A123 Systems layoffs highlight challenges for Michigan's budding battery industry
Photo courtesy of A123 Systems
How Michigan’s emerging battery industry will fare during that process — and whether manufacturers will add the thousands of jobs they promised to create in exchange for government cash and tax incentives — is unclear.
Less than two weeks after Massachusetts-based A123 laid off 125 workers at its Michigan battery plants, A123 CEO David Vieau agreed that some of the early entrants into the lithium-ion battery race eventually will lose.
Photo courtesy of A123 Systems
A123’s layoffs — which the company has said are temporary — reflect one of the first hiccups in the growth of Michigan’s battery industry, which has been widely described as a major economic development opportunity for the state.
Investors recently have shown little faith in the company, which President Barack Obama lauded in September 2010 as an “extraordinary” reflection of U.S. innovation and also drew attention in 2007 from President George W. Bush as a way to pursue energy independence.
A123, which has about 40 workers at its research-and-development and government operation in Ann Arbor’s Research Park, sold stock at a price of $13.40 a share during its IPO on Sept. 29, 2009. The stock (NASDAQ:AONE) rose quickly, hitting an all-time high of $28.02 on Oct. 5, 2009. But it’s since declined 92.8 percent, hitting an all-time low of $2.01 on Nov. 25, 2011.
The disruption in A123’s growth trajectory underscores a reality that’s often overlooked in Michigan’s battery rush: The early stage of any new industry involves a roller coaster of highs and lows.
Industry experts expect some early-stage startup battery companies to fail as winners emerge and technology changes. Others are expected to soar.
But battery cells, modules and packs — the key components in electric vehicles — are still expensive and complex. Simply increasing production volumes might not make them affordable for the average consumer, one analyst said.
Photo courtesy of A123 Systems
“People in the major car companies are concerned about the cost and how quickly it can go down,” said Kim Hill, director of the sustainability and economic development research at the Ann Arbor-based Center for Automotive Research. “Fundamentally a breakthrough has to occur, and everybody’s hanging their hat on that.”
CEO 'confident' A123 will meet job growth promise
Vieau argued that A123 — which has lost $412.3 million since the start of 2009 — would thrive in the global race to reduce the cost of batteries for electric vehicles. He said taxpayer dollars awarded to A123 would not be wasted.
To support its expansion, A123 landed a $249.1 million economic stimulus grant from the U.S. Department of Energy in August 2009. That came after the company won $125 million in tax credits and incentives from the Michigan Economic Development Corp. in spring 2009 and a $10 million cash grant from the state in fall 2008.
In exchange for the grants and tax breaks, A123 promised — as recently as September 2010 — to create “thousands” of new advanced manufacturing jobs in Michigan. The same month, the White House issued a news release saying A123 planned to create 3,000 jobs at its Michigan plants. In November 2009, a press release from the office of then-Gov. Jennifer Granholm, a major proponent of the battery tax credits, put the figure at 5,000.
“The timing might be a little longer than we originally anticipated but we’re still very bullish on the number of jobs,” Vieau said. “I don’t know where the 5,000 came from, but I recall several thousand people has been a number we’ve used pretty consistently over the last 2, 2.5 years. We still feel quite confident in achieving that.”
In July 2011, the company publicized the hiring of its 1,000th Michigan worker. Since then, A123’s personnel count has fallen to about 700 — which accounts for the recent layoffs and a number of contractors who are not currently working there, a spokesman said.
With the company’s layoffs, a declining stock price and continued questions about how fast electric vehicles will become affordable and widely adopted, A123 faces a number of challenges.
Add to the mix the implosion of federally backed California-based solar panel maker Solyndra, and there’s an increasingly intense spotlight on recipients of government cash like A123.
“The red flag that’s raised for me and a lot of people is when you see the market being dictated by government subsidies and mandates,” said Russ Harding, a former director of Michigan’s Department of Environmental Quality under Republican Gov. John Engler and now an analyst for the conservative Mackinac Center for Public Policy.
“Even if you’re a real strong advocate of alternative energy, this is not going to be in your best interests when the government tries to push these technologies before they’re ready,” Harding said. “They just end up failing in the marketplace, whether it’s high visibility like Solyndra, or the smaller ones in Michigan. They’re falling right and left.”
Vieau rejected any hints of parallels between A123 and Solyndra.
“Some of the recent struggles have been companies that are underfunded,” Vieau said. “And we’ve been adequately funded to do the job that we’ve got to do. We’ve had access to the capital markets, we’ve had good support, we’ve got a blue-chip set of customers out there.”
A123 is being watched closely by industry experts and political leaders. Obama himself met with Vieau in the Oval Office in April 2010 to discuss A123’s progress and praised the company by phone at a press event in September 2010.
“This is important not just because of what you guys are doing at your plant, but all across America, because this is about the birth of an entire new industry in America — an industry that's going to be central to the next generation of cars,” Obama said.
“And it’s going to allow us to start exporting those cars, making them comfortable, convenient, and affordable. It helps our manufacturing industry to thrive, and with it, that means our communities and our states and our country are going to thrive.”
Cuts highlight deal with Fisker
Although A123 has secured battery supply deals with more than 20 auto or transportation companies — in addition to some electrical grid and commercial customers — a few major clients account for most of the company’s revenue.
Photo courtesy of Fisker Automotive
A123 last month laid off 125 workers at its plants in Romulus and Livonia after one of its biggest customers, California electric vehicle startup Fisker Automotive, slowed its production plans for a new plug-in hybrid vehicle that uses A123 batteries.
