With this week’s announcement that battery manufacturer A123 has filed for Chapter 11, we have another example of a failed government industrial policy boondoggle. First, Solyndra, then FiskerMotors, and now A123. Of course, other green companies who fed at the public trough have gone under as well but this 3 have received the most attention from the Obama Administration.
In 2009, the President declared that the government would create an “infrastructure of innovation” from its investment of over $2 billion in grants to develop the next generation of cars and trucks and the advanced batteries to power them. Michigan’s Senator Carl Levin in supporting high tech pork went so far as to claim, “industrial policy was the kiss of death for any proposal. That’s an ideological hang-up we’ve now overcome.”
In playing venture capitalist, DOE provided A123 a $249 million grant and the following year, it provided a $529 million loan to develop a plug in hybrid that would be powered a A123 batteries. Fisker has been plagued by problems involving reliability and fires. Its vehicles were rated by Consumer Reports as the worst it has ever rated. According to one assessment, it barely gets 20 mpg, not the 52 that is advertised. The company is barely staying afloat and now A123,the company that was to provide its batterie, has filed for bankruptcy. Johnson Controls a company with over $1 billion in net revenue will take over A123 and finance its bankruptcy proceeding.
Battery technology is a long way from being commercially viable, perhaps more than a decade. The cost per kwh is three times as high as it needs to be to be commercially competitive. So, why does the government continue to waste tax dollars forcing technology? Ideology and a failure to understand how the market works. The recipients of federal money are not so ignorant. They get the dough and the government holds the risk. And, when the green dreams turn into nightmares, they even find ways to further enrich themselves.
The poster child of technology forcing, Solyndra still has not gone away. According to the Wall Street Journal–October 16–”Solyndra’s investors could be rewarded for their failure thanks to a tax benefit that the Administration handed out in a bid to evade political accountability.”
Solyndra sold off its assets but kept over $800 million in losses which the IRS calls “tax attributes”. In its reorganization plan, which the IRS claims is a tax avoidance scheme, a holding company would be formed with no employees, only the tax attributes or as they are thought of tax offsets. By merging the holding company with a profitable business, the combined company can use those offsets to reduce its taxes. The super rich get richer!
If the bankruptcy court doesn’t prevent this sham reorganization will Johnson Controls use the same approach to use A123s losses to reduce its taxes and will Fisker do the same thing when it can no longer survive? Probably yes.
If Crony Capitalism remains alive and well, it will do more than find ways to skim off more tax dollars. It will further erode citizen confidence in our tax system and the fairness of government. In such a world, the demand for more entitlements can only grow. Italy and Greece are but two examples of what the future could look like if the we don’t put an end to crony capitalism.