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Forbes

 

Fisker vs. Ford

November 15, 2011

By Robert Bryce

The Obama administration subsidizes luxury cars.


Ford Motor Company’s most expensive sports car is the Mustang Shelby GT500 convertible, a 500-horsepower rocket sled that retails for about $55,000. Compare that to the $97,000 for the base model hybrid-electric Karma, the high-performance sports car made by upstart Fisker Automotive.

Those two price points should have tipped off the Obama administration as to why providing a $529 million loan guarantee to Fisker would end up a public-relations blunder. But in 2009, the administration went ahead with the deal. “We’re making a bet on the future, we’re making a bet on the American people, we’re making a bet on the market, we’re making a bet on innovation,” said Vice President Joe Biden.

The Obama administration made a bet, but which company is innovating in ways that will matter to more Americans, Ford or Fisker?

That question is important because both companies have benefited from taxpayer largesse. Ford didn’t get a bailout like GM and Chrysler, but it has received favorable treatment from the federal government, including, among other things, a $250 million loan guarantee to help boost exports and $5.9 billion in Department of Energy loans for the retooling of some of its U.S. factories. Those loans appear to be paying off. Last month, Ford announced that it plans to hire 12,000 new workers in the U.S. by 2015.

Fisker also got a loan guarantee, but — as ABC News reported last month — it won’t be building its cars in the U.S. Instead, it will be assembling its cars in Finland because the company said “it could not find a facility in the United States capable of doing the work.” California-based Fisker says it has 3,000 pre-orders for the Karma and that it will begin producing about 1,200 cars per month at the site in Finland.

But as Fisker begins producing a relative handful of vehicles, each of which cost more than a Mercedes-Benz S550 (sticker price: $94,500), Ford CEO Alan Mulally is writing one of the most remarkable comeback stories in U.S. industrial history. Mulally took over the top job at Ford in 2006 and mortgaged it to the hilt, borrowing $23.4 billion. He then launched a company-wide overhaul, streamlining processes and reducing product lines. The results: Over the past two years, the company has earned about $9.3 billion, after losing more than $30 billion from 2006 through 2008, and it’s rapidly paying down its debt. Last month, it announced third-quarter profits of about $1.6 billion on revenue growth of 14 percent.

Ford’s success is due, in part, to federal help. No doubt about it. But the key point is that Ford is producing innovative products that lots of customers can afford. It recently unveiled a turbocharged three-cylinder, one-liter engine for the Focus that can produce 118 horsepower while still getting more than 40 miles per gallon on the highway. Put another way, Ford’s new engine will produce about 47 percent more power per liter of displacement than the engine now being used in the Focus.

Better still, Ford’s vehicles are made for the mass market, not for drivers who are accustomed to Benzes and Beemers. In October, Ford sold 167,500 cars in the U.S. Thus, in one month, Ford is capable of selling about 140 times as many cars as Fisker says it will be capable of producing at its location in Finland. And it’s not at all clear that Fisker will ever move beyond being a business that caters only to the carriage trade.

The obvious fix to the Fisker fiasco is to get the federal government completely out of the auto business. The world’s carmakers — and that surely includes Ford — have plenty of capital and production capacity, along with myriad technologies, that they can bring to the market if there’s demand. And that includes electric cars. Just a few days ago, Ford announced that it will begin selling an all-electric version of the Focus in 2012 for about $40,000. It’s doubtful that Ford will find a sizable market for the electric version of the Focus, particularly when you consider that the gasoline-engine version of that same car sells for $17,000.

That said, it’s abundantly clear that American taxpayers don’t need to be underwriting the production of the Karma, a vehicle that has — I kid you not — a trim package known as EcoChic.

Original Source: http://www.forbes.com/sites/aroy/2011/11/14/finally-supreme-court-agrees-to-hear-obamacare-challenges/

 

 
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