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OPINION

Will Amazon make car dealerships go the way of bookstores? Add to ...

Online retail giant Amazon has dominated headlines in recent weeks for its acquisition of grocery chain Whole Foods Market, but it has also created significant buzz in the automotive industry as details of its plans to begin selling cars online were published by German trade magazine Automobilwoche. Amazon has reportedly been aggressively building out a team of car specialists in Europe with plans to launch online car sales beginning in Britain.

This move is not entirely a surprise for Amazon, which has a track record of entering and dominating every possible retail vertical. In book-selling, for example, it has grabbed an enormous share of the market at the expense of bricks-and-mortar bookstores, prompting some to close.

Amazon launched online car sales pilots with Fiat in Italy and Seat in France last year. Both were more akin to sophisticated lead-generation services than true online car sales, however.

In the case of Fiat Italy’s Amazon store, customers purchased a welcome kit online for €180 ($265 Canadian) that included a brochure, a Fiat hat and an offer code which guaranteed an upfront discounted price that could be redeemed in-person at a local dealership. In the case of Seat France’s Amazon store, customers submitted an online deposit of €500 to reserve a limited edition model at an upfront price and were then contacted by Seat offline to arrange actual purchase documentation, full payment and vehicle delivery.

While e-commerce has become table stakes in nearly every other major retail sector, most auto maker and dealership websites are still largely glorified brochures that only capture leads and force customers to wait for a subsequent call back to book an in-person dealership appointment. However, auto makers are beginning to pay attention and adapt to consumer demands. Canada, for example, has been home to some of the most advanced examples of digital automotive retailing and e-commerce in recent months.

The luxury brand Genesis Motors was the first mainstream auto maker to launch a fully online retail process in November of 2016, whereby customers in Canada could purchase and arrange delivery of a Genesis vehicle to their home without stepping foot into a dealership. The experience called Genesis at Home enabled every aspect of the purchase process to be handled online, including test-drive scheduling, reservation deposit, credit application, trade-in appraisal and more.

Genesis didn’t even have any physical stores at launch and only recently opened a location near downtown Toronto that is more akin to a luxury boutique than a traditional car dealership. Its future locations will include stores in major shopping malls. In order to avoid the necessity of large dealership facilities with service centres, Genesis includes all-inclusive maintenance in its vehicle prices, along with a concierge service that will pick up customer vehicles from their home or office for maintenance and return them afterwards.

Genesis parent Hyundai also recently launched a similar digital retailing experience in Canada called Hyundai Express Shopping. Other auto makers in Canada that have experimented with e-commerce include Mazda and Volkswagen, which both took a page from Tesla’s playbook and enabled customers to reserve preorders online with a credit card deposit for recent launches of the Mazda MX-5 RF and Volkswagen e-Golf.

In the same way that Expedia, Travelocity and Priceline motivated every hotel chain and airline to adapt and ultimately offer e-commerce on their own websites, the same narrative is likely to unfold in the auto industry in response to Amazon and other third-party marketplaces making their way in. It is simply a matter of when and not if. However, most auto makers and dealerships will likely struggle with the significant technology investments required, as selling cars online is far more complex than selling simpler consumer products, such as books.

According to a recent Deloitte study entitled The Future of Auto Retailing, “Retailers are now seeing customers compare their buying experiences across industries, and the old adage that that’s how it’s always been done is increasingly inadequate. … When it comes to making car purchase decisions, Generation Y drivers value customer experience three times as much as vehicle design.”

The rapid rise and fall of online used car sales startup Beepi underscores the challenges the industry will face as players attempt to evolve to meet customer needs. Beepi launched its service in 2014 and went on to raise $150-million (U.S.) in venture capital funding before shutting down and liquidating in late 2016. Its business model was to source cars directly from consumers looking to sell and then, in turn, retailing those same vehicles to other customers completely online. Beepi delivered cars to customers’ doors with a bow on top, literally, after a purchase was completed. However, its business model proved unprofitable, as it often ended up selling cars for less than what it purchased them for in hopes of attracting more customers. Its demise came when investors refused to continue funding its losses.

Carvana, on the other hand, is an online used car sales operation that recently completed an initial public offering in April on the New York Stock Exchange and is now valued at $2.8-billion (U.S.) in market capitalization. Carvana has taken the notion of disrupting the traditional dealership business model even further by conceptualizing a car vending machine that allows customers to pick up their vehicle without any human interaction at all.

However, if Amazon’s moves in the grocery industry are any indication, the importance of physical storefronts will remain for the foreseeable future. Rather, auto makers and dealerships will need to seek out omni-channel retailing strategies and technologies that will allow them to seamlessly bridge both online and in-person shopping experiences.

Andrew Tai is chief executive officer of Motoinsight.

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