Fisker’s Flameout: Not Much Karma Left for Struggling Automaker
Bankruptcy Court Appears Likely after Chinese Suitors Balk
The latest blows have been high-profile and right at the heart of the company. Founder and executive chairman, Henrik Fisker, left the company after six years, citing "several major disagreements…with the Fisker Automotive executive management on the business strategy." The company praised its founder, saying in a release that it "recognizes and thanks Mr. Fisker for his service and many contributions." It went on to say that "the company has a strong and experienced management team and its strategy has not changed," and that "Mr. Fisker's departure is not expected to impact the company's pursuit of strategic partnerships and financing." Neither the man nor the company that bears his name has commented further.
Whether that's accurate or not is a matter of debate. Shortly after Mr. Fisker announced his resignation,Reutersreported that Geely, owner of Volvo and considered one of the top two bidders for the troubled Fisker Automotive, had dropped out of the running. Geely has not yet commented publicly, but reports indicate that the Chinese automaker may have found the deal too risky. It's also been suggested that Geely didn't want to deal with Fisker's frozen Department of Energy Advanced Vehicle Technology Manufacturing loans. There's no telling whether Mr. Fisker's departure weighed on Geely's decision, but we don't doubt it had some effect. Geely was considered the favorite bidder for Fisker, but with it out of the picture, it seemed likely Fisker will go to the number two bidder, Dongfeng Automotive, also of China. But then Dongfeng dropped out, too, reportedly because it wouldn't be able to move production to China and still get that DOE loan money.
Fisker has been in trouble nearly from the word go. The Karma debuted in 2011, two years later than promised, and the first car we tested was unfinished and performed poorly. Shortly thereafter, its official fuel economy ratings were revealed to be far lower than the company had promised. The company was forced to recall all the cars it had sold in 2012 due to a risk of battery fires, a development that helped push the Karma's battery supplier, A123 systems, into bankruptcy. As a result, no new Karmas have been built since last summer and the restart of production is still "a couple of months" away, according to company officials. Several hundred finished but unsold cars were later totaled in Hurricane Sandy. Meanwhile, Fisker's plan to buy a closed GM plant in Delaware and move production to the U.S. has stalled after its $529 million loan from the Department of Energy was frozen after only about $190 million had been disbursed due to Fisker's failure to meet production benchmarks for the Karma. Some of that money was earmarked to complete development of Fisker's next product, the Atlantic sedan, which also appears to be stalled, though the company has given no updates on that project.
Fisker says it has ruled-out bankruptcy, but it was recently reported that the company has hired bankruptcy lawyers. Meanwhile, the company confirmed that it had furloughed 200 of its workers for a week to save money. A payment on the DOE loan is due in April and it isn't likely Fisker has the money to cover it. Abandoned by its founder, investors, the DOE, and major suitors, the only friend Fisker appears to have left is bankruptcy court. But will anyone buy up the remains of the company on the cheap if it folds?
It's certainly possible. Both Geely and Dongfeng reportedly dropped out for the same reason: the DOE loan. Geely didn't want to deal with the Feds, and Dongfeng wanted to move the factory from Delaware to China, but the loan is tied to the factory. It's not clear yet what bankruptcy would do to the DOE loan debt, but it could be wiped out. True, it means a buyer wouldn't get that money, but it also wouldn't inherit the strings attached to the cash.
The question, further refined, is whether Fisker's assets have value. There's quite a bit of engineering in the Karma that another automaker would like to have access to, especially in China, where the government is mandating more hybrid and electric vehicles. There's also that beautiful design. Then again, the Karma never performed as well as it was supposed to, so the technology under the pretty skin is not a quantum leap forward.
There are other problems, too. The Karma is built under contract by Valmet in Finland, and a buyer certainly wouldn't get that factory. Some of the tooling, perhaps, but not a turn-key operation. The plant in Delaware is reportedly empty and its sole battery supplier is still struggling to emerge from bankruptcy. Relations between Fisker and A123 (now called B456 - seriously), are frosty after Fisker accused the supplier of undervaluing its outstanding debt to Fisker by $15 million.
Still, it wouldn't be surprising to see Fisker's assets bought up by Geely or Dongfeng post-liquidation, whether for the technology, design, brand cachet, U.S. certification and sales channels or other reasons. In fact, it may be part of their respective strategies. The two companies were reported to be offering as much as $350 million for a majority stake in Fisker, but its liquidated assets will be worth considerably less and come with fewer headaches. Why buy a company that's falling apart when you can buy its parts for less? Geely, Dongfeng, and any other suitors can afford to wait.
While it's always possible another scenario could present itself, it seems most likely at this point that Fisker will be bankrupt by the end of April and its assets will be bought by its former suitors. Whether or not you'll ever see another new Fisker is impossible to say at this point, but don't count on it. Fisker's karma appears to have run out.
Were you one of those kids who taught themselves to identify cars at night by their headlights and taillights? I was. I was also one of those kids with a huge box of Hot Wheels and impressive collection of home-made Lego hot rods. I asked my parents for a Power Wheels Porsche 911 for Christmas for years, though the best I got was a pedal-powered tractor. I drove the wheels off it. I used to tell my friends I’d own a “slug bug” one day. When I was 15, my dad told me he would get me a car on the condition that I had to maintain it. He came back with a rough-around-the-edges 1967 Volkswagen Beetle he’d picked up for something like $600. I drove the wheels off that thing, too, even though it was only slightly faster than the tractor. When I got tired of chasing electrical gremlins (none of which were related to my bitchin’ self-installed stereo, thank you very much), I thought I’d move on to something more sensible. I bought a 1986 Pontiac Fiero GT and got my first speeding ticket in that car during the test drive. Not my first-ever ticket, mind you. That came behind the wheel of a Geo Metro hatchback I delivered pizza in during high school. I never planned to have this job. I was actually an aerospace engineering major in college, but calculus and I had a bad breakup. Considering how much better my English grades were than my calculus grades, I decided to stick to my strengths and write instead. When I made the switch, people kept asking me what I wanted to do with my life. I told them I’d like to write for a car magazine someday, not expecting it to actually happen. I figured I’d be in newspapers, maybe a magazine if I was lucky. Then this happened, which was slightly awkward because I grew up reading Car & Driver, but convenient since I don’t live in Michigan. Now I just try to make it through the day without adding any more names to the list of people who want to kill me and take my job.
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