A123 expects the layoffs to last three to six months while Fisker adjusts its production schedule.
Fisker, which received a $528.7 million loan from the DOE’s Advanced Technology Vehicles Manufacturing Loan Program in 2010, has drawn scrutiny after experiencing a number of delays in producing its first vehicles.
Roger Ormisher, Fisker’s director of global communications, told AnnArbor.com the automaker’s relationship with A123 is still healthy and that the company expects to produce 10,000 to 20,000 vehicles in 2012.
“What basically happened was our ramp-up in production was slower than we expected this summer," Ormisher said. "We’ve actually pre-ordered batteries from A123. Our inventory at the factory is sufficient to get us through the first quarter of next year.”
A123’s unexpected layoffs placed a spotlight on the company’s heavy reliance on its contract to produce batteries for Fisker.
“They’re a big part of our plans and in the top two customers we have for this year and for next year for sure,” Vieau said.
A review of A123’s third-quarter earnings report with the U.S. Securities and Exchange Commission shows that the company gets 51 percent of its revenue from two customers. Government contracts and subcontracts make up another 12.3 percent of A123’s revenue.
Vieau said he’s confident Fisker is stable.
“They’re a little slower in the ramp-up than expected and got their inventories out of balance,” Vieau said. “They’ve got enough batteries to meet their requirements right now. What we’ve said is it might be a three- to six-month kind of delay, but we expect them to come back quite strong.”
Fisker’s delays and A123’s corresponding troubles come as several major companies are pursuing battery manufacturing plant expansions in Michigan. Other Michigan-based beneficiaries of federal dollars, state tax relief or both include a venture backed by Dow Chemical, Johnson Controls and LG Chem's Compact Power unit. All three are constructing battery plants, projecting thousands of new jobs.
Michigan battery makers secured $2.1 billion in tax credits and about $1 billion in federal stimulus grants while interest in batteries peaked two years ago, according to the nonpartisan think tank Center for Michigan. Collectively, state and federal experts projected the battery expansions would create 64,000 jobs directly and indirectly.
A123 Systems, which has never been profitable, posted a net loss of $63.717 million during the third quarter of 2011, up from $43.735 million during the third quarter of 2010.
A significant portion of A123’s losses is attributable to the expansion of its manufacturing capacity in Livonia and Romulus. The battery maker purchased property, plant and equipment costing $113.729 million during the first three quarters of 2011, up from $107.780 million during the first three quarters of 2010.
A123 offset those purchases with $32.022 million from its federal grant in the first three quarters of 2011 and $49.642 million in the first three quarters of 2010.
The company's cash or cash equivalents slipped from $300.8 million on Sept. 30, 2010, to $225.8 million on Sept. 30, 2011.
Battery makers face hurdles
Industry experts and research say lithium-ion battery makers face a litany of challenges over the next several years.
MEDC industry analyst Eric Shreffler said the agency’s battery tax incentives program — which distributed its final incentives last year — included a vigorous vetting process, employing federal scientists and third-party experts to analyze incentive applications.
He acknowledged the “potential for (a) shakeout” at some point, but said Michigan’s battery companies are already diversifying their client base by securing customers in the electrical grid, commercial and military markets.
“The companies Michigan has invested in — certainly from a global perspective — have as good of an opportunity as anyone to be successful for many years down the road,” Shreffler said.
“We really are at the beginning stages of this, and I think you’re going to see — just like in any new innovative technology — that there’s going to be some ups and downs. Clearly we hope that we never have to see layoffs and things like that, but I think it would be very foolish for us to be knee-jerk and say the sky is falling here.”
One of the largest threats to the growth of Michigan’s battery industry is the high cost of the technology itself, which translates into expensive vehicles. For example, General Motors’ extended-range electric Chevrolet Volt starts at about $40,000, and Nissan’s pure electric Leaf costs more than $30,000 — before tax credits kick in.
But experts disagree over the pace at which battery costs will fall. Manufacturers closely guard the current cost of electric vehicle battery packs, but a January 2011 report by the Center for Automotive Research pegged it at about $1,000 per kilowatt hour.
“Battery costs are an obvious barrier to the widespread use of” electric vehicles or plug-in electric vehicles, CAR analysts reported.
The industry consensus is the cost of lithium-ion battery packs must fall to $250 to become viable.
The U.S. Department of Energy estimates that target could be reached as soon as 2015, while the Boston Consulting Group reported last year that reaching $250 by 2020 presents “substantial challenges.” Pike Research projects that the cost would drop to $470 per kilowatt hour in 2015.
Vieau said A123 expects the price to drop to $350 to $450 by 2015 or 2016.
“Saying the battery costs would come down about 50 percent over a 5-, 6-year period is reasonable,” Vieau said.
Still, experts agree that the industry must achieve major technological breakthroughs to significantly lower the price of lithium-ion batteries.
“You can’t tell for sure where the R&D path is going to end up because it’s such a new technology — new in that trying to get the kind of power out of the battery that you want and need for a pure electric vehicle,” said Bruce Belzowski, an assistant research scientist with the University of Michigan’s Transportation Research Institute.
Major corporations and startups like Ann Arbor-based Sakti3, a spinoff from the University of Michigan, are pursuing various next-generation battery technologies.
"Technology innovations are the only way to bring prices down significantly, once the economies of scale have been achieved in a certain industry," Sakti3 CEO Ann Marie Sastry said in an email.
