Amazon steers future for selling cars online

LONDON • You do not need a brain such as 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 customisation options abound.

New cars are also typically bought on credit. Manufacturers and dealers tend to have tight-knit relationships and, in the United States, there are pesky laws protecting dealers.

Still, besides a few exceptions - bullets and cigarettes - Amazon.com is getting closer to the Bezos dream of being an "everything store".

So after reports that Amazon is considering a move into prescription drugs, one should not be surprised that it has started recruiting auto experts to help it sell cars in Britain, according to trade magazine Automobilwoche.

Details are sketchy, but the article was enough to sink the shares of Auto Trader Group, a British digital automotive marketplace, by about 4 per cent. 

That might be an over-reaction.

While Amazon enjoys huge sales of books, entertainment products and consumer electronics, its march into 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.

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 advertisements, aggregating price data and brokering sales leads for dealerships.

The timing also seems odd.

Silicon Valley companies such as Google and Uber are trying to make car ownership unnecessary in an age of ride-sharing and autonomous vehicles. Meanwhile, after a six-year credit-fuelled boom, car sales have probably peaked in the US and Britain.

  Yet a company that wants mastery over people's consumption habits will find it hard to ignore such a huge market. In Britain alone, new and used car sales are a £90-billion (S$157-billion) business.

It is most people's second-biggest purchase and folks spend hours researching it online.

While it is doubtful most people will want to purchase a car with one click and have it shipped on the 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 do not make much money. In the US, 2 per cent pre-tax margins are common.

Digital marketplaces do better. Auto Trader had a 65 per cent operating margin in its last fiscal year. Scout24, a real estate and auto listings site, achieved 32 per cent, according to Bloomberg data.

But carmakers are investing heavily in e-commerce too.

BMW and Peugeot, 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 are handing over a five-figure sum to buy a car, brand loyalty and person-to-person contact matter.

While the car industry faces several existential threats, Amazon is not one of them - yet. But carmakers assuredly will be looking at their rear mirrors to ensure Amazon does not shorten the distance between them.

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A version of this article appeared in the print edition of The Straits Times on June 14, 2017, with the headline 'Amazon steers future for selling cars online'. Print Edition | Subscribe