[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
GREEN ENERGY OVERSIGHT: EXAMINING THE DEPARTMENT OF ENERGY'S BAD BET ON
FISKER AUTOMOTIVE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH,
JOB CREATION AND REGULATORY AFFAIRS
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
APRIL 24, 2013
__________
Serial No. 113-18
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
----------
U.S. GOVERNMENT PRINTING OFFICE
80-920 PDF WASHINGTON : 2013
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland,
MICHAEL R. TURNER, Ohio Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee MATTHEW A. CARTWRIGHT,
TREY GOWDY, South Carolina Pennsylvania
BLAKE FARENTHOLD, Texas MARK POCAN, Wisconsin
DOC HASTINGS, Washington TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming ROBIN L. KELLY, Illinois
ROB WOODALL, Georgia DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky PETER WELCH, Vermont
DOUG COLLINS, Georgia TONY CARDENAS, California
MARK MEADOWS, North Carolina STEVEN A. HORSFORD, Nevada
KERRY L. BENTIVOLIO, Michigan MICHELLE LUJAN GRISHAM, New Mexico
RON DeSANTIS, Florida VACANCY
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Economic Growth, Job Creation and Regulatory Affairs
JIM JORDAN, Ohio, Chairman
JOHN DUNCAN, Tennessee MATTHEW A. CARTWRIGHT,
PATRICK T. McHENRY, North Carolina Pennsylvania, Ranking Minority
PAUL GOSAR, Arizona Member
PATRICK MEEHAN, Pennsylvania TAMMY DUCKWORTH, Illinois
SCOTT DesJARLAIS, Tennessee GERALD E. CONNOLLY, Virginia
DOC HASTINGS, Washington MARK POCAN, Wisconsin
CYNTHIA LUMMIS, Wyoming DANNY K. DAVIS, Illinois
DOUG COLLINS, Georgia STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina
KERRY BENTIVOLIO, Michigan
RON DeSantis Florida
C O N T E N T S
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Page
Hearing held on April 24, 2013................................... 1
WITNESSES
Mr. Nicholas Whitcombe, Supervisory Senior Investment Officer,
LPO, Department of Energy
Oral Statement............................................... 9
Written Statement............................................ 11
Mr. Henrik Fisker, Former Executive Chairman, Fisker Automotive
Oral Statement............................................... 15
Written Statement............................................ 17
Mr. Bernhard Koehler, Chief Operating Officer, Fisker Automotive
Oral Statement............................................... 23
Written Statement............................................ 25
Mr. Zoe Lipman, Independent Consultant
Oral Statement............................................... 69
Written Statement............................................ 72
Mr. Nicolas Loris, Herbert and Joyce Morgan Fellow, The Heritage
Foundation
Oral Statement............................................... 76
Written Statement............................................ 78
APPENDIX
Letter of Response from Kirkland & Ellis LLP..................... 90
GREEN ENERGY OVERSIGHT: EXAMINING THE DEPARTMENT OF ENERGY'S BAD BET ON
FISKER AUTOMOTIVE
----------
Wednesday, April 24, 2013,
House of Representatives,
Subcommittee on Economic Growth, Job Creation &
Regulatory Affairs,
Committee on Oversight and Government Reform,
Washington, D.C.
The subcommittee met, pursuant to call, at 9:35 a.m., in
Room 2154, Rayburn House Office Building, Hon. Jim Jordan
[chairman of the subcommittee] presiding.
Present: Representatives Jordan, DeSantis, McHenry, Lummis,
Collins, Meadows, Issa, Cartwright, Connolly and Cummings.
Staff Present: Ali Ahmad, Majority Communications Advisor;
Kurt Bardella, Majority Senior Policy Advisor; Molly Boyl,
Majority Parliamentarian; Lawrence J. Brady, Majority Staff
Director; Joseph A. Brazauskas, Majority Counsel; Daniel
Bucheli, Majority Assistant Clerk; Sharon Casey, Majority
Senior Assistant Clerk; Drew Colliatie, Majority Professional
Staff Member; John Cuaderes, Majority Deputy Staff Director;
Adam P. Fromm, Majority Director of Member Services and
Committee Operations; Linda Good, Majority Chief Clerk; Tyler
Grimm, Majority Professional Staff Member; Peter Haller,
Majority Senior Counsel; Ryan M. Hambleton, Majority
Professional Staff Member; Frederick Hill, Majority Director of
Communications and Senior Policy Advisor; Christopher Hixon,
Majority Deputy Chief Counsel, Oversight; Mitchell S. Kominsky,
Majority Counsel; Justin LoFranco, Majority Digital Director;
Mark D. Marin, Majority Director of Oversight; Mary Pritschau,
Majority Professional Staff Member; Laura L. Rush, Majority
Deputy Chief Clerk; Scott Schmidt, Majority Deputy Director of
Digital Strategy; Rebecca Watkins, Majority Deputy Director of
Communications; Jeff Wease, Majority Deputy Chief Information
Officer; Jaron Bourke, Minority Director of Administration;
Jennifer Hoffman, Minority Press Secretary; Chris Knauer,
Minority Senior Investigator; Adam Koshkin, Minority Research
Assistant; Brian Quinn, Minority Counsel; Dave Rapallo,
Minority Staff Director; Rory Sheehan, Minority New Media Press
Secretary; Donald Sherman, Minority Counsel.
Mr. Jordan. The committee will come to order.
We are going to start with a short video that we think sort
of sets some context. My friends on the Democrat aisle may
think otherwise, but we think this is important, particularly
when you think about the fact that several hundred million of
taxpayer dollars were lost. So we are going to show that, then
we will get to opening statements.
As I indicated to our witnesses before the committee was
gaveled into order, we may have to break for votes here in the
next 20, 30 minutes. If we do, we will take a short recess,
then we will come back.
So we will start with the video. Then each side has several
opening statements and then we will get to your testimony.
If the staff could roll the tape.
[Video shown.]
Mr. Jordan. Today's hearing is about getting to the bottom
of the U.S. Department of Energy's Fisker Automotive loan
fiasco. For over a year the committee has been examining DOE's
loan to Fisker, and the facts that emerged are deeply
troubling. We need to understand why the Department of Energy
thought Fisker was a viable company. As the video points out,
the Vice President bought the Fisker story. Mr. Biden proudly
declared in his home State of Delaware that Fisker would
produce ``billions and billions of dollars worth of jobs.'' The
factory at which Mr. Biden made these remarks alongside Mr.
Fisker never produced a single car, and currently no one works
there.
A couple of things are clear. First and foremost, Fisker
should have never received taxpayer money. It was rated CCC+.
In layman's terms, it was junk grade investment. The company
built cars that cost $100,000. They built them in Finland.
Taxpayers effectively subsidized luxury novelty vehicles for
the likes of Justin Bieber, Leonardo DiCaprio, and Al Gore.
Fisker was not a well thought out startup; it had a fancy
design and big names behind it, but no real business acumen. It
was never destined to be a company of job creators but, rather,
skillful rent seekers. Fisker never oriented itself toward
market signals and consumer demands; its north star was the
political winds of Washington.
In his prepared testimony, Mr. Fisker states he does not
``believe that any improper political influence was used in
connection with the company's loan application or subsequent
negotiations with the Department of Energy.'' But the facts
seem to indicate otherwise.
We know for sure that partners at Kleiner Perkins, a major
stakeholder and backer of Fisker, talked regularly with people
in the Obama Administration and within the Department of
Energy's loan office. Kleiner Partner Ray Lane was chairman of
the board at Fisker and Kleiner General Partner John Doerr
talked regularly with Loan Program Office head Jonathan Silver
and was an outside advisor to President Obama on the
Administration's green energy spending strategy.
Furthermore, the governor of Delaware contacted the
Department of Energy in December of 2011 and asked that the DOE
take prompt action to help Fisker, which the Department of
Energy did that same month by issuing Fisker an accommodating
waiver to forgive the company for missing milestones and
breaching financial covenants.
Documents obtained by the committee show ample evidence
that DOE's actions resulted in needless loss of additional
taxpayer funds. The Department of Energy bent over backwards to
accommodate Fisker at many stages even though the company was
woefully underperforming and, according to documents obtained
by the committee, potentially breaching financial covenants as
early as June of 2010, before DOE disbursed any funds.
The Administration contends the program overall is a
success and that we should ignore failures such as Fisker
because taxpayers haven't lost even more money. This is
entirely misleading and seeks to cover up the fact that the
loan program has been one of the most disastrously mismanaged
and corrupt programs in American history.
Today's hearing does not conclude our investigation into
Fisker's loan; it is just the beginning of fulfilling the
committee's obligation to the American people to get answers
about the malfeasance uncovered at the Department of Energy.
With that, I would yield to the gentleman from Pennsylvania
for his opening statement.
Mr. Cartwright. Thank you, Mr. Chairman. I would like to
thank our witnesses for appearing before the committee today
and welcome the opportunity to hear your testimony on the
Department of Energy's Advanced Technology Vehicles
Manufacturing Loan Guarantee Program.
The ATVM Program was created under President Bush and has
received widespread support from both Democratic and Republican
administrations and members of Congress. The program was
structured to invest in U.S. companies and technologies that
improve the fuel economy of vehicles, promote economic growth
and job creation in the U.S., and protect U.S. taxpayer
dollars.
The ATVM Program provided most of its funds to Ford, which
today markets highly efficient and successful electric and eco
boost engines made in Lima, Ohio and several other U.S.
facilities. The success of the Ford loan was replicated with
the overwhelming majority of funds lent by the Department of
Energy; $1.4 billion went to Nissan North America, which in
2012 reported a record-breaking year in sales, and $465 million
to Tesla, which is on course to repay its loan early. In fact,
98 percent of the loan guarantees awarded in this program
appear on track to be repaid.
Today's hearing seems to ignore these considerable
successes. Instead, we are focusing on a $192 million loan made
to Fisker Automotive. I absolutely believe there should be
congressional oversight of these programs and I look forward to
this discussion, but I would just like to point out the
extensive amount of cherry picking that is going on here today,
and that really has been going on in the oversight of the Loan
Program Office overall. All of the evidence before us indicates
that the Department of Energy protected taxpayers in
implementing the ATVM Program and DOE followed the same
rigorous due diligence procedures in awarding the Fisker loan
as it did in awarding the Tesla loan, the Nissan loan, and the
Ford loan.
Unfortunately, the Fisker loan is clearly not working out.
But Congress, in creating this program, expected that some
loans would not work out as hoped and Congress appropriated
$7.5 billion to cover potential losses in the loan portfolio.
And DOE protected taxpayers once the loans were made. Financial
controls and contractual milestones on the release of funds
were built into every deal to minimize the taxpayer loss on
these loan guarantees. These controls are particularly relevant
as we discuss Fisker, which received a $529 million loan
guarantee, but drew down only $192 million of those funds; $192
out of $529 drawn down. DOE's oversight of Fisker's ability to
meet project milestones led to the decision to cut off Fisker's
access to the loan.
Earlier this week, DOE recovered $21 million from Fisker to
protect against the loss of those taxpayer dollars. In the
event the Government is unable to receive any return on the
Fisker investment, losses would account for just 2 percent of
the $8 billion in loan guarantees awarded in the ATVM.
Now, I suggest that if Congress were not such a
dysfunctional, partisan place, this hearing would lend some
perspective on this 2 percent potential loss. In the world
outside the Beltway, anybody who exceeds expectations 98
percent of the time gets an A+. That is what the DOE's
performance has been in this program.
All of the evidence in this committee that we have gathered
leads to the conclusion that the ATVM is working as planned.
DOE implemented the ATVM Program and awarded funds only after
rigorous due diligence. Fisker's problems were clearly not
hoped for, but Congress and DOE planned for the potential of
some loans not working out. In fact, ATVM's performance has
exceeded Congress's expectations, and only a portion of the
funds authorized to Fisker are at risk of loss if the company
fails to find a buyer.
While I appreciate the opportunity to hear the testimony of
the witnesses today, I think the majority reveals a substantial
partisan bias here. I note that nobody from Ford, nobody from
Nissan, nobody from Tesla and their successful programs was
called here to testify. The majority apparently did not want
any contacts, didn't want to acknowledge those successes. That
is really a shame. The American people should be quite proud of
what our ATVM Program has achieved.
I yield back.
Mr. Jordan. I thank the gentleman. I would just point Ford,
Tesla, Nissan ATVM, they haven't lost $200 million of taxpayer
money. That is why they are not here. We have the company here
who has lost $200 million of taxpayer money. And only in
Washington would a $200 million loss of taxpayer money be
viewed as a success. I mean, it boggles the mind, the
statements from the gentleman.
I now yield to the gentleman from the full committee.
Mr. Issa. I thank the gentleman and I thank the chairman
from Ohio and the ranking member from Pennsylvania.
I am currently from California, Mr. Fisker. Welcome. But I
was born and raised in Ohio. I grew up in a car company family.
I worked for General Motors; my father worked for General
Motors. Everyone else worked for TRW. One way or the other,
everybody in our family was in the car business. So I am going
to open up by telling you you know that your place in history
as a body designer is secure. You know the work you have done
in other areas is well known and desirable. Yes, you are going
to be with Preston Tucker for building an innovative car that
didn't last; from a fiscal responsibility the company didn't
make it. You will be with Malcolm Bricklin; you will be with
John DeLorean. That is not necessarily bad company. Quite
frankly, innovative cars have a history of failing.
This program was conceived, as the ranking member said,
under President Bush; voted. It was not a partisan vote; it was
not a partisan program. We have you here today not because you
failed; not because you lost potentially U.S. dollars and other
investors' dollars. We have you here today because we need to
figure out not the successes of a program. We appreciate that
and I think they should be lauded, and the Administration has
done a pretty good job of doing it.
We have you here because there were a number of things that
happened along the way in which DOE had an opportunity to not
give you some of the money that they are now trying to recover.
They had an opportunity in several documents to get the money
back and allow you to be spun off to somebody else. At least
the record indicates that. There were opportunities to not
fail. More importantly, this was an investment in a finished
car from Finland.
That was not something that was envisioned when this was
produced, and most importantly to me as an owner of 37 patents,
when I went through the file and I looked at DOE allowing this
money to go to you while not owning any of the intellectual
property because that is a company not covered by the loan, I
looked and said there were fundamental mistakes that Mitt
Romney, the day he left graduate school, would not have made
that mistake. And that is why you are here. You are not here
for your ambition; you are not here for what went wrong on your
watch, nor your chief operating officer. You are here because
DOE seemingly cannot miss an opportunity to miss an opportunity
in this case. The mistakes are well documented.
And yes, as the chairman said, there is an indication that
one of Mr. Fisker's major investors had extraordinary access to
the White House, and one of the questions is would just anybody
who had never produced a car, who wasn't going to actually
produce a car in the first go-round, be able to get this kind
of money and this kind of underlying guarantee if they didn't
have a politically connected backer. That is a question, it not
an answer. Those are some of the things that the chairman is
looking to find out.
I do reject the ranking member's assertion that somehow
this panel is not fair. It is subject specific and I think it
is appropriate. Every panel that comes before this committee I
look at before, during, and afterwards and say did I get it
right. I do not believe that between the first and second panel
we are going to particularly feel we didn't get it right.
I will mention, once again, that the absence of
transparency by DOE, a consistent pattern of not being open and
transparent, does make it difficult. But the chairman has been
able to get enough documents for us to see a number of failures
and, last but not least, I want people to understand if we are
going to get in the business of investing, are we investing in
everybody? Are we investing specific? Do we have a plan? And I
think that if we are going to have a second hearing, and after
the car makers, if you will, are gone, I think we are going to
have DOE back again and back again, until the lessons learned
are so undeniable that, in fact, we can have a confidence that
you won't miss opportunities to minimize losses, make the best
choices up front, make sure that you are free of political
influence and effect, which you are not, and the emails we have
received show anything but that.
So, yes, we want to have these decisions made by
professionals. We want them made without political
interference. We want them made consistent to a plan. And as
other investigations this committee has done, we want to make
sure there is no gamesmanship of essentially having multiple
loans for the same technology. All of that is part of our
mandate.
So, Mr. Fisker, as I said in the back, this is not a
pleasant experience for anyone to go through, particularly at a
time of a trauma for your own company and so on. We asked you
to be here because we believe your story, your ambition, the
work you did succeed in doing is a perfectly good story of the
automotive business. We are here to look at how Government
allocated resources and risk, and ultimately, whether they are
made whole or not, the missed opportunities that we don't
believe, based on the documents we have looked at, should be
missed. And I hope people on both sides of the panel, I know my
ranking member will speak next, focus on that, focus on the
missed opportunities to get it right up front, or at least to
minimize losses.
I thank the chairman for the extra time and I yield back.
Mr. Jordan. I thank the chairman for his well stated
opening remarks.
I now yield to the gentleman from Maryland.
Mr. Cummings. Thank you very much. I too hope that we get
it right, and I hope that we don't go through a motion,
commotion, emotion exercise and no results. That is what
happens.
Mr. Chairman, I want to thank you for this hearing, and I
thank our witnesses for testifying before the subcommittee
today about the Department of Energy's Advanced Technology
Vehicles Manufacturing Loan Guarantee Program and the Fisker
Automotive.
I hope today's hearing could be a substantive evaluation of
the Department's loan program, but I am concerned that the
Republicans continue to make the false and irresponsible claims
that this program is nothing more than an effort by the Obama
Administration to reward political cronies.
Last year, Republican presidential candidate Mitt Romney
claimed publicly that the Energy Department's loan to Fisker
Automotive was the result of ``crony capitalism.'' He said the
President handed out this loan and others to reward campaign
contributors. After Mr. Romney made this claim, The Washington
Post fact checker gave him four Pinocchios. Not three, not two;
four. That is the most you can get for such a blatantly untrue
statement.
As the Post reported, the business partner mostly closely
associated with Fisker Investment is Ray Lane, who contributed
mostly to Republicans, including Rudolph Giuliani, John McCain,
and George W. Bush, not Barack Obama.
The fact is that after five hearings last Congress, an
exhaustive 18-month investigation, the evidence before the
committee makes clear that the Department's loan guarantees
were awarded not based on political contributions, but on the
Department's unprecedented due diligence. And anyone who
continues to make this discredited claim is ignoring the
evidence.
The evidence before the committee also demonstrates that
the Department's loan portfolio is exceeding the expectations
set by President Bush and Congress when they created this
program in 2008. The Department committed $8.4 billion to five
automated projects across the Country. These included $5.9
billion to Ford Motor Company to upgrade its facilities and
develop hybrid engines in Michigan and Ohio; $1.4 billion to
Nissan to build an advanced battery manufacturing plant and
retool its manufacturing facility in Tennessee; $465 million to
Tesla, which recently announced that it would pay off its loan
five years early; and $50 million to the Vehicle Production
Group to help develop a six passenger wheelchair-accessible
vehicle that will run on compressed natural gas.
Despite these successes, we are here today to discuss
Fisker Automotive, which represents about 2 percent of the
total ATVM portfolio. In April 2010, the Department approved
two loans to Fisker totaling $529 million. In 2011, the
Department capped the loan amount at $192 million after Fisker
failed to meet its contractually required milestones. Earlier
this week the Department required Fisker to return $21 million
of this amount.
There is no evidence that the Department did anything wrong
with this loan; no evidence that the Department employed lesser
due diligence than it did with successful loans to Ford,
Nissan, Tesla, and VPG; no evidence that politics played any
part in the award to Fisker.
Unfortunately, there is evidence that the majority is
disregarding the interest of taxpayers in holding this hearing
today. Both Fisker and the Department raised concerns that the
timing of today's hearing could negatively impact the company's
efforts to obtain financing, avert bankruptcy and preserve the
maximum recovery possible for American taxpayers.
Of course, we are all concerned about the job creators.
I ask unanimous consent to enter into the record the April
17th, 2013 letter from Fisker's counsel expressing the
company's willingness to cooperate with the committee, but
requesting a brief delay. To be sure, the committee has a
legitimate oversight interest in reviewing the Department's
program. I support robust efforts to learn more about these
programs, but I hope that we can do that today in a responsible
way.