Lower battery costs, improved energy storage and a record of reliability on the road would prompt consumers to consider buying electric cars, experts said.
But Hill said that as long as the price of gasoline is low, consumers don’t have much incentive to buy electric cars. The average price of a gallon of gasoline is hovering just above $3 in Ann Arbor.
“That’s not enough to scare anybody to spend more on a pure electric vehicle,” Hill said.
In its third-quarter earnings report, A123 also acknowledged that consistently low gasoline prices would reduce the demand for alternative propulsion vehicles and “have a material adverse effect on our business.”
Does the battery industry need an additional boost?
Harding, the analyst for the Mackinac Center, which has been critical of A123’s tax incentives, said the government needs to stop trying to “picking the winners and losers” in energy.
“Federal government policy has made the decision that electrification of autos is the future, and that is highly questionable,” Harding said.
Supporters of government investments in battery technologies and charging infrastructure say it must be a priority to help Michigan stay competitive with competitors in Asia, which dominates lithium-ion battery development for consumer electronics.
In July, U.S. Sen. Debbie Stabenow, D-Michigan, proposed a new $2 billion bill that, she estimates, would help the U.S. boost its share of advanced battery manufacturing production from 2 percent a few years ago to 40 percent within three years.
Her bill, the Battery Innovation Act, would create new grants and funding opportunities for battery research and production, identify domestic supplies of raw lithium and provide loan guarantees for businesses that buy batteries for on-site energy storage.
“The United States is in a race with countries like South Korea, Japan, and China to lead the world in the development of clean energy technologies like advanced batteries,” Stabenow spokesman Matt Williams said in a statement provided to AnnArbor.com.
“With all of our engineering and manufacturing expertise, Michigan is leading our country in this race and the advanced battery industry has generated billions in private sector investment that has created thousands of jobs. Sen. Stabenow knows winning this race will not be easy, but we cannot afford inaction. The future of our economy depends on it.”
In August, Michigan legislative Democrats proposed additional investments in the state’s battery industry. But Republicans, who control the House, Senate and governorship, have little appetite for more incentives targeted toward a specific industry.
Gov. Rick Snyder, a first-term Republican, and legislative Republicans revamped Michigan’s business tax structure in early 2011 and slashed most of the state’s business tax credits.
Snyder told AnnArbor.com after an October event on Michigan’s “green chemistry” industry that he expects “there could be some challenges” with some of the Michigan companies that have received tax credits in recent years. “We always have to be careful,” Snyder said. “Government’s role in terms of making investments like that is - that’s not typically the highest and best use of government, and I’m not a big fan of picking winners and losers.”
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or email@example.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Sun, Dec 4, 2011 : 5:48 a.m.
an article on A123... this one is rather political <a href="http://nlpc.org/stories/2011/12/02/taxpayer-funded-green-job-losses-easy-a123" rel='nofollow'>http://nlpc.org/stories/2011/12/02/taxpayer-funded-green-job-losses-easy-a123</a>
Sat, Dec 3, 2011 : 6:57 p.m.
Our government can defy the laws of economics and good business sense if we would just have the rich pay their fair share. That's going to fix jobless benefits, health care, social security, global warming, our energy problem, and a host of other problems for the government. Sonn they'll figure out a way to defy the laws of physics and gravity but only after spending a few trillion to study it. I saw let's do it and drive a stake through the heart of what's left of our economy. Ross Perot and now Herman Cain were destroyed by the news media so now we just need another career politician to step in and save the country. Will it be Obama, Gingrich, or Romney?
Edward R Murrow's Ghost
Sat, Dec 3, 2011 : 8:51 p.m.
I'm curious: which "laws of economic" has the government violated. Name all them and provide examples, please. Thanks! Good Night and Good Luck
Fri, Dec 2, 2011 : 11:54 p.m.
Nathan, First off, excellent story and research. Comment: if A123 is tied to a major percentage of it's income to Fisker (as indicated by the layoffs), and is awaiting a re-adjustment of "inventory" by Fisker - ouch. Fisker thinks they can sell 10-12 thousand of the Karmas at 98 thousand a pop. Chevrolet has sold less than 10 thousand Volts (including a large government order) that go for 40k. Perhaps the government should buy Karmas and add them to the Volt inventory? <a href="http://www.forbes.com/sites/warrenmeyer/2011/10/20/update-fisker-karma-electric-car-gets-worse-mileage-than-an-suv/" rel='nofollow'>http://www.forbes.com/sites/warrenmeyer/2011/10/20/update-fisker-karma-electric-car-gets-worse-mileage-than-an-suv/</a>
Fri, Dec 2, 2011 : 10:36 p.m.
I tried to tell people this 9/28/11 while commenting on Gov. Jenny's book tour. Check out my thread..
Fri, Dec 2, 2011 : 10:09 p.m.
Nathan, great article. I quoted some parts from it. <a href="http://www.forbes.com/sites/kaipetainen/2011/12/02/insider-selling-government-money-and-layoffs-at-a123/" rel='nofollow'>http://www.forbes.com/sites/kaipetainen/2011/12/02/insider-selling-government-money-and-layoffs-at-a123/</a>
Fri, Dec 2, 2011 : 4:36 p.m.
