailed picture of the problems that arise when government looks to spend money picking winners in the marketplace. The article details not only the Carbon Motors fiasco, but also how money has been blown on any number of projects that often directly benefited the elected officials who championed them. Take 30 minutes and read the whole thing.

What becomes apparent as you read the article is that overt corruption that rises to the level of a criminal offense is hard to prove. Still, there’s an awful lot of smoke and the whole project ends up being tainted, especially since the whole thing was such a, well, dumb idea to begin with.

For example, how did Connersville end up in the running to land Carbon in the first place? Well, Indiana’s governor at the time was Republican Mitch Daniels who happened to have served in the George W. Bush administration with former director of Homeland Security and Carbon Motors board member Tom Ridge. People who work together in one capacity often work together on other projects. It’s to be expected and it’s (usually) not illegal. And yet when you consider the breaks that Carbon got that others didn’t, such as the amount in tax breaks referenced above,  it’s hard to not be cynical.

So what happened to the money? Most of it was ostensibly spent on legitimate projects like R&D and work on refurbishing the Connersville plant. BMW got $1.8 million towards powertrains that it no longer has to deliver. But there were also a lot of questionable expenditures. Over $200,000 went towards executive salaries, which was apparently allowed even though other similar grants had prohibited such practices, which raises yet again the question of why did the company on which the governor’s former administration mate sits on the board get to do something that other companies would have been forbidden to do?

Another $214,000 went for “travel expenses.” And, as you might expect, much of the travel was to luxury resorts and at least two five- figure expenditures weren’t itemized. Again, the actions aren’t illegal, but their appearance is less than ethical.

Then there’s the miniscule expense of $11,500 that went to a Mr. David Jobe for his services as a “contract employee.” The problem is that Mr. Jobe was a Connersville city councilman at the time and appears to have voted on several items of business related to Carbon’s relationship with the town.

In response to the light shown on these expenditures by the Indy Star, all of the government entities involved resorted to the “O.D.D.I.” ( The Other Dude Did It) defense to avoid to deny responsibility for what appears to be almost the complete lack of oversight of tax payer funds when it came to Carbon Motors.  Connersville claimed that oversight was supposed to happen at the state level.  The IEDC claimed that officials in Connersville made final approval for payments. In the end, $7 million dollars was flushed down the Carbon Motors rathole and the government entities involved don’t appear to be terribly embarrassed about it. As Connersville Mayor Leonard Urban was quoted by the Indianapolis Star: “That was gambling money and this was a gamble.”

But that’s the government and the government can almost always be expected to make crap economic decisions based on politics and nepotism instead of common sense regardless of which political party is in charge at the time. What about Carbon Motors practices in general? How shady was the private half of this public- private partnership?

In order to examine that I’m going to focus on one piece of the entire Carbon Motors saga, one single claim that I always suspected to be a pretty naked falsehood: the number of “orders” for a prototype police car that Carbon claimed to have received.

By 2009 it was being reported that Carbon was claiming that they had received 10,000 pre- orders for a car that they hadn’t even officially priced yet.  By the end of 2012 they claimed to have had over 24,000 orders for the E7 and announced that they would be taking orders for their proposed police supertruck called the TX7.  Anyone with even a passing knowledge of how government budgeting works knows that couldn’t possibly have been true. State and local governments, Carbon’s customer base, decide year to year how many police cars they are going to buy and then place the orders for a specific number of cars. They have to have the money, either in actual revenue or in the proceeds from bond sales, in hand when they place the order. The idea that government entities were actually committing tax payer dollars to a car that didn’t exist is ridiculous.

And, in fairness to Carbon, if you carefully peruse their materials and press releases at the time, they spoke only of “reservations” in printed materials. Agencies weren’t ordering cars. They were filling out an on-line form on Carbon’s website that really only expressed interest in the concept. There was no actual commitment to buy. There was no real way to know if the person filling out the form, allegedly for a law enforcement agency, really had any authority to make purchasing decisions anyway.

The problem is that the mainstream and automotive press called these “reservations,” which they really weren’t, “orders,” which implied to the casual reader that money was actually being put down and agencies were actually expecting to receive cars.  I can find no record of Carbon Motors trying to correct this perception.

So, like the behind the scenes machinations by government officials to land the plant and ditch the rulebook governing the disbursement of taxpayer dollars to Carbon’s benefit, is Carbon Motor’s failure to correct a misperception that benefitted them proof of illegal behavior? Not really. It raises the question of ethics.