Mr. Chairman, I go back and I ask that the letter of April
17th be admitted into the record.
Mr. Jordan. I thank the gentleman for his statement. I
would just point out evidence the Democrat party has all the
same information we have. We think at the conclusion of this
hearing there will be evidence to show why this hearing was
needed and, frankly, why we had the CEO of Fisker here to give
his side of the story as well.
I would also point out the gentleman talked about the loan
programs at the Department of Energy. To date, Solyndra is
bankrupt, Beacon Power is bankrupt, Abound Solar is bankrupt,
A123 Battery is having all kinds of problems, Nevada Geothermal
is having all kinds of problems, Solo Power is having all kinds
of problems, and, of course, the company we have in front of us
today. So to say that this program at the Department of Energy
is just wonderful ignores the facts, ignores the evidence.
With that, I would yield to the gentleman from Florida.
Mr. Cummings. Mr. Chairman, you never answered my question.
I asked you could I have my document admitted into the record.
Mr. Jordan. You certainly can.
Mr. Cummings. Thank you.
Mr. Jordan. Without objection.
Mr. Jordan. The gentleman from Florida.
Mr. DeSantis. Thank you, Mr. Chairman. Thank you for
calling this hearing. I think it is going to be useful to
examine the mistakes made by both Fisker and the Department of
Energy, and to highlight the waste of hundreds of millions of
dollars in taxpayer funds.
But I think these issues also bring up the larger issue of
Government's involvement in betting on handpicked private
companies. I don't think Government, through central planning,
is competent enough to play venture capitalist, especially with
other people's money. The political allocation of capital
undermines free enterprise by favoring cronyism over economic
viability. I don't think crony capitalism is consistent with
the truly free market economy, and I definitely don't think it
is the recipe to get our Country back on track, which is
something we need to do.
So I look forward to the questions. Thank you for providing
all this information for us, I think it has been very
enlightening, and I thank the witnesses for their willingness
to attend the hearing.
Mr. Jordan. I thank the gentleman.
Members have seven days to submit opening statements for
the record.
We will now recognize our first panel. We have, first, Mr.
Nicholas Whitcombe, who is the Supervisory Senior Investment
Officer at the Department of Energy's Loan Program Office. Mr.
Whitcombe, we thank you for being here.
We have Mr. Henrik Fisker, who is the Co-Founder, former
CEO, and former Executive Chairman of Fisker Automotive. We
know you had to travel a long way; we appreciate you being
here, Mr. Fisker.
And Mr. Bernhard Koehler, who is also Co-Founder, former
Chief Operating Officer, and current Chief Executive Officer
for Europe and the Middle East at Fisker Automotive.
We thank all of you for being here. We have to swear you
in, so if you would stand up and raise your right hand.
Do you solemnly swear or affirm that the testimony you are
about to give will be the truth, the whole truth, and nothing
but the truth, so help you God?
[Witnesses respond in the affirmative.]
Mr. Jordan. Let the record show that each of the witnesses
answered in the affirmative.
With that, we will move five minutes each. You get a
lighting system that should be right in front of you. Make sure
you turn your mic on, pull it close. You get five minutes, more
or less, but try to keep it to five if you can. Hopefully we
will get through all three and then we may have to, as I said
before, break for votes and then come back for questions.
Mr. Whitcombe?
WITNESS STATEMENTS
STATEMENT OF NICHOLAS WHITCOMBE
Mr. Whitcombe. Chairman Issa, Chairman Jordan, Ranking
Member Cummings, Ranking Member Cartwright, members of the
committee, thank you for the opportunity to testify before you
today. My name is Nicholas Whitcombe, and until recently I
served as the Acting Director of the Department of Energy's
Advanced Technology Vehicle Manufacturing Program. This was
during 2012. I currently serve as a Supervisory Senior
Investment Officer in the Loan Program Office, of which the
ATVM is a part. I have been with the Department since 2009 and
have over 20 years of commercial and lending experience for
major global financial institutions.
The LPO administers two loan programs, Section 1703 and
1705, for energy technologies authorized by Title XVII of the
Energy Policy Act, as amended. It also administers direct loans
for the Advanced Technology Vehicle Manufacturing Loan Program,
as authorized under Section 136 of the Energy Independence and
Security Act of 2007. Congress created these programs to
support clean energy and an advanced technology vehicle
project. As such, the LPO provides loan guarantees for cutting-
edge, innovative energy technology and manufacturing generation
projects in a wide variety of sectors, including renewable,
nuclear, fossil, automotive, and transmission. As of today, the
LPO has committed or closed nearly $35 billion in direct loans
and loan guarantees, supporting nearly three dozen projects
with total project costs over $55 billion. The financing has
levered billion dollars of private investment, augmented the
capacity of capital markets to finance innovative and large-
scale clean energy projects.
The ATVM Program. Created by Congress with strong
bipartisan support, the ATVM Program was designed to accelerate
the development and deployment of advanced technology vehicles
that would help automotive manufacturers meet more stringent
CAFE standards, create jobs, and reduce the Nation's dependence
on oil.
The Program provides loans to automobile and automobile
parts manufacturers for the cost of reequipping, expanding, or
establishing manufacturing facilities in the United States to
produce advanced technology vehicles or qualified components
and for costs of associated engineering integration performed
in the United States.
The ATVM Program has received numerous applications from
both automotive original equipment manufacturers and component
manufacturers, and remains open to receive applications from
the automotive industry on a continual basis. To date, the DOE
has committed and closed five ATVM loans, totaling $8.4
billion, to automotive manufacturers large and small, and we
are adopting cutting-edge technologies and deploying them into
the market.
We conduct rigorous due diligence to protect taxpayers'
interests. The LPO underwrites and structures its loans and
loan guarantees to protect the interests of taxpayers and
maximize the prospects of full repayment. Before making a loan
or a loan guarantee, the LPO conducts extensive due diligence
on the application, with rigorous financial, technical, legal
and market analysis by DOE's professional staff, including
qualified engineers, financial experts, and outside advisors. A
Government Accountability Office report stated that ``it is
noteworthy that the process developed for performing due
diligence on loan guarantee applications may equal or exceed
those used by private lenders to assess and mitigate project
risks.''
Following the loan closing, the LPO monitors each
borrower's performance against its business plan and
projections. As part of this process, the program works to
mitigate risk to the portfolio. As the Allison Report stated,
the LPO is not a ``passive bystander'' when monitoring a loan;
rather, the LPO has the ability to reduce or mitigate risk of
its portfolio over time and has ``robust tools'' for protecting
itself from elective risk and to ensure adequate protection of
the U.S. taxpayers. The Allison Report also confirmed that
while these projects by their nature involve certain risk, the
LPO portfolio is, as a whole, performing well.
Fisker Automotive. On April 22nd, 2010, LPO closed a $529
million loan to Fisker Automotive for the development and
production of two lines of plug-in hybrid vehicles, the Karma
and the Atlantic. To date, $192 million has been disbursed to
Fisker to fund eligible Karma expenses and to partially fund
the purchase of the General Motors plant in Delaware. These
funds were used, for example, to support engineering for the
Karma at Fisker's United States facilities in Anaheim,
California to develop tools, equipment, and manufacturing
processes.
From the outset, the Department established rigorous
benchmarks, keyed to progress on the Karma and Atlantic
production lines, as conditions precedent to any disbursement
of Fisker's loan. As has been publicly reported, the Department
understands that Fisker has recently faced certain financial
difficulties and engaged in a process seeking additional
private investment.
The Department has acted decisively to protect the
taxpayers' interest since it became evident that Fisker faced
financial difficulties. In June 2011, the Department ceased
making disbursements to Fisker after the company fell short of
the milestones required in the loan agreement. Since then, the
Department has continued to communicate with Fisker as it has
sought to revise its business plan and achieve profitability.
The Department is continuing to communicate with Fisker
regarding its obligations under the loan agreement and is
committed to ensuring that the taxpayers' interests are
protected to maximize their loans received.
I look forward to answering any of your questions.
[Prepared statement of Mr. Whitcombe follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Jordan. Thank you, Mr. Whitcombe.
What we are going to do is we have commenting from Mr.
Fisker to do your five minutes, more or less. Then we will have
to wait to hear Mr. Koehler when we come back from recess. But
in the interest of time, Mr. Fisker, go.
STATEMENT OF HENRIK FISKER
Mr. Fisker. Thank you, Chairman Jordan, Chairman Issa,
Ranking Member Cartwright, and Ranking Member Cummings, and the
subcommittee members. Thank you. My name is Henrik Fisker and I
am the former CEO, Chief Executive Officer and Chairman of
Fisker Automotive.
From the outset, Fisker Automotive aimed to be a new
American car company, setting pioneering standards for low-
emission technology and cutting-edge design. I am proud of what
Fisker Automotive and its incredible employees, shareholders,
suppliers, dealers, and other stakeholders were able to
accomplish: designing, engineering, and manufacturing an
advanced plug-in hybrid vehicle from scratch and bringing it to
production. We sold approximately 2,000 of these vehicles to
buyers around the world before having to cease production due
to several difficult events. After resolving initial launch
challenges, the cars perform well and customers love them.
I am also proud that the Fisker Karma has been given many
awards for its advanced technology, including Time magazine
listing the car as one of the 50 Best Inventions of 2011. The
technology that Fisker developed is cutting edge and will help
pave the way for a new generation of American cars.
This hearing presents an important opportunity to set the
record straight about what the company and I did right, what
went wrong, and where factors beyond our control intervened.
This hearing is also an opportunity to address some of the
misinformation that has circulated in recent weeks.
Before we begin, I need to make an important statement
about my testimony. I stepped down as Chief Executive Officer
in early 2012 and became Chairman of the Board. In March of
this year I left Fisker Automotive and no longer speak for the
company. While the company retains my name, we are not one and
the same.
I co-founded Fisker Automotive with several partners in
Irvine, California in 2007 and we announced our plan for our
first car, the Karma, in 2008. From the beginning, we knew that
we would face significant challenges in building a plug-in
hybrid vehicle from scratch.
In early 2008, I was approached at a sustainability
conference in California by a senior Department of Energy
official. We discussed the technology that Fisker Automotive
was developing and he encouraged the company to apply for a
loan from the Advanced Technology Vehicles Manufacturing
Program, ATVM. Fisker continued its conversations with the
Department and the company applied for a loan at the end of
2008. At that time, we already had significant financial
backing from private investors.
In 2010, Fisker secured final approval for the two loans
under the ATVM program. In total, the company drew down $192
million on the loans. The first loan supported American
engineering for the Karma, a car that was already designated
for contract manufacturing in Finland before the company
applied for the loan.
The second loan was used to support the engineering and
manufacturing of a more affordable car, the Atlantic, in the
United States. The company drew down a total of $23 million on
that loan.
The Department's loans to Fisker Automotive contained
milestones and covenants that the company was supposed to meet
to allow additional loan draw-downs. Fisker was transparent
with the Department about its progress at all times.
Some have alleged that the company only received the loans
due to political connections. Let me be clear: I am not aware
and do not believe that any improper political influence was
used in connection with the company's loan applications or
subsequent negotiations with the Department of Energy.
In 2011, the Karma ran into several significant obstacles
that delayed our production and sales time line. First,
regulatory approvals for the Karma took longer than
anticipated; second, the Karma had two recalls related to parts
provided by outside suppliers; third, our exclusive battery
manufacturer filed for bankruptcy protection in mid-October
2012 and stopped manufacturing batteries; and, fourth, when
Hurricane Sandy hit the northeast of the United States, over
330 Karmas were damaged beyond repair. This constituted a major
share of the company's inventory and resulted in a drastic loss
of revenue.
In spite of all these setbacks, I want to make clear that
Fisker Automotive accomplished many notable achievements. We
engineered and brought to market an exceptional new vehicle
technology that won acclaim from customers and reviewers alike.
Fisker still has the potential to build on those achievements
if the company can secure financial and strategic resources. I
sincerely hope that the company can find a way to move forward
and repay its Department of Energy loans. Thank you.
[Prepared statement of Mr. Fisker follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Jordan. Thank you, Mr. Fisker.
We will stand in recess for 25 minutes, more or less.
[Recess.]
Mr. Jordan. The committee will come to order and, Mr.
Koehler, you are up for your five minutes.
STATEMENT OF BERNHARD KOEHLER
Mr. Koehler. Thank you and good afternoon, Mr. Chairman,
Ranking Member Cartwright, and distinguished members of the
subcommittee. My name is Barny Koehler and I am a co-founder
and currently the Chief Executive Officer in Europe and the
Middle East at Fisker Automotive.
I have been in the automotive industry for 33 years and
have experience in prototyping and overall product creation
from positions with several leading carmakers, including BMW,
Aston Martin, and Ford Motor Company.
In 2005, Henrik Fisker and I founded Fisker Coachbuild. Two
years later, in 2007, Fisker Coachbuild and powertrain
developer Quantum Technologies formed Fisker Automotive. Fisker
Automotive is an innovative company with a mission to develop
and create fuel efficient vehicles with style, passion, and
performance.
I understand that today's hearing will largely focus on
some of the problems our company is facing, but in the next few
minutes I would also like to highlight some of the company's
achievements.
In 2007, Henrik and I recognized that there was a gap
between gas-powered vehicles and all-electric battery powered
vehicles envisioned for the future. So we set out to create a
car that could bridge this gap through the use of innovative
technology that provides the power and efficiency of an all-
electric drive with extended range provided by an onboard
generator powered by a gasoline engine.
Others shared our vision. Before we heard of the Department
of Energy's ATVM loan, Henrik and I successfully raised private
capital to support the development of our concept. Fisker
Automotive ultimately raised approximately $1.2 billion of
private funding. Of course, the company also obtained a loan
from the Department of Energy and we used $193 million of loan
funds to support our vision.
Fisker Automotive brought together in California a very
talented group of people that had experience with automakers
and suppliers from all around the world. This dedicated and
diverse team, with a bold entrepreneurial spirit, worked
tirelessly to bring our concept to life. With the Fisker Karma,
we successfully designed, engineered, and delivered the world's
first plug-in series hybrid electric vehicle. When fully
charged, the Karma allows for an all-electric drive of up to 50
miles, plus up to another 250 miles with the onboard range
extender.
The Karma has been certified in the United States, in
Europe and Asia, and you can see it being driven on the road
today. The vision has become a reality.
You cannot build a successful car company with just one
car; you must have a portfolio with multiple models for
consumers. The business plan for our second generation car,
called the Atlantic, has been in development for more than two
years, and the design and engineering work for the car is
almost complete. Importantly, the Atlantic would feature an
improved next-generation version of the innovative EVer
powertrain technology. Given the experience and learning gained
from the Karma, our expectation was that the Atlantic would be
sold at lower prices, allowing a broader customer base the
opportunity to own a Fisker car.
Without question, every automotive manufacturer faces
challenges when new vehicles are developed and launched, and
Fisker was no exception. While initial production of the Karma
began in March of 2011, development and implementation of
Fisker's tooling and component specifications and supply chain
development moved the commencement of serial production to June
2011. Final emission testing and EPA approval was granted on
October 3rd, 2011. Shortly after production of the Karma began,
a manufacturing defect in our batteries supplied by A123
resulted in a safety recall and a shutdown during performance
testing by Consumer Reports. We were left without a battery
supplier after A123 filed for bankruptcy in October 2012. Faced
with these challenges, Fisker has not been able to restart
vehicle production since a previously-scheduled seasonal
shutdown began in July 2012.
The difficulties that Fisker faced were not unusual for any
auto manufacturing and are common in the industry. Despite
these difficulties, I cannot understate the achievements of our
employees who worked on the Karma program. I am grateful for
their commitment and dedication. Our company took a giant step
in combining the usability of an everyday car with the benefits
of an all-electric vehicle. While I do not know exactly what
the future holds for Fisker Automotive, including whether the
company will find new investors or whether the company may be
obliged to seek bankruptcy protection to facilitate its
continued efforts to preserve value for all stakeholders, I
intend to keep working toward achieving the mission and vision
for the company.
Thank you, and I look forward to any questions you may
have.
[Prepared statement of Mr. Koehler follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Jordan. Thank you, Mr. Koehler.
We now turn to the chairman of the full committee. The
gentleman from California is recognized for five minutes.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Fisker, I have a number of questions for DOE, but I
have one question for you and for your co-founder. Why did you
give up any rights to your intellectual property being within
the entity the Department of Energy invested in for purposes of
development of technology?
Mr. Fisker. Chairman, we have developed a new technology
where we have filed for several patents.
Mr. Issa. In Fisker Automotive?
Mr. Fisker. In Fisker Automotive. And they can take up to
five years until they are fully granted.
Mr. Issa. So the other patents that are in the portfolio
that are not in your possession, why were those not in Fisker
Automotive?
Mr. Fisker. When Fisker Automotive started, it was founded
by Quantum Technologies and Fisker Automotive in 2007, and
everything that was developed in Fisker Automotive from that
point in time are remaining with the company and engineers have
developed the most advanced technology throughout the couple of
years before we got the Department of Energy loan, and all the
patents that are developed in Fisker Automotive stays within
Fisker Automotive.
Mr. Issa. I appreciate that, and the committee would like
to follow up to make sure we have that. We don't have documents
to that effect. Thank you.
Mr. Whitcombe, all the way back in June 2nd of 2010, an
email says Fisker's draw request may be in limbo due to a lack
of compliance with financial covenants.
Mr. Cartwright. Mr. Chairman, I raise a point of order in
sending that. I must object to inclusion of that email into the
hearing record.
Mr. Issa. On what basis?
Mr. Cartwright. Mr. Chairman, did you or your staff speak
to the person who wrote this email before you released them
yesterday to The Associated Press?
Mr. Jordan. I am not sure what the gentleman's point is.
Mr. Issa. I don't hear a point of order, and I have been
around here 12 years.
Mr. Cartwright. Well, Mr. Chairman, my staff did speak to
the author of these emails.
Mr. Issa. Mr. Chairman, I must insist the gentleman, if he
is going to play the game of point of order, please state his
point of order.
Mr. Cartwright. This is the point. May I be heard?
Mr. Jordan. The gentleman is recognized.
Mr. Cartwright. Nobody on the Republican staff contacted
her before they released some select emails sent by her, and I
wonder if you knew that, Mr. Chairman.
Mr. Issa. Mr. Chairman, the man is asking a question and
creating testimony. That is not a point of order. Can I ask he
please state his point of order?
Mr. Jordan. State your point of order.
Mr. Cartwright. Mr. Chairman, were you aware that her job
responsibilities did not include reviewing Fisker's performance
on the loan?
Mr. Jordan. That is not a point of order. The gentleman is
not stating a point of order.
The gentleman from California is recognized.
Mr. Issa. Thank you.
Mr. Cartwright. So, to be clear, the majority apparently
has no idea of the source and the meaning of this evidence and
has no basis to know whether or not this email is significant.
Mr. Jordan. The gentleman from California is recognized and
will be given an additional minute and a half on his time.
Mr. Issa. Thank you.
Mr. Whitcombe, are you aware of any question, and I will
have this email given to you momentarily; I apologize if you
don't already have it. But was there, on or before June 2nd,
2010, any question, to your knowledge, as to Fisker's request
that in fact it may be in limbo, as this one says, because of
lack of compliance with financial covenants?
Mr. Whitcombe. Thank you for the question. I am briefly
scanning this document that I can read here. I have identified
the two individuals as consultants to the Department of Energy
Loan Program Office. With respect to it being in limbo due to
lack of compliance with financial covenants, I would believe
that this is part of the normal course of discussion that all
parties and consultant would have between each other.
Mr. Issa. No, I appreciate that. My time is limited. If in
fact there is a failure to meet financial covenants, isn't it
true the loan has to be called and either renegotiated or the
money pulled back?
Mr. Whitcombe. That is not true. As a senior secured
lender, you retain all your rights under the loan agreement
under the status of senior secured lender.
Mr. Issa. What do you do when somebody doesn't meet their
requirements, do you waive them? And, if so, is there a formal
process?
