Tesla Decisions Highlight Political Hypocrisy

Light traffic in Dallas, Texas
(Copyright © 2010 by Wil C. Fry.)

Republicans, especially in Texas, love to tout their record for deregulation and removing government influence from the free market — despite a very solid reputation for helping only their rich buddies. The Texas Miracle is a good example of this. Texas has the lowest unemployment (of large states), the fastest job creation in the country, one of the lowest tax burdens in the country, and was named the Best State For Business by CEO Magazine.

State leaders, almost all of them Republicans, say all or most of this is due to their policies of a relatively unfettered business environment. Ignoring for a moment that the “miracle” probably isn’t good for the state’s citizens overall, it does sound good for business.

Unless you’re the wrong kind of business.

What if you’re a good kind of business? What if your product is designed to cut air pollution, fossil fuel extraction, and noise levels? Like the electric car that Tesla makes. And what if, further, your business model wants to help eliminate that universally-hated part of car-buying: the local dealership?

You know the game: the pricing schemes, the haggling, the high-pressure sales tactics, the bait-and-switch, the nearly pointless test drives (around the block? really? while the salesperson continues to pressure you), and so on.

Texas State Capitol
(Copyright © 2012 by Wil C. Fry.)

Tesla announced early its plan (and reasons) to avoid all that. Cut out the middleman, avoid the high-pressure sales tactics, use non-commissioned sales personnel (so the car sells itself), and so on. Kind of like how Apple has its own stores for its own products — I tried to think of other examples, but realized there are very few products in the U.S. that you can buy directly from the company that makes and markets them.

When I first heard about this, I breathed a sigh of relief. Not for myself, since it’ll be decades before I can afford an electric car, but for business in general. I’ve often wondered what it would be like to buy a car like you can buy almost any other product: in a store, with set prices, and a cashier — especially for those of us who don’t finance (borrow money for) our vehicles. I could foresee, if Tesla had any kind of success with it, other auto-makers doing the same thing. “Hey! Customers like this!” they’d finally realize.

But no. Auto dealerships learned about this even before the general public did, and they jumped into action. It’s actually kind of admirable how quickly they moved and how organized the response was to protect their interests.

Bill Wolters, the president of the Texas Automobile Dealers Association, said:

“This happens all the time. Someone wants an exception to the franchise laws. If we made an exception for everybody that showed up in the legislature, before long the integrity of the entire franchise system is in peril.”

Peril is a strong word, to be sure. Wolters’ statement is informative. First, it told me something that I didn’t realize before: that there are (and have long been) laws protecting auto dealer franchises. Second, it implies that the franchise system is worth saving.

“Direct automaker-to-consumer sales are now prohibited in almost every state by franchise laws requiring that new cars be sold only by licensed, independently owned dealerships.” (source, American Bar Association)

Because of these laws, Tesla was already prohibited from operating sales sites in most states. Instead, the company opened “galleries”, where customers could merely look at and ask questions about the products. Any actual buying takes place online.

“Gallery employees do not take orders, customer payments or make delivery arrangements with customers. Those functions are all managed from Tesla’s Fremont [California] factory.” (Ibid)

In an early legal challenge from Massachusetts car dealers, the court sided with Tesla. In New York, the auto dealers lost when the court found: “The only potential injury suggested in the record is an increase in business competition…” and dismissed the lawsuit.

In 2013 in Texas, Tesla tried to get an exemption from the existing dealership-protection laws, with House Bill 3351 and Senate Bill 1659, but the Texas legislators decided to not even consider it.

Despite these hindrances from government, Tesla turned a profit in 2013, but auto dealer organizations continue to go after the new company, urging state legislators to not grant exemptions or — in a few states — to pass new laws giving dealers further protections.

As of today, Michigan is weighing such legislation. Michigan, like Texas, already had a law protecting the existing dealer structure, but now its legislators have strengthened the law to prevent even Tesla’s “galleries”. All that’s left is for the governor to sign it.

Notably, not all the states banning Tesla sales are dominated by Republicans (though most of them are). Democrats are in charge in Massachusetts and New York, for example.

Republicans say they’re fans of entrepreneurs and less government regulation, but are steadfastly blocking new company Tesla and using legislation to protect an outdated and universally derided mode of car sales. Democrats say they’re fans of electric cars and “green” innovation, but they’re also blocking Tesla at an alarming rate.

One possible explanation is the amount of money spent… OpenSecrets.org reports that auto dealers spend quite a bit in campaign contributions. But Tesla spends some too. ABC News says Tesla didn’t spend enough to win in Texas.

Someone once told me: “The answer to ‘why’ is almost always money.”

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