Rumour has it that e-commerce giant Amazon is going to start selling cars, with a trial set to take place in the UK before it is rolled out to other countries.
Amazon has previously tested selling the Fiat 500 in Italy, and now it has manufacturers from Germany who are on board with the idea too, so is looking to branch out with this idea.
Details of the plan have not been made official yet; they were leaked in Automobilwoche, a German trade magazine. The article speculated that the business will be run out of Luxembourg, and that Amazon has already started to recruit salesmen for the venture.
Impact on UK car industry
Selling items from books to kitchenware, Amazon has a reputation for changing whichever market it takes on. Thus it is unsurprising that car dealerships may be a little concerned about this potential addition to their industry.
When the news was announced, shares in AutoTrader dropped by 6%, while shares in Lookers (a large car dealership chain in the UK and Ireland) dropped by 4%, reflecting the uncertainty over what the arrival of this new competitor could mean for the industry overall.
Amazon tends to focus its offering on price, so is unlikely to impact car sellers that focus on premium service and high quality cars. However, it will force those focused on price and value to rethink how to compete against this master of digital marketing and customer conversion.
The online only car selling conundrum
There are plenty of aspects of buying a car that people will not be able to access if they buy one online via Amazon. This may eradicate some of the concern that more traditional car dealers are feeling.
For example, although more people would be willing to buy a car online now than they would have been in 2015, many still like the idea of being able to test drive a car before purchasing, having the option to part exchange, and the ability to select finance options, which Amazon may not be able to provide directly.
Most car buyers like to research possibilities online before going out to view cars, but would feel more comfortable purchasing one via face-to-face interaction because it is a big-ticket purchase. Amazon may follow the example of Tesla and rent out shop space in large shopping centres to generate that interaction and show the cars on sale in a physical environment or allow test drives.
In addition to this, car manufacturers can only distribute cars through dealers, and if Amazon tries to bypass the dealers, it could put their new venture at risk of failure. This is exactly what happened when Virgin and Tesco tried to do the same thing in the past.
Will the Amazon entry be good for consumers?
It is likely that Amazon will be able to undercut prices offered by dealers due to the way that it runs its business, (i.e. low overheads). This could mean that consumers have to spend less on a new car, which could appeal to many users.
Another benefit of Amazon selling cars is that dealerships will be forced to provide a more personalised service to their customers, to show what they can offer that Amazon can’t. This is sure to make potential car buyers happy when they visit the showrooms.
Conversely, some car dealerships may decide to start charging for things that they were previously giving away for free, in order to compete on price for the actual car sold (in much the same way as budget airlines now do).
There are both pros and cons to buying a car through Amazon, if indeed this is a service that it decides to provide. Having this new option available is sure to be something that many motorists will welcome and the car industry dreads.
What do you think about Amazon entering the UK car market? Do you think it will deliver better value or will it drive the industry to deliver less value and raise prices? Let us know in the comments below.