Mr. Whitcombe. This document does not say that.
Mr. Issa. I am asking you about what happens when a company
doesn't meet its promises the way Fisker didn't in a number of
areas related to the loan agreement based on documents we have
good faith to believe are accurate and true.
Mr. Whitcombe. In terms of the draw request and lack of
compliance with financial documents, the company would certify
that it met the financial conditions of any draw request. It
would certify to the senior executive of the company; we would
review that kind of information on a continuing basis relative
to that certification to advance any funds.
Mr. Issa. Okay, well, let's go on to something that is a
little more mainstream Department of Energy. I have, from the
same individual, a document, and I will read the extract.
Gentlemen, just wanted you to be aware of a request from
Chairman Issa. Assume that GC, general counsel, I assume, or CI
will reach out to you regarding the requested documents.
Now, that was a request on February 13th of 2012. I haven't
received those documents. Do you believe that in fact, since
clearly you, as an organization, seemed to know the request was
in, can I expect to see those documents pursuant to that
request anytime soon?
Mr. Whitcombe. The loan guaranty program seek to provide
all the information that you need, as I understand it.
Mr. Issa. No. Stop. You don't determine what we need. We
gave you a request for documents. Will you comply with the
request? Not what you darn well think I need. This
Administration has consistently, over a period of at least the
years in which the Republicans have been a majority, decided
that they will decide what we need and then not give us what we
ask for. I am asking you today are you prepared, on behalf of
the Department of Energy, to comply with the request, a
substantial compliance with what the request says, not what you
think I need?
Mr. Whitcombe. Congress has asked for literally millions of
documents, encompassing literally thousands of DOE man-hours.
We are attempting to comply with all the requests.
Mr. Issa. Is my request here for millions of documents?
Mr. Whitcombe. I don't believe so.
Mr. Issa. Okay. Are you aware that Secretary Chu appeared
before this committee and I asked him at that time, Secretary,
in modern technology, should you be delivering us paper
documents with no Bates stamps? Couldn't you deliver us
electronic data responsible? And he said we should be able to,
more or less.
I might suggest to you that no production has occurred and,
in fact, it is a push of a few buttons to deliver a substantial
amount of this electronically.. And if you care about the
taxpayers' money, as people on the dais here do, I would
strongly suggest you go back, look at the record of previous
hearings, and begin complying through the most expeditious
means. This committee has a long history of taking partial
document compliance. We work with agencies and, in fact, the
chairman of the subcommittee and all the subcommittees have
standing orders to meet with and attempt to narrow any request
in concert with the agency so that we only get what we need. We
are willing to do that in every case. But it has been a year.
And to have a hearing this morning in which the ranking member
pointed out that we didn't have a witness because they only had
eight days to respond, I have to say, when you have had more
than a year, it is unconscionable to call this the most open
and transparent Administration, when in fact what you are is a
stonewalling Administration and one that has lost over $100
million of taxpayers' money, and the record clearly indicates
it could have been prevented.
I yield back.
Mr. Jordan. I thank the gentleman and now recognize the
ranking member of the subcommittee, the gentleman from
Pennsylvania, Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman. At this time I do
wish to register my lament that it is unclear whether the
investigative standard of the majority here is to conduct an
investigation and interview witnesses before or after holding a
public hearing and leaking documents to the media. However, I
do appreciate Chairman Issa's comments that the DOE has done a
pretty good job overall with the ATVM program.
Under that program, Congress appropriated money for credit
subsidies which has allowed DOE to issue loan guarantees. The
amount of losses if Fisker fails is only a tiny fraction of the
portfolio's value and is well below the amount Congress
appropriated for some expected defaults.
Now, Mr. Whitcombe, isn't it true that the Energy
Independence and Security Act of 2007 authorized DOE to make
about $25 billion in loans in the ATVM program?
Mr. Whitcombe. The Act did authorize exactly $25 billion in
loans.
Mr. Cartwright. And, Mr. Whitcombe, isn't it also the case
that President Bush signed the fiscal year 2009 continuing
resolution which provided the ATVM loan program with about $7.5
billion in appropriations to cover the program's credit subsidy
costs, the pool of money that would be set aside to cover
expected losses? Is that true?
Mr. Whitcombe. The continuing resolution for $7.5 billion
was appropriated for credit subsidy.
Mr. Cartwright. Mr. Whitcombe, I understand that so far DOE
has issued five loan guarantees under the ATVM program worth
$8.4 billion, correct?
Mr. Whitcombe. Yes, sir.
Mr. Cartwright. Mr. Whitcombe, the amount of money that
Fisker has received is only $192 million, or about 2.3 percent
of the $8.4 billion for the program as a whole, isn't that
correct?
Mr. Whitcombe. Yes, sir.
Mr. Cartwright. Now, Mr. Whitcombe, let's do a little math.
If the worst case scenario develops and Fisker cannot repay the
amount of its loan already received, isn't it true that the
ATVM program incurs only about a 2.3 percent loss against the
total portfolio value?
Mr. Whitcombe. Quickly looking at your math, that looks
about right.
Mr. Cartwright. So in the world of project finance, is a
total portfolio loss of about 2 percent considered failure?
Mr. Whitcombe. Any loss is unacceptable, but 2 percent for
a senior secured loan portfolio is acceptable.
Mr. Cartwright. Thank you.
Now, Mr. Whitcombe, looking at chart number 2, we know that
both Ford and Nissan appear to be doing well and they have the
ability to repay their loans under this program. Tesla, I
understand, is already paying back its loan. The fifth only
other loan went to an applicant called the Vehicle Production
Group, and they only represent less than 1 percent of the
portfolio's total value.
Mr. Whitcombe, doesn't this mean that thus far, after
taking into account Fisker's maximum potential losses, 98
percent of the portfolio appears to be doing well and has the
ability to repay its loan?
Mr. Whitcombe. It appears that to be the case, sir.
Mr. Cartwright. Ninety-eight percent grade usually gets you
an A+. Wouldn't any private equity firm love to have a success
rate of 98 percent?
Mr. Whitcombe. Yes, they would. I remind you we are senior
secured lender, but 98 percent would be excellent.
Mr. Cartwright. Mr. Chairman, any objective analysis of
ATVM's potential losses from Fisker would conclude that the
program is not only exceeding expectation, but any losses
accruing from Fisker would be well within the reserves Congress
already appropriated for this very purpose.
With that, I yield back.
Mr. Jordan. Mr. Whitcombe, do you recall any speeches made
by President Obama, Vice President Biden, or Secretary Chu
where they indicated to the American taxpayers prior to this
program and you loaning out $25 billion, do you recall any
speeches where they said, you know what, American taxpayer, we
are only going to lose 2 percent of your money? Do you recall
any speeches to that effect?
Mr. Whitcombe. No, sir.
Mr. Jordan. No, sir? Okay. Thank you.
I recognize the gentleman from Florida.
Mr. DeSantis. Thank you, Mr. Chairman.
I am on slide 4B.
[Slide.]
Mr. DeSantis. Mr. Whitcombe, one of the milestones
associated with Fisker's loan was that it launched the Karma by
February of 2011 and it failed to meet that milestone, is that
correct?
Mr. Whitcombe. In February 2011, the company had
represented that it did meet its commercial milestones.
Mr. DeSantis. What happened in fact, did they meet the
milestone or not?
Mr. Whitcombe. In February 2011, the company represented to
us----
Mr. DeSantis. What happened in fact? I am not asking what
they represented. Did it meet the milestone or not?
Mr. Whitcombe. In June 2011, the DOE disagreed----
Mr. DeSantis. That is not my question. It is a simple yes
or no answer.
Mr. Whitcombe. The DOE disagreed----
Mr. DeSantis. In February 2011, either commencement of
commercial production of the Karma vehicle happened in fact or
not. Based on your knowledge now, sitting here today, did it
happen or did it not happen?
Mr. Whitcombe. We believe it did not happen and, therefore,
we took decisive action.
Mr. DeSantis. Well, I appreciate it. I am going to give you
a chance to talk about that. I have limited time.
Slide 4C.
[Slide.]
Mr. DeSantis. According to the DOE's quarterly credit
report, it appears that although Fisker did miss this milestone
in February 2011 for launching the Karma, that the loan was not
frozen for Fisker until June of 2011. Is that accurate?
Mr. Whitcombe. During that interim period we did not have
enough information to determine that.
Mr. DeSantis. Is it accurate, though? Is it an accurate
statement?
Mr. Whitcombe. At that point in time we acquired the best
available information to make that determination.
Mr. DeSantis. Is what I stated true or not true?
Mr. Whitcombe. Can you restate your question?
Mr. DeSantis. Yes. It appears that Fisker missed the
milestone requirements in February 2011 for launching the
Karma, but that DOE did not freeze Fisker's loan until June of
2011. Is that accurate?
Mr. Whitcombe. Hindsight is 20/20.
Mr. DeSantis. I am not asking about hindsight. I am just
asking whether it is accurate.
Mr. Whitcombe. At that point in time, the loan program----
Mr. DeSantis. Sir, is it accurate, yes or no?
Mr. Whitcombe. Was it accurate in June 2011, when they made
that determination?
Mr. DeSantis. So you froze it in June 2011, correct?
Mr. Whitcombe. Yes, sir.
Mr. DeSantis. Okay. 4C.
[Slide.]
Mr. DeSantis. Based on DOE's quarterly credit report, it
appears that Fisker misled the DOE by stating that it had
launched production of the Karma in March of 2011, when in fact
it had not. And the report further states that DOE did not
figure this out until June 2011, at which point it froze the
loan. Is that true, did Fisker misrepresent information to DOE?
Mr. Whitcombe. If you would give me an opportunity, I would
like to read what is boxed out in the red.
Mr. DeSantis. Sure.
Mr. Whitcombe. Sir, I don't read the word misread here. I
believe there was a difference of opinion, and our
determination at that point in time was that they had not met
the launch milestone, based on the best available information
that the DOE had at that time, in June 2011.
Mr. DeSantis. Right. So they did not provide you the
information before that time.
Mr. Whitcombe. We worked all during that time period to get
the best available information that ultimately led to the
determination that they had not met the commercial launch
milestone and, therefore, we took decisive and conservative
action to stop funding under the loan agreement.
Mr. DeSantis. So basically, on February 25th, 2011, Fisker
received $10 million; on March 24th, 2011, Fisker received $9
million from DOE; April 21st, 2011, another $10 million from
DOE; May 26th, 2011, Fisker received another $3 million from
DOE. So this adds up to $32 million disbursed between the time
that Fisker missed its milestone and the time the DOE
determined Fisker missed the milestone and froze the loan. So
it seems to me that there was a failure to identify this and
that this $32 million was essentially wasted because DOE did
not confirm early enough that Fisker had not in fact launched
the car. And, in fact, Fisker did not launch the Karma until
September of 2011. Is that true, that it was not actually
launched until September of 2011?
Mr. Whitcombe. We have a very rigorous portfolio management
process with professional managers overseeing each loan. Those
professional managers are in constant contact with the company
and reviewed the documentation that is provided by the company
to us, and look at all sorts of other information as well,
including financial and technical data. At the point in time
when the company requested loan advances and certified against
those loan advances, we reviewed that information and made loan
advances against that. When we became uncomfortable with the
information that they were providing to us that suggested that
they had not met the commercial launch date, which was very
important to the Department of Energy, we made no further loan
advances.
Mr. DeSantis. Okay. So in spite of that process, though,
$32 million was given to Fisker that ultimately is going to
fall on the taxpayers. So I guess my final question, I am
running out of time, it did not become public that the loan was
frozen until February of 2012. So this allowed Fisker to
essentially solicit equity under the false notion, implicit
notion that the company was still on good terms with the
Department of Energy. So after the DOE froze Fisker's loan in
June of 2011, why did the DOE not make this public? If the
taxpayer was in fact on the hook, don't you think that they had
a right to know that the loan was not going smoothly?
Mr. Whitcombe. Fisker is responsible for raising its own
capital and notifying investors of its situation. Having said
that, as to why no press releases or no public notification
were provided by the Department of Energy, I will have to take
that question on the record, sir.
Mr. DeSantis. So you don't have an answer for it?
Mr. Whitcombe. I don't have an answer, sir.
Mr. DeSantis. Okay.
Well, Mr. Chairman, thank you.
Mr. Jordan. I recognize the gentleman from Maryland, the
ranking member of the full committee.
Mr. Cummings. I am really listening to all this and I have
to tell you, Mr. Fisker, I don't know if these people are
really listening to what you said. First, I am just looking at
your testimony. You talk about the problems that you all had;
first, regulatory approvals for the Karma in the United States
took longer than anticipated. That was number one.
There were two recalls of the Karma, but both were related
to parts provided by outside suppliers, not the plug-in hybrid
technology developed by the company, is that right? Then you
had another problem. Fisker Automotive had an exclusive
contract with A123 Systems in Massachusetts to supply the
vehicle with lithium ion cells and jointly develop the battery
pack. They had a problem, right? So you didn't have any
batteries, is that right? Mr. Fisker, I am talking to you.
Mr. Fisker. Yes, congressman. When we developed the plug-in
hybrid system, the advanced technology, obviously we knew that
there was a lot of risk. It is a new technology; it is very
difficult to develop. But we finally did get the vehicle into
production. However, the battery provider did have initial
problems and, of course, that meant that we had problems as
well. So there was a recall from the battery manufacturer that
affected us and our production.
Mr. Cummings. Mr. Fisker, then you had a fourth problem,
and that was Hurricane Sandy hit the northeast United States,
and that created a problem because you lost 330 Karmas were
damaged, is that right?
Mr. Fisker. Congressman, that is correct.
Mr. Cummings. You had some problems. You know, one of the
things that always concerns me about these hearings is when
accusations are made that are not fair. And I don't know
whether it is fair or not, so I have to ask you some questions,
because I can guarantee you I watched the way the press
scurried quickly when Chairman Issa was making some statements
about all of this, so I want to make sure that we correct it,
because after I am long dead and gone, I want to make sure that
people who appear before this committee, that we make it clear
that if there is something accurate, that is one thing; but if
it is not accurate, I want to know.
I will ask you this. Were you and your investors engaged in
a pay-to-play relationship with the Obama Administration?
Mr. Fisker. No, we are not.
Mr. Cummings. And I want to go now to some of the other
witnesses. Over the past two and a half years this committee,
the majority has made many allegations against the Federal
Clean Energy and Advanced Technology Vehicle Programs, but in
the past two and a half years Congress has been a highly
partisan place where facts can be sacrificed for political
expediency. In fact, the ATVM program and its awardees have
had, until recently, strong bipartisan support.
When President Bush signed the bill which created the ATVM
program into law, he said it should say to the American people
that we can find common ground on critical issues.
Mr. Fisker, you were encouraged to apply for the ATVM
funding in 2008 by John Mizroch, an assistant secretary of
energy under President Bush, is that correct?
Mr. Fisker. That is correct.
Mr. Cummings. And what do you think Mr. Mizroch saw in your
company? Did he tell you?
Mr. Fisker. Yes. Well, we were discussing, back in 2008, of
course, the fact that the American car industry generally was
not doing very well, was in fact behind in new technology, and
he explained that this loan was set up to get America back in
the lead when it came to advanced technology, and specifically
advanced technology that would contribute to not having to rely
on the import of foreign oil and better emissions. So I
explained that our technology was really meant for the consumer
to drive the entire week without using one drop of gasoline,
and only on long distances using gasoline, and that would
dramatically reduce the fuel consumption. And eventually our
customers have reported back to get more than 100 miles per
gallon. In fact, there are customers driving up to three or
four months before they fill up the car. So what we talked
about at that time was exactly to achieve these goals, and he
encouraged me and explained to me about the ATVM loan.
Mr. Cummings. So you didn't go seeking out this loan.
Mr. Fisker. No.
Mr. Cummings. They sought you.
Mr. Fisker. That is correct.
Mr. Cummings. Oh, okay. Go ahead.
Mr. Fisker. So later in 2008, we finally decided to apply
for the loan after we had raised considerable amount of money.
We had already started to develop the technology. We had hired
experts, really engineers that understood this and were
starting to develop electric vehicles, and we had built up an
engineering team. And we started then a nine month due
diligence with Department of Energy, where they brought in
consultants, engineering consultants, other consultants to look
at our business plan market, etcetera, and after that we made
our final application and got the final approval in April 2010.
Mr. Cummings. Thank you, Mr. Chairman. I see my time has
run out.
Mr. Jordan. Mr. Whitcombe, approximately how many
applicants were there to the ATVM program?
Mr. Whitcombe. About 150.
Mr. Jordan. A hundred fifty. And how many got funded?
Mr. Whitcombe. Five.
Mr. Jordan. Okay, look at this email. I just want you to
look at the first line and the last time. The first line talks
about Fisker was originally rejected by the Credit Review
Board. The last line talks about their CCC+ credit rating.
Of the five who received funding, in other words, the other
four who received funding, how many of them were initially
rejected by the Credit Review board?
Mr. Whitcombe. I am sorry, this is the first time that I
have seen this.
Mr. Jordan. No, it is a simple question. Do you know if the
other four who got taxpayer dollars, were any of them initially
rejected by the Credit Review Board?
Mr. Whitcombe. I am trying to look at your document. Can
you state your question again?
Mr. Cummings. Mr. Chairman, would you let him look at the
document, out of fairness?
Mr. Jordan. Sure. But the question is do you know if any of
the other four were initially rejected by the Credit Review
Board, as Fisker was.
Mr. Whitcombe. Sir, I do not know. I will have to take that
question for the record.
Mr. Jordan. Do you know if any of the other four who
received taxpayer money had a credit rating as bad or any of
them have a worse credit rating than Fisker?
Mr. Whitcombe. I can't state for certain, but Ford, at that
point in time, may have been similar to that level.
Mr. Jordan. Say again?
Mr. Whitcombe. Ford, at the time, may have been similar to
that level, but I am not certain.
Mr. Jordan. Your best guess. Did the other four have a
higher credit rating than Fisker or lower?
Mr. Whitcombe. I decline to guess on this, sir.
Mr. Jordan. But you were involved. You are the witness from
the Department of Energy. There is only five companies, five
credit ratings. Were they better than CCC+ or were they worse?
Mr. Whitcombe. I was the acting director during 2012.
Mr. Jordan. But you are the witness the Department of
Energy sent here. It is a simple question. Did the other four
have a worse credit position than Fisker when they started or a
better?
Mr. Whitcombe. I am going to have to take that question for
the record.
Mr. Jordan. How many of the 150 other applicants who were
denied funds, do you know if any of them had a better credit
rating than CCC+?
Mr. Whitcombe. Most had no credit rating, sir.
Mr. Jordan. But those that you know, did any of them have a
better one?
Mr. Whitcombe. No.
Mr. Jordan. Okay.
Well, let's go to slide 2, then.
[Slide.]
Mr. Jordan. The key line here is the third line that says
Fisker was also under-collateralized. Do you know if any of the
four other companies who received taxpayer money, were they as
poorly positioned relative to collateral as Fisker, or were
they all better?
Mr. Whitcombe. This is the first time I have seen this
document.
Mr. Jordan. The document is just to show the statement. The
question is real simple: Did the other four who got taxpayer
money, did they have a better collateral position than Fisker
or a worse position?
Mr. Whitcombe. I can make no determination whether Fisker
had a better or worse collateral position.
Mr. Jordan. You don't know the collateral position for the
other companies that got all that money that Mr. Cartwright put
up there? You don't know?
Mr. Whitcombe. Fisker itself was a startup company, and any
collateral that it would have would have been for intellectual
property, machinery, or cash that they had on the balance
sheet.
Mr. Jordan. Let's go back to the first slide, then.
[Slide.]
Mr. Jordan. I am looking at the middle of the box square.
How many of the other four companies were given a loan on a
second generation product when the first generation product
wasn't complete? Do you know of any of the other four who were
given a similar kind of loan?
Mr. Whitcombe. Ford was provided loans to retool their
factories.
Mr. Jordan. Let's back up a second. Ms. Cleghorn, she was
the credit consultant at the Department of Energy used,
correct?
