Why The Government Should Have Stayed Away From Fisker And Tesla

Edward Niedermeyer
by Edward Niedermeyer

The Detroit News reports that the White House has ordered a review of the Department of Energy’s various loan programs in the wake of the Solyndra scandal, noting

White House Chief of Staff William Daley ordered an independent analysis on the state of the Department of Energy’s loan portfolio — including loans to solar, nuclear and auto companies.

“The president is committed to investing in clean energy because he understands that the jobs developing and manufacturing these technologies will either be created here or in other countries,” Daley said.

One of those programs is the so-called “Advanced Technology Vehicle Manufacturing” loan program, which was nearly used to fund the Detroit bailout and has since come under fire from various quarters. Twice already the Government Accountability Office has questioned the ATVM loan program for its lax oversight, weak goals, lack of technical support, inconsistency in awarding loans and the undetermined impact of funded vehicles. And those internal issues could help explain why the Center For Public Integrity has accused the ATVM program of operating a patronage scheme, alleging that major Obama donor and Tesla board member Steve Westly personally benefitted from loans made to the company. And on the Fisker side of things, backer John Doerr of the VC firm KleinerPerkins is another major Obama donor, suggesting a pattern of politically-motivated loan awards to well-connected EV firms that carry high risks. With government intervention in the auto industry still a hot-button issue in the wake of the bailout, this scandal has huge implications for the legitimacy of America’s emerging “industrial policy.”

Meanwhile the real victim here could be Chrysler, which desperately needs to develop vehicles with higher fuel efficiency and yet has not received any loans that it applied for in the pre-bailout period. Not only could this put Chrysler’s finances under pressure, but it also shows a distinct lack of focus or strategy in the White House’s industrial policy. The bailout era was rife with justifications of the rescue of GM and Chrysler on the basis that the firms would build a new generation of green vehicles. And yet GM has withdrawn from the loan program, and Chrysler is being strung along… while both (but Chrysler in particular) struggle to bring up their average fuel economy which are two of the lowest in the industry. Having rescued these two firms, why would the government choose to send available loans to firms like Tesla and Fisker, which are aiming for the luxury segments and thus have less chance of creating significant impacts on both jobs and the US’s status as a green economy leader? The answer may prove to be found in the relationships between Fisker and Tesla’s well-connected backers.

The fact that Fisker is building its first car in Finland has dominated the political outrage over the ATVM loan program, but the real issue is the opportunity cost. If there is proof that Fisker and Tesla received loans because of political donations made by their backers, it will have diverted money from more effective opportunities, proving that government intervention in the economy is fundamentally fraught with inefficiency. Though Republicans and others have purely political motivations for trying to give the Obama Administration grief ahead of an election, there is a real principle at stake here. If the government is going to play a role in guiding industry towards more sustainable strategies, it needs to take the utmost care to optimize that aid in terms of both market and jobs impacts. The nature of the auto industry is such that start-ups face incredible challenges, and as luxury manufacturers, Tesla and Fisker will neither sell many cars nor employ many Americans. The resources, experience and infrastructure already in place at major manufacturers make them the logical place to invest “green” loans… especially because the bailout did not, in fact, prepare them especially well to compete in the green car space.

Ultimately, governments need to face a fundamental choice: either allow the market to drive innovation at the risk of losing jobs to other countries, or intervene with programs like this one on a purely utilitarian basis. There is some evidence that government incentives for future technology development can help lumbering auto firms prepare for unexpected energy shocks in ways that the market might not always be able to do, with its relatively short-term incentives. But if there’s not a utilitarian strategy underpinning these government interventions, the effort will inevitably fall victim to political patronage, and all of the inefficiency (not to mention blowback against all forms of government intervention in the economy) that comes with it. By giving hefty loans to two unproven but well-connected startups, the Obama Administration has run the risk of fostering a backlash against all forms of green incentives… and the result could be merciless market pressure on lagging firms like Chrysler should another oil price spike come. In that scenario, Chrysler could find itself in serious trouble again, and be forced back to Washington for its third bailout… further driving the inefficiencies of the apparently politically-motivated loans to Fisker and Tesla.

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  • GS650G GS650G on Oct 31, 2011

    Let the Italians bail out Chrysler, after all it's theirs now. And the UAW can help, it's theirs too.

  • Ayebaybay Ayebaybay on Oct 31, 2011

    No bank, auto company, or any other business entity has the right to collect money from the government when lacking funds. There may be a certain element of nobility in government intervention of green enterprises, but as recent events have showed, it is best that the private sector handles these issues- assuming they aren't bailed out if things go awry. What incentive does the government have, especially if they're not held accountable? None. They can always claim they need more time, they're making progress, etc. But with whose money? The private sector- if in a purely capitalist society- is much more well equipped because its lively hood depends on it. And you know what, as long as there are winners there will be losers. But that doesn't necessarily mean that those losers can't become successful without bailout money, they'll just have to think of a new idea.

    • See 1 previous
    • Ayebaybay Ayebaybay on Nov 02, 2011

      @dolorean Greed is a constant across all political platforms. Companies who take government money to do their biding (GE) are as greedy as some claim Wall St. bankers to be. It would be convenient to separate greed for "good causes" vs. greed for one's bank account, but greed is really just greed...There are laws against monopolies, price fixing etc, but I don't see any repercussions for those involved in the Solyndra debacle. If it were left to the market, Solyndra would go out of business and someone else with "greed" would step up to the plate and engineer a green company. Government does not win or lose with the success or failure of a company, people do.

  • ToolGuy CXXVIII comments?!?
  • ToolGuy I did truck things with my truck this past week, twenty-odd miles from home (farther than usual). Recall that the interior bed space of my (modified) truck is 98" x 74". On the ride home yesterday the bed carried a 20 foot extension ladder (10 feet long, flagged 14 inches past the rear bumper), two other ladders, a smallish air compressor, a largish shop vac, three large bins, some materials, some scrap, and a slew of tool cases/bags. It was pretty full, is what I'm saying.The range of the Cybertruck would have been just fine. Nothing I carried had any substantial weight to it, in truck terms. The frunk would have been extremely useful (lock the tool cases there, out of the way of the Bed Stuff, away from prying eyes and grasping fingers -- you say I can charge my cordless tools there? bonus). Stainless steel plus no paint is a plus.Apparently the Cybertruck bed will be 78" long (but over 96" with the tailgate folded down) and 60-65" wide. And then Tesla promises "100 cubic feet of exterior, lockable storage — including the under-bed, frunk and sail pillars." Underbed storage requires the bed to be clear of other stuff, but bottom line everything would have fit, especially when we consider the second row of seats (tools and some materials out of the weather).Some days I was hauling mostly air on one leg of the trip. There were several store runs involved, some for 8-foot stock. One day I bummed a ride in a Roush Mustang. Three separate times other drivers tried to run into my truck (stainless steel panels, yes please). The fuel savings would be large enough for me to notice and to care.TL;DR: This truck would work for me, as a truck. Sample size = 1.
  • Art Vandelay Dodge should bring this back. They could sell it as the classic classic classic model
  • Surferjoe Still have a 2013 RDX, naturally aspirated V6, just can't get behind a 4 banger turbo.Also gloriously absent, ESS, lane departure warnings, etc.
  • ToolGuy Is it a genuine Top Hand? Oh, I forgot, I don't care. 🙂