Did Anyone in Kentucky’s Government Think to “Google” Before Making the Big ZAP Plant Announcement?

When state officials boasted a new electric vehicle manufacturing plant courtesy of Integrity Automotive and ZAP would bring many as 4,000 jobs to the bluegrass state, I listened very closely. Like many of my fellow residents, especially those in the manufacturing industry, I had a sense of great anticipation.

After all, those living and working here know Kentucky sorely lags behind most other states when it comes to creating manufacturing jobs. So this latest announcement brought wonderful visions of new business and employment opportunities.

Once the initial feeling of euphoria passed, I did what most people interested in manufacturing probably did. I went to “Google” and began to investigate ZAP to learn more about this wonderful new business opportunity. Now that this deal appears to be in jeopardy, it begs the question: did any of our elected official do the same?

What I Found:

• ZAP was incorporated under the laws of the state of California, on September 23, 1994, as "ZAP Power Systems." The name of the Company was changed to "ZAPWORLD.COM" on May 16, 1999 in order to increase its visibility in the world of electronic commerce. The company subsequently changed its name to ZAP on June 18, 2001.

• March 1, 2002, the company filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Northern District of California, Santa Rosa Division.

• July 2002, ZAP emerged from the Chapter 11 reorganization with Gary Starr as ZAP's new board chair. This position would permit him to bring in a new partner, Steve Schneider, a used-car dealer with stable cash flow and ambition. In the late 1990s, Schneider made his living as owner of the Repo Outlet, a lot specializing in automobiles that had been seized for nonpayment. Repo Outlet did well, but Schneider's methods were sometimes questionable. According to the Santa Rosa Press Democrat, in 1997 the Sonoma County District Attorney sued Schneider's enterprise for selling unsafe vehicles and engaging in misleading advertising. Schneider settled for $9,382. Then, in 2001, the business was fined $40,000 by the state of California for importing uncertified Volkswagen Beetles from Mexico.

• Sept. 20, 2005: ZAP (PCX: ZAAP- News), announced that it had concluded an agreement for a $425 million revolving financing facility with Surge Capital II, LLC that could be used to import SMART cars and other advanced transportation vehicles for its dealers.

• November 2005: ZAP Filed Legal Action Against DaimlerChrysler and Affiliated Companies; ZAP's Suit Relates to Converting and Marketing Daimler's ''Smart Car'' in the U.S.

• March 2006: Zap had amassed $2.2 billion in orders for Smart Cars that it hadn't won permission to sell.

• As of March 30, 2006, the Company had a total of 31 employees.

• Since the company began operation in 1994, they have not generated a profit from operations during any fiscal year. Net sales decreased in 2005 to $3,602,000 from those in 2004 ($4,772,000), and 2004 net sales were less than those for 2003 ($5,828,000). ZAP incurred net losses of $23,501,000, $27,834,000 and $5,542,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

• June 2007: An article from Forbes magazine criticized the company for over-issuing stock and failing to produce results or show significant profits.

• ZAP sold a lot of shares based on its intention to sell Smart Cars, but that deal fell through, leading the Smart Car's manufacturer to say that ZAP's behavior revealed "both the sham nature of its purported business and a lack of trustworthiness that is nothing short of stunning." Reports filed with the SEC show that ZAP did sell hundreds of smart cars, and filed a lawsuit against DaimlerChrysler for business interference, and libel. ZAP did indeed sell 300 smart cars, before DaimlerChrysler interfered according to a lawsuit filed in Superior court of the county of Los Angeles in 2005

Has Kentucky been Zapped?

Since launching my publishing company (without state assistance, I might add) more than thirty years ago from Lexington, the business has grown from covering just Kentucky manufacturers to also serving the industrial markets of Ohio and Indiana. Even now we’re looking to expand news coverage into Virginia, Illinois, Pennsylvania, Tennessee and Michigan. This platform has provided me a unique, birds-eye view of what is happening in manufacturing throughout a number of industrial states in the Midwest. Compared to other states not much in the way of manufacturing had been happening in Kentucky for quite some time. Then, the state seemed to hit one out of the park.

Governor Steve Beshear signed an executive order in August permitting the use of low-speed vehicles on some Kentucky roads. Within a few weeks, Beshear’s office was touting the news that Integrity Automotive and ZAP had chosen Simpson County to build a new electric vehicle plant.

A $48 million tax incentive package was approved for the venture based on a commitment to create 4,000 new jobs. “These are good, high-paying jobs, the kind that have been so important to this state over so many years and are even more important in this tough economic period,” Beshear said in a statement.

In Recent Weeks We’ve Witnessed the Project Begin to Unravel

In November, Integrity Automotive chief executive Randall Waldman started saying publicly that GE Capital backed out of a deal to finance the plant through bonds. (In an interview with Manufacturing & Technology eJournal he said GE “ran out of money” and pulled the plug on all its U.S. projects.)

GE Officials Say That Never Happened

Now, GE says it never had a deal in place to begin with. The finance company insists it only had two short conversations about the project, never coming close to starting the process that would have led to a deal of this magnitude. “We do big deals all the time,” GE Capital spokesperson Stephen White said. “But we never even put a proposal in front of them (for the ZAP plant) so to even say that we were in talks with them, in negotiations with them, would be an overstatement.”

So was the deal really solid enough for the state of Kentucky to announce in the first place? Waldman declined to comment, instead referring us to his CFO.

Kentucky Officals Believed Financing Was In Place

When asked about the situation, Jill Midkiff of the governor’s office stressed that incentives offered by the state in this case - as in all economic packages - were performance based. So they hinged solely on the creation of jobs. But when asked if the governor’s office had failed to verify that financing for the project was in place before making the big announcement, she said “we were told that financing was in place.”

Here’s the bottom line: many industry observers believed the plant was a “pie in the sky” deal from the start. Now, the prospect of a ZAP plant in Kentucky appears more distant than ever. In the same interview referenced earlier, Waldman told us he’s trying to tap into a federal grant/loan program and is working with two other finance companies to get the plant built in Kentucky.

I wish Integrity Automotive and ZAP the best of luck, but I’m not holding going to hold my breath.