What's sad about this whole battery business is that there was a "good enough" battery built in the late 90s. The EV-95 by Panasonic. (Check out: <a href="http://www.evnut.com/rav_battery_data_sheet.html)" rel='nofollow'>http://www.evnut.com/rav_battery_data_sheet.html)</a>. Now these were NiMH batteries, so they were a bit heavier, and their production cost was uncertain, but they were/are robust. Some of these packs, built over 10 years ago, are still running today in RAV-4 electric vehicles! When the electric vehicle push of the late 90s was shut down, the patent rights for large format NiMH batteries were sold to Chevron, and Panasonic was forced to close this battery production line. I think NiMH is not an attractive chemistry to researchers due in part to the patent/intellectual property issues with the technology. Lithium Ion is considered the favored chemistry for electric vehicles at this point. This is despite the fact that Lithium Ion has had a few fire problems, and the chemistry traditional has a shelf life of only about 5 years (The batteries go bad 5 years after manufacture, whether you use them or not.) Researchers are working to address these problems, and success would indeed mean a much denser energy storage compared with NiMH. But we did have something that was 'good enough' over 10 years ago.
Fri, Dec 2, 2011 : 6:26 p.m.
If true, this must be only so for large lithium ion batteries. I have 2 camcorder Sony batteries from early 1997 that I just used for an event because I knew that I could trust it to run for 2 hours un atteneded. It idd, then for another 2 afterwards without a charge. My newer camera could not do this. It was the small original one, too.
Fri, Dec 2, 2011 : 4:36 p.m.
Where are all the Snyder bashers when the facts come out. Jenny and her e85 save the state plane followed by the oh gee I'm in the movies and now the good ole save by the battery plan. Lol!
Edward R Murrow's Ghost
Sat, Dec 3, 2011 : 4:28 p.m.
Is there a sentence somewhere in that post that expresses a coherent idea? Interesting that there are (as of this post) three people who "like" something that makes no sense whatsoever to those of us who read English. Good Night and Good Luck
Fri, Dec 2, 2011 : 4:05 p.m.
Leadership is about influencing others to do the right action and picking winners and losers is a role of governing and is done by action or inaction. We exist within a messy system in the U.S. and it does take time and positive/negative feedback to chart a course, especially a political choice. Today we want technology breakthroughs, free global security, better environment, lowest fuel costs, cheap vehicles, etc. and rarely is it apparent exactly what are the underlying "costs" of different energy sources for the end-user . There are lots of good examples of private/public partnerships working and I believe the attempt to move the cost curve on batteries is one of them. We MUST find ways of reducing future oil requirements, it is not enough to let today's economic choices determine a limited future with high risks.
Fri, Dec 2, 2011 : 4:01 p.m.
That's right take the big government dollars and then lay-off. Real Slick.
Fri, Dec 2, 2011 : 3:43 p.m.
some always lose.some always win.nothing profound about that
Fri, Dec 2, 2011 : 3:35 p.m.
As much as these large subsidies bother me, they pale in comparison to the taxpayer subsidies to the oil and gas industry. If gasoline were at it's fair price, people would be buying more alternatives, and demand for batteries would be far higher. Battery technology is still quite crude, and needs a lot of improvement.
Edward R Murrow's Ghost
Sat, Dec 3, 2011 : 4:26 p.m.
"Gasoline and oil are at fair market value. Subsidies have nothing to do with market prices." Wrong. Federal subsidies impact positively the oil companies' bottom line. Absent those subsidies, for the oil companies to achieve the same profit margin, they would have to raise substantially the cost of their product. Econ 101. Good Night and Good Luck
Fri, Dec 2, 2011 : 4:40 p.m.
Gasoline and oil are at fair market value. Subsidies have nothing to do with market prices.
Fri, Dec 2, 2011 : 2:32 p.m.
Alright...I'll throw in my auto analyst comments because it wasn't touched on in this piece. There actually has to be a MARKET for these batteries. Currently people aren't buying cars with any type of battery. Hybrids sales are dropping like a rock. EVs have limited range and are pricey. There has to be a reason why people NEED these cars with batteries. Gas is so cheap that people can't justify the expense of a pricey car with a battery. If gas was $6 a gallon, people would begin to feel the burn and look for diesel, hybrids, EVs, fuel cells, etc. A higher gas tax would fix the majority of our issues....decrease our reliance on foreign oil...and force us to become more efficient. With no need in the market, we're just pissing tax dollars away on these incentives. We're a country without an energy policy.
Sat, Dec 3, 2011 : 3:26 a.m.
Thanks, Jim. Looking at the industry is what I do for a living. :)
Fri, Dec 2, 2011 : 4:51 p.m.
Dave is correct. That's why the automakers all call for a gas tax to raise the price of gasoline, and make the alternative technologies more competitive. But democrats (including Obama) prefer instead to simply mandate higher mpg standards on new cars sold. This is problematic because the automakers can't dictate what people should buy. (At the least the mpg rated should be per unit weight of the vehicle, but they don't even do that....)
Fri, Dec 2, 2011 : 2:32 p.m.
So the CEO says "No reason for concern"? Hmmm....Isn't that what the Captain of the 'Titanic' said after hitting the infamous iceberg? Time will tell....whether there is cause for concern regarding these layoffs.
Fri, Dec 2, 2011 : 3:31 p.m.
