Presidential Capital Budgeting

In September 2010, President Barack Obama spoke to A123 Systems Inc. CEO David Vieau and Michigan Governor Jennifer Graham about the opening of a new electric car battery plant in Livonia, Michigan. President Obama proclaimed that “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.” Unfortunately, the results from a new project can be wildly different from capital budgeting projections. Today, A123 filed for bankruptcy protection. Part of the reason for A123’s bankruptcy lies in the fact that the government targeted sales of 1 million electric vehicles by 2015, but as of September 2012, only 50,000 electric cars have been sold in the U.S. A potential suitor for A123 is Wanxiang Group Corp., China’s largest auto-parts maker. Such a bid would likely result in car batteries made in China, not the U.S., a stated goal of U.S. government support of A123.