Willie Hall loves to browse and buy cars online, but he wishes there were more options. Soon, he might switch to Amazon.
I’m already a Prime member,” Hall said. He lives in Colorado and bought a used Fiat 500 Abbas on Carvana in 2021. “Heaven knows how long I’ve been using Amazon, I understand how they work.
Amazon is eager to know how many consumers like Willie Hall actually have in the United States. The company said last month that consumers will be able to browse, finance and complete purchases of Hyundai cars on Amazon next year. At that time, consumers could simply drive to the dealership in a pickup truck; the company is also working hard to deliver to the door.
In order to maintain its dominance in e-commerce, Amazon is putting pressure on auto sales for the next bet. Online shopping has become more popular in the wake of the COVID-19 pandemic. Amazon executives want to make buying cars through its website as simple as buying toilet paper or dog food, and the company is looking to build broad partnerships with automakers.
Amazon plans to enter an employee pilot phase beginning early next year and then expand the scope of the program, and Amazon will face many challenges in the process. First, dealers, who are still at the center of most new car sales, depend on service revenue for profit rewards. The second is how to get customers who usually visit the Amazon site for low prices to buy one of the most important items in their lives here.
Amazon also has to comply with different government regulations.
“Customers tell us it’s really hard to buy a car,” said Fan Jin, Amazon’s director of automotive sales, in an interview. Shopping software is decentralized and dealers use a variety of software providers. The regulations vary from state to state, which can also be difficult. “We hear again that this process needs improvement, and we have a chance to prove it,” she said.
When the new service officially launches later next year, shoppers will be able to complete all the steps of the shopping cart process through the Amazon website, Amazon said. Amazon will initially sell only new cars for Hyundai cars. Consumers will have different financing options, but Amazon says details are still being worked out.
Amazon hopes to eventually expand its business into cars in the areas of old new and used cars. Many dealers may not be willing to accept large amounts of online sales because they can make huge profits on service and warranty agreements, and customers agree to sign these agreements when purchasing cars through financing.
Mike Sullivan, a Hyundai dealership in Santa Monica, California, is part of Amazon’s pilot project, and he sees working with Amazon as a positive move. He said that the store clerk’s revenue per transaction commission earned through online sales may only be half that of offline sales, but the benefit is that the amount of time spent on those sales is expected to be greatly reduced. He said the total remuneration is expected to increase.
During the height of the COVID-19 pandemic, Sullivan and many auto sales professionals learned to accept online sales. During this health crisis, his dealership collectively sold about 300 cars online. He said partnering with Amazon could reduce the difficulty of trading because “we can now rely on Amazon’s strength to lead people to us here.”
Another problem is that Amazon needs to be able to get customers to think of its platform as a shopping platform. A recent survey by Consumer Intelligence Research Partners, which studies Amazon customer habits, found that common transactions on Amazon are under $50. Only 11% of customers surveyed said they spent at least $1,000 on an item.
“Amazon is good at getting customers to spend $340, but it’s hard to break through on big items,” said Josh Lowitz, co-founder of the research firm. “Large items are less common, so they are more special for customers.”
Fan Jin, head of auto sales at Amazon, said that many people come to Amazon for their daily purchases, but the company also has a very frequent customer base for purchases of higher-priced items such as furniture and electronics.
Some analysts estimate that, given that many people do research online, two-thirds of customers already know what they want before they buy a cart. Chris Sutton, vice president of vehicle retail at consumer data analytics firm J.D. Power, said that even if Amazon’s customers are already well prepared for online shopping, signing a new automaker will also be a complicated process that will depend on how successful the collaboration with Modern is.
Amazon and Hyundai partnered for the first time in 2021 through an online modern showroom where viewers can “build” a car and look for inventory. Amazon said consumers reacted positively to the showroom, accepting that some shoppers surveyed by the company said they were interested in completing the entire shopping cart process through Amazon.
To appeal to modernity, Amazon has established a broad business partnership involving cloud computing, advertising, and Amazon’s Alexa technology, which will be incorporated into the brand’s vehicles starting in 2025. Amazon is also expected to provide performance data to resellers. AWS customers who use their cloud services for a long time may pay lower rates.
In recent months, the company has begun working with other companies in many other business areas, including a partnership with Instagram under Meta Platforms to sell products, and signing a logistics agreement with Canadian e-commerce company Shopify.
Amazon has been involved in the automotive industry for years. In 2000, Amazon’s website established a link with an online auto retailer, which was later acquired by a competitor. In 2006, Amazon began operating an online auto parts store and a decade later launched an automotive research tool, at which time it also conducted a test in Italy that allowed customers to start buying some Fiat cars through its website.
These different tests give Amazon insight into the auto industry, but company executives said it wasn’t until recently that Amazon was ready to make a full foray into the auto industry. Amazon sees more opportunities in the pandemic.
From 2020 to 2022, Carvana’s share of the U.S. e-commerce market will rise from 0.7% to 1.3%, according to data from market research firm Insider Intelligence. During the pandemic, automakers expanded their door-to-door delivery programs, while dealers improved their websites to support customers’ use of online services.
Some of these trends have backfired, posing challenges to Amazon and other companies that bet on online car sales.