U.S. lawmakers grilled top officials from Fisker Automotive Inc on Wednesday over what was termed "the U.S. Department of Energy's bad bet" when it backed the "green" car-maker with hundreds of millions of dollars in loans.
A House Oversight and Government Reform 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.
Fisker's troubles come after a string of green 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.
The company has not built a vehicle since July, but has the potential to bounce back and repay nearly $200 million in government loans if is able to find the right "financial and strategic resources," according to former CEO Henrik Fisker.
In prepared testimony 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 is whether Fisker's prospects were strong enough at the start 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 is 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.
Fisker founded the company in 2007 and abruptly resigned as executive chairman in March. "While the company retains my name, we are not one and the same," Fisker will say, according to his testimony.
Nicholas Whitcombe, supervisory senior investment officer for the DOE loan program and Fisker co-founder Bernhard Koehler are also expected to testify.
DOE BACKING BOOSTED FISKER
The DOE's early backing helped open doors for Fisker, which sells the $100,000-plus Karma plug-in hybrid sports car. Fisker has raised $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 never received the full $529 million loan. It tapped $192 million before the DOE quietly decided to freeze Fisker's credit line in June 2011 when it became clear that it would not meet performance milestones as part of the loan agreement.
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 may raise questions about the relationship between the DOE and Fisker, which has been strained in recent months, people familiar with the matter have said.
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.
Officials with Fisker could not be reached for comment.
Energy Department officials plan to defend the auto loan program, saying it helped to bring the industry from the brink of collapse during a severe economic downturn.
Whitcombe, former head of the auto loan program, said in prepared remarks that 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, industry experts and investors say 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, Matt Driskill, Matthew Lewis and Leslie Gevirtz)