Mr. Whitcombe. She was an outside consultant for DOE.
Mr. Jordan. Right. She was used throughout this whole
process to make some evaluations, give you information; you
used that information to base your decisions. She is pointing
out that Fisker is getting a loan on a second generation
product when the first one isn't even complete. All I am asking
is did any of the other four companies who got taxpayer money,
did they get the same kind of deal?
Mr. Whitcombe. Several of the other companies were large
O&Ms.
Mr. Jordan. Did Ms. Cleghorn raise any of these same
objections, same kind of concerns about the other companies?
Mr. Whitcombe. I have no idea. Ms. Cleghorn is an advisor
to the DOE.
Mr. Jordan. Mr. Whitcombe, here is what we are trying to
figure out: Were these guys treated special? Mr. Cartwright
made this big deal about how the other four didn't lose money.
They did. So I want to know did any of the other four have a
credit rating as bad or worse than Fisker, or were they all
better? Did any of the other four have such a poorly
collateralized position as Fisker? Did any of the other four
get a loan on a second generation product when they hadn't even
completed their first generation product? Pretty simple,
straight forward questions to know how did Fisker get this loan
if it didn't apply to the other four.
Mr. Whitcombe. We make the awards for each individual
applicant based on the merits of the transaction, each
different company, after extensive financial market----
Mr. Jordan. Let me ask you this. What was the credit rating
of Nissan when they applied, do you know?
Mr. Whitcombe. I believe it was B plus, but I can't----
Mr. Jordan. So better than Fisker. What was the credit
rating of Tesla when they applied?
Mr. Whitcombe. I don't believe Tesla had a credit rating at
the time; it was funded purely by equity.
Mr. Jordan. What about Ford?
Mr. Whitcombe. I believe it was in the CCC category.
Mr. Jordan. Okay, what about the Vehicle Production Group?
Mr. Whitcombe. Unrated because they had no debt securities.
Mr. Jordan. All right.
Let's go to the fourth slide, if we could.
[Slide.]
Mr. Jordan. I will give you a chance to look at this. Of
the other four companies who received taxpayer money, were any
of them allowed to miss milestones and breach covenants?
Mr. Whitcombe. All our borrowers we evaluate on a
continuing basis. Certain of the other large corporate
borrowers, like Nissan or Ford, commonly, within their
financial profile, may or may not have issues; Tesla itself,
VPG itself. So comparing each one of these borrowers against
each other is unfair because each company has its own different
product, its own different financial condition.
Mr. Jordan. No, no, it is not unfair.
Mr. Whitcombe. So it is comparing apples and oranges.
Mr. Jordan. Fisker is the one who has lost $200 million of
taxpayer money. What I am trying to figure out is did the other
four companies have any kind of similar position when they got
taxpayer money. They haven't lost it like Fisker has. That is
what I want to know at the start. Why did Fisker get the loan
if they weren't somehow different than the other four?
Mr. Whitcombe. Fisker was a startup company. We conducted
due diligence on the company and we issued the loans based on
the merits of the transaction. Fisker, as an applicant, has to
pass an eligibility criteria test and has to provide
substantial information.
Mr. Jordan. Okay, let me go to one last one. I know my time
is up, but I want to go to one last. Let's go to I think it is
the third or fourth slide, it is the email from Mr. Koehler.
[Slide.]
Mr. Jordan. Okay, I will give you a chance to look at this
and I will read the relevant part. This is from Mr. Koehler to
the Department of Energy. This is August 10th, 2009, before
they had been given any taxpayer money and before they had been
approved. It says, I need a solution for a funding scenario
with debt only starting Monday next week and an approval for
the entire program within two weeks. I am sorry if I am very
direct right now, but we don't have much time. I have to lay
off all of my Fisker Coachbuild employees on Monday and some of
the Fisker Automotive people. This is hurting me a lot
personally and is business related, and is giving our
competition a huge advantage.
So I have two questions. Did any of the other four
applicants ever send you an email saying, hey, get on the stick
and give us American taxpayer dollars, we need it now? Did you
get any kind of emails from Ford or Nissan or Tesla that
communicated in this fashion?
Mr. Whitcombe. There are literally thousands of emails for
each loan.
Mr. Jordan. Do you recall getting any emails that were this
direct, saying, hey, we need the money now?
Mr. Whitcombe. I have not been presented with any emails to
that effect.
Mr. Jordan. Okay. Did any of the other four get approved
for a loan when you had a senior officer at one of those
companies admitting that they couldn't meet payroll without
help from the taxpayer? Do you recall any other emails that
were from Ford, Nissan, Tesla that would say, you know what, we
can't meet payroll; we need American tax dollars and we need it
now?
Mr. Whitcombe. Sir, I would like to see who the author and
recipient of this document is.
Mr. Jordan. From Mr. Koehler, who is sitting two people
away from you, sent to Mr. Eckert at the Department of Energy.
Mr. Whitcombe. So Mr. Eckert was an investment officer at
the DOE at that point in time.
Mr. Jordan. I don't care what he was. He was at the
Department of Energy. I am asking you a question. Do people
typically talk to folks who are trying to get taxpayer money
from with this kind of language?
Mr. Whitcombe. It does matter because he worked in the Loan
Program Office, which provides the advice to the secretary
about the viability of any loan.
Mr. Jordan. You have a company that admits in writing from
the COO of that company saying we can't meet payroll unless you
give us American tax dollars, and you guys decided to give them
to them. All I am asking is Tesla, Ford, or Nissan ever send
you an email saying, you know what, we can't meet payroll if
you don't give us some American tax dollars. Straight forward
question. Do you recall any emails from those other companies
who got money who would make this point?
Mr. Whitcombe. I can't recall of that fact. What I see here
is Mr. Koehler sending an email to DOE and then a notification
that the email has been forwarded on. That is all I see.
Mr. Jordan. All right, Mr. Whitcombe, I am out of time, but
you have a company under-collateralized, CCC+ credit rating,
admits before they receive money they can't meet payroll and
they need taxpayer dollars, asks the American taxpayers to give
them a loan on a second generation product that they haven't
produced, and yet they haven't even finished the first
generation product, and the American taxpayers are on the hook
for $200 million. It makes no sense to me how the Department of
Energy can actually approve this loan from the get-go: under-
collateralized, CCC rating, second generation product yet
unseen, first generation incomplete, and they can't meet
payroll before they ask for the loan, they say that is why we
need the loan, and you guys gave it to them. And now we are
surprised that the American taxpayers are out $200 million? We
shouldn't be surprised; all the evidence points to they should
have never gotten the loan in the first place.
Mr. Fisker, let me ask you one last question to finish up
here. You said in your testimony there was no political
influence. So here is what I can't figure out. If you are an
under-collateralized company, you can't meet payroll, you are
getting a loan on a second generation product no one has ever
seen, you have a CCC+ credit rating, and yet you didn't get the
loan because of any political influence. It is amazing. How did
you get the $200 million of taxpayer money? You must have
really laid it on thick when you went in to talk to these guys.
Mr. Fisker. Well, Chairman, first of all, we had shown the
Karma at the time we started discussing with the DOE and
beginning in 2008. I do not know exactly when this document is
dated, but, as a startup company, there are always times when
you are in difficult situations. But I don't know what time
this email is dated, so I couldn't ask that specifically, but I
do know we had no special treatments.
Mr. Jordan. I yield to the gentleman from Virginia.
Mr. Connolly. I would ask the chair for some indulgence and
extra time.
Mr. Jordan. You can have as much time as you want.
Mr. Connolly. Thank you, Mr. Chairman.
I guess somebody watching this hearing might be forgiven
for perhaps misconstruing a hearing in a democratic body,
representative body like Congress, presumably designed to get
to the truth in an honest inquiry and something resembling a
Soviet show trial in which the press has leaked information
that is one-sided but predictably, of course, shows up; in
which witnesses are badgered; in which accusations are thrown
out, unproven; in which emails that may or may not have any
validity are presented as God's gospel truth and you have an
obligation to respond to them even though you have never seen
the document. We have had to take time out in this hearing for
you to even have a chance to read accusatory documents or
documents that are going to be used to make accusations.
In my view, this is not how an honorable congressional
inquiry ought to be conducted. And I also fear that in order to
get maybe cheap political headlines at the expense of the
President, I might add we spent two years doing that in this
committee and it didn't work. The American people were having
none of it. This is an honorable President and his
Administration has conducted itself honorably. Has it made
mistakes? What administration hasn't? We are opening a library
in Texas today for an administration that was rife with them on
big things.
The accusation was made that this was an administration
that was stonewalling and the least transparent in history. We
have had hearings in this committee concluding the opposite. As
a matter of fact, when it comes to transparency, this
Administration has a very good record, has made enormous
progress any way you count it; records-keeping, archiving,
posting things using the Internet and the Web, accounting for
money. Does it make mistakes? Of course it does; Government is
a big enterprise.
Mr. Whitcombe, your title is investment officer. Does that
mean that you make some kind of assessment as to the viability
of investments?
Mr. Whitcombe. Yes, it is supervisory senior investment
officer.
Mr. Connolly. Now, I know it is not your responsibility,
but if you think back in history, investments, innovative
investments, did the Wright brothers make any mistakes in their
research on manned flight?
Mr. Whitcombe. I am sure they crashed a few times.
Mr. Connolly. So they had some failures, is that right?
Mr. Whitcombe. I am sure they did.
Mr. Connolly. Henry Ford and kind of thinking through mass
production, do you think he made any failures before he hit
success?
Mr. Whitcombe. Probably so, sir.
Mr. Connolly. Thomas Edison on the electric lightbulb. In
fact, I seem to recall there was actually a fight about which
bet to make and which current to use, is that not correct?
Mr. Whitcombe. AC versus DC and Mr. Tesla. I understand.
Mr. Connolly. Federal investments. My friends on the other
side might say, well, some of these are private investments.
All right, Federal investments. The Internet, what is now known
as the Internet, started out as Darpanet. Is that your
recollection too, Mr. Whitcombe?
Mr. Whitcombe. Sometime in the 1980s, yes.
Mr. Connolly. Do think there was some trial and error and
perhaps some mistakes, failures, even, before we hit success on
how to get it just right?
Mr. Whitcombe. Probably so, sir.
Mr. Connolly. GPS technology, also a Federal investment.
Paid off for us, but could there have been some trial and error
that also included some failures before we actually got success
with the technology?
Mr. Whitcombe. Probably so, and it is pretty cheap now.
Mr. Connolly. Nuclear technology, also entirely a Federal
investment initially. Any mistakes there, failures, successes,
in the private sector as well as the public sector?
Mr. Whitcombe. Some dangerous.
Mr. Connolly. Some come to mind.
Mr. Whitcombe. Yes, sir.
Mr. Connolly. Now, we don't want any mistakes. We don't
want any failures. On behalf of the taxpayer, we want to get it
100 percent right 100 percent of the time. But that is not how
the real world works. And if we go too far for the sake of
political points down this road, we will have a chilling effect
on the ability of America to innovate, on the willingness of
Government and the private sector to make investments that risk
failure every time they make them, whether it be in the
pharmaceutical realm or the energy realm or the automotive
realm. Doesn't mean we shouldn't get to the bottom of a failure
to better understand it. But to simply highlight it for the
purpose of political exploitation has negative consequences I
know my colleagues do not intend, but they are there
nonetheless, and that is my concern with this kind of hearing,
besides the issue of fair play.
With that, I yield back.
Mr. Jordan. Mr. Whitcombe, do you know if Mr. Ford, Orville
or Wilbur Wright, or Mr. Edison lost any taxpayer money when
they were inventing the wonderful products that they invented?
Mr. Whitcombe. I am not certain of Mr. Ford's history or
the Wright brothers.
Mr. Jordan. Mr. Fisker, are you aware that the Wright
brothers or Mr. Edison lost millions of dollars of taxpayer
money?
Mr. Fisker. I am not aware.
Mr. Jordan. Mr. Koehler, do you know if those guys lost any
taxpayer money?
Mr. Koehler. No, I am not aware of it.
Mr. Jordan. Okay. When my colleague from Virginia talks
about cheap political headlines, I will point to the tape we
showed at the start of the hearing. Vice President Biden said
billions and billions of dollars worth of jobs will be created.
You want to talk about political headlines? The folks who are
pushing this program. We are just here because $200 million of
taxpayer money was lost.
Now, the one thing he got right, Kleiner Perkins is a major
investor in the Fisker company. Al Gore is a partner at Fisker.
So Al Gore not only invented the Internet, he was involved in
Fisker. So he got that part right. Everything else made no
sense. We are talking about the loss of $200 million in
taxpayer money.
The gentleman from North Carolina is recognized.
Mr. McHenry. Thank you, Mr. Chairman.
Thank you all for testifying. I want to begin, if we can
put 15C up as a slide.
[Slide.]
Mr. McHenry. Mr. Whitcombe, you can review that while I
have a question for Mr. Koehler.
This is an internal Department of Energy slide reviewed
before the credit committee. Mr. Koehler, the slide is not
important to this question. Now, in January of 2012, were you
familiar with the plan that would stop the production of the
Nina and repay $23 million back to the Government and pursue a
sale?
Mr. Koehler. No, not to my recollection.
Mr. McHenry. Oh. Well, then you should read this document.
According to Fisker and Kleiner Perkins, actually, Mr.
Fisker, if I could ask you, do you recall proposing a sale of
Fisker and repaying the loan back to Department of Energy?
Mr. Fisker. Excuse me. When is this document from?
Mr. McHenry. Just listen to my question. Are you familiar
with a plan from January of 2012 by which you would forego the
Nina, the production of your automobile here in the United
States, and repay $23 million already advanced from the
Government back to the Government?
Mr. Fisker. I do not recall ever seeing that document.
Mr. McHenry. No, I am asking you a question. I said forget
the document.
Take the document down, please.
These documents seem to perplex this panel, which that is a
whole different subject for preparations for this question.
Did you offer the Government to repay the loan and forego
the production of your automobile?
Mr. Fisker. Congressman, I was not involved in those
discussions. I am not aware.
Mr. McHenry. So you are familiar with the discussions?
Mr. Fisker. No, that is what I am saying. I was not
involved in such discussions.
Mr. McHenry. So you never offered to repay $23 million back
to the Government?
Mr. Fisker. I was not involved in any such discussions.
Mr. McHenry. Okay.
Mr. Fisker. If there were any.
Mr. McHenry. Do you know of any discussions to repay the
Government and pursue a sale of your company?
Mr. Fisker. Not in the way you mention.
Mr. McHenry. Okay, then in what way?
Mr. Fisker. No, I know of ongoing discussions about
investors and different opportunities.
Mr. McHenry. So tell me about those opportunities.
Mr. Fisker. Well, we have always been raising money, but I
don't think it is appropriate to sit here and talk about the
private financial institutions we are working with as a private
fund.
Mr. McHenry. So how much taxpayer dollars have you lost,
American taxpayer money have you lost?
Mr. Fisker. I am assuming you are talking about Fisker
Automotive. At this point in time, I do not believe that any
taxpayer dollars have been lost.
Mr. McHenry. None. Okay. So you plan to repay the loans and
the money you have already received from the taxpayer.
Mr. Fisker. Congressman, I am no longer with the company,
so I am not familiar with that.
Mr. McHenry. Oh, fantastic. So let me ask you, Mr. Koehler,
since Mr. Fisker said we haven't lost any money with the
company that bears his name. Does Fisker plan to repay the
Government?
Mr. Koehler. Well, right now, as we speak here, we have our
management team and I am working on potential solutions.
Mr. McHenry. Okay, is one of those solutions pursuing a
sale?
Mr. Koehler. Strategic investment, new capital from
investors, and then to continue to repay the Department of
Energy loan.
Mr. McHenry. Okay. In January of 2012, were there
discussions about getting added investment or pursuing a sale?
Mr. Koehler. We talk about additional capital all the time,
but I am not aware of a sale.
Mr. McHenry. Okay. Well, what we have here is a Department
of Energy Loan Program Office document that actually went
before the Credit Committee.
Mr. Whitcombe, have you seen this slide before?
Mr. Whitcombe. I have not seen this document. I have not
had a chance to review it.
Mr. McHenry. Okay. This was before the Credit Committee and
they discussed forgoing the Nina. DOE refused to resume
advances until September time frame. Fisker and Kleiner Perkins
said they would forego the Nina, repay the $20 million already
advanced for Nina, and pursue sale or move company to China or
Russia, either of which would require first repaying the DOE
loan.
Mr. Fisker, are you familiar with anything that this slide
has outlined for your company?
Mr. Fisker. Congressman, no.
Mr. McHenry. Okay. Were you with the company in January of
2012?
Mr. Fisker. Yes.
Mr. McHenry. Okay. And what was your role then?
Mr. Fisker. I was executive chairman.
Mr. McHenry. Okay. So perhaps if you are pursuing a sale of
your company, proposed it, or had the idea to, to a major
creditor, you might be involved with it.
Mr. Fisker. I probably would, but I did not see this
document.
Mr. Mchenry. Okay.
Mr. Koehler?
Mr. Koehler. No, I haven't seen that and I haven't heard
this.
Mr. McHenry. You have not heard of this scenario?
Mr. Koehler. No.
Mr. McHenry. Okay. Then we are going to move to another
one, because this is fascinating because they were
contemplating. Don't worry, they rejected it. They rejected
what they thought was an offer of $23 million to repay back the
taxpayer.
So let's go to the next slide.
[Slide.]
Mr. McHenry. An update on 5/1/12, so May 1st. The Risk
Committee voted to decline Fisker's offer to prepay
approximately half their outstanding loan amount and offer DOE
a commercial high-yield note for the balance.
Mr. Fisker, were you with the company on May of 2012?
Mr. Fisker. May of 2012? Yes.
Mr. McHenry. Are you familiar with an offer to repay
approximately half the outstanding loan amount to the
Department of Energy?
Mr. Fisker. Congressman, there were several negotiations
going on, usually led by the CFO in the company, and I was not
part of most of these negotiations.
Mr. McHenry. But you are familiar with an offer to repay
the loan?
Mr. Fisker. Not this offer. I do not recall that.
Mr. McHenry. What offer are you familiar with?
Mr. Fisker. Not an offer, no.
Mr. McHenry. Okay, you are not familiar with much, it
sounds like, and that is fantastic. We understand your
willingness to not provide this information.
Mr. Koehler, are you familiar with that offer? You are a
chief operating officer of the company. Are you familiar with
an offer to repay what appears to be about $93 million back to
the Department of Energy?
Mr. Koehler. At the time I was chief business development
officer, not chief operating officer any more, but I was not
involved in these discussions, so I haven't heard any of it.
Mr. McHenry. None of it?
Mr. Koehler. No.
Mr. McHenry. Oh. Well, Mr. Whitcombe, we will go to you. We
will see if you can enlighten us on any of this.
Mr. Whitcombe. Your question, sir?
Mr. McHenry. Sure. Are you familiar with either of these
things I have asked your other panelists?
Mr. Whitcombe. I haven't seen this document before.
Mr. McHenry. Okay, I am not asking if you saw the document.
I am asking you are you familiar with an offer to repay the
Government by Fisker.
Mr. Whitcombe. I am not familiar of an offer by Fisker. As
I understand, there were multiple discussions going on with
respect to raising high-yield capital for dollar amounts that I
don't know, of which would possibly be used to repay some loan
amounts or to redeploy to the business.
Mr. McHenry. So at any time did the Department of Energy
reject a repayment from Fisker?
Mr. Whitcombe. As I am aware, we made no rejection directly
to Fisker for not repaying the loan.
Mr. McHenry. Okay. Well, we will provide you with the
documents, Mr. Whitcombe. I will have extensive questions and I
would expect that you would endeavor to answer. It is an
inordinately frustrating when your delaying of these questions
based on just trying to slow-play the answers. That is
extraordinarily frustrating. But in written form we will
provide you all these documents that I have referenced here
today, and I would hope that you would have a better response
than you have been able to provide this committee on this
important issue of taxpayers losing money.
