Business as usual is taking a pounding from a public that’s embracing cataclysmic change

By Jeff Rundles | Apr 01, 2014

American business, and business worldwide, is in the midst of a revolution, driven by technology in many cases, that threatens business as usual – and government as usual – in profound ways. It’s the tug and pull of tradition versus innovation, of the well-moneyed establishment versus the upstart with momentum.

My family’s experimenting with one such upstart service, a newish website call Airbnb – which provides rooms, apartments and homes of private citizens to travelers in over 34,000 cities in 192 countries with fees that are often below the going rate for hotels and motels. Some locales, like San Francisco, are crying foul that the website skirts the payment of lodging taxes that hotels are required to collect, and it’s also easy to imagine that the hotel industry isn’t really fond of the new competition. But once again, the public likes the accommodation that technology affords to essentially link up two private parties for a mutually beneficial relationship.

In transportation, Colorado’s debating whether uberX and Lyft, alternative ride-sharing companies, should be allowed to operate in Colorado without state oversight and regulation. Of course the taxi industry views them as direct competition and is lobbying furiously against this consumer option. A bill has passed in the Colorado Senate that would allow for limited regulation of these highly popular firms – which essentially use smart-phone technology to link up private car drivers with those seeking a taxi-like ride. Passage in the House isn’t a given.

Innovations like these – and surely these are but the tip of the iceberg – will not likely spell an end to traditional taxi and lodging institutions anytime soon, but there’s no doubt that as their popularity grows they will both have an enormous impact on tradition by providing alternatives and new competition.

The siege on tradition appears to be accelerating. Ask Colorado car dealers. On the eve of the 2014 Denver Auto Show – April 9-13 at the Colorado Convention Center in Downtown Denver – a high profile dustup is engulfing the car business, spurred on by the disruptive carmaker Tesla.

Automobile dealers in the U.S. have enjoyed a long-standing, exclusive arrangement – the so-called franchise system of car sales – where private dealers are contracted by vehicle manufacturers to represent their brands. In fact many states ban direct sales and attempts to change these laws have met with stiff opposition from powerful automobile dealers and dealer groups.

Along comes upstart Tesla with its highly regarded and expensive Model S – and others reportedly in the works, including a lower-priced version that may sell for around $40,000. Tesla has chosen to go direct to the public, setting up showrooms and service centers that are manufacturer-owned (the Colorado location is near the Park Meadows Mall in Lone Tree south of Denver). Tesla contends that direct sales are required to introduce its innovative technology to the public, and that setting up a dealer network would be prohibitively expensive. In Arizona the company is looking for a limited exemption to the direct sales ban, using the prospect of building a $5 billion factory there to produce batteries as an incentive.

Result? Tradition versus innovation.

There is no ban on such a direct-sales practice for automobiles in Colorado, but today, Tesla stands alone employing it. If the company proves successful, and all indications are that it is heading in that direction, it could be the first assault on another long-standing traditional business model.

I spoke with Tim Jackson, President of the Colorado Automobile Dealers Association (CADA) about all of this, and he made a cogent argument for tradition. The official CADA position, he said, is that it “believes in the franchise model.”

According to Jackson, 95% of all new cars in the U.S. are sold under the stated MSRP –Manufacturer’s Suggested Retail Price. “For the consumer it’s better because dealers compete in the marketplace.”

He also pointed out that dealers protect the consumer in other ways, maintaining a credible marketplace when a manufacturer goes out of business. He cited the example of a Colorado consumer who bought a Saab just about the time that Swedish nameplate filed for bankruptcy and ceased U.S. operations and then had a problem with the car. The local dealer, without any chance of recouping the cost from the manufacturer, bought the car back, Jackson said. Similar situations have arisen, he added, with the demise of such nameplates as Hummer, Fisker, Suzuki, Daewoo, and, years ago, Yugo.

Jackson made excellent points, but the public, it seems, has no great love for tradition and in fact seems to relish cataclysmic change.

Tradition be damned.