Howes: Tesla legal gambit exposes Mich. auto hypocrisy
The surprise isn’t that Tesla Motors Inc. is suing Gov. Rick Snyder and the state for the right to sell its cars directly to consumers.
It’s that it took this long for the electric-car maker to use the courts to show the hypocrisy of Michigan’s theoretically enlightened take on the transforming auto industry. Enlightenment has its limits.
Here’s the epicenter of the U.S. auto industry, the repository of enormous engineering talent and manufacturing prowess, falling all over itself to lead the autonomous-vehicle bandwagon, to master mobility, to beat Silicon Valley at its own game.
And there’s the same state power structure standing astride decades-old dealer franchise laws to block the upstart Elon Musk from selling his pricey rides directly to buyers, bypassing those pesky middlemen who are so 20th century. No wonder dealers and their allies in (some) legislatures across the country are twitchy.
The dealers worry the mogul-turned-disrupter’s radical ideas threaten to disrupt the manufacturer-to-dealer-to-consumer system we’ve known all our lives. They say it would open an automotive Pandora’s box, conjuring monopoly pricing, reduced competition, stranded investment and all sorts of related uglies.
Worse, if Musk gets his way in Michigan, what’s to stop Detroit’s automakers from moving to directly sell their metal to would-be buyers, gutting a nearly 100-year-old dealer ecosystem that forged a powerful business lobby and created a lot of millionaires along the way?
Plenty, if the experience of other states is any indication. Tesla sells directly in 23 states and the District of Columbia; the Palo Alto-based automaker has been unable to secure a license to sell in Michigan, Texas, Connecticut and Utah.
Are dealer networks in other states around the country in free-fall? Nope. Neighboring Ohio has revised its franchise laws to allow Tesla to sell in the state, even as the laws limit its outlets. And other states allow Detroit’s California nemesis to open galleries outside their existing franchise laws.
Automaker-owned distribution doesn’t exactly have a winning record, anyway. Remember the ill-fated attempts by, for example, Jacques Nasser-era Ford Motor Co. to buy up dealerships? It failed miserably, collapsing into a pile of recrimination, lawsuits and acrimonious dealer relations that contributed to his premature ouster as the Blue Oval CEO.
Would today’s leaner, smarter automakers, all looking for ways to bolster their case for investor respect and higher stock multiples, really want to wade into the business of selling retail? Remember, they count units sold when they leave the factory and head to dealer lots, not when a buyer drives the vehicle off the lot.
Would they want to pick a nation’s worth of fights with longtime partners? The bankruptcies of General Motors Corp. and Chrysler Group LLC exposed just how difficult, painful and downright nasty things can get when bankrupt automakers can use the law to unilaterally close dealerships.
Look, Michigan wants to have it both ways. It wants to be the vanguard of a new, quick, technology-leading auto industry capable of attracting top talent and claiming leadership as a mobility hub. And it wants to use the power of state law to protect a politically connected system that is deeply rooted in communities here and nationwide.
But can it be both? This isn’t as clear-cut as either side would have us believe — not, that is, if you accept the proposition that the industry will change more in the next five years than it’s changed in the past 50.
Should the retail end of it all be immune to similar, tech-fueled change because, well, that’s the way it’s always been? The short answer is no. A compromise that embraces competition is preferable to wielding political clout to stop it. Plus, the optics stink.
If Musk would let them, more than a few dealers out there would gladly sign up to sell Tesla models in the heart of the Detroit industry because they’re capitalists first. Who wouldn’t want to franchise a brand that can announce its new Model 3 and collect nearly 400,000 deposits of $1,000 each.
That’s more than a year before the models are promised to be ready for sale. And it’s more than three times the 140,000 vehicles the company has sold since its founding in 2003.
Those deposits are an astonishing number, even by the high-volume standards of Ford, GM or Toyota Motor Corp. Such enviable brand equity for a company that burns cash, doesn’t book a profit and routinely misses deadlines is one reason among many that Musk is pressing the point with a suit challenging the constitutionality of Michigan’s franchise laws.
Because he can. More than words, his actions suggest he wants no less than to fundamentally alter a century-old industry that put the world on wheels, won World War II and helped shape the American middle class. And he wants to win.
If tweaking industry convention by selling directly to customers is one way to do it, Musk’s Tesla evidently is happy to oblige. Now it’s Michigan’s turn.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.