The real issue here, Mr. Chairman, is that the Government
shouldn't be in this business of actually trying to be a
venture capitalist. The Government is a very poor venture
capitalist. And what I mean by that is we lose taxpayer
dollars. And when we lose taxpayer dollars, it outrages the
public that has to pay for salaries of Government workers, some
that do a fantastic job. But when you are a senior secured
lender, as you have testified, Mr. Whitcombe, you should
actually have collateral. I have extensive slides from that. I
am sure you will have no comment on it.
So, Mr. Chairman, I will be happy to yield back.
Mr. Jordan. I appreciate the gentleman's questions, a great
line of questioning. Here is what I don't get: someone is not
being square with us. I mean, it was part of a presentation in
front of the Risk Committee at Department of Energy, on
Department of Energy letterhead, about a proposal to sell
Fisker and recoup taxpayer money, and Mr. Whitcombe says he
doesn't know anything about it and Mr. Fisker and Mr. Koehler,
who run the company, don't know anything about the offer. So
what gives? Was it made up, Mr. Whitcombe? Did someone just
decide to put that together on a piece of Department of Energy
stationery? What is the deal?
Mr. Whitcombe. I can't make any presumptions of what the
Credit Risk Committee did.
Mr. Jordan. Was there an offer or not? These are the guys
who run the company who are saying we don't know anything about
an offer to sell the company and recoup taxpayer dollars. But
it is right there in front of us.
Mr. Whitcombe. I will have to take that for the record,
sir, and get back to you on whether we received a formal offer
from the company.
Mr. Jordan. Mr. Fisker, you don't know anything about it?
It is your company. No wonder you guys are in trouble if you
don't know about a proposal to sell the company.
Mr. Fisker. Chairman, I was sitting on the board at that
time and I know that there were ongoing discussions.
Mr. Jordan. The company is Fisker. Your name is Fisker. You
are chairman of the board and you don't know about a deal to
sell the company to recoup taxpayer dollars?
Mr. Fisker. I know that there were ongoing discussions with
the Department of Energy.
Mr. Jordan. The question was real simple from Mr. McHenry
about the deal. You don't know anything? You said, I don't
know.
Mr. Fisker. I have not seen that particular paper.
Mr. Jordan. So let me ask you this. Kleiner Perkins, were
they representing you, proposing deals that you didn't know
about?
Mr. Fisker. I don't know.
Mr. Jordan. Yes or no?
Mr. Fisker. I don't know.
Mr. Jordan. Do you think it might have happened?
Mr. Fisker. I can't answer that.
Mr. Jordan. Mr. Whitcombe, did that proposal come from
Kleiner Perkins and not from Fisker?
Mr. Whitcombe. We dealt with Fisker as the borrower
directly. Kleiner Perkins was an equity investor in the
company, but our loan was with Fisker, and that is who we had
all discussions with, with Fisker senior executives and the
board of directors.
Mr. Jordan. All we want to know is if the offer was made.
You can't tell if it was made; the head of the company can't
tell if it was made. That is unbelievable. Unbelievable.
All right, I am going to recognize the other gentleman from
North Carolina.
Mr. Meadows. Thank you, Mr. Chairman.
And thank you for your testimony here.
Mr. Fisker, if we could look at this slide they will be
putting up, slide 13A, which is from the Department of Energy
in October of 2011, it states that in April 2010 you expected
to sell 14,000 Karmas in 2011. In reality, though, we know that
production for the Karma did not start until September of that
year. And as of this presentation, which is actually a
presentation in October of 2011, it was estimated that you
would sell 542 Karmas by the end of the year. So we go from
14,000 to 542 Karmas. Did you actually sell 542 Karmas in 2011?
Mr. Fisker. Congressman, let me clarify. In a ramp up in
production, the production numbers are very low in the first
several months. Then as the production moves to the end of the
year, obviously we were looking at a very low production ramp,
and I believe we sold about 280, between 250 to 300 cars by the
end of 2011.
Mr. Meadows. So you went from 14,000 in the first part of
the year, you ramped up and revised the estimate to 542, but
then within a three-month time period you couldn't actually
project how many cars you were going to do, and you ended up at
half the number you projected in the fall of 2011, is that
correct?
Mr. Fisker. Well, congressman, as our production was
delayed, it was very hard to estimate before we had the final
certification and everything was done, so it was literally week
by week. Even if you miss a week, you miss, obviously,
production.
Mr. Meadows. All right, so let's say we miss that.
Let's go on to the next slide.
[Slide.]
Mr. Meadows. Can you look at this slide, which is slide
number 15? This is from the Department of Energy's review of
the loan application from 2009, and it stated that you would
sell over 7,000 Karmas in 2010, 15,000 between 2010 and 2013;
you would come up with some 60,000 Atlantic, the new version,
by that 2011 time frame; and another 60,000 by 2012. My
question is how in the world did you convince anybody that you
could do this kind of production, when you didn't even produce
1 percent of that?
Mr. Fisker. Congressman, could I have a copy of that?
Mr. Meadows. Sure. We will be glad to provide that for you.
But we had unbelievable estimates of over 120,000 vehicles. I
would say that we misnamed the car. It shouldn't be the Karma,
it should be the Karnac. And that is how we come up with these
numbers.
Mr. Fisker. Congressman, as I look at these numbers from
far away, I would like to just double-check the document.
Mr. Meadows. I mean, this was part of the review process
for the loan that we were going through with Mr. Whitcombe and
his agency. So you were coming up with all these numbers based
on what?
Mr. Fisker. Congressman, this is not numbers from the final
business plan submitted to the DOE. This is not the correct
document.
Mr. Meadows. Okay. Well, how many did you estimate? Because
we have a number of documents we will be glad to provide, and
maybe these are some that you can answer directly. How many did
you estimate that you would build?
Mr. Fisker. So when we were working on due diligence in
2009 for the Department of Energy loan and for the business
plan, we invited all our dealers in the U.S., our importers
worldwide to help us confirm the numbers. We also had, through
the DOE due diligence, A.T. Kearney come out and verify our
projected sales numbers, and everybody were verifying the
numbers that we submitted to DOE in the final form.
Mr. Meadows. So you are saying these are incorrect. What
are the correct numbers? How many did you estimate that you
would build, of the new car that was supposed to be built in
the United States, not the one in Finland?
Mr. Fisker. These ones here are incorrect. I don't have the
final numbers in my head of all the different years, but this
is incorrect.
Mr. Meadows. I would assume that you lived, breathed, and
ate automobile for a long period of time, so you know what the
expectation was. How many, just very simply? We will let you be
plus or minus 1,000. What was the number?
Mr. Fisker. So when we submitted the final plan and we had
already worked on the vehicle for two years and invited dealers
out, as I said, and built up our dealer network, we projected
the initial Karma volume I believe about 11,000 for the first
year.
Mr. Meadows. Okay. So you didn't do anywhere close to
11,000 the first year. Was it 200? What was your testimony?
Mr. Fisker. Well, as I said before, there was a ramp up, so
you cannot really count that as a first year.
Mr. Meadows. Okay, well, to date how many have you
produced, 2,000?
Mr. Fisker. Well, as I mentioned in my statement, we came
into several unfortunate events that hit us like a domino
effect.
Mr. Meadows. So you are saying that you didn't produce
enough cars because of Hurricane Sandy? Is that your testimony
today?
Mr. Fisker. My testimony is that we hit several unfortunate
events such as the bankruptcy of our battery supplier, such as
recalls from a faulty battery; and obviously that had a very
strong impact on consumer confidence. It takes one day to take
down consumer confidence, but several months to build it back
up.
Mr. Meadows. So your failure is not based on any negligence
or lack of due diligence on your part, it is all these external
factors, is that correct?
Mr. Fisker. We did, as I said, a lot of due diligence back
in 2009; not only us internally, but with our recognized dealer
body here in the U.S., as well as international importers, A.T.
Kearney, which is a recognized marketing firm.
Mr. Meadows. All right, so when you got approved for the
loan, from this taxpayer funded loan, how many cars had you
built at that particular time?
Mr. Fisker. When we got the initial approval, the Karma was
still under development.
Mr. Meadows. So you had zero cars that had been produced
when you got the loan.
Mr. Fisker. The car was still in development.
Mr. Meadows. So that is zero, is that correct?
Mr. Fisker. Yes, sir.
Mr. Meadows. Yes or no?
Mr. Fisker. That is correct.
Mr. Meadows. Okay. All right, so let's go a little bit
further.
Slide 17. This is from March 3rd of 2010. It is an email
where it talks about that Fisker was originally rejected by the
CRB since the manufacturing was to be outsourced to Finland,
okay? So no U.S. jobs. The deal was amended to pull in the next
stage of Fisker cars, that never got built, by the way, to be
manufactured in the United States. Since Fisker had yet to
build the first generation model, I thought it was very risky
to lend against a second generation, which I would agree with,
but that was what was required to ``meet the policy
requirement.''
Mr. Cartwright. Mr. Chairman, I have a point of order. I
think in fairness to the witnesses they should have these
documents in front of them, instead of having to try to squint
and read them off.
Mr. Meadows. We will be glad to do that, Mr. Chairman.
Can I get them copies, please?
Mr. Jordan. The staff will take documents to them.
Mr. Meadows. All right, but meeting the policy requirement.
So that policy requirement, I guess, would be that we would
want to create American jobs. Is that correct? Is that the
policy we are talking about?
Mr. Fisker. We had, in fact, up to 600 jobs at Fisker
Automotive at one point in time here in the U.S., and every
money we spent from the Department of Energy loan was spent
here in the U.S.; no money went to Finland whatsoever.
Mr. Meadows. All right, so out of all the money that we
spent, you spent it all here in the United States. But that
allowed you to take private equity and spend on the production
of the cars in Finland, is that correct?
Mr. Fisker. The money that was spent in the U.S. was
basically receipts that were given to the DOE to make sure that
this money was spent here, that the money was already spent in
the U.S., and we then got compensated from the DOE on that
particular amount that was spent here in the U.S. developing
advanced technology and creating jobs here in the U.S.
Mr. Meadows. All right, so as we start to look at this, let
me go a little bit further. Based on this email, can you
explain this to me? It appears that they made the loan based on
faith, not on any real due diligence, because their comment is
that it is very risky to loan on a second generation car when
the first generation car, as your testimony just admitted, had
never been produced. So we have no cars and yet we are loaning
on a second, better improved car.
Mr. Fisker. Well, first of all, I can't speak on behalf of
the DOE.
Mr. Meadows. Would you have made the same kind of loan?
Mr. Fisker. Well, yes, at that time I would say that we had
a very good development process already, we had already gotten
very far with development on the powertrain. We had already
spent two years developing the powertrain and the car by the
time we got the Department of Energy loan. In fact, we had
already started the second generation car before we were
awarded the Department of Energy loan in April.
Mr. Meadows. But according to some of the documents I have
read, there is only 60 percent of that that actually translated
over to that second generation car. So the work you do on the
first generation, there is only 60 percent that would translate
over.
Mr. Fisker. Well, the important part that would translate
over was the powertrain, the technology is very important. It
was second generation technology that was lower cost, higher
volume. That is really the important part in this whole
process. To start out with a technology that is expensive, just
like when the flat screen TV was $20,000; today it is $500.
That, I think, is a recognized model. In any new technology you
start out with expensive.
Mr. Meadows. But most of the time we were already producing
TVs when we do that.
I can see I am out of time. I have several other questions
that I will submit for the record. What happens is we started
here with Vice President Biden. He was talking about billions
and billions and billions of jobs; he says we are going to
write a new chapter. Then he came back to say, again, we are
going to rewrite a new chapter. And I think he is probably
right, but the chapter is chapter 7, it is not a new chapter in
automobile history.
I yield back.
Mr. Jordan. We will have a second round.
Mr. Issa. Mr. Chairman?
Mr. Jordan. The gentleman of the full committee is
recognized.
Mr. Issa. I appreciate that. I will use the time but,
actually, I was asking unanimous consent that the documents
referred at this time be placed into the record and also
distributed to both sides of the dais and to our witnesses. And
I have asked them to do that, if there is no objection.
Mr. Jordan. Without objection.
I would point out the documents are coming up on the screen
right in front of Mr. Whitcombe; it is not like they can't see
them. But we will do that as well, and I think it is a great
idea.
Mr. Issa. Thank you.
Mr. Jordan. So ordered.
The gentleman from Georgia, then we will move to a second
round.
Mr. Collins. Thank you, Mr. Chairman.
As we have discussed chapters, as we have discussed grand
visions and plans, this is just, again, more and more amazing
as I sit and I look at the discussions that are going on not
just here today and the money that is lost here, or, as you
have testified, which amazingly so has not been lost,
undoubtedly is going to be repaid. Is there a time frame that
you believe that the Fisker company is going to be paying this
loan back?
Mr. Fisker. Congressman, I am no longer with the company,
so I can't speak for the company.
Mr. Collins. But when you were, were there any plans to be
paying it back?
Mr. Fisker. Yes.
Mr. Collins. You made a statement that the American
taxpayer had not lost any money.
Mr. Fisker. At the time I was with the company, the plan
was to follow the Department of Energy payment plan.
Mr. Collins. Okay. And there was a plan in place to
actually pay that money back?
Mr. Fisker. The official plan, correct.
Mr. Collins. And considering where the company is right
now, is that a viable plan?
Mr. Fisker. I cannot speak to that.
Mr. Collins. Was it when you left?
Mr. Fisker. I believe that the company has developed a
tremendous value and I believe that the company, if it does get
investors into the company, has the possibility of a path
forward.
Mr. Collins. And then if we hope real hard and squint real
hard, this might actually happen. Is that what the company is
sort of basing it on? Because right now it shows no ability to
do that.
Mr. Fisker. Like I said, I can't answer for the company's
current financial.
Mr. Collins. Okay, we will give you a break for a second.
Mr. Whitcombe, in documents, again, obtained, and to save
us some time here, if you need to see these, we will put them
up. Instead of having to say that they are not up, I am going
to read part of it. It appears that the Department of Energy
tightened the standards on these loans after the loans were
given to Fisker. In fact, there was a number of companies in
the cue, if you would, startup electric car companies who were
in the pipeline that expressed frustration at not meeting swift
approval.
On March 2nd, 2010, which this will be number 20 on the
slide, and all I am going to focus on, and I will read it for
you, it says, As I mentioned to Jason earlier in an email, the
credit standards have indeed become a bit more stringent since
Tesla and Fisker deals went through. So I just want to be sure
we have all our issues nicely boxed before we head to the
committee.
So you can take that down.
At this point in time, the question I have is, Mr.
Whitcombe, it appears from this email between Ms. Cleghorn and
Sandy here, and these that are listed, it appears that the
credit standards afterwards were made more stringent at the
Department of Energy. I have a question about that because you
made the statement in your opening that you do more than even
private enterprise looking at this. My question is how did the
credit process get more stringent? Did the Department of Energy
decide to stop giving loans to companies with CCC+ junk status
credit?
Mr. Whitcombe. Give me a moment, I will finish up reading
this question here. This is the first time I have seen this
document here, and I understand in this series of time, March
2nd, 2010, they were looking at a particular credit, not
Fisker.
Mr. Collins. Okay, let me just stop right here, then. I am
going to help out. And I understand. I will give you just a
second as you are reading. Let's just go yes, no. Would it be
safe to say that after the Fisker deal that the credit
standards were made more stringent, yes or no?
Mr. Whitcombe. Each application has its own----
Mr. Collins. Yes or no? Because I am not asking about other
applications.
Mr. Whitcombe. This email from an outside consultant
implies that credit standards were made more stringent after
Fisker.
Mr. Collins. Right. Because there were others in the
pipeline wanting to know why the process was not moving along.
If it was made more stringent, which it appears it was being
made more stringent with the company that was dealing with this
all the time, what was made more stringent?
Mr. Whitcombe. Any number of factors could have been made
more stringent, which could be the product; the product market;
the source of capital; the particular product line; the market
to which they would sell, whether it is a $30,000 car or a
$100,000 car; concentration of risk. It could be any number of
factors.
Mr. Collins. So maybe this discussion of how well it is
vetted, and these companies were vetted before Fisker, was not
as well vetted as we were led to believe, since now, after this
loan was made, we needed to tighten this up and it wasn't as
strong as being portrayed here.
Mr. Whitcombe. I don't believe the quality was any less
earlier on, sir.
Mr. Collins. So it was just an interesting thing that after
Fisker these became a different standard?
Mr. Whitcombe. I don't believe the quality of the credit
analysis was any less, sir. There is a high quality of credit
professionals working in the DOE who are dedicated employees,
along with the credit advisors they have. If you notice Grant
Thornton on here with Fisker. Also we had Booz Allen Hamilton,
A.T. Kearney. We had, as a legal advisor, Debra Wasson Clinton.
We had a great team in place.
Mr. Collins. And at this point I believe there is also a
policy issue that we are looking at here. And after it became
evident that we had these billions and billions coming through
anyway, we will just leave that for its own statement, they
decided, well, maybe we shouldn't be letting these loans go to
junk status companies on a CCC+ rating.
Mr. Whitcombe. There was a large credit subsidy set aside
to account for innovative manufacturing companies.
Mr. Collins. Read that in your letter. Basically you are
new, we are going to lose money.
Mr. Whitcombe. In this case, sir, Fisker is a startup
company. We had many startup companies within the portfolio of
applications.
Mr. Collins. Moving right along.
Slide 19.
[Slide.]
Mr. Collins. This is interesting, and we are going to
continue this line, Mr. Whitcombe. This email specifically
states that Fisker made the loans more difficult only a few
months after the DOE started giving money to Fisker, and it
says this, and there was a statement from the email that said
this is incredibly important, and especially with AT&B, as they
have not been through the approval process since Fisker and
have no real sense of how much tougher things are. That is a
definitive statement in there saying that things are harder,
that there is something else in there that is making it more
difficult. Again, I want to go back to this. What was it
specifically about the Fisker loan that required making the
application process more difficult? This is sort of a follow-on
of the previous question.
Mr. Whitcombe. Sir, lending to a high-tech company in the
automotive industry is----
Mr. Collins. So we have no clue?
Mr. Whitcombe. Excuse me?
Mr. Collins. So we just don't know? It is just being
perceived as harder?
Mr. Whitcombe. I wouldn't say we know. Look at the title of
the program: Advanced Technology Vehicle Manufacturing Program.
Each one of those words implies it is very difficult in this
sector to lend. It is on an ongoing basis. The people who
worked on this program, including these two people, who are
consultants.
Mr. Collins. But, sir, with respect, that is not my
question. That is not my question. My question is what was made
tougher. Or what was the perceived difference after Fisker? It
is not how you do it, and it is not the quality of people doing
it, and it is not questioning the character of them wanting to
come to work and do a good job. The question specifically is if
the perception is it is harder, what made it harder?
Mr. Whitcombe. As I am aware, at the time, the ATVM credit
guidebook, which was for the group, had not changed. There is
no specific evidence that I can imply that credit standards had
gotten tighter.
Mr. Collins. So this was an unwarranted assessment? This
email is an unwarranted assessment?
Mr. Whitcombe. This email is from Jim Cray, a third-party
consultant, to Sandy Cleghorn's Hotmail address.
Mr. Collins. Would you not say that they have dealings with
your loan program?
Mr. Whitcombe. They are advisors.
Mr. Collins. Are they familiar with the loan program?
Mr. Whitcombe. They are advisors and they are familiar with
the loan program.
Mr. Collins. And they have watched how it goes by and their
perception is, who deal with this regularly, that it became
tougher after Fisker and, in fact, actually seemed to end after
Fisker, because none were ever sent forward since then. Would
that not be a fair assessment of what is being said here?
Mr. Whitcombe. This is their opinion, a third-party's
opinion in an email together with each other. As you know, we
make our advisements to the Secretary based on the merits of
the transaction, based on the information that we have at the
time.
Mr. Collins. Yes or no, do you feel this is a fair
assessment? Do you feel it is a fair assessment that the
standards were made tougher after the Fisker sale, yes or no?