Ever see the great 1932 film "The Match King"? It should be a must watch. It is the story of "too big to fail", which is not a new concept - regardless of what some might like us to believe. There are also some books on the subject of the film. <a href="http://www.imdb.com/title/tt0023198/" rel='nofollow'>http://www.imdb.com/title/tt0023198/</a> A captain or CEO must remain optimistic under adversity. On the other hand, he has an obligation to be honest (snort). As to the Titanic, recent reports reveal that there was a secret conspiracy among the senior officers to hide negligence. Apparently they could have avoided the iceberg, but instead steered into it due to a helmsman's error. The truth would have resulted in a finding of negligence rather than the finding of accident. The negligence claims would have ruined the shipping company and cost thousands of jobs, hence the conspiracy. It is rare that those outside a company ever really hear the truth of what goes on, not unlike Titanic.
Fri, Dec 2, 2011 : 2:19 p.m.
This is perhaps the best article I've ever read from AnnArbor.com.
Fri, Dec 2, 2011 : 2:18 p.m.
At least Kwami was more transparent in his fleecing of the public.
Fri, Dec 2, 2011 : 2:18 p.m.
Congratulations to the insiders who sold their shares in this taxpayer funded company and got even more rich! According to company disclosures, CEO Vieau's salary is $553K. As of Oct 11, 2011 he owns 1,027,974 shares of the stock. He sells about 11,000 shares each month. The company gives him 40,000 to 80,000 additional shares per quarter. There is a notion in the business world of "playing the game". I like to use it when I'm involved with a business that I know is flawed or doomed, but they're still paying me really well. You know it's a house of cards but the money is really good. You hold your nose, do your best, and cash the checks. I don't think A123 is that far gone, but the amount of my taxpayer dollars being burned by people "playing the game" is deeply disturbing. Make no mistake - a lot of people are getting rich off those taxpayer dollars. It tends to be friends of friends. The term of art is "cronies". General Electric owns 6% of this company. We should be honored to be giving GE even more taxpayer money. However, we taxpayers should OWN a significant portion of this company in exchange for our investment. It is absurd that we just gift them money with nebulous assurances that they'll try their best, even as they sell shares to cash in on our "investment". Michigan, and the fed, should not be pouring billions or hundreds of millions into these companies. Those dollars would be better spent in smaller amounts, funding small early stage startups. The cost per job here is sickening. It is one thing to support companies and it is quite another to be nothing more than a sugar daddy. And CEO Vieau should be calling every taxpayer "Daddy". <a href="http://finance.yahoo.com/q/mh?s=AONE+Major+Holders" rel='nofollow'>http://finance.yahoo.com/q/mh?s=AONE+Major+Holders</a> <a href="http://finance.yahoo.com/q/it?s=AONE+Insider+Transactions" rel='nofollow'>http://finance.yahoo.com/q/it?s=AONE+Insider+Transactions</a>
Fri, Dec 2, 2011 : 10:57 p.m.
thanks for pointing out the insiders. i made a note of it here <a href="http://www.forbes.com/sites/kaipetainen/2011/12/02/insider-selling-government-money-and-layoffs-at-a123/" rel='nofollow'>http://www.forbes.com/sites/kaipetainen/2011/12/02/insider-selling-government-money-and-layoffs-at-a123/</a>
Fri, Dec 2, 2011 : 2:26 p.m.
We could raise taxes on capital gains, we could support a tax on stock trades etc.
Fri, Dec 2, 2011 : 2:05 p.m.
It's depressing to read so many comments that focus on partisan political beliefs rather than the reality of world wide economic competition in high tech product development and manufacturing. The "chasm crossing" problem is well understood (read the book), and while the US leads in advanced technology development, other countries are beating us at the process of getting these things into products that create jobs and exports because a) increasing complexity of technology and cost of development means that it's more difficult for private sector alone to finance than formerly b) nations are making investments in "chasm crossing" to bring the development and manufacturing (and jobs) of advanced technologies to their shores from our universities while we dither around worrying about the ideology of how these things should happen. Product development and manufacturing is a pragmatism driven thing, and making it just another political battle wedge issue is harming our economy and our country. Furthermore, much of the notion that "in the old days" the government didn't finance anything is completely mistaken - look at recent books on the government funding of railroads in the 1800's and the fact that the US Army did a lot of the road building in the early 1800's. National policy on this issue is anathema to certain politicians, but it's desperately needed, along with a national will to succeed in bringing the many advanced technologies invented here to the market, instead of letting them go overseas.
Edward R Murrow's Ghost
Mon, Dec 5, 2011 : 4:09 a.m.
McCullough's book is indeed a classic as are they all (1776 might be his best), but: 1) The PC was built almost entirely for military reasons due to the voyage of the _Oregon_ from Pacific to Atlantic during the Spanish-American War. The canal was a way to get a two-ocean navy for the price of a one-ocean navy. Commercial benefits were gravy. 2) It, too would never have been built if left to private investors. Again, not lack of money, but not clear it would work. As McCullough makes clear, the collapse of the French effort led to huge losses of private investment and a terrible political scandal in France. No American investors were going to take that risk. Only the federal government could do so. Much like the transcons. GN&GL
Mon, Dec 5, 2011 : 2:09 a.m.
ghost, My apologies, I appear to have also been counting sheep and cattle! However, I'm still sticking with my 21:51 entry and 16:11 closing. We appear both in agreement that the size and scope of the project required federal intervention. I gather I look upon it as a safer bet than you do. I'm also reading McCullough's Path Between the Seas and seeing just what lengths people went to for passage from the east to California ($25 gold for a 40 mile train ride across Panama). That little RR paid for itself in one year.
Edward R Murrow's Ghost
Sun, Dec 4, 2011 : 10:10 p.m.
