Opinion – Innovation Gets You Nowhere. Here’s Proof

With G.M.’s announcement of a recall of an additional 2.7 million cars on May 15th, just four months after a different recall for a different reason, the number of G.M. vehicles recalled in 2014 is, wait for it… 11 million. Such numbers are staggering, hard to comprehend. We bailed out this failed automaker less than six short years ago. G.M.’s “thank you”? Unsafe vehicles that they knew were unsafe and could cause accidents, injuries and even death! And with this latest recall, several models affected were built after the bailout. What’s worse is they knew. Yet, they said nothing. That’s right, G.M. kept it a secret.

I’m not an economist or a high-finance guy. So my opinion is a humble one. Neither G.M. or Chrysler should have gotten bailout money, a.k.a. tax dollars. In the United States, companies fail all the time and do not get bailouts. Often, competitors or new companies fill the void, avoiding the mistakes of their failed competitor, often resulting in better products and services.

I’m not anti-big business. I’m just anti-stupid business. In fact, I’m a Ford fan. In the early 2000s, they planned years ahead, refinanced debt, restructured Union contracts, built better quality cars, and are stronger than ever. No bailout required.

So, G.M. laid off thousands of workers and closed plants to lower costs by the billions and supposedly become more efficient. They even scrapped the “Pontiac” nameplate. Yet, why didn’t the sale price of G.M. cars come down, even if only a little, to be more price competitive? Maybe even take some market share from Japanese, European and Korean carmakers? If you make a consumer product, wouldn’t one of the goals of being more efficient be increased price competitiveness? Never mind. That’s a rhetorical question. Let’s move on to why innovation gets you nowhere.

Tesla is a maker of electric cars. They make really good ones. They don’t catch on fire and people want to buy them. In fact, Consumer Reports, known for being stingy with praise, says one of Tesla’s models is “simply the best car you can buy”. It isn’t cheap, north of 70K, but it runs a long time on a charge and owners drive right by the gas pumps. “Sounds great!” you’re thinking, “Where can I buy one?” Tesla sells them to consumers factory direct. That’s a really innovative sales model for the car business. One might even call it, “edgy”. Some state governments such as N.J. won’t allow that, though. You read it right. Here’s why: Regulators says Tesla’s sales model gives them an unfair advantage over G.M., Chrysler and Ford who sell their cars through costly, inefficient dealerships (a.k.a. very expensive middlemen). Caught off guard, I had absolutely no idea that an innovative sales model was “unfair”. “Uh-oh!” I thought. “Other companies sell their products direct to consumers all the time, and they just haven’t got caught yet”.

Of course, in a free market, innovation gets rewarded. However, when government gets involved, not so much. Instead of screwing Tesla, the position to the Big Three should be, “Tesla sells direct? Tough luck. We can’t keep protecting you from yourself. Get out of your own way. Figure it out, sell direct like Tesla if you have to, but we’re not penalizing innovation. Tesla’s ‘green’, and after the President’s bludgeoning over Solyndra and others, he needs a ‘win’”. Instead, they take “K” Street money funneled there by the Big Three and in so doing, hurt innovation.

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