If it were possible for things to get worse, well, it just might for fast-failing Fisker Automotive which, just last Friday, laid off three quarters of its employees, including its marketing, engineering and communications teams.
That move has triggered a federal lawsuit alleging the company failed to provide the required advance notice before releasing 160 of its 210 employees – who were also advised they would receive no severance pay.
Meanwhile, several highly placed sources echoed their concerns that a bankruptcy filing is extremely “likely,” one executive who has had close scrutiny of Fisker’s books telling TheDetroitBureau.com, “I don’t see how they can avoid it.”
According to data from Fisker, the maker has about $30 million in cash assets remaining with perhaps $15 million more to come as part of a settlement with its battery supplier, the former A123 – which recently renamed itself B456 after its own bankruptcy and an acquisition by a Chinese manufacturer.
The big question in automotive circles right now is how could Fisker be in its current position with so little cash left considering it claims to have raised as much as $1.2 billion in private equity from small investors as well as bigger venture capital firms such as Silicon Valley’s Kleiner Perkins Caufield Byer – KPCB said to now be overseeing operations at what is left of Fisker.
That’s on top of the more than $200 million Fisker was able to draw down from a $529 million Department of Energy loan program before the feds froze the fund because Fisker had failed to meet early targets for the launch of its initial product line, the Karma.
The government cash, along with much of what was subsequently raised, was supposed to go into the development of a second-generation, more mainstream model, the Atlantic, a prototype of which Fisker unveiled in a preview ahead of the 2012 New York Auto Show.
Development of the Atlantic appears to have been stalled at a much earlier stage than Fisker executives have publicly stated, even though they have repeatedly pushed back its planned launch. Cash shortages led much of the engineering team to do “nothing but play video games” because they couldn’t move ahead on the development program, said an insider.
That is likely to raise some serious questions about what exactly Fisker did with the money it did have access to – which could eventually reach a total of as much as $1.5 billion, if statements by sources and company officials add up.
What several insiders lament is that the company early on was far too aggressive with its spending despite repeated warnings by some investors and outside analysts brought in to try to help Fisker pull its operations into shape.
The profligate spending, early on, was linked to senior management partners, including founder’s Bernhard Koehler and Henrik Fisker, the latter the eponymous former designer who lent the plug-in hybrid maker his name.
The situation finally led senior investors to nudge both men in secondary roles. Former Chrysler CEO Tom LaSorda was brought in as a desperate bid to bring some control to the situation but was so frustrated by the mess he inherited that he stormed out of the company shortly before a critical meeting.
He was replaced by Tony Posawatz, the former head of the Chevrolet Volt program. Ironically, several sources told TheDetroitBureau.com, that Posawatz, desperate to bring Atlantic to market, actually escalated spending – in this case despite the pleas of Henrik Fisker himself to scale back. Danish-born Fisker resigned as non-executive chairman in March, citing “several major disagreements” that appear to have been related, in large part, to Posawatz’s aggressive moves.
At this point, the Atlantic is not expected to ever see a production line unless a White Knight comes along to save Fisker or the remaining shell of the company can sell off individual assets. But that is looking more and more unlikely after two potential Chinese investors, including Volvo owner Geely, have backed out of negotiations.
The idea of a Chinese takeover didn’t sit well with some Congressional leaders, anyway, especially after the disaster at A123. And a formal bankruptcy at Fisker very well could trigger some government probes – particularly if questions are raised about the way the maker blew through its money so quickly and with such minimal results to show for it.
With just 53 employees left, Fisker is expected to make a $10 million payment to the DoE against its loans later this month. It appears to have enough cash on hand to do so.
For now, it will face a challenge by employees who claim the maker violated the WARN Act, more formally known as the the U.S. Worker Adjustment and Retraining Notification Act, which requires a 60-day notice before mass terminations.
The suit was filed in U.S. District Court in Sana Ana, California, just hours after the mass terminations were announced at Fisker’s headquarters in nearby Anaheim.
The action was initiated by ousted employee Sven Etzelsberger and “other similarly situated former employees,” by law firm Outten & Golden LLP, and will seek class action status. The firm won a similar case against Solyndra, the failed solar panel manufacturer, last year.
A company does have the option to violate the 60-day warning but only in the event of “unforeseeable business circumstances.” Considering Fisker has known for some time it was running out of cash, plaintiffs will likely argue it concealed the depth of its problems in order to avoid scaring off the few remaining buyers for its Fisker Karma.
Tags: auto news, car news, fisker atlantic, fisker automotive, fisker bankruptcy, fisker cuts, fisker fires, fisker karma, fisker news, henrik fisker, paul a. eisenstein, paul eisenstein, plug-in hybrids, thedetroitbureau, tom lasorda, tony posawatz