The entire nation's population in 1860 was 31,400,000. 3 million in CA? LOLOLOL California's population in 1850 was 92,000. In 1860 it was 380,000 In 1870 it was 560,000 It did not reach 3,000,000 until sometime between 1910 and 1920 Source: <a href="http://www.census.gov/dmd/www/resapport/states/california.pdf" rel='nofollow'>http://www.census.gov/dmd/www/resapport/states/california.pdf</a> These stats make my case--thanks. No one was going to spend $50,000,000 to build a railroad across the country to serve 380,000 people. And, again, your (likely purposely) miss the main point: if everyone KNEW that the transcon was needed and would be profitable, there would have been no need for the government to have intervened as it did. Private investors simply would have stepped to the plate (as they did after they knew the bonds were backed by the government) to finance the project. And they did not. GN&GL
Sun, Dec 4, 2011 : 4:43 p.m.
Again Ghost, It was "through it, not to it". California admitted to the Union in 1850. Before MN, NE, CO. Within five years of FL, IA, WI, TX. Population of CA in 1860 was 3 million, the same as Pennsylvania. Investors were both west and east coast based.
Edward R Murrow's Ghost
Sun, Dec 4, 2011 : 3:48 a.m.
There was no one out there. There was no one to make goods. There was no one to buy goods There was no one to ship goods There was no one to mine or to harvest timber There was no business for the railroads They would not have built the transcons but for the government incentives to do so. If they would have built it without the incentives, why do the incentives in the first place. Again, it was not lack of money. The money existed. Investors snapped up the bonds as soon as they understood they were backed by the gov't. The only answer is that government intervention was necessary in order for it to happen THEN. As for a "known" technology, I suggest you look into the history of RR accidents in that era--reliability of boilers, reliability of brakes, etc.... It might have been "known". It was hardly reliable. GN&GL
Sun, Dec 4, 2011 : 3:04 a.m.
Sorry, came up with a better closing: known technology and a market differs from grants given in the HOPE of CHANGE. ;-)
Sun, Dec 4, 2011 : 2:51 a.m.
ghost, Suggest you evaluate these "no good reasons - NONE" for building. 1) Land Grant Act of 1850 included provisions for RR from the Great Lakes to Mississppi. Land grants to RR totaled 131M acres. The price of the land surrounding the RR grants were increased by the government from $1.25 to $2.50 acre. Now multiply that at least several times for lines to the west (but go ahead and deduct some for the land quality). 2) Gold, Cattle, Grain, General trade east to west. Mormon land was not the destination for the RR, the goal was to get THROUGH it, any side benefits for going through were just that, side benefits. Passage from Boston to SF took up to EIGHT months in 1849. 3) Congress and the American people wanted this since 1840. Only debate on a northern route or southern route (with pre-civil war political implications) held up prior efforts. 4) Strategic move by the north during the civil war (1862 Act and 1864 amendment) for RR "lines" providing the "string" to tie the west and north together. Joining those reasons with a known technology, and expanding an already existing transportation infrastructure westward were the result. Visions came later. Again, known technology and a market, differs from could be.
Edward R Murrow's Ghost
Sun, Dec 4, 2011 : 1:11 a.m.
arbor--there was no one save a handful of Mormons between the Missouri River and Sacramento when the first TCs were chartered. They were huge risks. That the government was willing to back the RRs is why private investors snapped up the bonds (the gov't "loaned" bonds to the RR's for which they were responsible. Investors then "bought" those bonds, giving the RRs the revenue they needed to build). The bonds ultimately were guaranteed by the government--if the RR's went bankrupt, the bonds were still good. That guarantee and the promise of money from the land grants got the RRs built. There was absolutely no good reason--NONE--to build them when they were built. The parallel to Solyndra--and to batteries, and to other green energy--is a precise one. Government backing of a venture thought good for the nation's future in which private investors were unwilling to risk their money. GN&GL
Sat, Dec 3, 2011 : 9:11 p.m.
Ghost, 1864 amendment still required payment by the railroads of the original bonds with interest. 1864 amended 1862 act to allow issue of corporate bonds not to exceed the government bond limit and such company issued securities would have priority over government bonds (geez, Solyndra again!). These were not grants - they were to be paid back. These financed numerous companies as you state. Where we disagree is on the "vision" and risk. I do not consider grants of hundreds of millions dollars on unproven technology, coupled with immature infrastructure in the same category of vision and risk as government backed bonds requiring repayment with interest, and based on 34 years of rail system operations. (B&O railroad 1828).
Edward R Murrow's Ghost
Sat, Dec 3, 2011 : 7:06 p.m.
Very good, Arbor. Now you ought look up the Pacific Railway Act of 1864 to see how it amended that of '62. And, BTW, nothing you have written contradicts my point. The provisions of the VARIOUS acts that chartered NUMEROUS transcontinental railroads were subsidies. Indeed, you wrote: "These railroads were corporations but none were the size or suitably financed to undertake a transcontinental project" My point exactly, which renders moot the rest of what you wrote. Yup, with a vision of the future, the government subsidized at taxpayer cost the construction of transcontinental RRs. Too bad our vision of the future is so limited today. But really it isn't, is it? Because or government still provides all sorts of subsidies in the energy field. Subsidies for oil companies and ethanol = good Subsidies for green energy? Not so much. Good for oil companies. Good for coal companies. Good for China. Not so much for the rest of us. GN&GL
Sat, Dec 3, 2011 : 6:59 p.m.
They also manipulate their currency, steal technology, exploit their natural resources to their advantage, and don't have an oppressive EPA to deal with.
