Vehicle Production Group closed its office, but owes $50 million to the Energy Department

by: Chris Woodyard, USA Today

A Michigan maker of vans for the disabled that received a $50 million Energy Department loan has quietly ceased operation and laid off its staff.

Vehicle Production Group, or VPG, stopped operations after finances dipped below the minimum required as a condition of the government loan, says former CEO John Walsh. Though about 100 staff were laid off and its offices shuttered, the company has not filed for bankruptcy reorganization.

VPG, of Allen Park, Mich., received its Energy Department loan under the same clean-energy program — now under fire by House Republicans — that originally committed $527 million to troubled plug-in hybrid carmaker Fisker Automotive and $535 million to solar start-up Solyndra, which has filed for bankruptcy reorganization. VPG was deemed eligible for the clean energy loan because some of its vans were to be fitted to run on compressed natural gas.

Walsh, who left VPG with the rest of the staff when it closed in February, says the company had raised $400 million in private capital from investors, including financier T. Boone Pickens, and built 2,500 MV-1 vans. Though VPG still had a healthy order backlog, it ran low on cash and didn’t have the dealer network that it needed, Walsh says.

In 2011, the company’s then CEO, Dave Schembri, said he hoped that it could eventually ramp up production to about 30,000 vans a year, not only for individual sales to the disabled, but for sales to taxi and limousine fleets needing handicap-accessible vehicles. The company showed a taxi version at the 2012 New York Auto Show.

VPG stopped operations after its assets were frozen by the Energy Department, he says. “They wanted us to get the remaining capital raised, and we couldn’t get it done,” he says. The company did not announce the suspension of operations. An Energy Department spokesman could not be reached for comment, although the agency has stepped in before when borrowers fell short of loan conditions: Fisker was cut off after drawing $190 million of its loan package.

VPG Chairman Fred Drasner could not be reached for comment.

VPG’s DOE loan was controversial. In 2011, The Washington Post raised questions about a fundraiser for President Obama and the loan. It reported that VPG was part of the portfolio of companies under Washington, D.C.-based investment firm Perseus, whose vice chairman, James Johnson, was an Obama adviser and fundraiser. Perseus said at the time that Johnson played no role in procuring the loan for VPG. The Energy Department said at the time that the loan was based entirely on merit after two years of review.

VPG’s MV-1 purpose-built vans, which went on sale in 2011 at a starting price of $39,950, were built under contract by AM General, maker of the Army’s Humvee transports. AM General spokesman Jeff Adams declined comment on VPG’s shutdown, saying his company was only the contract builder. But he said it will supply already-sold MV-1s with parts and technical support.

Walsh says production of MV-1s was stopped about six months ago to prepare for a new model. He says VPG had about 2,300 vehicles on order at the time including a half-filled, 250-van order from New York’s City’s transit authority.

The federal loan money was spent wisely, Walsh says, and he expresses hope that it all will be repaid if the company is sold.

Walsh was CEO for about a year. “I hung in there as long as I could,” says Walsh, who is now an executive at another disabled mobility company. “I saw the handwriting on the wall months ago. We just couldn’t get the capital to keep it going.”