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Zap fights safety recall and attempted coup

The Zap Building at the corner of 4th and B streets in downtown Santa Rosa.

SCOTT MANCHESTER/Press Democrat
Published: Friday, February 22, 2013 at 7:06 p.m.
Last Modified: Friday, February 22, 2013 at 7:33 p.m.

Federal safety regulators have ordered Santa Rosa electric vehicle distributor Zap Jonway to buy back nearly 700 of the company's three-wheeled Xebra vehicles and destroy them at a cost of more than $2 million.

The National Highway Traffic Safety Administration's order requires Zap Jonway to pay the owners of 691 Xebras $3,100 per vehicle, an amount the agency said was based on the purchase price minus a “reasonable allowance for depreciation.”

The order is the latest setback for the homegrown company, which has lost $85 million since 2009 and fought off an attempted coup at the end of 2012 from a faction of its board of directors.

Zap's name and sign remain on the block-long two-story building at Fourth and B streets in downtown Santa Rosa, but the doors are locked and the former vehicle showroom is dark and empty.

The government order requires Zap Jonway to permanently mark the title of each 2008 model year Xebra as a “junk automobile” and to pick up and dispose of each vehicle within 30 days of buying it from the owner.

Zap Jonway must either permanently disable each vehicle or dispose of it by “crushing or shredding,” the Nov. 13 order said.

Chuck Schillings, the company's co-chief executive officer, responded to the safety agency in a Nov. 26 letter stating that Zap Jonway was “committed to providing a remedy to affected vehicle owners” but could not agree with some conditions of the order.

The “one-size-fits-all” buyback amount of $3,100 does not address situations in which a Xebra has been junked, is in poor condition or is owned by someone who wants more money, Schillings' letter said.

He also asserted that two of the Chinese-made Xebras were subsequently exported from the United States and 62 were in Zap Jonway's control, leaving 627 subject to recall.

Reached by telephone on Wednesday, Michael Ringstad, Zap Jonway's controller, said: “Mr. Schillings said he has no comment to make at this time” and hung up.

Schillings and Ringstad were briefly fired by three members of the board of directors during an internal battle for control of the company on New Year's Eve. Priscilla Lu, who served as the company's chairman, kept her seat on the seven-member board but was removed from her leadership post during the Dec. 31 meeting, according to a company filing with the Securities and Exchange Commission.

Lu contested the vote, claiming it was approved without a quorum of the board present, and regained her position as chairman at a Jan. 19 board meeting, according to a subsequent SEC filing. On Feb. 4, a Los Angeles County Superior Court judge nullified the Dec. 31 actions by the board of directors, cementing Lu's position as chairman. Shillings and Ringstad were returned to their previous positions in charge of operations, according to a SEC filing.

Zap Jonway's website currently lists two gasoline-powered Jonway Automobile vehicles manufactured in China available for purchase and says $1,000 reservations are being taken for the Alias, a sleek electric car priced at $38,500.

The 2008 model year Xebra, classified by the government as a motorcycle, has been under scrutiny by the traffic safety agency since it failed brake tests in late 2008, the order said.

The vehicles do not stop within the required distance for motorcycles, a shortcoming that “could result in limited braking and vehicle crashes,” the order said.

Zap Jonway's failure to recall, repair or repurchase the Xebras has left “noncomplying vehicles on the roadway” risking the safety of their owners and others on the road, the order said.

Repeated calls to the National Highway Traffic Safety Administration were not returned.

Zap Jonway's website describes the company as a “pioneer in new energy vehicle technologies” involved in design and manufacture of “affordable gasoline and electric vehicles.”

The company, which was founded in Sebastopol in 1994 and went public two years later, has attracted investors but struggled to deliver on its promises of developing eco-friendly transportation.

“There's a good chance Xebra will do for Zap what the Model T did for Ford,” co-founder Gary Starr said in a 2005 interview.

In 2011, Zap acquired a majority stake in Jonway Automobile, a Chinese car maker, for more than $30 million in stock and convertible debt.

Shares of Zap stock soared from $30 in early 1998 to nearly $71 in late 1999, but sank to about $1 by late 2001. In January, shares hit a 52-week low of 6 cents, putting the company's market value at $18 million. On Friday, Zap shares were worth 7.5 cents.

John O'Dell, senior editor for green cars at Edmunds.com, said Zap Jonway has put mostly commercial vehicles on the road and “made some splashes” with futuristic prototypes like the Alias, shown at the Detroit Auto Show in 2010.

Zap has raised public awareness of electric cars, but “by and large they've not made much of an impact,” he said.

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