Not how they did it, but is that the perception being said here
in this email?
Mr. Whitcombe. I can't answer that question, but I will
tell you I have been lending for 21 years and I have a very
high sense of the credit conservatism. Loans in this sector
involve significant amounts of capital. The capital-intensive
projects up-front costs, it is very difficult to analyze this,
and the credit professionals at the time did their very best to
understand all the risks, described those risks, structured a
loan, and advised the secretary accordingly.
Mr. Collins. I appreciate that, because, again, I am going
to re-ask the question I just asked after I ask this question.
Will you answer my question, yes or no?
Mr. Whitcombe. Yes, sir.
Mr. Collins. Okay. Is it a fair perception that the
standards got tougher after Fisker, yes or no?
Mr. Chairman, I yield back. This is getting us nowhere.
Mr. Jordan. Appreciate this. It just confirms why we need
to have more hearings and have someone from the Department who
is will in fact answer the questions.
Let me do this. Mr. Fisker, Mr. Koehler, let's assume you
guys are smart business people. Would you invest your money,
your capital in a company with a CCC rating; a company that
would be under-collateralized, collateralized to half the value
of the loan; a company that couldn't meet payroll, as evidenced
by what Mr. Koehler sent.
You have a different company, but the company that sends an
email similar to what Mr. Koehler sent to the Department of
Energy. Would you put your own private money in a company with
those characteristics, CCC credit rating, under-collateralized
to half the value of the loan, couldn't meet payroll; give me
the money, look the other way, give me the money, I need to
meet payroll? Would you give your private money to a company
like that?
Mr. Fisker. Mr. Chairman?
Mr. Jordan. Not Fisker. Let's just say some company has
that characteristic out there. Would you give your money to a
company like that?
Mr. Jordan. Mr. Chairman, I put my last money in this
company during such a time, in 2009.
Mr. Jordan. Mr. Koehler?
Mr. Koehler. My answer is when you look at the Department
of Energy----
Mr. Jordan. No, the question is would you put your own
money, not taxpayer money, would you put your money at risk.
Mr. Koehler. The risk was greatly minimized with additional
private equity we had to bring in from the outside.
Mr. Jordan. Well, to me, that explains why you guys lost
$200 million of taxpayers' money. If you put your money in a
company with those characteristics, that makes no sense to me
at all.
Let's go to this. Mr. Fisker, is Kleiner Perkins a major
investor in Fisker company?
Mr. Fisker. I prefer not to discuss individual investors.
Mr. Jordan. Mr. Fisker, let me tell you something. Here is
the way it works: you take taxpayer money, you are supposed to
answer the questions. That is why we called you here. You can't
just say, oh, I don't want to answer the questions, I don't
know about any loan. You took $200 million of taxpayer money. I
would prefer not to have to ask these questions to any private
company but you know what, you signed up for the deal. When you
take taxpayer money and you lose $200 million, that is the risk
you take. That is why you are in front of this committee having
to answer questions. So the question is was Kleiner Perkins an
investor in your company.
Mr. Fisker. Mr. Chairman, I think, first of all, as a
private company, we like to treat our investors privately as
they make these investments.
Mr. Jordan. You forego that when you sign up and take the
deal, Mr. Fisker. Were they an investor in your company?
Mr. Fisker. Well, as I said before, I prefer not to talk
about individual investors.
Mr. Jordan. It has been widely reported that Kleiner
Perkins is an investor in your company. Are those news reports
accurate?
Mr. Fisker. We have read the reports of that news and
Kleiner Perkins----
Mr. Jordan. Is the news right or wrong?
Mr. Fisker. Kleiner Perkins has a board member and a board
seat at Fisker Automotive and an investment.
Mr. Jordan. Okay. And is it true that Mr. Gore, Al Gore, is
a partner at Kleiner Perkins and John Doerr is a partner at
Kleiner Perkins? It has been widely reported in the news that
that is the case. I am asking you have you read those same
reports and are they accurate.
Mr. Fisker. Yes, I read those reports.
Mr. Jordan. Okay. And the fact is Kleiner Perkins has given
over $2 million in political contributions in the 2008 election
cycle, most of which went to Democrats, including President
Obama. Did that in any way, in your judgment, influence the
ability for Fisker to get a loan, get taxpayer money from the
Department of Energy?
Mr. Fisker. As I stated earlier, Fisker has not exercised
any undue political favors or anything like that, and I am not
aware of any.
Mr. Jordan. Did Al Gore have any influence on Fisker
getting a loan from the Department of Energy?
Mr. Fisker. Not that I am aware of.
Mr. Jordan. So you are telling me these guys were
investors, widely reported in the news, they were big investors
in Fisker and they didn't have any influence on the process at
all?
Mr. Fisker. Not that I am aware of, no.
Mr. Jordan. Okay. John Doerr is the general partner at
Kleiner Perkins, was an outside advisor to President Obama and
met with him and key advisors many times to provide advice on
the Administration's green energy agenda. Again, widely
reported in the press. Did John Doerr influence your ability to
get a loan or the status of your loan after it was already
given?
Mr. Fisker. The designated board member at Fisker
Automotive was Ray Lane, so I am not aware of what John Doerr
did or did not do.
Mr. Jordan. Did Ray Lane have any influence?
Mr. Fisker. Not that I am aware of.
Mr. Jordan. Well, we understand that on May 24th, 2011,
John Doerr, Ray Lane, of Kleiner Perkins, widely reported to be
an investor in Fisker, had a meeting with Jonathan Silver, who
was the director of this ATVM program at the time, and others
at the Loan Program Office. To your knowledge, was Fisker
discussed at this meeting?
Mr. Fisker. I am not aware of that.
Mr. Jordan. They didn't tell you? They are big investors.
Mr. Fisker. I do not recall this meeting.
Mr. Jordan. Well, that is actually the month before the
loan was frozen. You don't know if it was talked about? One
month before it is frozen, these guys, big investors in your
company, meet with Jonathan Silver, the guy who runs the
program, and you don't know if they talked about Fisker?
Mr. Fisker. Like I said, I do not recall this meeting.
Mr. Jordan. Mr. Whitcombe, do you know if they talked about
Fisker at that meeting?
Mr. Whitcombe. I don't know if they talked about Fisker.
Mr. Silver was not on the Credit Committee, not on the Credit
Review Board, and did not make any offers of conditional
commitments.
Mr. Jordan. He runs the program, right?
Mr. Whitcombe. Excuse me?
Mr. Jordan. He is the boss of the program, right?
Mr. Whitcombe. He is the executive director of the program,
but he doesn't sit on those committees and he doesn't make the
offers.
Mr. Jordan. He is ultimately responsible, right? That is
how I view executive director. And he met with two guys who
were part of Kleiner Perkins, a major investor in the company.
I am just asking do you think they might have talked about
Fisker?
Mr. Whitcombe. He could have.
Mr. Jordan. All right.
Mr. Fisker, you guys bought a GM plant in Delaware as part
of your loan agreement with the Department of Energy. Did the
fact that Vice President Biden was from Delaware have anything
to do with your decision to build a plant there?
Mr. Fisker. No, we did not build a plant, we bought a
plant, but had no decision.
Mr. Jordan. Okay. Was there any talk of you locating in
Delaware because it was not a right-to-work State?
Mr. Fisker. No. We chose Delaware because of a great paint
facility close to the port because we were planning to export
more than 50 percent of the cars there, and there was a skilled
labor force there as well.
Mr. Jordan. All right.
I am going to yield to the chairman. Oh, excuse me, I have
to yield to the ranking member. You have been waiting
patiently. The gentleman from Pennsylvania.
Mr. Cartwright. Thank you, Mr. Chairman.
First, Mr. Chairman, I would like to first mention I would
like the public journalists and the public reporting the
proceedings today to know that every question asked today by
the majority which referred to emails or perceptions of two
individuals whose names we have heard, Ms. Cleghorn and Mr.
McRay, were unfortunately individuals who were not informed by
any conversation, interview, or request to those individuals
about what the context was for these exhibits. In my opinion,
the majority really has established no significance whatsoever,
the emails entered into evidence today, and, in fact, we have
good indication that they are being taken out of context.
For example, when we talk about emails form 2012, Mr.
Whitcombe, is it not true that Federal funding, Federal loan
guarantees for Fisker ended in 2011? Is that true?
Mr. Whitcombe. The last draw for Fisker was in early 2011.
Mr. Cartwright. So they got no further draws after that, am
I correct in that?
Mr. Whitcombe. No, they didn't receive any more advances
under the loan agreement.
Mr. Cartwright. All right.
Now, Mr. Fisker, your testimony includes statements that
there is hope yet for this company, am I correct in that?
Mr. Fisker. I believe that the company has tremendous
value. An amazing powertrain, developed another product for the
future, which is to 90 percent engineered and 100 percent
design; and all this IP lies within Fisker Automotive.
Mr. Cartwright. Now, I do believe it is a fair question on
behalf of the American taxpayers for us to know is there a
possibility that we can yet be repaid the loan money that the
Federal Government has paid out.
Mr. Fisker. Congressman, I am no longer with the company,
so I cannot state on behalf of the company, but I do believe
there is a lot of value in this company and I do believe that
there is a possibility, but I cannot state on behalf of the
company.
Mr. Cartwright. Well, let me go at it this way. A hearing
like this, does it make it easier or harder for a company like
Fisker to move forward and attract private financing, including
new investors?
Mr. Fisker. Well, obviously, a company in distress, it is
very tough to go through events that amplify that distress,
where it really should be concentrating on capitalizing on the
value within the company, concentrating on dealing with
potential investors, choosing investors; and obviously, as we
can see, the company has a lot to deal with, so it is probably
very tough to be in the situation right now.
Mr. Cartwright. And I am going to extend that question to
Mr. Koehler. You are still with the company. The American
taxpayers would like to get some or all of their money back
from the Fisker company. A hearing like this, does that make it
more or less likely that we will get our money back?
Mr. Koehler. Well, it highlights the situation, of course.
The media effect plays another role. We the company, we are
working on this right now. We understand our responsibility to
our investors as well, so we work day and night in finding a
solution, and hopefully we will.
Mr. Cartwright. Okay.
Now, Mr. Whitcombe, you have heard out loud charges that
political cronyism resulted in this loan guarantee to the
Fisker company. My question is are you aware of any truth to
that statement whatsoever?
Mr. Whitcombe. Sir, I am not aware of any truth to that
statement at all. We make our loans based on the merits of the
transaction. I will also add if there was political cronyism
and did affect the staff of the office of the loan guarantee
program, you wouldn't have much of a staff after that. There
would be no compelling reason to be a professional there.
Mr. Cartwright. Well, now, you have due diligence
procedures to check out a company before loans like this are
approved, am I correct in that?
Mr. Whitcombe. We conduct extensive due diligence for all
our loan program applicants for 1705, 1703, ATVM to the extent
that those applicants are eligible and provide sufficient
information to us, and then when we decide actually to enter
into any kind of negotiation with them.
Mr. Cartwright. Have you seen any evidence that the due
diligence procedures that the Fisker company was subjected to
are any different from th due diligence procedures that Ford,
Nissan, or Tesla were subjected to?
Mr. Whitcombe. The due diligence procedures that Fisker
experienced, based on the credit documents that I read, were
robust, solid, detailed, and time-consuming as well. I think we
spent over 9 months in due diligence before the offer of
conditional commitment was made to the company.
Mr. Cartwright. Thank you. Finally, Mr. Whitcombe, you are
familiar with the Energy Independence and Security Act of 2007.
Is there anything in that Act that requires a guarantee of 100
percent success and 100 percent return on the American
taxpayers' investments in these types of new technology.
Mr. Whitcombe. I am sorry, could you repeat the question
again, sir?
Mr. Cartwright. Under the Act, is there something that says
we are guaranteed to get 100 percent back of every loan
guarantee we issue?
Mr. Whitcombe. It doesn't provide for that at all. It
states the eligibility requirements, the fact we have to have
sufficient information, maximum leverage ratios, the types of
vehicles and automobiles that we could potentially make loans
to.
Mr. Cartwright. I thank you for that. I also appreciate Mr.
McHenry's statement about slow-playing answers, and I assure
you that I speak on behalf of this entire panel that we are way
more interested in true answers than fast answers, and I thank
you for your participation today.
I yield back.
Mr. Jordan. Yes, we are interested in the facts, and I keep
coming back to CCC credit rating, under-collateralized, half
the value of the loan, couldn't meet payroll prior to getting
the loan, indicated that in an email sent to the Department of
Energy. Still got the loan, yet there was no political
influence. So it is always the way these are, it is either
incompetence or political influence. And you are telling me,
no, it wasn't political influence, so it has to be
incompetence. How do you give money to a company with those
facts? That is what the American taxpayers want to know.
Recognize the chairman of the full committee.
Mr. Issa. Thank you. I want to clear the record up a little
bit. The ranking member seemed to imply that these documents
weren't good and they were incomplete. Isn't it true that the
minority has received every document we received through
outside sources, which is basically every document we received,
hundreds of thousands of documents, but they are not from DOE,
they are from private sources like the ones we have been using
here today? Is there some problem with the ranking member being
able to have his staff prepared for today's hearing?
Mr. Cartwright. We think it is probably improper that we
read about them in the press before we get them.
Mr. Issa. Didn't you receive them? I think if you will
check with your staff you will find out that these documents
were secured by the committee through outside sources because
DOE is stonewalling discovery, these were in fact delivered to
the minority.
Mr. Cartwright. Mr. Chairman, the answer is we got the
documents, but we got them from outside sources, instead of the
majority.
Mr. Issa. I am shocked that this committee would use
whistle-blowers or outside sources when we are getting
stonewalled by an Administration that lies through their teeth,
violates the Records Act, uses non-government emails to
circumvent loan guarantee programs and their wrongful acts. I
am shocked that we would go to other sources to find out we
have been lied to. Are you?
Mr. Cartwright. Mr. Chairman, if I may respond to that.
Mr. Issa. Of course.
Mr. Cartwright. I think the American public expects more of
us than this. They expect this panel to investigate
inappropriate behavior together, as a panel. They expect us to
investigate things in an intelligent and rational fashion, one
where we share the documents and the information ahead of time;
where the witnesses who authored documents are actually brought
here to comment on the actual context in which they were
written. We ought to make this panel a panel that is a truth-
seeking enterprise.
Mr. Issa. Oh, yeah, it would be really good to have all the
consultants here that were warning of these problems while DOE
ignored it. We should have them up here so you can ask them
questions as to why they did that.
Mr. Whitcombe, you made a statement that just simply is not
supported by the truth. You said that the John Doerr meeting
wasn't really important, so to speak, I am paraphrasing you,
because it was with Jonathan Silver and he wasn't on the loan
committee. Isn't it true that Jonathan Silver in fact was the
barbarian at the gate; you had to get through him before you
got to the loan committee, isn't that true, he was the first
point of contact and the person who ultimately saw whether it
got to the loan committee?
Mr. Whitcombe. Not true at all.
Mr. Issa. Okay. Well, let me ask a second question.
Mr. Whitcombe. Applications are made through a portal; you
can mail them in.
Mr. Issa. Yes, you can mail them.
Mr. Whitcombe. You can get the application in any way you
want to.
Mr. Issa. Okay, but he is in charge of the program, but you
are not going to hold him accountable for any factor, and
certainly he couldn't influence the decision of the loan
committee, is that right?
Mr. Whitcombe. The credit committee acts independent of Mr.
Silver.
Mr. Issa. If the credit committee acts independently, then
why is it that Jonathan Silver circumvented the Federal Records
Act deliberately and in a conspiratorial fashion in which he
says do not communicate because it might allow these to be
traced, and then he contacts all the individuals, including
individuals on the credit committee, including the chief of
staff who sits on the credit committee, lobbying on behalf of
activities? Are you aware of these emails?
Mr. Whitcombe. I can't speak for Mr. Silver.
Mr. Issa. Are you aware of these emails?
Mr. Whitcombe. I can speak for myself.
Mr. Issa. Are you aware of these emails?
Mr. Whitcombe. Third-party emails from non-DOE accounts? I
have not had the chance to review those.
Mr. Issa. Okay, so you are not aware that Jonathan Silver
violated the Federal Records Act?
Mr. Whitcombe. If he violated any acts, that is
unfortunate.
Mr. Issa. Unfortunately, DOE has been made aware of it and
doesn't seem to do much about it. As a matter of fact, if you
are not aware, let me make you aware. The Department of Energy
has tried to say that we cannot have those records because, in
fact, they are Federal records and, thus, they are not going to
give them. When we discovered them, they said, well, they are
really our records. But, of course, you claim not to have them.
So before you come before this committee again, I would
hope you would be prepared to realize that Jonathan Silver
circumvented the Federal Records Act, lobbied individuals, and
met with what I believe to be an investor in this company.
Mr. Fisker, I am going to make you aware of something. If
you do not answer here today a question which I believe is
appropriate, I will have you back here. Now, to the best of
your knowledge, and I will ask both of you, in 2011, March
through May of 2011, was Kleiner Perkins an investor in your
company?
Mr. Fisker. Yes, they were.
Mr. Issa. For how much?
Mr. Fisker. That, I do not recall at that point in time.
Mr. Issa. Mr. Koehler, how much?
Mr. Koehler. Oh, at the time? I couldn't answer that,
between March and May.
Mr. Issa. More than a dollar?
Mr. Koehler. Yes, sir.
Mr. Issa. More than $1 million?
Mr. Koehler. Yes, sir.
Mr. Issa. More than $10 million?
Mr. Koehler. I believe so, yes.
Mr. Issa. More than $100 million?
Mr. Koehler. No, sir. I don't think at the time, no.
Mr. Issa. Okay. So between $10 million and $100 million.
Mr. Koehler. I couldn't really speculate how much money it
was at the time, but they were a significant investor.
Mr. Issa. Okay. So at a time in which a principal founder,
one of the founders, John Doerr, has a $10 million to $100
million worth of investment, risk in your company, he meets
with Jonathan Silver, the head of this program, who has regular
communications with the credit committee and others. My
question to you is were you aware of his ability to have these
kinds of meetings, either of you?
Mr. Koehler. I was not aware of the meeting, no, sir.
Mr. Issa. Were you aware of his ability to have these kinds
of meetings, in other words, his access to the White House, his
access to the President, his access to DOE?
Mr. Koehler. No, I was not aware of that, sir.
Mr. Issa. Would it surprise you to know that on March 24th,
2010, April 16th, 2010, October 4th, 2010, May 14th and 15th,
again, 2011, and May 24th, 2011 he had these kinds of meetings
regularly? So were you aware that he was a close advisor to the
President on these kinds of matters?
Mr. Koehler. No, I was not, sir.
Mr. Issa. Do you believe that he put a board member onto
your board to keep him informed and his firm informed as to the
fiscal condition of your firm?
Mr. Koehler. I do not believe so because Ray Lane was the
first contact within Kleiner Perkins when we discussed the
first small investment into the company.
Mr. Issa. But when did a board member come from Kleiner
Perkins?
Mr. Koehler. It was Ray Lane, basically at the beginning,
when we discussed the program.
Mr. Issa. So the point is that Ray was on the board and
knew the financial condition of the company and the need for
additional capital and the possibility that you were going to
get a loan from DOE.
Mr. Koehler. Like other board members too.
Mr. Issa. Okay. So you have a direct representative of
Kleiner Perkins, partner or involved directly with the
principal partner, John Doerr, who is sitting on your board,
knows you need the money, goes back to Kleiner Perkins and
presumably informs them that their $10 million to $100 million
investment is at risk; that in fact they need a new source of
money. Then you steadily get a source of money, is that right?
Mr. Koehler. I have to speculate based on that. I don't
know the answer to that.
Mr. Issa. You know that in fact John Doerr is a principal
and that you had a representative of the company, and that they
had between $10 million and $100 million, in your estimation,
of risk. And you have already said that the company's condition
was risky at that point.
Mr. Koehler. That is correct, sir.