Sat, Dec 3, 2011 : 6:36 p.m.
Land grants received by the railroads made surrounding land more valuable, moved goods and services across America (again with associated tax gains for the US). Or today,we could invest money in a battery company, that may or may not succeed, whose largest customer currently makes a battery/gas vehicle with poor Eco-results, put that promises to make a better one on Tuesday for $600M. And if success happens, figure out how to produce enough electricity to charge all the batteries (think really long railroad trains filled with coal). No way to run a railroad.
Sat, Dec 3, 2011 : 6:28 p.m.
Greetings Ghost, Western railroads received funding under the Pacific Railroad Act of 1862. The Act was passed by Congress (northern and western due to the civil war) "as a war measure for preservation of the union". These railroads were corporations but none were the size or suitably financed to undertake a transcontinental project. In addition, they did not own the land (as you have pointed out) on which to build across the vast west. The Act allowed for the creation of 30 year bonds due at 6% interest, which according to the wiki for the Central Pacific, were "eventually" all re-paid. Bonds were issued per mile, with a differing scale based on construction costs in difficult topography. Land grants to the railroad were also released (as you have stated) but adjacent land values increased because of the grants. In addition, while the railroads were given mineral and other rights for the land grants, they were responsible for paying the taxes on minerals and other commodities produced from the land grants. Money which the government would not have received without the railroad providing the infrastructure to extract and move. The largest railroad, Union Pacific, went bankrupt as a result of the Credit Mobiler scandal. CM was a shell company, really controlled by Union Pacific, and was acting as the construction firm. They manipulated construction costs per mile and passed the "bill" to Union Pacific, which then passed it to the government as part of the mile bonds. Since CM was really Union Pacific, the prices were rigged. 30 politicians from both parties were later implicated as being aware or taking part in the scandal. When CM was dismantled as the result of the scandal, it took UP with it. Think of it as a 1900 century Solyndra. So, RR, a proven commodity, were funded as part of a war effort for preservation of the union via bonds to be repaid with interest. Continued.
Edward R Murrow's Ghost
Sat, Dec 3, 2011 : 1:55 p.m.
arbor wrote: "Railroads (using the westward expansion example most often cited) again were a proven commodity by railroads in the east." Your implication, then, is that the construction of the several transcontinental RRs chartered by Congress were sure bets. If so, 1) Might you explain why it was necessary for the government to subsidize their construction. If such a sure bet, the RRs ought to have built them on their own. 2) Might you explain why, by 1900, EVERY transcon that had been built had gone bankrupt at least once (the sole exception being the Great Northern--and it was the sole transcon that HAD NOT been chartered by Congress). DonBee wrote: "Railroads were financed primarily with land grants, they cost the taxpayers very little." Wrong. At the VERY LEAST, the land grants cost taxpayers the revenue that would have been generated under the Homestead Act. But these RR's not only received the land, they received free of charge the mineral and timber rights for the land--and land that was being mined or on which lumber operations were taking place was not eligible for the very low "price" (it was really a fee) of land under the Homestead Act. The Central Pacific RR and the Union Pacific RR, between them, received land grants larger in total area than the state of Texas. Later transcons (Southern Pacific, Texas & Pacific, Kansas & Pacific, Atlantic and Pacific, Northern Pacific, ATSF) received even MORE land per mile than had the CP and UP. So to say that this cost the taxpayers little is a factually incorrect but totally typical statement. Good Night and Good Luck
Sat, Dec 3, 2011 : 1:02 a.m.
DeeDee, Roads have been built since roman times via government funding, and are not a technological risk. Railroads (using the westward expansion example most often cited) again were a proven commodity by railroads in the east. DonBee, excellent post. Now I'm donebe (sorry, couldn't resist).
Fri, Dec 2, 2011 : 9:16 p.m.
DeeDee - Railroads were financed primarily with land grants, they cost the taxpayers very little. Highways with fuel taxes, and other infrastructure is mostly held by the government. Research used to be freely available for any US company, rather than picking a "winning company" NASA started the trend to licensing specific patents to specific companies to get them to make it for NASA. We need to return to basic research funded by tax money is available to any US company and that technology transfer is done to an industry. No research organization or university should hold the rights to work funded by tax dollars. The US had manufacturing technology centers (one in Michigan) that were designed to provide experts in advanced manufacturing to any company that wanted help to get better at what they did or to create new processes. That funding has all but dried up. These are the things the government should support, not picking a single company and providing funds but rather supporting an industry or segment as a whole and giving everyone a leg up.
Fri, Dec 2, 2011 : 1:47 p.m.
Again I have to wonder where all of the attention was a few years ago, when another president was cozy with a different energy company? That collapse of a "free market" energy company sent ripples through our economy that cost thousands of jobs. But, if one protested then, one was a supporter of terrorists. That company had a big HQ down in Texas, and a big sign that said "ENRON". "...this is not going to be in your best interests when the government tries to push these technologies before they're ready," Harding said. Has he never heard of The Internets? The micro-chip, GPS, nuclear power plants, or the NSF?
Fri, Dec 2, 2011 : 1:37 p.m.
I'm not sure how we are going to compete with the Chinese who throw ten times the amount of money at this kind of tech than we do. We subsidize the industry here with 2 billion and they throw 20 billion towards their manufacturers. How can they compete? It's the same with solar. The Chinese literally give their companies 10 times how much we give ours. Any wonder when our companies can't make it in the market? I'm not sure of the solution, but I know we are being beaten by a government that's committed to being the best in the world.
