Michigan lets its crony capitalism flag fly
Michigan lawmakers are looking out for auto dealers. Sounds nice, right? Well, it does if you’re a new car dealer who doesn’t like the fact that that upstart auto maker Tesla hasn’t followed the herd when it comes to selling their new cars.
The state’s legislature recently passed a bill that bans direct sales of new cars to customers, requiring a dealer to broker the sale. The bill is awaiting signing by governor Rick Snyder.
The National Automobile Dealers Association, which represents almost 16,000 new-car dealers, favors the franchised-dealer network.
“States are fully within their rights to protect consumers by choosing the way cars are sold and serviced,” Charles Cyrill, a spokesman, said in an e-mailed statement. “Fierce competition between local dealers in any given market drives down prices both in and across brands. While if a factory owned all of its stores, it could set prices and buyers would lose virtually all bargaining power.”
Are states “fully within their rights” to block consumers purchasing a legal product directly rather than going through an approved agent? I’m going to say that they’re not. At all. Sure, there may be no laws that expressly forbid them from doing it (though this seems more a case for the Federal government under the Interstate Commerce Clause), but just because you can do something doesn’t mean you should. This is a big old “don’t”.
Secondly, I’m not really sure what Cyrill is smoking, but he really doesn’t seem to grasp competition.
You see, Cyrill is talking about competition, yet his clients-remember, he’s with the National Automobile Dealers Association-are trying to quash competition. While the dealer model for auto sales allows consumers to shop within the same make, that same model has a middle man that requires payment. “Dealer markup” isn’t something that just exists in dealership commercials.
What Tesla’s model does is allow the company to cut out that middle man, by selling directly to customers so that the price is as low as humanly possible.
The amusing thing is that what Tesla is doing isn’t exactly unprecedented. About 15 years ago, Apple launched their Apple Stores. Before that, they’d been selling through traditional electronics outlets, and found that sales weren’t where they needed to be due to sales people steering customers toward the store brand PCs and away from the higher priced Apple products. When Apple Stores opened, it created a new level of brand loyalty (one I admittedly mock as fanboyish) that is non-existent in electronics.
Tesla is simply following that trend. After all, their cars are somewhat expensive as it stands. If you add in a dealer markup, and now the Tesla models are a lot less interesting to perspective buyers.
Personally, I think the Michigan lawmakers see that as a feature, not a bug.
Michigan is the home of the Detroit auto industry, after all. Tesla, in contrast, is an upstart automotive company based in Palo Alto, California. It’s extremely interesting that while several states have taken issue with Tesla’s model, most were willing to work it out with the company while the home state of all their domestic competitors seek to completely block sales unless they adopt a model that would be tantamount to corporate suicide. I’m sure that’s just a coincidence.
Gov. Snyder has until October 21 to either sign or veto the bill.