For several years, Amazon has been hovering on the fringes of auto retail. It sold a few cars for Fiat in Europe, and in the U.S., Volkswagen and Hyundai are allowing Amazon to arrange test-drives in limited locations. As Amazon enters into product categories like pharmaceuticals, fresh food, and auto parts, all of which require complex and time-sensitive processes (versus products like cat litter and books), speculation about its automotive retailing intentions continues to blossom.
New vehicles pose insurmountable challenges for the world’s largest shopping mall. While most critics of the current retail system would cite state franchise laws as the primary inhibitor, in reality automakers have little incentive to shift away from franchise dealers. Although consumers might want to see all makes and models lumped together for easy comparison, that isn’t what automakers want. For starters automaker don’t own inventory; cars are immediately sold to dealers as they exit the assembly line. U.S. Consumers aren’t going to accept build-to-order cars, which, as Tesla is learning, doesn’t work in the capital and labor-intensive environment of vehicle assembly. Furthermore, auto companies go to great lengths to differentiate their vehicles and the related ownership experience. For example, Lincoln’s Black Label program offers a long list of perks to prospective buyers and owners that can only be provided by dealers. By contrast, the “Amazon Effect” is known to commoditize brands by making price the main differentiator.
As vehicle quality and safety features become ubiquitous across most makes, automakers chose to focus on other elements to differentiate their brands. Dealers represent brand values through their image compliant stores, local marketing, and even staffing. Dealerships feature luxurious lounges with amenities; same brand-loaner cars; extended service hours into the night and weekends; and employ specially trained staff to teach customers how to use their tech-heavy vehicles. Whereas dealers were once regarded as simply retailers, their role has changed from arranging the initial sale to maintaining the automaker’s defined ownership experience. These important, sense-appealing and customer-centric distinctions cannot be recognized by car shoppers visiting Amazon.com on their iPhones. Quite simply, automakers can’t afford to be controlled by Amazon.
There is, however, a segment of the auto retail market where Amazon might participate – late model used-cars. Auto companies don’t control the used-car market and used-car buyers often shop by price or segment as much as by brand. While franchise dealers sell these used-cars, more of them are sold by independent dealers. If Amazon is going to make a splash in automotive retail, used-cars are a more logical choice. Stay tuned.
Maryann Keller is principal of Maryann Keller & Associates, a Stamford-based automotive strategy consultancy.