Fri, Dec 2, 2011 : 9:09 p.m.
marzan - It used to be that the government supported basic research and technology transfer. Any US company could get in on the deal. Then in the 1980s the government decided to allow specific companies to take control of government ideas and research. NASA was one of the first to do this. What we lost was the whole industry looking to the government for basic research and instead we find that each company or university is lobbying for their piece of the tax pie. The results benefit the company or the university not the taxpaying public. We need to return to the old way of doing things so all US companies benefit from government money.
Fri, Dec 2, 2011 : 1:32 p.m.
This company went to great lengths to celebrate the hiring of it's 1000th employee with attendees such as United States Secretary of Energy Steven Chu, U.S. Sen. Carl Levin, U.S. Rep. Sander Levin, obviously because of the 'promise' to add "thousands of jobs". (Makes one wonder if they ever got to 1001.) Sounds like they are putting a lot of eggs into the Fisker basket, although Fisker is probably a good customer because they produce an expensive sports car that the outspoken 'green' hollywood folks & other one percenters will buy. Does anyone know how much federal stimulus funds Henry Ford received?
Sat, Dec 3, 2011 : 2:02 a.m.
Fish- But these high end fisker cars made in Finland and the batteries made at A123 that we are subsidizing are beyond any price that I will ever afford. The roads that were used by Henry's cars were something that everyone could use.
Fri, Dec 2, 2011 : 1:57 p.m.
Well, Henry did not purchase the roads his cars needed, Congress passed the Federal- Aid Road Act of 1916. the Bureau of Public Roads (BPR), as ORI was then called, was authorized by the Federal Highway Act of 1921 to provide funding to help state highway agencies construct a paved system of two-lane interstate highways. During the 1930s, BPR helped state and local governments create Depression-era road projects that would employ as many workers as possible. Steve jobs built on the work of Doug Engelbart, a researcher at Stanford, who took money from what was then known as ARPA. Stanford University Network helped spin off Sun systems.
Fri, Dec 2, 2011 : 12:51 p.m.
Can anyone say "Solyndra"
Sat, Dec 3, 2011 : 2:48 p.m.
Rob, only federal money received by Raser Geothermal was $33 million in May 2010 from the American Recovery and Reinvestment Act (known as the stimulus). Solyndra was proposed to the Bush administration but was not acted upon.
Sat, Dec 3, 2011 : 12:19 p.m.
There were a lot of dumb things started in the Bush administration...doesn't mean two wrongs make a right...
Fri, Dec 2, 2011 : 3:09 p.m.
Or Razer Geothermal, a Republican favorite and bankrupt green energy plan in Utah? Solyndra was proposed in the Bush Admin you know?
Fri, Dec 2, 2011 : 1:34 p.m.
I was thinking "Bush tax cuts", because they create jobs.
Fri, Dec 2, 2011 : 12:50 p.m.
Day late and dollar short, the Chinese have us beat. On the flip side, maybe we could get a jump on fuel cell?
Fri, Dec 2, 2011 : 4:11 p.m.
Yea! If only we could borrow enough Chinese money to dump into that technology!
Fri, Dec 2, 2011 : 12:41 p.m.
The sad thing is, much of the money from the taxpayers has received goes oversea's for component and part purchasing. I'd like to see the value per country sticker on the batteries. A bad Investment, to be sure. I'm not sure why we are pouring money down this drain. As an aside, Fisker doesn't even make cars in America. Another shell corporation trying to squeeze money out of the Feds.
Fri, Dec 2, 2011 : 12:37 p.m.
Bubble bubble bubble POP!
Fri, Dec 2, 2011 : 12:34 p.m.
Just another fine example of the current administrations " bailout " ponzi scheme throwing more of my hard earned money down another blind rat hole...geee lets all be green and happy with all this nonsense especially in Mi. with all the previous incentive's to nowhere handed out like raffle tickets buy the democrats when they held the reins of the run away wagon .....
Sat, Dec 3, 2011 : 12:07 a.m.
Arborcomment Nice rejoinder. Rob? Your turn.
Fri, Dec 2, 2011 : 11:28 p.m.
Rob, Bush administration support consisted of one visit by A123 executives to show "battery range extender module" by a Canadian company that A123 had even yet to acquire. Prior to this visit, A123 received $15 million in December 2006, and $12.5 million in May of 2008 from the United States Advanced Battery Consortium (USABC - made up of US Auto manufacturers) in "collaboration" with the Department of Energy. Found no further info on what the breakout was of USABC vs. DoE funding. So, total Bush "support": between zero and $27.5 million. Total Obama "support": $257 million. Nice.
Fri, Dec 2, 2011 : 3:07 p.m.
Also supported by the Bush Administration or did you miss that in the rush to judgment?
Fri, Dec 2, 2011 : 12:30 p.m.
$500,000 a job so far in Government money. Even more than the Movie Industry. One hopes they get to 5,000 jobs. At that point the government will have only paid $75,000 a job.
Fri, Dec 2, 2011 : 12:22 p.m.
A123 is "a major recipient of federal economic stimulus dollars and state incentives", and has lost hundreds of millions. While I wish them well, especially since they are a manufacturing company located in Michigan, can they survive without governmental money? Even worse, it seems that all of the customers of their customers rely on government subsidies or they will not buy the product. If these subsidies for electric cars were to end, a likely event in these times of budget shortfalls, then what will happen to A123?