Mr. Issa. Okay, probably the final point, Mr. Fisker, we
brought you here for a reason, and I am going to close my
questioning very briefly. We didn't bring you here because your
car company is in trouble. We didn't bring you here to, in
fact, question any aspect of your aspiration for a car. As a
matter of fact, we didn't bring you here to denounce the fact
that you asked for this loan. Lots of companies throughout
America asked for the loan. I supported in a letter a company
that had an innovative electric hybrid car that had low drag.
They didn't get a loan, but I certainly supported their
application or their aspiration for that.
What we have questioned here today is how DOE failed to
administer over this program, missed connections, and failed to
do their job. And I hope the record is very clear. We don't
blame anybody for trying to get a loan. Programs are there;
Congress votes on them. Partisan or nonpartisan, from the point
that they are signed by the President, you have every right to
try to get that. This committee looks at waste, fraud, and
abuse, and we have been stymied by this Administration's
stonewalling and refusal to provide any level of transparency.
The documents you have seen today, for the most part, are
documents we got around the Department of Energy, and for that
reason you found yourself here today.
I want to thank you and your COO for being here today. It
is not an easy job to come before Congress. We make it a point
to get all the information we can from the branch we oversee,
the executive branch. When we can't get it, these kinds of
hearings can be particularly painful.
Mr. Whitcombe, I hope today you will go home a little bit
different than you came in. I didn't sense it in your combative
answers and so on, but I hope you will become familiar with
Jonathan Silver's activities and, for that matter, many other
individuals at DOE who routinely circumvent the Federal Records
Act and, in fact, are part of a pattern of when they want to
say something they don't want to have seen in the future, they
use their private emails. Under the law, they are not private
emails, they are public documents; and I would hope you take
that back with you.
Mr. Chairman and ranking member, I thank you for your
indulgence and yield back.
Mr. Jordan. I thank the gentleman.
I would ask unanimous consent to enter into the record an
email from John Doerr to Jonathan Silver dated June 23rd, 2011.
Without objection.
Mr. Cartwright. Mr. Chairman, I would ask that The
Washington Post fact checker article, referring to the four
Pinocchios.
Mr. Issa. I object. I object. That is overtly political and
doesn't go to any substantive substantiation of fact.
Mr. Jordan. Objection heard. The document will not be
entered.
Anything further?
Mr. Cartwright. I would just like to finish by saying, on
behalf of the minority, we are not averse, Mr. Chairman, to
having any DOE employee, any consultant with any company, any
witness with actual knowledge of the controversies before us
testify before this committee. What we think is wrong is
putting witnesses under oath and forcing them to comment about
what other people wrote at other times, without knowing the
context or having a chance to really go through the documents.
Thank you, Mr. Chairman.
Mr. Jordan. The gentleman from North Carolina, Mr. Meadows,
is recognized.
Mr. Meadows. Thank you, Mr. Chairman.
In light of that comment, let me go ahead and ask that
slide 18 be put up, because, Mr. Koehler, this is actually an
email from you to the Department of Energy's employee. In this
email you stated that you mentioned that the board might
consider to combine both programs and ``I am really nervous
that this could create a delay for the Karma program.'' Then
you go on to say that this potential delay would put the Karma
program on hold and you would lose valuable time.
It sounds like, to me, that the DOE was asking you to make
a decision about your business that you were not comfortable
with. Is that true?
Mr. Koehler. Well, I was nervous that the Karma could
experience a delay because we have to answer more questions for
the Atlantic program, correct.
Mr. Meadows. All right, so you were not comfortable with
that decision, is that correct?
Mr. Koehler. I didn't know the outcome. I was basically
investigating what does it mean for the Karma program. We want
to continue, not to lose any time.
Mr. Meadows. All right. So you are the COO and so if you
get this and you say that you are concerned about the delay,
how did that affect your projections in terms of the number of
cars that you said that you could get done by the particular
time?
Mr. Koehler. Well, at the time there was no delay, there
was a possibility for a delay; and I tried to find out if there
is truth behind that.
Mr. Meadows. So did it affect your projections?
Mr. Koehler. No, it did not.
Mr. Meadows. All right. So you are saying that you just
sent this email and you said you sounded like you were
concerned, but it really didn't prove, as a matter of fact,
that it would change your projections?
Mr. Koehler. At this point in time, this was a point of
discussion if any delay could impact the Karma program, and we
discussed it with the Department of Energy like we discussed
many other things.
Mr. Meadows. All right. So you were talking about combining
these two loans, is that what you were talking about at that
time, that you were concerned about?
Mr. Koehler. Well, the loans were still two separate loans,
but if the second loan needs to approve at the same time the
first loan needs to be approved, the question I had at the
time----
Mr. Meadows. Why is that? Why would they have to be
approved at the same time? Because that is my next question.
Let's look at this. Did the DOE indicate that they would not
approve the $169.3 million loan without also approving the $359
million-plus loan? So they tied them together, DOE did that?
Mr. Koehler. They weren't tied together. We had to
basically show----
Mr. Meadows. Well, then why would they be two separate
loans? You just said that one was conditioned on the other.
Mr. Koehler. If we had waited for an approval, to get an
approval for the second loan at the same time the first loan is
approved, then the work is duplicated.
Mr. Meadows. Okay, but I thought that in earlier testimony,
in earlier evidence, did it not say that you were first denied
for this first loan? The CRB said that they would not approve
it because it did not meet their policy requirements?
Mr. Koehler. I saw the email. That is an internal
Department of Energy email.
Mr. Meadows. So that was the first that you have ever heard
of the fact that your first loan would be denied, was today?
Mr. Koehler. No, that is not true. That is not what I said,
sir. What I said is the email is what I saw for the first time.
Mr. Meadows. It is amazing how the recall that we have.
When we ask the questions, we have very ambiguous answers that
say I didn't see that email, I didn't know this. I think you
understand the intent of the question. Did you know that the
first loan had been----
Mr. Koehler. And I would like to help, sir.
Mr. Meadows. Okay.
Mr. Koehler. The loan for the Karma program included
financial due diligence, due diligence on the marketing side,
on the sales side. The same work has to be done on the KX, on
the Atlantic program, because of the KX at the time. But the
Karma was much further along, so we had much more information
already, which the Department of Energy investigated, and the
second loan was basically getting started, the investigation
and the marketing initiatives and everything else. And I knew
from A.T. Kearney, for example, that a marketing study cannot
be done overnight, so my concern here was how much more work do
we have to put into this before we can move forward on the
Karma program.
Mr. Meadows. All right. But you had been told that the $169
million loan would be turned down by itself, is that correct?
Mr. Koehler. I was told by the Department of Energy that
the approval for both programs would be easier made as
basically----
Mr. Meadows. So you were not told that it was turned down
by itself. I thought you just said that you knew that it had
been turned down by itself.
Mr. Koehler. The Department of Energy came back to us and
told us that we have to go through the KX development, KX
approval, we have to explain how we do it, then both programs
together could be approved.
Mr. Meadows. So the DOE said that you had to combine these
two, is that what you are saying?
Mr. Koehler. It was still two separate programs.
Mr. Meadows. But they said in order to be approved you had
to approve both of them, is that correct, Mr. Whitcombe? Is
that true?
Mr. Whitcombe. It would make sense that you would make a
loan approval, even for two separate programs, at the same
time, because you are providing a consolidated outlook of the
company. It would make it much more streamlined to present to
credit committee, credit review board, and the secretary so
everyone understands what the business plan is.
Mr. Meadows. All right, so did you or did you not turn down
the $169 million loan originally asked for? Was it turned down?
Mr. Whitcombe. What you mentioned, we turned it down on
policy considerations, as I believe the request for finance
manufacturing in Finland, and by law we couldn't manufacture in
Finland, so it isn't even turned down; we couldn't even have
proceeded on that course at all.
Mr. Meadows. So you are saying that it was illegal to do
that. Then how did we reconfigure it and then somehow make it
legal?
Mr. Whitcombe. We can only make loans against eligible
expenses for costs in the United States.
Mr. Meadows. So you told them to go back and get their pen
and paper out and try to figure out a way to combine these
where we could possibly make it legal, because the first
request was not legal? Is that what you are saying?
Mr. Whitcombe. No, I am not saying that at all, sir. We
advised them on their first request that was for overseas
operations and that it would be better for you to make an
application, we would go to credit committee to approve, if it
was so approved, for eligible expenses to be deployed in the
United States. As simple as that.
Mr. Meadows. So yes or no, was the first loan turned down?
Yes or no? Or do you not know? You are under oath.
Mr. Whitcombe. I understand that, sir.
Mr. Meadows. Just yes or no, was it turned down?
Mr. Whitcombe. It wasn't turned down; it never went to
credit committee.
Mr. Meadows. All right. So then what is the basis for
combining the two loans? So we don't turn it down and now we
say you have to go $169 million is not enough to risk of the
taxpayers' money, let's make it a little bit more riskier and
let's go with over $500 million and make it really risky. Is
that what you are saying?
Mr. Whitcombe. This is for the two different vehicles,
correct?
Mr. Meadows. Right. One vehicle that had not been even
built at the time that the loan was approved and one that was
futuristic.
Mr. Whitcombe. Fisker running the business. The Fisker is
going to run the business for two different vehicles and, as
you noted, there is carryover parts, they are tied together.
Mr. Meadows. Sixty percent.
Mr. Whitcombe. Sure.
Mr. Meadows. Well aware of it.
Mr. Whitcombe. It makes much more sense.
Mr. Meadows. So it would make much more sense on a risky
venture that is a risky technology to risk more taxpayer
dollars. You are a credit guy and you have been in it a long
time. How could that make more financial sense?
Mr. Whitcombe. I made no comment about risk. What I said is
in terms of understanding the entire business related to the
Nina and the Karma, as far as making its loan application,
because all the employees of a company, all the designers, all
the engineers, all the potential sales force, are focusing on
both issues. So it would be very difficult to make a loan
approval based on just one part of the business, it wouldn't
make any sense.
Mr. Meadows. So your decision was to make it bigger would
make it better, is that correct?
Mr. Whitcombe. No, I didn't say to make it bigger would
make it better.
Mr. Meadows. I know you didn't say that. I am saying is
that your decision?
Mr. Whitcombe. Ultimately, it would as a larger loan
application.
Mr. Meadows. Last question, Mr. Chairman.
It appears that the White House and the DOE were more
interested in making this move for a second loan because it
reopened an automobile plant in Delaware. Do you feel like the
DOE did that, entered into any of the decision at all in terms
of overemphasizing the requirement to have this second loan
approved, Mr. Fisker?
Mr. Fisker. No.
Mr. Meadows. All right, so you know that that had nothing
to do with it?
Mr. Fisker. I don't believe it did.
Mr. Meadows. Okay.
You, Mr. Koehler?
Mr. Koehler. It was never a discussion we had with the
Department of Energy, no.
Mr. Meadows. All right, so when you went to get a plant in
Delaware, it had nothing to do with any funds that you were
about to receive.
Mr. Koehler. No, because the plan we had already, before we
talked to the Department of Energy, was that our second car
should be built in the U.S.; and the fact that we couldn't
build the Karma in the U.S. was simply based on we couldn't
find a manufacturer for this car in the U.S. at the time.
Mr. Meadows. All right. So I know you looked at more than
one location. Why did you do it in Delaware and not in
Michigan? You were the COO.
Mr. Koehler. Correct. We looked at several plants. We
looked even at the West Coast plant Tesla is using right now.
The main focus for us was 40 percent of the production was for
the U.S. and 60 percent for export. So having a plant closer to
a port was much better for us. At the same time I was looking
for a plant that was not shut down for some period because the
equipment is in better use and the workers are still available.
Mr. Meadows. Okay. And how many of these vehicles were ever
produced in the United States?
Mr. Koehler. The Atlantic is in development right now and
no cars have been produced.
Mr. Meadows. So zero? Zero?
Mr. Koehler. Correct.
Mr. Meadows. How many of the Karmas were produced here?
Mr. Koehler. The Karma is produced in Finland.
Mr. Meadows. So zero? So there has been no American car
built with this DOE money, is that correct?
Mr. Koehler. The Finland operation is assembling of the
car, but the parts and components, to a large stake, come from
the U.S. and are shipped to Finland.
Mr. Meadows. Mr. Chairman, I thank you for your indulgence.
I yield back.
Mr. Jordan. I thank the gentleman.
Just a couple quick questions. I appreciate the gentlemen's
patience; you have been here a long time and we will get to the
second panel here rather shortly.
Mr. Whitcombe, have you ever done official Department of
Energy business, any type of business on your private email
account?
Mr. Whitcombe. No, sir.
Mr. Jordan. Okay. Thank you.
Mr. Koehler, did the fact that the Department of Energy
insist that you take loans for both cars, did that hamper your
business at all?
Mr. Koehler. No, because what we had to do, we went through
the kind of due diligence with the Department of Energy and
parallel, at the same time, we raised money for the Karma so we
were able to continue with the Karma program.
Mr. Jordan. Okay.
Mr. Whitcombe, I am going to have you look at just a couple
more documents, if you could. First is just the minutes. So, to
the minority, this is just the minutes of the meeting of the
Department of Energy Credit Review Board. So pretty basic. The
very name at the top is Mr. Poneman, Deputy Secretary of
Energy. My understanding is he is currently the acting
secretary. Is that accurate, Mr. Whitcombe.
Mr. Whitcombe. I believe he was just sworn in, sir.
Mr. Jordan. Okay. So he is, right?
Mr. Whitcombe. I believe so, sir.
Mr. Jordan. Okay. If he was sworn in, he is the acting
secretary.
Turn to the second page here. We have some statements from
the minutes or some pullouts from the minutes talking about the
involvement of Mr. Poneman. Now, again, this is April 11th,
2012. Deputy secretary asks if the company was adhering to its
business plan; the company had been revising the plan, lowering
the targets, equity. Deputy secretary indicated the loan loss
reserve credit subsidy, deputy secretary asks if there was a
scenario that would lead to DOE's resuming the disbursements.
So obviously the minutes report Mr. Poneman was actively
involved.
Then I want to put up, a month later, actually six weeks
later we have a communication from Department of Energy
lawyers, Ms. Beard and Ms. Richardson, it looks like, and it
now says the deputy secretary should be recused from loan
program deals and specifically lists because he has an interest
in the following companies, Fisker being one of those.
So, again, you can comment on it if you want, but it seems
like we have the guy who is the deputy secretary at the
Department of Energy engaging in discussions regarding loans of
taxpayer money when he has a financial interest in those
companies. We have lawyers communicating Department of Energy
lawyers, not some outside consultant, Department of Energy
lawyers communicating that he should not be engaged in this
conversation.
Any comment, Mr. Whitcombe?
Mr. Whitcombe. I am sorry, sir, I can't comment to the
acting secretary's personal business.
Mr. Jordan. Were you aware of the recusal?
Mr. Whitcombe. I was aware, yesterday, of the recusal.
Mr. Jordan. Okay. All right.
Just one last thing I want to do with Mr. Fisker, if I
could. So, Mr. Fisker, again, back to where we left off, it has
been widely reported that Kleiner Perkins has an interest in
your company. Some of the principal players there are John
Doerr, Ray Lane, Al Gore. We know that, it has been widely
reported in the news that Mr. Doerr is involved in President
Obama's Economic Recovery and Advisory Board. So here is what I
am trying to figure out and here is what the question the
American taxpayers would ask. So you have these individuals
without dispute, widely reported in the press, very connected
politically with the Administration, who also happen to have a
financial interest in Fisker, who were at the White House
multiple times, and yet you say they didn't do anything to help
you secure the loan.
Mr. Fisker. Chairman, I would like to set the record
straight. The only representative from Kleiner Perkins that was
involved with Fisker is Mr. Ray Lane. He is the only
representative that is involved with Fisker.
Mr. Jordan. But it is accurate, I mean it has been widely
reported in the press, Mr. Fisker, there was a big article in
Time magazine a few years ago about the influence Mr. Doerr has
with this Administration relative to the green energy industry,
and he is a principal in Kleiner Perkins. Is that accurate?
Mr. Fisker. Yes, but I am not aware of what Mr. Doerr does
in his spare time or elsewhere.
Mr. Jordan. All I am suggesting is, I am just pointing out
the facts. He is a principal at Kleiner Perkins; they have a
major investment in your company; he is part of the Economic
Recovery and Advisory Board; he has had meetings with Jonathan
Silver about the same time that there was a hold put on your
loan; and yet you say there was no political influence at all.
Mr. Fisker. Not that I am aware of.
Mr. Jordan. Okay. So do you think it is fair, then, for the
American taxpayers to ask the question? Okay, no political
influence involved getting this loan, and yet you lost $200
million of taxpayer dollars, you were under-collateralized, you
couldn't meet payroll, you had a CCC rating, and you got
taxpayer money. So again I always come back to this basic
question: It has to be one or the other. It is either complete
incompetence from the Department of Energy, and that may in
fact be the case. Mr. Whitcombe hasn't given us a whole lot of
answers. He couldn't tell me, of the other four companies, what
their credit ratings were. There were only five companies that
got your money. He couldn't tell me what the other credit
ratings were. We know what Fisker was; it was bad. So it may be
complete incompetence. But it has to be one or the other. I am
just asking you, as a guy who is no longer involved in Fisker,
even though it has your name, you are no longer involved, you
are out. Which do you think it is, incompetence on their part?
That is the question the American taxpayers are asking.
Mr. Fisker. Mr. Chairman, I do believe that, first of all,
we followed all the procedures in applying for the loan. I
think Fisker Automotive has contributed in a huge way to
develop new technology that is recognized to be part of the
future. Whether we want to develop here in the U.S. or whether
we want to buy it from somewhere else, it is going to be part
of the future, and I think it is extraordinary what the people
here in America have done at Fisker Automotive in developing
this automotive technology.
Mr. Cartwright. Thank you, Mr. Chairman.
Mr. Chairman, earlier this afternoon the chair took the
extraordinary step of disallowing a piece of evidence to come
into the record. This was a Washington Post article entitled,
Four Pinocchios for an Unproven Romney Claim of Crony
Capitalism. Now, rather than burden this panel with an
insistence on a vote of the full panel on a challenge to this
ruling on the admissibility of this article, I would propose to
read briefly from it.
The Washington Post wrote this. This was in the Fact
Checker: Hoping to turn attention away from questions about his
departure from Bain Capital a decade ago, Mitt Romney, this
week, has sought to focus attention on what he calls President
Obama's crony capitalism. We have dealt with this charge
before, but this week it seems the Romney campaign has upped
the ante, trying to make a connection between the President's
contributors and the President's policies. We will deal with
some of these claims in more detail at a later date, but today
we will look at the question of Fisker Automotive. This case
keeps coming up, and it really feels like whack-a-mole. Romney
now has raised the stakes by asserting a connection between the
loan and campaign contributors, and his campaign was
sufficiently proud of his statement that he emailed it to
reporters. The facts: Fisker has developed a luxury plug-in
electric sedan called the Karma that retails for $108,000,
currently manufactured in Finland. It hopes to develop a
$50,000 sedan named the Atlantic that would be manufactured in
Delaware. Earlier this week Romney aides held a briefing for
reporters. Senior Advisor Ed Gillespie singled out John Doerr,
a wealthy venture capitalist at Kleiner Perkins Caufield &
Byers, who was instrumental in funding Netscape, Amazon,
Google, and other Internet companies. ``You know, you have John
Doerr who raised a lot of money for President Obama, you know,
got appointed to an economic recovery advisory board,''
Gillespie said, ``and then his firm had a big investment in
Fisker Automotive, which got over half a billion dollars in
loan guarantees from the Department of Energy, which did not
result in jobs being created in America but actually jobs being
created overseas in Finland, but Kleiner Perkins did quite
well.'' Gillespie appears to be suggesting that because Doerr
raised money for Obama, he was rewarded with a big loan for a
company in which his firm invested. But the logic is more the
political equivalent of bank shot in pool and the ball doesn't
quite get in the pocket. First of all, the Kleiner partner most
closely associated with the Fisker investment is Ray Lane, who
features the Fisker logo on his Kleiner Web page. There is even
a You Tube clip of him getting into his Karma sedan. The
contributions database at OpenSecrets.org shows that Lane
contributes to some Democrats, but mostly Republicans; and he
gave money to Rudolph Giuliani and John McCain in 2008, not
Barack Obama or other Democrats running for president. He also
contributed to George W. Bush in 2008 and Bob Dole in 1995.
