When we critics asked why these companies needed so much funding, we were told it was needed to help them cross the “Valley of Death” between early stage funding and a big, lucrative IPO, where there was allegedly a big shortage of available funding. There was a hole in the venture capital market, said the program’s boosters, and the government was needed to fill it.
Overall, three firms have already gone bankrupt. Now we can probably add a fourth: Fisker Automotive, an electric car manufacturer, seems to be teetering on the edge of bankruptcy, which means that we are probably going to lose a big chunk of the nearly $200 million worth of loans that the US government guaranteed for the company. (The guarantee was originally much larger, but the administration pulled the plug when Fisker continually failed to meet its targets.) This seems to be a good time to check in: how’s our money doing.
Before we go any further, though, we should get clear on one thing: these loans were always going to have a low default rate, because the majority of the money was given to large companies with big balance sheets. Ford and Nissan alone account for around 20% of the total loan programs. These loans are very unlikely to default, but for precisely that reason, it’s hard to see why government assistance was needed . . . except to encourage companies to invest in a project that has a low likelihood of becoming a big success.
Join the conversation as a VIP Member