Contributing Monkie G Living Staff Monkies
Published on December 5, 2008
Despite what Kermit the Frog says, it’s pretty easy to be green these days. America is loving green so much that it has almost become unpatriotic to question the credentials of anyone who claims to be promoting light-impact products. Wired.com recently took that step, uncovering unethical and probably illegal business tactics at ZAP! Corporation, one of America’s largest all-electric vehicle companies, based in Santa Rosa, CA.
ZAP! has been in business since 1991 when garage-tinkerer Jim McGreen invented electric conversion kits for bicycles. He dubbed his new company ZAP (zero air pollution) Power Systems and started looking for investors. Gary Starr was the first to write a check, and the company incorporated in 1994. Starr was a solar car pioneer who was asked to leave the company he helped to create, U.S. Elecricar — marking an ominous beginning to the company.
ZAP! grew quickly after McGreen invented the Zappy, a standup scooter that Kevin Spacey rode on the David Letterman show. Revenues were over $1.4 million by 1998. Revenues did not bring profits, however, and Starr and McGreen had a major falling out over whether to move production overseas. Starr maneuvered to increase the company’s board to seven members, giving Starr enough votes to get rid of McGreen. Starr succeeded, and by the end of 1999, McGreen, who had founded the company in his garage, was gone – no HP story to tell here.
Starr quickly drove the company into the ground. By early 2002, the company declared bankruptcy — only 2 years after making $12 million in revenues. Starr guided the company through its Chapter 11 reorganization and added a new partner, Steve Schneider, a well-known used car dealer, as ZAP! president – and that’s where the fun begins.
Through stock trades, Starr and Schneider gained control of the company, owning 56% of the stock, and assuring themselves eternal control by taking a percent of every new stock offering. Then, employing a used-car salesman strategy, the company started an intense marketing campaign to sell dealership rights for as much as $150,000.
The campaign focused on ZAP! products (like the Zappy scooter), as well as cars that it claimed were in production (like the ZapX sedan), and most important, Daimler Chrysler’s Smart Car. Schneider went to car shows in 2005, touting a deal for Smart cars and production of the ZapX, which were claims he could not back up. Schneider did meet with DaimlerChrysler, but they turned him down, citing mismanagement. The publicity stunt was intended to pressure the big boys into selling Smarts to ZAP!.
Then there’s the ZAP Girl scandal. Every used car dealer needs a cadre of scantily clad women to promote lousy products, and ZAP! was no different. Renay Cude became Miss ZAP and Schneider’s open mistress in 2005. Her career skyrocketed; she went from a 2-year degree in education at Santa Rosa J.C. to ZAP! board member in just over a year. With her help, Starr and Schneider had a stranglehold on the company.
Further investment opportunities fell through because of the company’s management, including one brokered by Max Scheder-Bieschin, an ex-Deutsche Bank exec with impeccable credentials and an environmental leaning. He, too, was run off as Starr and Schneider refused to change their ways, dropping the stock price to 26 cents by the end of 2005.
Did I mention the insider trading? After realizing their woes, the used-car mentality kicked in, convincing USA Today and NBC to run sympathetic ads touting the benefits of electric cars and new promises of deals with other alt-car makers like the Brazilian Obvio and Lotus. Stock prices shot up in days and both Schneider and Cude cashed in on their millions of shares and options to buy at low prices. It isn’t clear how much each made, but insider trading is clearly illegal.
Intrigued by the Wired pieced, I looked into ZAP!. I found a company that can’t seem to figure out what it is they do. Even a cursory glance at the their website shows that ZAP! makes all kinds of electric stuff, like iPod rechargers, ATV and boat motors and, of course, “luxury” electric cars like the Alias. The problem with diversifying in this way is that a company spreads itself too thin. Instead of making a few good cars, they make crummy cars and crummy devices. That’s our throw away society in action.
And speaking of crummy, the only car that ZAP! has managed to produce is the Zebra, dubbed a “demented clown car” with “jellybean looks.” Without the expensive battery upgrade, the car goes about 20 miles before needing a recharge. With the upgrade, it goes about 40. And the max speed is 35 mph. I’ll stick with the scooter, thank you.
But don’t bother saying anything bad about the Zebra or about ZAP!. Like Max Scheder-Bieschin says, Starr and Schneider have been insulated from criticism because of the business they’re in. “Steve plays the game that nobody’s ever gonna be tough on us because ‘we’re the EV guys.’ Gary Starr and Steve Schneider have likely done more damage to the EV industry than Detroit and the Japanese combined.” Scheder-Bieshchin continues, “And the failure of this industry to thrive has affected everything from global warming to the war on terror. How do you put a price on that?”
Strong words? Maybe, but where does this leave the e-car market?
The internal combustion engine needs to go — there’s no doubt about it in my mind. Replacing gas with electric is one option that has been bandied about since the early 1900s, but electric does not do away with emissions as electric car companies usually promise — it merely transfers them from the tailpipe to the smokestack. Electric engines are more efficient, however, and can help with things like smog. Electric remains a viable interim energy source, but several pieces are still not in place to make that happen, the most important of which is the U.S. government’s cozy relationship with oil companies.
The other big problem is that this is exactly the kind of poor business organization that will kill the electric (or any other alternative) car market. Just ask Eric Ryan and Adam Lowry, Method’s cofounders. They’ll tell you that the worst thing that could happen to any light-impact product is for it to not work as well as the heavy-impact products available. If people start to believe that electric car companies are corrupt, that investments are wasted, they won’t invest. More important, if people get the idea that electric is only good for 40 miles at 35mph, the end of electric cars will overtake us before we know it.
Maybe the rest of us could employ some used-car marketing to change the way people think about ZAP! and other electric alternatives.