A partnership between Hyundai Motors, the fifth-largest car seller in the US, and Amazon, the fifth-biggest company in the world by market value, was announced on Thursday. Customers will soon have the option to order cars through the internet giant. This could benefit car buyers and help reduce the influence of car dealerships.
The announcement took place at the Los Angeles Auto Show. Hyundai’s Chief Operating Officer José Muñoz said that customers want the same convenience of buying a car as they have with buying other products on Amazon, since they’re unhappy with the current car-buying process.
On Amazon’s website, customers will be able to choose to buy or finance cars from local dealership inventory using their preferred payment methods. This option will be available from 2024.
According to the announcement from the retailer, this new way of shopping will provide convenience to their customers and help dealers to showcase their inventory.
However, the purchase wouldn’t be like most other Amazon orders, with free Prime delivery and easy returns. The local dealership would still handle the transaction and deliver the vehicle; Amazon would only serve as an intermediary.
These days, almost every state has laws that prevent automakers from selling their products directly to customers; they have to work with franchised dealerships to do the sales.
These laws were the result of dealerships’ pressure since the 1930s. This forced any car buyers to visit a dealership and bargain with a salesman for the price.
The practice is, of course, supported by car dealers. Dealership mandates protect consumers, support local economies, and enable automakers to invest in product quality, according to the National Automobile Dealers Association.
They say that these mandates free automakers from spending their capital on low-margin retailing and let them focus on designing, engineering and marketing high-quality products.
It’s worth noting that customers actually pay more when there’s an unnecessary middleman. The idea that adding a compulsory layer of costs between the producer and the consumer will lower consumer prices isn’t economically true, dozens of academics stated in a 2020 letter.
The price of each car is increased by an extra $2,000 because of having to go through franchised dealers, said Ford CEO Jim Farley.
To make this even more of an issue, a survey conducted in 2016 showed that 61 percent of car buyers felt cheated during the transaction, and more than half felt uneasy or anxious when visiting a dealership. Car sales was also considered the most unethical and dishonest profession by the respondents of a 2012 Gallup poll.
In 2021, we saw a big boost in online sales due to the COVID-19 pandemic, as traditional dealers offered home delivery options for customers who didn’t want to go to showrooms. Some car makers have also gone online.
Tesla, for instance, moved to online-only sales in 2019, avoiding dealerships and using showrooms that it owns, with staff who are paid salaries and not commissions. Another example is Rivian, a new EV maker that started its business with no dealerships as well.
Such a move does involve smart tactics to avoid state laws. For Tesla, which is based in Texas and cannot sell directly to customers there, it has to send cars made in Austin to other states before bringing them back for delivery to Texans. The company is also opening showrooms on Native American lands, where state laws don’t apply, as a way to get around this.
The partnership between Hyundai and Amazon is a hopeful sign for customers who don’t like the traditional dealership experience. But the best long-term solution would be for states to scrap the franchise dealership laws and let people choose how they want to buy a car.