A123 Systems follows Solyndra into bankruptcy. New debating point for Romney?

High-tech battery-maker A123 Systems, which under Obama got $250 million in federal energy grants, filed for bankruptcy Tuesday. Mitt Romney may look to capitalize in future presidential debates, but he'll need to tread carefully.

By , Staff writer

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    A123 Systems Inc. President and CEO David Vieau is shown after a 2009 news conference in Livonia, Mich. On Oct. 16, 2012, the Waltham, Mass.-based maker of advanced car batteries announced it was filing for bankruptcy and was selling its assets to Johnson Controls.
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Another failed piece of the Obama administration's renewable energy plan – Massachusetts battery-maker A123 Systems, which just filed for bankruptcy – could come up in Tuesday night's presidential debate, and if it does, here's the skinny on what happened and what it means.

Until Monday, A123 Systems made lithium-ion batteries for next-generation plug-in hybrid and all-electric battery-powered cars. It built a factory in Livonia, Mich., with about $250 million in federal grants, expecting to create 38,000 jobs. Now the company is closing its doors. (Its aim, however, is to sell its factory and many key assets to another US battery maker, Johnson Controls, which could yet continue making batteries there.)

At Tuesday's debate, "I fully expect the Romney campaign will try to cite another business bankruptcy and the economic investment of the recovery plan as a failure," says David Foster, executive director of the BlueGreen Alliance, a collaboration of unions and environmentalists promoting green jobs.

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Mr. Romney could, indeed. A123's bankruptcy filing seems a ready-made sound bite for Romney to highlight President Obama's role in promoting green-energy companies that later flopped. But there's also reason to believe it might also lead to some snarling over Romney's investing record, too.

At a 2010 event, Mr. Obama spoke by phone hookup with workers and managers at the plant, touting the federal grant that helped build the plant.

“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 in the phone call transcript reported by Reuters. “When folks lift up their hoods on the cars of the future, I want them to see engines and batteries that are stamped: Made in America.”

That nugget fits neatly into the Romney campaign playbook. Both Romney and his running mate, Rep. Paul Ryan of Wisconsin, have made hay in the debates by arguing that the Obama administration wasted taxpayer funds on loans to renewable energy companies.

In the first debate, Romney cited the president's $90 billion program to invest in renewable energy whenever Obama criticized Romney's support for the oil and gas industries. When Obama hit at Romney's support for $2.8 billion in annual government subsidies for oil and gas, Romney slugged back with an attack featuring Solyndra, the now-bankrupt solar panel manufacturer.

Solyndra, Ener1, Tesla, and Fisker were all losers, Romney said. The first two – a solar-panel maker that won a $535 million federal loan guarantee and a car-battery company that got up to $118 million – went bankrupt. (The Solyndra loan was set in motion during the Bush administration.) Fisker and Tesla are still afloat.

“In one year, you provided $90 billion in breaks to the green-energy world. Now I like green energy, as well, but that’s about 50 years of what oil and gas receives” in federal subsidies, Romney said at the Denver debate on Oct. 3. (In fact, it's 22.5 years' worth, according to Washington Post Fact Checker Glenn Kessler.) “You put $90 billion into solar and wind, into Solyndra," Romney continued. "You don’t just pick the winners and losers. You pick the losers."

But there's also some risk to Romney in bringing up A123, says Kevin Book, energy analyst at ClearView Energy Partners, a Washington energy market research firm.

"If Governor Romney levies criticism at 'another loser' investment, the president has an opportunity to frame Romney, known for his out-of-context quote that he 'likes to fire people' as once again opposing measures that create or save jobs in Romney’s former home state of Michigan," Mr. Book writes in an investor analysis. "Obama also has an opportunity to spin the outcome as yet another example of investment that can help Michigan expand its automotive offerings."

And Obama allies suggest, and news reports show, that Romney's record on breeding successful companies is hardly unassailable.

"The administration's failure rate in its new-energy investments has only been about 4 percent, a much more successful opportunity than anything Bain [Capital, Romney's former private equity firm] has ever done," said Leo Gerard, president of the United Steelworkers International union, in a conference call Tuesday with reporters while touting the growth of green jobs. "Bain's failure rate was much higher than that."

Mr. Gerard's claim is not far off.

Of $90 billion doled out by the US Department of Energy's stimulus program under Obama, about $1 billion has been lost. That includes two other failures Romney didn't mention: Beacon Power and Abound Solar. That's still well under the $2.4 billion Congress put aside for such losses.

If Romney had succeeded at Bain at the same rate as for the Department of Energy program, he'd be richer than he is now. But that's not the case, The Wall Street Journal reports.

In an examination of the 77 businesses in which Bain invested during Romney's tenure as head of the firm from 1984 to 1999, 22 percent of the companies either filed for bankruptcy or closed their doors within eight years after Bain first invested, "sometimes with substantial job losses," The Wall Street Journal reported in January. Another 8 percent "ran into so much trouble that all of the money Bain invested was lost."

Bain nonetheless made a lot of money. But big returns for its investors came from just 10 deals that yielded more than 70 percent of the gains, the Journal reported.

Still, any losses in Bain investments came at the expense of private investors who knew of the risks, whereas American taxpayers are the losers in the renewable energy bankruptcies. The A123 belly-flop, moreover, leaves boosters of plug-in vehicles scrambling to put the best face possible on the situation – just as it may leave Obama in Tuesday's presidential debate.

"Government can help facilitate innovation, but the natural business cycle remains – some failures in any emerging industry are inevitable," says Jay Friedland, Plug In America's legislative director, in a statement on Tuesday. "A raft of companies are making great strides in driving down battery costs while creating a US-based manufacturing sector for battery technology. This drives down the cost of plug-in vehicles while creating jobs, and it helps keep at home the $1 billion per day we're sending overseas for oil, creating a better, safer America."

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