(Reuters) - Taxpayer-backed funds kept flowing to electric carmaker Fisker Automotive months after the company failed to meet key production benchmarks, lawmakers said at a congressional hearing on Wednesday.
Republican lawmakers on the House Oversight Committee cited Department of Energy documents as showing Fisker got $32 million in payments, even after it failed to launch its Karma vehicle in February of 2011.
They spent hours quizzing current and former Fisker executives and an Energy Department official over what the lawmakers termed the government’s “bad bet” on the fledgling luxury car-maker, and questioned whether the company received special treatment that put taxpayer dollars at risk.
The committee hearing focused on the DOE’s decision in 2009 to grant the company a $529 million loan only to see it veer toward bankruptcy - a chain of events with echoes of Solyndra, the government-backed solar manufacturer that went out of business in 2011.
“The government is a very poor venture capitalist,” said Patrick McHenry, a Republican from North Carolina.
Fisker’s troubles are the latest in a string of green automotive technology flops, including last year’s bankruptcy of its lithium-ion battery supplier, A123 Systems. Forecasts in 2009 for sales of hybrid and electric vehicles far outstripped subsequent demand.
Henrik Fisker, founder and former CEO, said the company, which has not built a vehicle since July, can still bounce back and repay nearly $200 million in government loans if is able to find the right “financial and strategic resources.”
Testifying about his eponymous company, the Danish-born Fisker, who was forced to resign as chairman in March, blamed problems with its parts suppliers, delays in regulatory approval and recalls of its flagship Karma plug-in hybrid sports car for the company’s struggles.
The automaker verges on collapse. Among the questions still outstanding is whether Fisker’s prospects were ever strong enough to warrant the DOE’s backing, which helped trigger a flood of private financing for Fisker.
“After resolving initial launch challenges, the cars perform well and customers love them,” Fisker asserted.
Fisker’s failure to make a payment on the DOE loan on Monday was the latest of its troubles. In recent weeks, Fisker has fired 75 percent of its workforce and hired bankruptcy advisers.
“The Obama Administration owes the American taxpayer an explanation as to why this bad loan was made in the first place, and what they are going to do to minimize the loss that taxpayers face,” said Ohio Republican Jim Jordan, chairman of the subcommittee holding Wednesday’s hearing.
The DOE’s early backing helped put Fisker, and its $100,000-plus Karma plug-in hybrid sports car, on the map. With government backing in hand, Fisker has gone on to raise $1.2 billion in private funds to date, according to SEC filings.
The 2009 loan signaled that the DOE had done a rigorous review of the project, said Salo Zelermyer, a senior counsel at the DOE under the Bush administration, who also helped create the auto loan program. The loan program was funded in late 2008.
“It’s fair to say the projects the DOE chose to proceed with were clearly given an added credibility with folks on the outside,” said Zelermyer, now a senior counsel at Bracewell and Giuliani in Washington.
Fisker tapped $192 million of its $529 million before the DOE quietly decided to freeze Fisker’s credit line in June 2011.
Neither the DOE nor Fisker publicly disclosed that decision until early 2012. Lawyers and a DOE official said the department was not obligated to divulge the decision.
In the confidential “information statement” sent to shareholders in December 2011 and obtained by Reuters, Fisker said it “will not meet certain financial covenants and project milestones” required in the DOE agreement, including earnings, net worth and certain financial ratio targets.
Lawmakers raised questions about the relationship between the DOE and Fisker, which has been strained in recent months, people familiar with the matter have said.
Republicans said Fisker received loans despite its junk bond rating and unproven track record.
The terms of Fisker’s pact with the DOE were enough to put off potential suitors, including Chinese automaker Geely Automobile Holdings Ltd. The conditions included an obligation to restore capacity and jobs at the company’s Delaware plant according to a schedule imposed by the U.S. government.
Energy Department officials defended the auto loan program, saying it helped to bring the industry from the brink of collapse during a severe economic downturn. Mainstream carmakers like GM and Chrysler were key beneficiaries, and their revival has been widely acclaimed.
Nicholas Whitcombe, former head of the auto loan program, said the DOE remains open to providing additional aid to the auto industry.
Since the high profile failure of Solyndra, a topic brought up regularly by Republicans during President Barack Obama’s 2012 re-election campaign, the Obama administration has become far more risk averse when doling out loan payments.
Solyndra, the first loan recipient and first major failure for the department’s portfolio, received more than $527 million of its $535 million loan before filing for bankruptcy.
Reporting by Deepa Seetharaman and Paul Lienert in Detroit, Ayesha Rascoe in Washington and Nichola Groom in Los Angeles; Editing by Ros Krasny, Matthew Lewis, Leslie Gevirtz and Tim Dobbyn