However, he has praised the Obama Administration for its
willingness to back alternative energy ventures, saying it
would be silly to think an automobile company could be created
without Government help. And speaking of Kleiner, a regular
contributor to Romney and a $100,000 contributor to Romney's
super PAC, Restore our Future, is Meg Whitman, the database
shows. Whitman, now chief executive of Hewlett Packard, was a
strategic advisor to Kleiner in 2011.
And I will stop there, Mr. Chairman. That is The Washington
Post article to which objection was raised. And rather than
demand a vote of the committee, I read that into the record.
Thank you, Mr. Chairman.
Mr. Jordan. I thank the gentleman. I would just point out
that maybe The Washington Post would change its decision based
on today's hearing, the evidence we have brought forward. Time
magazine had a story like this. Your March 15th, 2010 quote
from the President of the United States when John Doerr was at
the White House, it said, John, before a group that included
Treasury Secretary Geithner, Economic Advisor Larry Summers,
Chief of Staff Rahm Emmanuel, you've got the floor. Second
paragraph: In the past few years, however, Doerr's interest in
Beltway policies deepened as he bet hundreds of millions of
dollars in private capital on green energy startups, many of
which were seeking Federal subsidies and regulatory aid.
So, again, you are asking the taxpayers to not assume Mr.
Doerr cared about it, Mr. Lane cared about it when they were
investors in the company and they meet with the White House and
are on the President's Economic Advisory and Review Board. I
just don't think that stands up to common sense that the
American people have.
I would also point out, when you are talking about
Pinocchios, Mr. Romney holds no office. The Washington Post,
just six weeks ago, gave the Secretary of Education four
Pinocchios out of four Pinocchios for lying to the American
people when he stated 40,000 teachers were going to lose their
job because of sequester. There is a public official a cabinet
secretary getting four Pinocchios. This is a candidate from
last year's campaign.
With that, we want to thank our witnesses on the first
panel. I appreciate your patience and time. You all are
dismissed. Thank you.
We will quickly move to our second panel and we will take
testimony from our second witnesses.
[Pause.]
Mr. Jordan. It is going to be sparse, as you can imagine.
Thanks for sticking around. I know it was difficult. Mr.
Cartwright just stepped out, but he will be right back in. I
can swear you in, though. We will swear you in, then as soon as
Mr. Cartwright comes back in, we will get right to testimony.
So if you would stand up, raise your right hand.
Do you solemnly swear or affirm that the testimony you are
about to give will be the truth, the whole truth, and nothing
but the truth, so help you God?
[Witnesses respond in the affirmative.]
Mr. Jordan. Let the record show both answered in the
affirmative.
Okay, we have Mr. Nicolas Loris, who is the Herbert and
Joyce Morgan Fellow at The Heritage Foundation, and Ms. Zoe
Lipman, who is an independent consultant focused on issues
related to fuel economy and advanced vehicles.
You know the deal, you have five minutes, more or less. We
will wait for Mr. Cartwright, then we will start with Ms.
Lipman and then Mr. Loris.
Ms. Lipman, thank you. You are up.
STATEMENT OF ZOE LIPMAN
Ms. Lipman. Good evening, Chairman Jordan and Ranking
Member Cartwright. Thank you very much for inviting me to give
some context around the Advanced Technology Vehicle
Manufacturing Loan Program.
I am Zoe Lipman. I am a consultant focusing on policy and
projects that connect clean energy and transportation
innovation with economic recovery. But previously I spent 10
years at the National Wildlife Federation, where I headed our
advanced automotive and fuel economy work, and before that our
climate policy in the Midwest; and in both of those contexts
the question of how clean energy and advanced technology
progress go forward, we innovate in our core industries and we
rebuild the economy at the same time is absolutely critical.
I wanted to talk a little bit about where the ATVM came
from, because it originated from the same kind of interest in
seeing us lead in the next generation of advanced energy and
efficiency technologies, but at the same time rebuild the
American economy.
Others have talked about how this program was part of the
2007 energy bill, a bipartisan program signed into law by
President Bush. I would add that it is something that had the
consistent support not just of labor, of environmental groups,
but also of the Chamber of Commerce. It really is something
that brings together the interests in this Country around how
we go forward as a Nation.
In the 2007 energy bill, it did two things that affected
the auto industry. One was it authorized a large increase in
the fuel economy standards, the first in decades, that did so
under a new attribute-based system that was both more
competitively fair and ensured that consumers, no matter what
kind of vehicle they drove, saw improvements in fuel economy.
But at the same time it recognized that making that kind of big
step forward, a next generation of vehicles, requires very
significant investment, tens of billions of dollars annually in
the industry; and that investment could come from anywhere and
it could be made anywhere.
Today, not just companies, but countries are competing
aggressively to see who will lead in the next generation of
technology. In a global economy, we have a global economy, we
don't have to be the only manufacturer of the next generation
of vehicle technology, but we need to be one of the leaders if
our economy is going to be strong going into the future.
Effective market-based public-private partnerships like the
ATVM make it more attractive to invest in U.S. facilities and
that spur and attract business innovation are critical to this
process.
Now, I want to stress that the ATVM program are loans. As
we have talked today, where companies are successful, they will
be paid back with interest, and the vast majority are.
Second, the program does not pick technologies; it sets a
standard, a criteria, and the portfolio of loans that it has
considered support the full range of technologies, from
innovations that improve the fuel economy of the Ford F-150
without impacting horsepower to new made-in-America electric
batteries in Tennessee.
Now, we have seen a rundown of the programs and the funding
in previous testimony. As people know, the bulk of the funding
went to Ford for numerous projects, as well as to other
startups such as VPG, building an innovative six-passenger van
accessible to wheelchairs and fueled with natural gas. So
Fisker is just one of a rather impressive portfolio of loans
that have been, as people have said, up to now 98 percent
successful.
The taxpayer is doing well with this program, and
communities and businesses are doing even better. I want to
create just a quick picture of some of those loans.
We have everything from loans where, if we look at the Ford
manufacturing facilities in Michigan, that they are flexible
facilities bringing hybrid powertrains back to the U.S. that
were previously made in Japan; we see electric vehicles and
batteries being made for the first time in the U.S. in
Tennessee; and we see innovations that flow not just to the big
auto companies and the assemblers here, but to the ecosystem of
suppliers across the Country that are supported by these.
Finally, I want to say that investment in manufacturing
here is not just an investment in jobs today, but in innovation
for tomorrow. And I am happy to take further questions about
how that has worked with this program, but it has been highly
successful.
[Prepared statement of Ms. Lipman follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Jordan. Thank you, Ms. Lipman.
Mr. Loris.
STATEMENT OF NICOLAS LORIS
Mr. Loris. Chairman Jordan and Ranking Member Cartwright,
thank you for giving me this opportunity to discuss the
Department of Energy's bad bet on Fisker Automotive. My name is
Nicolas Loris, and I am the Herbert and Joyce Morgan Fellow at
The Heritage Foundation. The views I express in this testimony
are my own and should not be construed as representing any
official position of The Heritage Foundation.
Investigating any potential cronyism between Fisker's
investors and its Federal supporters, and investigating any
negligence on the DOE's part throughout the loan process are
worthwhile and necessary actions to protect American taxpayers
and promote transparency in the Federal Government. But I would
like to take my time to discuss the underlying cause of these
problems, and that is the Federal Government's involvement with
investment decisions that are better left for the private
sector.
The Department of Energy's Advanced Technology Vehicles
Manufacturing Loan Program, as well as its loan guarantee
programs, create a mechanism that reward special interest
politics over market viability. The result is a systematic
economic damage inflicted well beyond any loss the taxpayers
may incur.
When we politicize the economic process by allowing the
Federal Government to highly influence decisions and
investments, the incentive to lobby for those handouts is
greater and the incentive to innovative lower cost and rely
fully on private investment is substantially weakened. Such a
process skews the rules of free enterprise.
A dollar invested in a Government-backed project cannot
simultaneously be invested into another company. DOE loans and
loan guarantees pull capital out of the market and dictate who
should receive it. This crowds out opportunities for new ideas
and innovative technologies that may not reach the market
because capital is diverted to projects that have higher
political rates of return rather than economic ones. These
programs are not jobs creators, but merely shifting labor and
capital to where the Government wants.
And to be clear, there is nothing wrong with more renewable
energy or alternative fuels replacing conventional sources of
energy. But that shift will be more effective when driven by
market forces, not dictated through Government policy.
And the market incentive for alternative fuels and
technologies already exists. We have a robust demand for
transportation and fuel. In fact, Americans spent $480 billion
on gasoline and bought nearly 13 million new vehicles in 2011
alone. Globally, the transportation fuels market is a multi-
trillion dollar one. If any alternative fuel technology
captures a mere slice of that market, they will make billions
of dollars in profit annually.
And this is precisely why we don't need the Department of
Energy's ATVM loan program, as well as the loan guarantee
programs. Markets make these investments and take risks all the
time. But rather than privatizing the gains and socializing the
losses, risk and reward are properly aligned.
It is also important to stress that whether a loan or a
loan guarantee recipient is profitable or bankrupt, the policy
is a failure. Any success of a loan is not the same as success
of a policy. First, there are companies like Fisker, where the
DOE loan artificially made this dubious investment appear more
attractive and lowered the risk of private investment. Private
investors sunk over $1 billion into Fisker, but much of that
private financing came after the Department of Energy approved
and closed the loan for Fisker. These investors look at
Government loans as a way to substantially reduce their
exposure.
A project may be an economic loser, but can attract private
investment when the Government covers a substantial portion of
the downside with guaranteed loans. It essentially becomes
heads, the investor wins, and tails, the taxpayer loses. These
bad gambles turn into good ones when Federal Government money
is involved, and now taxpayers are potentially on the hook for
the $170 million of loans Fisker drew down.
Supporters of these DOE programs argue a few failures are
worth the risk and the number of success stories far outweigh
bankrupt companies or ones that are facing difficult financial
times. But the fact is that even if a project receives a DOE
loan or loan guarantee, it is a mistake to attribute that
company's success to the Federal Government's investment. Many
companies receive investments from the private sector because
their technology is promising and worth the risk. In these
cases, especially when the Government handouts go to more
established companies like Ford, the DOE's loan partially
offsets private sector investments that would have been made
without the Federal backing.
Layering on additional subsidies further misallocates labor
and capital to promote politically favored technologies and
diminishes the role of market signals that truly drive
innovation and economic activity. More stringent Government
oversight and risk assessment may marginally improve the
protection of the taxpayers' money, but the best option is to
get rid of the loan program altogether and allow competition to
drive investment. This protects the taxpayer and will ensure
that only the most promising new energy technologies move
forward.
Thank you, and I look forward to your questions.
[Prepared statement of Mr. Loris follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Jordan. Thank you both.
Ms. Lipman, right to Mr. Loris's point, look, we want all
the great things you were talking about, we want this
technology, we want advanced new things happening. We are
America, a Country of innovation and entrepreneurs and
everything else. But Mr. Loris makes a perfect point. Not only
in this situation with Fisker did taxpayers lose $200 million,
but the fact that we have the program jeopardizes all those, if
you heard Mr. Whitcombe, 150 other applicants who didn't get
the dollars, and now the investment capital, the private
investment capital that is out there, they are saying, you know
what, I think it is better to put my money behind some company
that has the implicit, well, not implicit in this case, the
formal backing of the taxpayer, of the United States
Government.
So of those 150 companies, and a whole bunch of others who
didn't apply who are out there, they may get crowded out, they
may not get the investment they need where that next big idea
is just waiting to bloom if they can just get the help. So not
only do we have taxpayer money getting wasted, we, I think,
very logically have a bunch of companies who might otherwise
get investment from the private sector but don't.
Ms. Lipman. Well, I think there are a number of responses
to that. One is I agree with Mr. Loris that it is not the
success of individual projects; it is the success of the
policy. And I think while, clearly, the program is not perfect,
no program would be; it is in the process of evolution always,
as all of our Government programs should be, the question is
not what is the risk to individual projects, but what is the
risk to the Nation if we fail to move faster, further, for the
longer term.
Mr. Jordan. Well, you are making my point. There might be
one of those 150 companies who didn't get help who, if the
Government is not involved in this, some private investors say,
you know what, I like that idea. That is the next Thomas Edison
there; I am going to put private money there. But you know
what? Think about it, Nissan got money. Nissan is a successful
company. So there are investors out there saying I can put my
money with this entrepreneur, it looks good, but maybe I will
go with the big company that has Government backing; I will put
money there and get the return. You understand?
Ms. Lipman. I do. The question isn't whether or not we are
going to move into these next technologies. And the question
isn't whether or not there is going to be investment. The
question is whether there is going to be investment in American
manufactured technology; whether that investment is going to be
made here, whether the innovation that comes out of our labs
and out of our private companies is going to turn into jobs in
America.
And we have tested not doing anything on that. We have
tested it for the last three decades in which we have seen a
decline in America's manufacturing share in this critical
engine of innovation and growth, and what we have seen in the
converse in the last few years, and the ATVM has been one of
the key pieces there, there has been a lot of talk today, if I
could finish for a moment.
Mr. Jordan. I just have a minute.
Ms. Lipman. About the creditworthiness of these loans. When
the ATVM was, not when it was originally authorized, but when
the money was, I guess the money was actually authorized by
Congress the end of 2008, that was a time in which no auto
company, let alone an innovative one, could have gotten money
from anywhere in the private sector. It was very dark times for
investment in advanced technology. And these are precisely the
times and the places and, going forward, the technologies we
need to attract investment here.
Mr. Jordan. I want to get Mr. Loris's comment because,
frankly, my understanding, in Ohio manufacturing jobs are
starting to come back.
Ms. Lipman. Absolutely.
Mr. Jordan. Particularly in the energy area. We just added
steel jobs in Youngstown, Ohio, and that hasn't happened in 50
years because of technology developed in the private sector,
particularly in the energy business, that is being used on
private land all over the State, the eastern part of our State.
Mr. Loris, I will give you a last time to comment, then I
will go to our ranking member.
Mr. Loris. And there is a success story where we see the
market is working, that we have access to our energy resources
and, as a result, you have chemical companies wanting to come
back to the U.S., you have manufacturers who want to rebuild
old shuttered steel towns, and you are saving consumers a lot
of money through lower energy prices.
But I would like to rebut that last point. Fisker was
formed in August 2007 and it raised $94 million before DOE even
got into the loan process. If they thought this was a
profitable company or successful, they could continue to go
through rounds of venture capitalism. But Fisker raised another
$57 million between the time DOE approved the loan and closed
the loan in April of 2010. After DOE closed the loan, Fisker
raised over $1 billion in various rounds of VC funding, so this
just speaks to my point that investors can significantly hedge
their bets once the Department of Energy gets involved, and if
private investors and VCs think this is such a good idea, they
should be able to take that risk and reap the reward on their
own.
Mr. Jordan. Great point.
The gentleman from Pennsylvania is recognized.
Mr. Cartwright. Thank you, Mr. Chairman.
Mr. Loris, I have some questions for you. Thank you for
coming here today and expressing your opinions. Now, you have
said your opinions are not necessarily those of The Heritage
Foundation, is that correct?
Mr. Loris. That is correct.
Mr. Cartwright. You are currently the Herbert and Joyce
Morgan Fellow at The Heritage Foundation?
Mr. Loris. Yes.
Mr. Cartwright. Does that make you an employee there?
Mr. Loris. It does.
Mr. Cartwright. Okay. But my impression is that you are
saying that your opinions are not those of The Heritage
Foundation?
Mr. Loris. That is correct.
Mr. Cartwright. Now, my copy of your opinions is printed on
Heritage Foundation stationery. Is that what you meant to do?
Mr. Loris. That I did mean to do, yes.
Mr. Cartwright. Okay. And just so we are clear, did you get
anybody at The Heritage Foundation, your employer, to review
your opinions before you expressed them here today?
Mr. Loris. I did.
Mr. Cartwright. Okay. So they are aware that you are here
giving your opinions before this panel, are they?
Mr. Loris. They are.
Mr. Cartwright. Okay. Now, my question is about the Energy
Independence and Security Act of 2007.
Mr. Jordan. Would the gentleman yield for one second?
Mr. Cartwright. Certainly.
Mr. Jordan. I just want to make a point. It shouldn't be a
surprise that The Heritage Foundation is supporting free market
principles.
Mr. Cartwright. We are not sure what they are supporting
here today. We only have Mr. Loris.
Mr. Loris, I read your testimony and you spend a
considerable amount of ink on the Fisker company. You mention
Tesla, but you don't mention Ford anywhere in your testimony,
do you?
Mr. Loris. No, I do not.
Mr. Cartwright. Okay. And then you move from an examination
of Fisker and then you move into a criticism that basically
says DOE loans and loan guarantees reduce capital available,
reduce Americans' access to technology, skew the rules of free
enterprise, beget corruption and cronyism. It seems to me you
sort of morph into a general attack on the Energy Independence
and Security Act of 2007 creation of these loan guarantee
programs, correct?
Mr. Loris. That is correct.
Mr. Cartwright. Okay. At the time, in 2007, when they were
signed into law by our President of the United States, George
W. Bush, did you express your displeasure or your disagreement
with President George W. Bush at the time?
Mr. Loris. I was not working for Heritage Foundation at the
time, but there is past research that we heavily criticized
that bill and thought it would be bad for consumers and energy
consumers.
Mr. Cartwright. You have correctly anticipated my next
question. Even though you were not yet employed by The Heritage
Foundation in 2007, it is the case that The Heritage Foundation
itself was critical of this bill that President Bush signed
into law in 2007.
Mr. Loris. That is correct.
Mr. Cartwright. So it might be a fair assumption to say
that they agree with your testimony here today, the opinions
you have expressed in front of this panel, is that right?
Mr. Loris. That is correct.
Mr. Cartwright. So my question is if what you do is you
examine the experience at Fisker and then you ramp that into
your general opinions and conclusions about the validity and
the appropriateness of the Energy Independence and Security Act
of 2007 and these loan program guarantees, why didn't you
include Ford Motor Company, why didn't you include Nissan? We
have seen today, in the hearing before this panel, that the
vast, the vast majority of the money that was invested by the
American public in this alternative energy endeavor went to
those other companies; not to this Fisker company, but to the
other companies that are actually making a go of it and it is a
98 percent, were you in the room when we talked about the 98
percent?
Mr. Loris. I was.
Mr. Cartwright. A 98 percent successful enterprise, these
Federally guaranteed loans, so that we could bring our United
States up to speed with modern technology in the automotive
industry. You were in the room when we heard the 98 percent
figure?
Mr. Loris. Yes, sir.
Mr. Cartwright. You don't mention that anywhere in your
testimony, either in writing on The Heritage Foundation
stationery or verbally here in the hearing room, am I correct
in that?
Mr. Loris. I did broadly speak about whether or not these
programs or these projects are successful. That doesn't make
the policy a success. You have companies like Ford and Nissan;
they are huge companies, they are big boys. They should be able
to make these investments on their own; they should be able to
take out loans from banks and do it that way, rather than
relying on the Government's crutch. It is not the ATVM program.
Mr. Cartwright. Mr. Loris, is it your opinion that the
Federal Government must now go back and confiscate and take
back the DOE money from the Ford plant in Lima, Ohio right now,
irrespective of how well Ford is doing with the program?
Mr. Loris. No. I think they should remove the loans going
forward on any availability of that ATVM program to administer
the loans.
Mr. Cartwright. Again, I thank you for coming here with
your opinions, Mr. Loris.
Mr. Loris. Thank you.
Mr. Jordan. You get off easy.
We want to thank you both for being here. I appreciate you
staying around for the first panel and your willingness to
testify here on our second panel.
We are adjourned.
[Whereupon, at 5:56 p.m., the subcommittee was adjourned.]
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