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Fisker and Tesla attack apparent inaccuracies in the Republican candidate's op ed

U.S. Presidential hopeful Mitt Romney continues to make few friends in the American auto industry on Tuesday.  In the wake of the scandal surrounding the Obama administration's half-billion-dollar loan to failed solar company Solyndra, Mr. Romney seized the opportunity to attack the billion dollars in loans [1][2] given to Tesla Motor Comp. (TSLA) and Fisker Automotive, Inc. in an opinion editorial in the OC Register.

I. Romney Accuses Obama and DOE of Cronyism

In the piece Mr. Romney writes:

Alas, like Solyndra, these loans are turning out to be historic opportunities to line the pockets of major campaign fundraisers. Fisker investors, including Al Gore himself, have donated more than $1 million to political campaigns – primarily Democrats. Tesla, for its part, has financial backing from a fundraiser who bundled hundreds of thousands of dollars for the President's campaign; Tesla's CEO is also a major Democratic donor who has poured money into Obama's campaign coffers.

Tesla's next vehicle is expected to list for $57,400. Fisker's car, already a year behind schedule, will cost $97,000. "We have a history of losses and we expect significant increases in our costs and expenses to result in continuing losses for at least the foreseeable future," says Tesla's most recent quarterly filing.

And neither firm has created many jobs. So far, approximately 100 workers are employed by Fisker in Wilmington, Del., while an additional 500 are actually assembling the cars in Finland. Tesla's record is only slightly better. Even these few jobs may be illusory: studies of Europe's green job experiments have found that each new green job destroys several other jobs elsewhere in the economy.

The former Amway Corp. executive and governor of Massachussetts has called for a probe examining the green loans and possible preferential treatment given to firms which were backed by investors (including Al Gore, a Fisker investor) who had funded President Obama's 2008 victory and his pending 2012 reelection bid.  He points to a report by the Government Accountability Office that complained that the government "treated applicants inconsistently, favoring some and disadvantaging others."  Indeed some firms have leveled similar complaints against the administration in the past.

Mitt Romney
Mitt Romney, 2012 Republican presidential candidate [Source: AP]

He adds, "But there are larger lessons from this sorry story. First, the U.S. government shouldn't be playing venture capitalist. It's not merely that government bureaucrats are bad at picking winners. The very process invites cronyism and outright corruption."

II. Romney Has Long Attacked Bailout of GM and Chrysler

Tesla and Fisker weren't the only auto companies to face the wrath of the former Amway chief.  In 2008, Mitt Romney blasted the decision of outgoing Republican President George W. Bush to give bailouts to U.S. automakers, and leveled even more pointed criticism at the bailout plans by the [then] new Democratic President Barack Obama.

He prophesied doom for General Motors (GM) Chrysler Group LLC in an editorial entitled "Let Detroit Go Bankrupt", which ran in The New York Times

Let Detroit Go Bankrupt

In the piece he wrote:

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

Mr. Romney earns credit for sticking to guns.  Despite Chrysler and GM, both recovering and posting profits [1][2] for the first time in years, earning high quality marks in recent surveys, and repaying some of their government debts (albeit leaving the government with multi-billion dollar shortfalls), Mr. Romney was unenthusiastic about the results.

In June he commented:

Ultimately the car companies did go through a managed bankruptcy and they shed some of the excess debt, some of the excess burdens of their distribution system and some of the excess costs that had been imposed by the UAW over the years and so I'm pleased that process was carried out.

It would have been best not to have had the president and government put their hands on the bankruptcy process ... Bailouts are not the answer.

When you have a government spending massively more than it takes in as President Obama's government has done, you say to anybody thinking of investing in America, whether an entrepreneur or a country, that they don't know what the future is going to be for the value of that currency.

Interestingly, much of Mr. Romney's family fortune came thanks to American Motor Company, where his father George Romney was briefly chief.  The senior Romney also made a run at the White House, though it proved unsuccesful.  Chrysler bought up the remains of American Motor Company after its slow death in the 1980s.  The Jeep brand is a continuation of AMC's popular crossover lineup from the 1970s (rebranded from its original "Medallion" brand name).

Tesla and Fisker were understandably irrate about the op-ed.

III. Tesla, Fisker, and DOE Chastise Romney for Inaccuracies

In an interview with The Detroit News, Tesla spokesperson Ricardo Reyes commented, "[It is] unfortunate that Gov. Romney is using Tesla as a political tool and he's wrong. We're creating American jobs."

