Is Amazon coming for car dealerships?

Hey, everyone. Happy Thanksgiving! I hope you all enjoy some much deserved time with friends and family today before the busy season kicks off. I’ll be spending my Thanksgiving talking to my family about the impact of interest rates on auto lending…should be pretty great.

Thanks to our sponsor, Fullpath, for making today’s newsletter happen. Keep reading to learn more.

—CDG

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Today’s Biggest News

The Truth Behind Hyundai’s Partnership with Amazon

The news on everyone’s mind this week: Buyers will soon be able to totally sidestep dealerships and purchase cars on Amazon…at least, that’s what the headlines made us all think. Anyone else dream Jeff Bezos was kicking tires on a car lot last night?

But the truth of Hyundai and Amazon’s new deal requires a little more context. So today, let’s dig into the reality of this tie-in to understand what it means for both dealers and buyers.

The news: Amazon announced a partnership with Hyundai that will allow dealerships to sell cars through the ecommerce site starting in 2024. It’s more of a doubling down than a revelation—customers have been able to browse showrooms and compare prices using Amazon for a while, but starting next year, they’ll be able to actually buy a Hyundai on the site. 

Importantly, Hyundai dealers will have the option to participate in the pilot of this Amazon x Hyundai partnership or not.

The dealer reaction: Many in the automotive industry were initially perplexed and couldn’t help but wonder if Amazon might be trying to do to dealerships today what it did to small, indie booksellers in the 1990s—wipe them out. It was either that or bring a whole new slate of upcharges and added fees to buyers (check out the replies to this tweet)…Prime Auto Insurance, anyone?

The context: One important detail has been missing from a lot of the headlines covering this partnership…and that’s the role of dealers. “This is still very much a dealer-centric process that will in essence be facilitated by the Amazon platform,” Andrew Wright, a second generation dealer and the incoming chairman of Hyundai’s National Dealer Council, told me in an emergency episode of the CDG Podcast.

Some important details Andrew highlighted for us:

• Dealers will still set the price of the models they’re selling on Amazon and determine shipping details. So Amazon is occupying primarily a lead-generation or middleman role instead of a seller role.

• Most manufacturers like Hyundai have policies about minimum advertised pricing (MAP) for dealers—that’s the floor price dealers can advertise, and the only way to go below that MAP is engaging in a two way dialogue between the dealer and the buyer. In this new Amazon arrangement, Hyundai dealers will still be subject to MAP guidelines (but there won’t be negotiations). So it’s not as if this will create some complicated, new pricing scheme that undercuts dealers’ bottom lines.

• Amazon is expecting to extend this deal to more manufacturers in the coming years—Hyundai is just the start.

Of course Hyundai, even with its reputation for being tech-forward, will encounter some kinks as it navigates a new selling strategy. A few Andrew mentioned? There’s no trade-in mechanism on Amazon's platform right now—and that can be north of 60% of the transaction, as dealers know. Plus, financing will only be through Hyundai initially, removing optionality for buyers.

But at the end of the day…there’s an important reality worth reiterating here: This isn’t a story about the end of the dealership as we know it. It’s actually a story about changing consumer behavior. I’ll explain why Hyundai taking things online actually makes a ton of sense:

1. Buyers still dislike the car buying process. Buyers spent 18% more time on the vehicle buying process in 2022 than they did a year earlier…a total of 14 hours and 39 minutes. Pair that with limited inventory and higher prices, and the process of buying a car can still be a headache.

2. Online car buying is growing. See above—the traditional process isn’t always ideal for buyers. 48 states have laws that limit or ban manufacturers from selling vehicles directly to consumers…but Amazon’s workaround to those rules is keeping dealers crucially involved in the process. That’s a win for dealers who want to meet buyers where they are and buyers who want to purchase a car the same way they purchase everything else: online.

Amazon appears keen to invest in that consumer reality even more heavily. With its ecommerce business flattening, adding cars to the seemingly endless list of things you can get on Amazon might be the juice Amazon’s ecomm business needs. Worth noting: It’s unclear how Amazon will make money on this dealership deal (though a JPMorgan analyst said a per-unit transaction fee charged to dealers and/or manufacturers is likely), but Amazon likely won’t keep the deal alive for long if it doesn’t make money.

Bottom line: This deal isn’t the apocalypse some media outlets have suggested it to be.

This Week’s Episode of the CDG Podcast

We’ve got a double feature this week.

Up first: How did this auto startup go supersonic? Jamie Oldershaw, VP of Reputation Strategy at Cars Commerce and GM of DealerRater, explains how the latter makes money…and how the dealership model and auto market more broadly are shifting with time.

And next: What does the future hold for auto lending, from defaults to new term lengths? Answering that question can tell us a ton about where this industry heads next. So I asked Betty Jotanovic, President of Chrysler Capital and Auto Relationships at Santander, and she delivered. I really enjoyed our conversation and I know you will, too.

Listen to the episodes here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts. Thank you to AutoFi and Cars Commerce for making these episodes possible.

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The Backlot

• EV share hit 7.4% in the US during Q3. Tesla is still the market leader, but Hyundai, BMW, and Mercedes-Benz are making strides.

• A great read from Bloomberg for the long weekend: How Wall Street makes millions selling car loans customers can’t repay.

• A 1962 Ferrari GTO just sold at auction for a record $51.7 million. 🤯

• Ford is switching up its EV certification program for dealers again, this time 1) cutting training costs by half and 2) reducing the number of chargers that retailers are required to install.

Thanks for reading. One last (very important) thing: I’m hiring a Chief of Staff/COO for Car Dealership Guy Media! Know media, love processes and systems and want to join my team? Check out the job listing here.

—CarDealershipGuy

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