Stymied by unsuccessful efforts to craft a deal with Chinese investors to save the company, struggling carmaker Fisker Automotive laid off most of its workers Friday.
Analysts said the move, combined with retaining a bankruptcy law firm last month, likely signals the death of the Anaheim company, which was founded by auto designer Henrik Fisker in 2007 with high hopes of selling highly styled hybrid sports cars and sedans.
That could leave the federal government essentially owning the automaker.
Fisker ran into a cash crunch after the federal government froze an Energy Department Advanced Technology Vehicles Manufacturing Loan Program loan in 2011. Fisker is supposed to make the first payment on some of $192 million it borrowed from the government later this month. Fisker’s tooling and other property make up the collateral on the loan.
The Energy Department froze the funding after Fisker stopped meeting various development milestones for the business set as conditions for the financing, said Aoife McCarthy, a department spokesperson.
McCarthy said the government “is committed to the best outcome for taxpayers. Despite Fisker’s difficulties, our overall loan portfolio of more than 30 projects continues to perform very well, and more than 90% of the $10-billion loan loss reserve that Congress set aside for these programs remains intact.”
Fisker “was on life support before,” said Dave Sullivan, manager of product analysis for AutoPacific, an industry consulting firm. “It just doesn’t look good.”
Fisker has sold just 2,000 of its Karma hybrid sports cars and hasn’t assembled a vehicle in about nine months.
“Without cash coming in they can’t pay bills, they can’t do development on the next vehicle. The race is over for them now,” Sullivan said.
The cars might live on, probably with an adventurous investor buying the assets from an eventual bankruptcy and dropping conventional gasoline engines, such as a turbo-charged V-6 or larger V-8 into the sleek Karma body and selling it as a specialty car, Sullivan said.
“Expect the assets to be sold for pennies on the dollar,” he said.
About 160, employees, or 80% of the staff, lost their jobs Friday. They were paid remaining vacation days but did not receive any severance payments.
“They pulled back another layer as they try to work out a last-minute deal. They need to do a deal quickly and they know it and are working on it,” said Mike Sullivan, who has a Fisker store among his chain of LACarGuy dealerships in Southern California.
Fisker dismissed all but a core group of workers needed to keep the business running as it continues talks with the three Chinese businesses considering buying or investing in the company, according to individuals familiar with the negotiations.
“Our efforts to secure a strategic alliance or partnership are continuing in earnest, but unfortunately we have reached a point where a significant reduction in our workforce has become necessary,” the automaker said in a statement.
Last month, Fisker hired Kirkland & Ellis, a major bankruptcy law firm, to review the company’s options as it sought investors or a buyer.
Fisker has been working for months to raise $500 million so it could restart production of the Karma, its only model, which was built in Finland. Fisker stopped making the $110,000 plug-in hybrid last year after A123 Systems Inc., the maker of its lithium-ion battery, filed for bankruptcy.
Fisker is trying to work deals with three different Chinese companies, including Geely Holding Group, which owns Volvo, and Wanxiang Group Corp., which recently bought A123 Systems out of bankruptcy. The other bidder, according to an individual familiar with the negotiations, is a business owned by the Chinese government.
Regaining access to the Department of Energy loan, which would make Fiskers more attractive to potential investors, is the biggest obstacle to a deal, according to people familiar with the negotiations.
Potential buyers would want to tap into the federal money to restart the business and launch work on a second model, the Atlantic, a $55,000, four-door rechargeable sports sedan. However, the government is reluctant to extend more credit without getting guarantees for U.S. employment and setting milestones for the development of the next vehicle.
Fisker has suffered from constant management turnover, changing chief executives three times in just about a year. Henrik Fisker, the automaker’s executive chairman and founder, quit the automaker last month in what he described as a management dispute.
Sullivan of AutoPacific said Fisker also struggled with other problems, including trying to launch a new auto nameplate during a recession.
The fuel economy on the Karma wasn’t as high as Fisker had hoped. Once the car went into production there were several embarrassing recalls. The bankruptcy of the battery company upended production. The fit and finish of the cars coming out of Finland didn’t measure up to other expensive luxury makes.
About 300 Karmas at a New Jersey port were flooded and destroyed during Hurricane Sandy.
The Karma is a plug-in hybrid, not a fully electric car like the Tesla Model S. A pair of 150,000-watt electric motors power the rear wheels. Those motors get their energy from the large 180-killowatt lithium-ion battery, which can power the car on electric-only power for 30 to 50 miles, depending on how the Karma is driven. After the batteries are depleted, a 2.0-liter turbocharged four-cylinder engine, sourced from General Motors, kicks in to recharge them.
The sports car was designed by Henrik Fisker, who had worked on other high-end cars including the Aston Martin DB9 and V-8 Vantage and the BMW Z8. The four-door Karma cut a dramatic silhouette on the road, with sweeping lines flowing around massive 22-inch wheels, a long hood and a cramped cabin.
“I am still amazed that they were able to make those vehicles during the darkest time the auto industry has ever seen in this country,” Sullivan said. “It was impressive but in the end they are a footnote and it shows how hard it is to crack into this business.”