In the wake of Carbon’s demise residents of Connersville took to the local internet gossip site Topix.com, which has become the 21st century version of a party- line telephone to many rural communities, to vent about  both Carbon officials and their local potentates. Reading through the threads, it’s hard to tell who they despise more: Carbon CEO William Santana Li or Mayor Leonard Urban. Rumors swirl and accusations fly, but proof of any actual wrong doing will be hard to come by.  Perhaps the bankruptcy proceedings, as well as a lawsuit filed by three former Carbon VPs, will provide definitive answers somewhere down the line.

 

 

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15 Comments on “Cop Won’t Drive Cop Car Part 2: So, Hoosier Daddy, Carbon Motors?...”


  • avatar
    Halftruth

    Life is grand when playing with OPMs (Other People’s Money). Didn’t Curt Schilling take the state of RI for 100 million for some video game company he opened up there? If the states are all supposedly “broke”, then why all of this excess? Sumting vewy wong.

    • 0 avatar
      Lorenzo

      RI issued “moral obligation” bonds on behalf of Schilling’s company, though the governor say’s he’ll pay off the bondholders $75 million, not $100 million. Schilling lost the $50 million he put into the company, lost his collection of gold coins, his 25 acre farm in Massachusetts and auctioned off his famous bloody sock. The termed out previous governor thought it would help bring jobs at a bad time, and it did, until the company folded. The difference in odds of success between Schilling’s gaming company and Carbon Motors was the difference between slim and none.

  • avatar
    -Nate

    OUCH .

    Thank you for this message .

    -Nate

  • avatar
    optixtruf

    Living in Indiana and working for a large automotive company myself, it’s interesting to see how little of this is really covered by the local news channels, I’ve really only seen maybe one story on it so far. Sad story for the residents of Connersville; it seems like there’s so much industrial manufacturing in this state that these kinds of gov’t involvement and corruption are probably very common place and business as usual down here.

  • avatar
    graham

    Although the anticipated 1500 jobs obviously never materialized, there was still at least a very substantial amount of money invested in the local economy during a recessionary period. Even excluding executive salaries and travel expenses, the impact of that economic activity shouldn’t be glossed over.

    • 0 avatar
      danio3834

      The idea of making these tax backed investments would be to recoup the money through perpetual income created by the 1500 jobs. So they pissed millions into a venture that evaporated, recouping pennies on the money infused. This is a loss for the tax payers, and a big one at that.

  • avatar
    danio3834

    Another successul Keynesian business venture.

    • 0 avatar
      olddavid

      You mean like pulling the world out of the depression of 1929-1940? I live in an area where I am always seeing some CCC project or driving on a WPA bridge or highway. The Adam Smith – J.M. Keynes arguments will undoubtedly outlive us, but it seems that governmental stimulus will end up the default response for the ills of the socialized corporatism we have had foisted upon us by the massive failures of interconnected banking and trading. No one can really argue while looking at Europe and Japan that naked austerity is the answer, can they? Could America live with deflation and 20% unemployment? As an aside, thanks for the reminder of the excellence of Colin Blunstone, Rod Argent and Russ Ballard.

  • avatar
    Conslaw

    For those of you who don’t want to spend 30 minutes reading the in-depth Indianapolis Star article, here it is in a nutshell: The citizens of Connersville planted the most sincere pumpkin patch, and waited for the Great Pumpkin, but the Great Pumpkin didn’t show up. Because of this, they missed out on tricks or treats.

    • 0 avatar
      Detroit-Iron

      Linus: You don’t believe the story of the Great Pumpkin? I thought little girls always believed everything that was told to them. I thought little girls were innocent and trusting.

      Sally Brown: Welcome to the 20th century!

  • avatar
    CoolCreek

    I live in Indy and it was an obvious play for Obama money and for state money and in this case, city/county money. The political goal of being GREEN works for those able to spend the govt green money, but the businesses rarely materialize. Banks aren’t loaning the money, they’d want a business plan and require collateral.

    The carbon concept failed for many reasons, and one is when local governments voted with their money and didn’t purchase these police cars.

  • avatar
    Petra

    What’s up with all those “” symbols and stuff? I enjoyed the article thoroughly, but it was painful to read because of all that stuff.

  • avatar
    CoolCreek

    Hoosiers are so gullible.
    Today Mr Dannar, from Dannar LLC, announces he’s moving the headquarters to Muncie, IN of a mobile powerstation for ” alternatively powered heavy equipment for the governmental sector” Huh?

    The company does not have a website and has a blank Facebook page, but “A performance-based incentive package that includes a $150,000 low-interest loan, free rent for three years, and $500,000 in improvements at the Business Center facility is under consideration by the Delaware County Redevelopment Commission.” I doubt Mr. Dannar sells his out-of-state home. Take our money and run, and remember to tell your friends.

    From Indiana Business: http://www.insideindianabusiness.com/newsitem.asp?ID=59986


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