Tesla vs. The Auto Franchising System – Introduction

Economists have long said everybody listens to WII FM (what’s in it for me?) This article sets the tone for a big-picture series that will wade into this question for all “stakeholders” regarding the Tesla vs. the established auto dealer franchising system.

When the billionaire CEO accuses a state governor of protecting its consumers like the “mafia,” a reaction will predictably follow.

While New Jersey Governor Chris Christie does have a questionable record, media are following up on Tesla’s Elon Musk’s heavy duty allegations of a ”backroom deal” with a special interest, and already reports have alternately backed him, or called him a “hypocrite.”

Thus far reports we’ve seen have only grazed the surface of the nationwide controversy over Tesla’s desire to sell and service its vehicles factory direct versus the dealer franchise model. This may be understandable to a point, because there are dozens of sub-issues wrapped up in what some see as a can of worms Tesla has sought to open.

But before we write another word, perhaps a reminder from Economics 101 would be in order. All the way back to the “father of economics” Adam Smith, economists have taught to one degree or another the concept that in any economic transaction, self interest is at the core.

“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest,” wrote Adam Smith in the 1700s. Smith is known for his “invisible hand” theory that said that by people doing what’s best for themselves, they inadvertently serve others with goods and services while profits are made.

Smith was a free market capitalist, who advocated laissez-faire philosophies, and not to give him full endorsement here, the simple notion that we all stand to gain or lose in what we do has been taught by him and others who followed.

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What does this have to do with Tesla? Simple. If one accepts that Tesla and everyone else involved has something to gain or lose, then it’s relevant when trying to grasp the big picture.

A detached assessment would see that every stakeholder has something to potentially gain or lose, and the stakeholders specifically are Tesla, car dealers, automakers, legislators, and individual consumers.

Naturally there are nuances to the argument that self-interest makes the world go ‘round. The more noble and enlightened among us strive for a mutually beneficial system. That is, some may hope to benefit others at the same time they get what they want. This has been called “win-win,” instead of “win-lose,” or a “zero sum game.”

In Tesla’s case, Elon Musk as Disruptor in Chief says he hopes to benefit the transportation sector and very much for the better. Others have suggested he may also hope for the history books to one day chronicle him like they do Henry Ford and Thomas Edison, but the question remains: is Tesla’s the more enlightened and noble way than the auto dealer franchise system?

America’s system, it has been said, only exists here, some states are already bypassing it, and few have made cogent arguments in its complete favor.

Meanwhile, what we are witnessing on the national scale is actually larger than Tesla. This we’ve been told by both car dealer associations which oppose Tesla, and the Consumer Federation of America which supports it as a worthy cause.

Tesla has been viewed by some like a bull in a china closet which proudly wears the mantle of a “disruptive” company. One way it is playing this role is Tesla threatens to erode or even topple a delicate balance worked out over decades and – some fear, while others hope – it could precipitate a shift of wealth, to put it dispassionately.

EV fans, as part of their self interest – no matter how enlightened and progressive it may be – hope to see a new American car company succeed, not to mention a list of other tangible and intangible satisfactions for the ostensibly underdog team they are rooting on as well.

Car dealers – demonized in some quarters as holding onto protected turf – also stand to keep businesses they’ve invested their lives in, and stand to give back as well, though this has been widely questioned.

And the automakers are stakeholders too. They’re largely sitting on the sidelines as Tesla very publicly takes on a dealer network in a market where it presently has a slim fraction of 1 percent. But make no mistake, major players – and future upstarts – may also have something to gain or lose as Tesla runs out in front.

And lastly, let’s not forget the state and national economy, and legislators and lawmakers put in place to steward this. While some have said this is about “protectionism,” and in ways it is, licensing laws are put in place by policymakers.

But some have simplified The Tesla Question as an issue of 1) consumers rights, 2) free markets, 3) democracy, 4) electrified tech vs. gas tech, or any combination of these. And some also see Tesla as not a big deal, saying it cannot do much damage, and may even stand to do a lot of good, if allowed to bypass rules others abide by.

While this may well be true, and the above are all real factors, the actual web of issues is complex and nuanced.

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To delve a bit deeper, we’ll be posting a series broaching some issues but we’ll say up front: despite the cries of some of what will be “the future,” rational critical thinking demands this be a conclusion that cannot be made.

Who actually knows what the market will specifically look like in 2018, 2020, 2025, 2030, and beyond? There is such a thing as “unintended consequences,” that come along with even the best of intentions, and this truism has been around since the unlatching of a box belonging to Pandora.

In question also is if this a battle of good vs. evil, or the more enlightened way against the not so much. All this and more has been bandied about in the court of public opinion.

Our series will offer more evidence to consider. It will look at what respective stakeholders – including you – potentially stand to gain or lose.

As stakeholders ourselves, our stake is this: to tell the story without bias, and not picking sides. That is partly why The First Amendment was made the first – journalists were supposed to be free to stand apart from the fray and report the spirit of the truth as well as possible. At least, that is what they are supposed to do …

Not to give the story away, but both sides – car dealer associations and Tesla – do make points, some of which cannot be disproved as they make assertions about an uncertain future. And, as you might have surmised, there are more than two sides to this story.

First up will be what’s in it for you, the consumer. Part One will look at some of what you have to potentially gain or lose.