Amazon's Recent Strategy: Genius Innovation or Significant Blunder?
Have you ever pondered over the thought of purchasing a new automobile directly from Amazon? Perhaps not yet, but Amazon (AMZN 1.80%) is hoping to change your mind with their latest venture. if you've ever browsed its site and thought, "Why not include cars as well?", then you'll be pleased to know that such a possibility is getting closer to becoming a reality.
Amazon is testing a new program, aptly named Amazon Autos, that promises to revolutionize the way we buy and sell cars. Is this a game-changer for the e-commerce giant – or just another disastrous endeavor?
The Advantages of Amazon Autos for Amazon
Amazon's online marketplace has already sold just about everything one could imagine, with the exception of cars and homes. These types of transactions don't fit the traditional e-commerce model. However, Amazon is innovating to provide a seamless online shopping experience for cars as well. The company is aiming to disrupt the auto dealership sector with its newer venture.
Although there are already platforms like Carvana and Carmax that sell cars online, Amazon is taking a distinct approach by functioning as a middleman or a buying platform, rather than a seller or reseller. Instead of delivering merchandise to your door, the car program works in collaboration with established local dealerships. Amazon is currently piloting the program in partnership with carmaker Hyundai Motor in 48 states, with plans to include BMW and Nissan in the near future.
The system operates on a "buy online, pickup in store" basis, but with dealerships instead of retailers. Amazon provides customers with comprehensive details about vehicles and transactions, as well as instant financing calculations based on their credit score, down payment, and loan term. Clients have the option to sell their current car to the dealership and use the proceeds towards the purchase of a new one. Amazon offers quick buyback offers based on factors such as the vehicle's condition and age.
One major advantage of this model for Amazon is that it doesn't require a significant investment in expensive merchandise, which could impact its cash flow. Instead, the platform simply uses its existing assets and systems to generate another revenue stream. For local dealerships, this presents an opportunity to tap into Amazon's vast customer base. For buyers, the convenience and transparent pricing are the primary benefits.
Hyundai Motor Finance serves as Amazon's finance partner. While many auto finance companies collaborate with AI credit platforms like Upstart Holdings or Pagaya Technologies, it's unclear which, if any, credit partner is involved in this particular case.
Although cars can't be shipped, Amazon's strategy to simplify the car-buying process using big data and AI clearly falls within its area of expertise. It aims to streamline the car-buying experience, eliminating much of the traditional process's complexity while applying an Amazon-style sales approach.
The automotive market is massive, with more than 3 million cars sold last year in the U.S. alone. If Amazon can secure a chunk of this lucrative business, it could significantly boost its bottom line.
The Reasons Why Amazon Autos Might Fail
Purchasing a car online carries an inherent risk. While Amazon offers all the necessary specifications, virtual showrooms are no substitute for the actual experience of test-driving the car. Instead, the transaction takes place online, and customers collect their keys at the dealership.
Although this venture might have seemed viable a few years ago, e-commerce has become a more established and trusted means of shopping now. It seems likely that some customers will feel capable of assessing whether they want a particular car based on the wealth of videos and reviews available online. They might choose this route over visiting a dealership and dealing with pushy car salespeople.
There appears to be little downside for Amazon beyond the possibility that the program may never gain enough traction and eventually need to be discontinued. If that happens, Amazon will simply move on to its next venture. (Do you remember the Fire Phone? Me neither.)
Even if Amazon Auto is successful, it could take time for it to establish itself as a credible alternative method for buying a car. However, as more car manufacturers adopt this model, it's likely to become increasingly popular.
The fact that this idea is gaining traction at all suggests that online car sales are the future. Amazon is embracing this trend with its trademark style and is poised to change how people buy things.
After considering the advantages of Amazon Autos, one might question if investing in this venture could yield substantial profits for Amazon. The platform's approach as a middleman, collaborating with local dealerships, could potentially appeal to its vast customer base and enhance the convenience for buyers.
Furthermore, by partnering with Hyundai Motor and exploring collaborations with other car companies, Amazon is financing its venture through existing partners instead of making a significant financial investment in vehicle inventory. This strategy could help Amazon maintain its financial flexibility while expanding into a new market.
