Would You Buy Your Dream Car From Amazon?
By Chris Bryant Andrea Felsted
Christophe Calais/Corbis via Getty Images
You don’t need a brain like Jeff Bezos to figure out why he began selling books online and not cars.
Books are a cheap and easily-shipped commodity product. By contrast, people rarely buy a car without driving it first, while vehicles are bulky and customization options abound. There's more: new cars are typically bought on credit. Manufacturers and dealers tend to have tight-knit relationships, and in the U.S. there are pesky laws protecting dealers (as Tesla has discovered).
U.K. car market
90 billion pounds
Still, besides a few exceptions -- bullets and cigarettes -- Amazon.com Inc is getting closer to the Bezos dream of being an “everything store”.
So after reports that Amazon is considering a move into prescription drugs, we shouldn't be surprised that it's started recruiting auto experts to help it sell cars in the U.K., according to trade magazine Automobilwoche. Details are sketchy, but the article was enough to sink the shares of Auto Trader Group Plc, a British digital automotive marketplace, by about 4 percent.
That might be an overreaction. While Amazon enjoys huge sales of books, entertainment products and consumer electronics, its march on other areas such as food and fashion has been slower. Like cars, those businesses have specific demands. To sell fresh food you need temperature-controlled infrastructure, while clothing returns involve tricky logistics.
Amazon’s car ambitions are evolving slowly too. Last year, it set up a car research tool for its users and said it would offer a small number of vehicles on its Italian site from Fiat Chrysler Automobiles NV. While Amazon helped create a transparent marketplace for most online goods, its reticence in autos has let a crowded field of rival sites flourish, offering classified ads, aggregating price data and brokering sales leads for dealerships.
The timing also seems od d. Silicon Valley companies such as Google and Uber Technologies Inc. are trying to make car ownership unnecessary in an age of ride-sharing and autonomous vehicles. Meanwhile, after a six-year credit-fueled boom, car sales have probably peaked in the U.S. and U.K.
Yet a company that wants mastery over our consumption habits will find it hard to ignore such a huge market. In Britain alone, new and used car sales are a 90 billion pound business. It is most people’s second-biggest purchase and we spend hours researching it online. While it’s doubtful most folk will want to purchase a car with one click and have it shipped same-day, Amazon could potentially ease the buying process and claim a slice of those revenues.
Embedding itself in the car-purchase chain would teach it more about customer habits as it builds a base in the lucrative auto parts market. Amazon already has a feature called Garage for customers to tell it what car they own.
True, bricks and mortar dealerships don’t make much money. In the U.S., 2 percent pretax margins are common, although Amazon is pretty relaxed about profit as we know. Anyway, digital marketplaces do better. Auto Trader had a 65 percent operating margin in its last fiscal year, while Scout24, a real estate and auto listings site achieved 32 percent, according to Bloomberg data.
But carmakers are investing heavily in e-commerce too. BMW AG and Peugeot SA, for example, already let customers configure cars online and choose financing. Customers surveyed by Cap Gemini Consulting were more likely to buy a car from a carmaker online than from a third-party web retailer or tech company.
When you're handing over a five-figure sum to buy a car, brand loyalty and person-to-person contact helps. While the car industry faces several existential threats, Amazon isn’t yet one of them.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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