And he says that Tesla is a publicly traded company, remarking, "We're not hiding anything."

Tesla has long been on the defensive about its history of loans and losses.  Tesla points out that it's attempting to do something historic -- become the first new major publicly owned American auto manufacturer in the last century.  In order to finance the development of an mid-level luxury priced electric vehicle, suitable for a broader market that its original $109K USD EV sportscar, Tesla has had to go deeply into debt.  Tesla's Model S will hit the market next year.

Model S
Tesla's Model S (front) races past the Tesla Roadster [Source: Tesla]

Fisker likewise took issue with Mr. Romney's remarks.  Fisker spokesman Roger Ormisher said Mr. Romney's numbers were inaccurate -- that Fisker already has created 700 U.S. jobs, not 100.  He adds, "There is no link between Fisker Automotive and any political party. We are politically neutral - our focus is on building luxury electric vehicles.  We don't want to get in the middle of a political debate.  We are an American car company."

Fisker is perhaps in a worse position than Tesla, in that it is only now delivering its first product, the Fisker Karma EV sportscar, after numerous delays.  The large EV has also received criticism for getting relatively poor gas mileage, though some have aptly pointed out that this is due to its large size similar large-frame EVs or hybrid sports cars get similarly poor gas mileage.

Like Tesla, Fisker is currently cooking up a mass market vehicle.  It will start production of the mass market "Nina" in its new plant in Delaware in 2013.

Fisker says that Mr. Romney mistakenly believed that the loan money was being employed to build the Fisker Karma, which is build mostly in Finland.  This is incorrect they say.  The loan money is being used to finance the plant to build the U.S.-made Nina.

The U.S. Department of Energy also defended the loans.  Spokesman Dan Leistikow says the $25B USD loaned to the U.S. auto industry is "helping America compete for and win the auto manufacturing jobs of the future."  He writes:

Two years ago, critics said we shouldn't be investing in American auto manufacturing because the industry wouldn't survive.  They were wrong then and they're wrong today. From well-established names like Ford to innovative startups like Tesla and Fisker, America's auto industry is being reinvented, and the Department's loan program is helping play an important role.

Fisker's production schedule was delayed by regulatory issues that were outside of its control, but the company has successfully raised more than $650 million in private sector investment to support its ongoing operations since closing its DOE loan.  While the vehicles themselves are being assembled in Fisker's existing overseas facility, the department's funding was only used for the U.S. operations. The money could not be, and was not, spent on overseas operations.

IV. Romney Embraced Campaign Contributions From Bailout Banks

Despite the apparent factual inaccuracies in his commentary, Mr. Romney raises some good points about cronyism's role in federal politics and whether $1B USD in loans is worth it to create a few hundred "green jobs".

Unfortunately, his commentary also has two substantial flaws, factual inaccuracies aside.

First, it ignores the fact that developing electric vehicles is somewhat of a national security issue for the U.S. as it allows America to remove itself from foreign oil, which tends to come from volatile, hostile regions like the Middle East and Venezuela.  Once EVs gain a signficant minority market share, the U.S. should be able to cut ties with these suppliers and solely rely on safer foreign oil sources like Canada.

Second, Mr. Romney's commentary is somewhat ironic given his own ties to firms that received bailout money.  Mr. Romney has kept relatively quiet about the bank bailouts, perhaps because he has accepted large contributions from many of the banks that found themselves on the government's payroll.

DailyTech uncovered a report on OpenSecrets, which shows many "bailout banks" such as JP Morgan Chase & Comp. (JPM), Bank of America Corp. (BAC), and Goldman Sachs Group, Inc. (GS) gave generous contributions to Mr. Romney's campaign.

In fact Mr. Romney's list of top corporate donors reads like a "who's who" of bailout banks.  Four of his top ten contributors, and seven of his top twenty corporate contributors were bailed out banks.

No banker left behind
Mr. Romney's campaign contributions list is a veritable who's who of bailout banks
[Source: Technorati]

Either Mr. Romney is oblivious to where his campaign money is coming from, or his stand against the automotive bailouts is simply political rhetoric.  Given that the bank bailout was much bigger and did not save American manufacturing, but rather negated the losses of big investors who made risky investments, this position should be examined carefully.

Sources: OC Register, The New York Times, Reuters, Open Secrets





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