While workers at an idle car battery factory passed their time last year trading Monopoly money, they were earning very real U.S. dollars—courtesy of taxpayers. The factory, a Holland, Mich., project intended to build batteries for electric vehicles, is yet another example of stimulus spending gone awry.
In a report released Wednesday, the Department of Energy’s inspector general said LG Chem, a South Korean company, had received $142 million in federal stimulus grants to build advanced lithium batteries in the United States, to be installed in electric cars. Although LG Chem built an 850,000-square-foot facility in Michigan, the assembly lines there sit idle: The company is producing batteries in South Korea instead.
LG Chem said lower than expected demand for electric vehicles in the United States has delayed its plans to bring the Holland plant online. The facility was supposed to employ 440 people by May of this year. Instead, just 150 employees work there.
And worse, they aren’t making any batteries. When LG Chem executives decided to delay startup of the assembly lines, the company continued to pay the workers, partially with stimulus funds. LG Chem placed many employees on rolling furloughs allowing them to “work” three weeks out of four. To pass the time, workers performed odd jobs like cleaning, but also played games like Monopoly and Texas hold ’em poker, filled in crossword puzzles, watched movies, and played video games.
Tired of doing nothing, the employees eventually convinced executives to allow them to spend their paid days helping local nonprofit organizations, such as Habitat for Humanity and an animal shelter in Muskegon. According to a report by local news station WOOD Television last October, they spent part the summer rebuilding a house, fixing animal cages, painting birdhouses, and cutting down invasive trees.
In all, LG Chem spent $1.6 million in wages while its battery assembly lines sat idle. The company has repaid to federal coffers the portion of salaries and wages—estimated at $842,000—funded by taxpayers.
LG Chem acknowledged in a statement Wednesday it had mistakenly disbursed federal funds to the idle employees, which was illegal under the terms of its grant: “We regret this situation occurred, and we are confident that we are now taking every measure to be fully compliant in our use of the project grant funding.”
In the meantime, the Holland facility remains idle. It is 60 percent constructed with three-out-of-five assembly lines completed. The plant has produced a few test batteries, but none for commercial sales. The batteries built at the plant were supposed to be installed in the Chevy Volt plug-in hybrid, which only sold 23,641 units last year.
The Energy Department’s inspector general wrote, “Until the shift in production takes place or some alternative use for the plant is developed, U.S. taxpayers will receive little direct benefit from a plant for which they provided up to half of the funding.”
LG Chem also received generous tax breaks in Michigan. In exchange for creating 300 jobs by 2015, the city of Holland agreed to give the company up to $50 million in tax incentives. In all, LG Chem is promised $175 million in state and local tax breaks over the next 12 years if it meets certain employment and investment milestones, reports The Detroit News.
In its statement, the battery maker insisted it still plans to launch production at the Holland plant, noting it has invested $150 million of its own money in the $304 million project.
LG Chem follows in the footsteps of other companies that received stimulus funds to promote “green” energy and electric vehicles only to see market forces disrupt their business. In the most high-profile case, solar panel maker Solyndra declared bankruptcy in 2011 after winning $535 million in federal loan guarantees from the American Recovery and Reinvestment Act of 2009.
A123 Systems, another casualty, received around $250 million in federal funding to build electric car batteries in Michigan. The company went bankrupt in October 2012. A Chinese firm has acquired its assets.
As an alternative to fossil fuel use, President Obama made it his goal to promote the electric vehicle industry, with the goal of placing 1 million plug-in cars on the roads by 2015. But U.S. car buyers have been less interested in electric vehicles than the president hoped. Most electric cars can only travel 100 to 200 miles before a recharge is needed, and the batteries decline in capacity over time. Energy Department officials recently hinted they didn’t expect the administration to reach its 1 million goal by 2015.
Obama attended a groundbreaking ceremony for LG Chem’s Holland plant in July 2010. He said at the time, “This is a symbol of where Michigan is going, this is a symbol of where Holland is going, and this is a symbol of where America’s going.”
Hopefully, the words won’t be prophetic.