It’s Another Tough Week at Fisker as Workers Are Furloughed, Restructuring Lawyers Consulted
Covering Fisker Automotive’s unraveling will likely turn into somewhat of a series here on Downshift Autos, as this week saw the distressed automaker furloughing its entire 200+ American workforce for one week, as well as hiring law firm Kirkland & Ellis for possible bankruptcy advisement, Reuters reports.
Bad news was foreshadowed by the departure of co-founder and namesake Henrik Fisker on March 13, citing disagreements with management regarding future business strategy. One week later, on March 20, Chinese auto manufacturer Geely (Zhejiang Geely Holding Group) officially withdrew from negotiations to purchase Fisker, a disappointing development as Geely was favored to overtake the company. That left only another Chinese automaker, the state-run Dongfeng Motor Group, as the most likely to purchase Fisker; Dongfeng dropped its bid yesterday.
Both Chinese manufacturers wanted to move production of the Karma and the proposed Atlantic midsize sedan to China, but found that Fisker’s ties to the Department of Energy would make that difficult, if not impossible. In 2010, the DOE agreed to loan the upstart manufacturer $529 million to build hybrid cars under certain conditions, one of which was producing cars in America; Fisker was in the process of retooling a old GM plant in Wilmington, Delaware. Another loan provision was based on the production of Fisker’s first car, the Karma, which the company failed to produce in the agreed-upon timeline. That resulted in Fisker only receiving $193 million of the loan before the funds were frozen, money that was to be spent creating the smaller, less expensive Atlantic. Fisker still needs to bring that car to market, and manufacture the car in Delaware, luggage that both Chinese automakers simply couldn’t take on.
Fisker claims the worker furloughs are a natural part of any business when sales are slow, but freeze on employee pay comes less than one month before the company begins loan repayment obligations to the DOE on April 22 (exact numbers are unknown at this time). Although Fisker still has roughly three weeks to find a suitor, the hiring of Kirkland & Ellis suggests Fisker does not have enough cash on hand to make the payment should a bid be unsuccessful. The Wall Street Journal reports that “Fisker’s equipment and property are pledged as collateral on its loan, so the U.S. government would likely control the company in the event of a bankruptcy-protection filing.”
There is still time to find a buyer for the ailing hybrid automaker, but renewing communications with Geely or Dongfeng would most likely prove to be futile. With its strong ties to the federal government, Fisker comes with a lot of baggage, which may prove to be too much for a potential buyer. The company is said to be considering selling intellectual property rights for a cash infusion.
Sources: Reuters, “China Carmaker Dongfeng Drops Bid for Fisker Stake“
Wall Street Journal, “Cash-Strapped Fisker Hires Restructuring Advisors“