A123 Systems: Predictable Catch 22 Result

There was a debate-if you can characterizes it as that- last night between Mr. Romney and Mr. Obama. I did not watch it. Shame on me but from what I read in the Obama New York Times, the President carried the day, making Mr. Romney quake right before he knocked him out. Or, as an alternative in other publications, Mr. Romney stood toe-to-toe, not backing down, taking and retorting all the dirt thrown at him. Makes no difference.

The more interesting story I think today is the failure of a company called A123 Systems, a maker of automobile batteries for electric cars no one is buying. It seems it was selling its products at a loss for some time.

 The business tactic reminds me of the famous edict from the novel Catch 22 where Milo Minderbinder is selling a product (which I think was something like oranges) for 2 cents each when he had paid 5 cents each for them. When quizzed about the losses in the business model, the would-to be-businessman says, he would “make it up in volume”.

 There you have the Obama “green” energy strategy. Sell at a loss and make it up in volume. Subsidize the rest.

 A123 Systems-like its bankrupt cousin Solyndra-received hundreds of millions of tax dollars-from the government. I say the government not “us” because not many of “us” would have provided the subsidy to something so obvious doomed to fail.

The company makes lithium ion phosphate batteries for electric cars. Pushing “green energy” to solve the unemployment problem, the Department of Energy gave a $249 million grant to A123 in 2009. It was like winning the lottery. Three thousand jobs were going to be created. The math leads me to think that is a considerable sum per job.

The problem was and still is there is really no market for electric cars. So the Department of Energy tried to invent a market. It gave a company named Fisker Automotive a $529 million loan to produce plug-in hybrid cars. Oh, yeah there is no infrastructure for electric cars either, like 5-mile long extension cords.

Fisker intended to produce the cars in Delaware (home of Amtrak savvy Veep Biden) but the organization has issues with the quality of its cars, issues recalling cars and unstable company operations. I love this part if it was not so frustrating. This past summer, a Fisker car caught fire in a parking lot due to defect parts.

Most Democrats believe the government should have an industrial policy and can buck the market. I think this means the government can subsidize its notions and its will on all of us consumers. As has been seen over the years, its ability to do so is limited despite massive and expensive efforts. The facts are in the case of A123 Systems the technology and market for the electric battery and electric car industry is not there. It simply does not exist. It may at some point but it is not now. Look at the Chevy Volt; a financial disaster for the Federal Government and UAW owned General Motors. 

The most disturbing lesson in all of this is that Mr. Obama and his minions at DOE do not understand the working of a market place, how big it can be and how wasteful it is to try to impose behavior that is not commercially feasible.

Think about that concept.