More Creative Dislocation (Or Destruction)

This week, the Chicago Tribune ran an "Opinion" column from editorial board member Steve Chapman about the steps car dealers have taken in several states to outmaneuver the high end electric car manufacturer  Tesla. Unlike traditional auto manufacturers, Tesla sells direct to the consumer. There are no franchise holders. So one link has been taken out of the distribution chain and this reputedly saves the consumer money*.

According to Chapman, auto franchise owners have made it difficult if not almost impossible for Tesla to sell cars in 48 states. The restrictions include new laws in North Carolina, where cars can only be sold by franchise holders, to Colorado where Tesla can build no more factory direct stores. In allegedly business friendly Texas, Tesla employees can not tell prospective customers how much the car costs, allow a test drive, and must deliver the car to buyers via unmarked third party delivery services.

Source: Topspeed.com

Chapman points out that it seems like car dealers are more likely trying to protect their business interests than they are their customers. This makes some sense on two levels: For one, rightly or wrongly, car dealers are not exactly admired or trusted by the American public. The stereotypical car salesman is a hard image to banish. Two, if you saw your business being threatened by a new unexpected competitor, wouldn't you take steps to protect it?

I was following this argument closely because Chapman pointed out the flaw in the thinking of the North Carolinia Auto Dealers representative who said their states law was designed to protect consumers. Chapman wondered why wouldn't Tesla hypothetically protect their customers just as well as any other business? He then points out how big Amazon has gotten and it was certainly not by taking advantage of their customers.

He (Chapman) is right. Amazon does treat their customers well. Of course, for a long time they didn't treat the states where they did business all that well because they didn't want to pay state sales tax. As someone who used to spend a lot of time in warehouses, I'll spare you my rant about the treatment of warehouse workers by Amazon and their third party partners.

If you think about it, the response of car dealers to a business model like Tesla's is not all that surprising. They rely on manufacturers to provide them with product to sell to the public. Their future rises and falls with hot wheels and lemon deals. As a class of business people, they've made huge investments in land, buildings, staff and technology so it would make sense that they would go after a company that they see as a threat. While you may think of your local dealer as tipping the scale in their favor every time you buy a new car, they are also deeply imbedded in the local community often supporting local athletic teams, charities, schools, hospitals and other community organizations.

So from that perspective, I have to ask how different their reaction to Tesla has been to the reaction of our magazine wholesalers when retailers demanded a "single bill" back in the 1990's. Or the reaction of some of the national distributors to "Scan Based Trading" in the past few years? Or tradtional publishers to all the changes in reading, reading technology and the redefining of the publishing business model?

Hold that thought and let's go one step further and consider the book by Jaron Lanier, "Who Owns the Future?" Lanier points out an interesting inequity in corporate size and scale by comparing Kodak and Instagram. The former photography giant Kodak went out of business shortly after social media giant Facebook purchased Instagram. At its peak, Kodak to employed 140,000 people.  Instagram, a very hot and buzzworthy company, employed just fourteen when it was purchased.

So you have to ask the question, if car dealers were replaced by direct to consumer sales either via manufacturer owned stores or the web, what would happen to the quality of life in a community? How much money would a consumer save? Would that consumer even have a job that paid enough to buy a car? How many jobs would be displaced if a local auto dealer, if all the auto dealers in a community exited the market?

These two trains of thought reminded me of a conversation I had awhile back with one of the few remaining independent magazine wholesalers. Like many professionals in this little backwater pond of the publishing business, we all have some highly amusing riffs on our current  business "condition". Our first few minutes in his office were spent amusing each other with tales of trying to track down payments from wayward convenience store owners.

But then he got serious (And I am quoting from memory so this may not be entirely accurate or even entirely belong to just the individual I am trying to quote):

"We're robbing ourselves," he said, "That's what really pisses me the hell off about what we're doing. All this cheap s*** we need to buy. We run our locals out of town, replace them with these big stores. Cool, we got great deals! Now a local owner is gone from the membership list of the Rotary or the Lions and who's going to sponsor the baseball team or send remainders to the hospital and the school library?"

"And that's just the easy stuff. Think big box is going to bank with the county bank? They rolled into town lined up with a big national. Two years later the county bank can't stand it anymore and merges with some national. Then my Dad has to go and start working with some guy he never knew before and who doesn't really know our town or our business and he has to start all over. All the other local guys are in the same boat. And all that money that was on deposit and working here in this county is now going out of the county and out of state. Where do you think those big box profits go? When the TV store was local the money stayed here."

"We didn't think about that" he continued. "No. It's clean, new and you saved 50 cents. So where I used to just handle these three counties before '96, now I'm running all over the place. Where before I had what, maybe 300 customers I've now got, what, 900? How come I'm not making more money? I've got a guy in the return room. Not a great job, but not the worst. Twenty years ago, a guy in the return room could live OK if he was single. If he was married and his wife worked, they could be OK. Have a house, a car, take the kids a few places. We had OK benefits. Not great, but we're small. Now? I can't pay my staff the same scale as 20 years ago. The benefits aren't even just OK anymore and the people who turn me down and work somewhere else tell me that."

It went on in this vein for some time.

I'm not a Luddite. I don't get weak in the knees thinking about the good old days. Especially in this business where on my first day a "Grand Old Timer" told me the business wasn't any good anymore (Apparently women ruined it) and I should leave the rep room right now because I'd be better off tending bar (Maybe he was just thirsty). Weirdly, he wasn't the first person in that first year to tell me this.

I've read Chapman for years and he seems to love the miracles of the free market. So in that vein, I think he missed the point of all this. The car dealers are defending their turf (and buying state legislators). I think that's as much a part of the American tradition of taking care of your own as the American tradition of blowing stuff up just to see what will happen. Will the wily allegedly more tech savvy and futuristic folk at Tesla blow up the car sales business all the while creating a new, better class of automobile? No idea. Anyone who claims they do is probably a crackpot. But this is America. If you love this land, you have to love our crackpots.

Photo: Adam Dodd

But as exciting and as whiz bang as the future could be, I do concern myself with the implications of what we do, how we put business before all else, how we adopt the next technology without regard to where it could take us. Did the 14,000 former employees of Borders land on their feet and get decent jobs? Better than what they had before? A few of them? Some of them? What do you honestly think? 

*A cynic might wonder if companies that "sell direct" don't just pocket the franchise or wholesalers fees and tell the buyer that they're saving money. That's what a cynic might wonder. I am just saying.