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Is Amazon's Latest Move A Genius Tactic Or A Huge Mistake?
Have you ever wished you could just buy a new car on Amazon? No? Well, Amazon (NASDAQ: AMZN) hopes that if that's the case, it can change your mind. And if you have been on its website and thought, "Why not cars, too?", you may be happy to learn that's about to become a reality.
Amazon is piloting a new program selling cars on its platform, called, simply enough, Amazon Autos. Is this going to be a game-changer for the e-commerce king -- or a huge flop?
What Amazon Autos can do for Amazon
Amazon already sold almost everything you could want to buy, except for cars and homes. Those kinds of transactions don't fit a typical e-commerce model. But Amazon has developed an innovative approach to make it easy to shop for cars online, and it's hoping to further disrupt the auto dealership segment with its new venture. Homes may be not too far behind.
There are already companies selling cars online, like Carvana and CarMax. Amazon is doing it a bit differently by acting as a middleman, or a buying platform, rather than a buyer or reseller. Instead of selling merchandise that gets delivered to your door, the car program has Amazon working with established local dealerships. It's piloting the program exclusively with carmaker Hyundai Motor in 48 states, but it's already setting up capabilities for BMW and Nissan.
It's essentially a "buy online, pickup in store" concept, only with dealerships instead of retailers. Amazon provides would-be buyers with all of the details they need about vehicles and transactions, and gives them instant financing calculations based on data they input such as credit score, down payment, and loan term. It also gives people the option to sell the dealer their current car and put the proceeds toward the price of a new one. It provides quick offers on those cars based on data like the vehicle's condition and age.
One major benefit of this model for Amazon that it doesn't need to invest in costly merchandise that could impact its cash flow. It's just another way for Amazon to use assets and systems it already has to create another revenue stream. For local dealers, it's a way to gain exposure to millions of customers who might be inclined to buy a car but want to avoid some of the downsides of visiting a dealership, like aggressive salesmen. For buyers, the benefit is ease of use and transparent pricing.
Amazon's finance partner is Hyundai Motor Finance. Many auto finance companies now work with artificial intelligence (AI) credit platforms like Upstart Holdings or Pagaya Technologies, but in this case, no credit partner is listed by name.
Although cars are not products that Amazon can ship, the overall method here is certainly in its wheelhouse. It aims to simplify the car-buying process with the help of big data and artificial intelligence (AI), cutting out much of the traditional model's complexity while applying an Amazon-style sales approach.
The auto market is massive: More than 3 million cars were sold last year in the U.S. alone. If Amazon can get a chunk of that business, it could add a meaningful new source of revenue to its top line. With its platform model, it could be a profitable source, too.
Why Amazon Autos could flop
Buying a car online requires a leap of faith. Amazon gives you all the specs, and it has virtual showrooms. But you won't be going for a test drive in the actual car you're buying, nor even one of the same make and model. You'll be making the transaction online and showing up to get the keys.
Although a program like this might have made it even a few years ago, e-commerce has made enough of a mark at this point that this is something that could work. It seems likely that some consumers will feel they can make enough of an assessment about whether or not they would want a certain car based on what they can learn from the countless videos and reviews available online, and weighed against the time investment of going down to a dealership and working with a potentially pushy car salesman, they might choose this route instead. Since other companies have already pioneered this space, Amazon can piggyback on their learnings and create its own best practices to make it work within the existing Amazon platform.
I don't see any real downside for the company beyond the possibility that it could eventually have to shutter the program down if it doesn't gain enough traction. It wouldn't be Amazon's first flop. (Remember the Fire Phone? Me neither.) When one of the tech giant's initiatives fails, it just picks itself up and moves on to the next thing.
Even if it does work, it could take time for Amazon Auto to gain momentum as a credible alternative method for buying a car. This is a pilot with Hyundai, but over the next few years, more carmakers will move toward this model as customers embrace it.
Even if it's not today, the fact that this is getting off the ground at all suggests this is where car sales are headed. Amazon is doing online cars with its trademark, and it's likely to be another way the company changes how people buy things and benefits from the shift.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, CarMax, and Upstart. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft and Pagaya Technologies. The Motley Fool has a disclosure policy.
