Why you’ll most likely buy your next Ford or Hyundai on Amazon

Amazon Autos is quietly becoming a mega car dealer. They just made a deal with Ford to become a certified pre-owned dealer of used Fords. According to a joint announcement from Amazon and Ford, approximately 160 to 180 Ford dealers are interested in participating in the program. Late last year, Hyundai became the first manufacturer to work directly with Amazon on new car sales. That program is already much more extensive: 71 percent of Hyundai’s sales volume is listed on Amazon Autos.

But you should ask yourself, Why? Why should I buy a car on Amazon? Why do Hyundai and Ford want me to do that? I asked these questions to officials from Ford and Hyundai, and also contacted a number of industry observers. Because of course we buy everything on Amazon. But paper towels don’t need oil changes. Neither does animal food. Cars are different, and so is the way we buy them. Or they were. Here’s what’s changing and why you can now trade in your used car and buy your next sled in between commercials while watching the NFL on Prime.

Amazon is the new car dealer

In 2022, Ford CEO Jim Farley told a conference that the future of car dealerships must be digital. At the time, he talked about how Target responded to Amazon’s sales:

“Target could have disappeared, but it didn’t. They moved to an e-commerce platform and then used their physical store to add groceries, making returns much easier than Amazon. They’re using their expertise as a brick-and-mortar retailer to their advantage.”

Today, Ford chooses Amazon over Target. But Ford is doing this for the same reasons Farley advocated at that June 2022 conference. Farley said Ford needs no-negotiation pricing, 100 percent online sales, no dealer inventory and 100 percent remote pickup and delivery options.

Buying a car in your underwear

Ford’s new deal with Amazon offers just some of these ingredients. Dealers still have stock. Amazon doesn’t want dealers to disappear. For starters, Amazon doesn’t want to be in the car maintenance business, nor does it want to stock cars; they already have enough logistical challenges.

Only one prize

Still, non-negotiable prices are the crucial key for both Amazon and dealers in the agreement. When I asked Ford officials about what they are offering, they were adamant that buyers on Amazon Autos would not allow negotiated prices. This makes sense; just like you don’t have to haggle over the price of diapers listed on Prime, you won’t haggle over one either used F-150 or a new one Tucson. The price is the price. But as you can see, there are more moving parts that Ford isn’t addressing in this deal, and that Hyundai hasn’t addressed yet either.

The psychology of trust

Thomas J. Thompson, chief economist at Havas Edge, a marketing and research firm, told me that part of the reason this is happening now has everything to do with trust. We trust Amazon as a broker for much of what we buy. And we do business with Amazon all the time. But most of us buy cars quite rarely, so the car-buying experience, even at the very best dealers, still feels quite foreign. In a sense, Thompson says, we are willing to trade off perceived bargaining power over sales price to avoid inconvenience.

“A fixed price eliminates the uncertainty that many buyers find stressful, and a trusted transaction flow reduces the hesitation that often accompanies big-ticket decisions. At a time when new and used car prices remain high, anything that reduces emotional friction tends to accelerate the willingness to buy.”

– Thomas J. Thompson, chief economist at Havas Edge

Like buying something else

If we lose wiggle room on the MSRP, a clear advantage is a storefront with a variety of models and brands, filtered by proximity to where you live and your chosen price range. And you don’t have to settle for what Amazon spits out. Even when the default interface showed me Toyotas and Hondas, I could add other brands, like Volkswagen and Audi, and they would then populate the search. However, my keyword search for ‘Bentley’ turned up nothing. Apparently Jeff Bezos hasn’t been able to lure them to the platform yet.

Money back guarantee and warranty levels

Ford’s deal with Amazon offers buyers some certainty that currently varies more between dealers. You get 14 days of ownership/1,000 miles of driving with a money back guarantee. Ford’s certified pre-owned vehicles come with variable warranties depending on their age and mileage. For example, what Ford calls Gold Certified gets a 172-point inspection and comes with a 12-month/12,000-mile warranty (whichever comes first). Blue certified cars may be older and the warranty is 90 days/4,000 miles (whichever comes first). Hyundai’s warranties on new cars sold through the partnership are identical to the manufacturer’s warranty.

Are test drives even important?

The biggest component buyers trade in is the experience of test driving a car before committing to several years of financial commitment. However, most buyers these days don’t test drive cars. Havas’ Thompson says a similar analogy is buying clothes online, which used to seem strange because you miss the chance to try it on. But that was then. “Digital trust reached a level where even complex, emotionally charged purchases could migrate online.” Thompson says dealers are clearly betting that, even if customers lose some control over the initial contact at the point of sale, they will interact more comfortably with Amazon.

Robbie DeGraff, who studies consumer behavior at AutoPacific, was much blunter. It should be noted that if car dealerships become just service points, where they make their money anyway, this is likely to be a better outcome for consumers and for the future survival of dealerships.

“The traditional franchise dealer model is broken and it is truly a terrible way to buy a car. But there are benefits that cannot be ignored, such as local and convenient support for maintenance and service.”

– Robbie DeGraff, Product and Consumer Insights at AutoPacific

One price feels fairer

Ford’s CEO said in 2022 that one of the reasons Ford wanted direct sales to consumers was distribution costs. For that reason alone, new automakers like Slate and Scout will bypass traditional dealerships. Tesla already does this in most states where they can get around franchise laws, and the same goes for Rivian. Thompson says if those “saved” inventory costs feel transparent to you as a customer, you’ll be more likely to trust the brand. And the brand then ensures greater customer loyalty.

The price is almost fixed anyway

Moreover, Thompson says that there is much less wiggle room on the price of a new car anyway. And the pain of buying from a dealer has far less benefit for both parties.

“If a consumer thinks they’re going to waste all day at a dealer… that doesn’t outweigh the (for example) $500, then they think they can be knocked out of the price. Brands like Tesla, Rivian, Scout and others are responding to a very clear signal that buyers want transparency, consistency and control.”

– Thomas J. Thompson, chief economist at Havas Edge

TopSpeed’s opinion

Thompson says dealers aren’t about to die because franchise laws work in their favor. So instead of protecting your local grocer or hardware store from online competition, we protect car dealers. So he says the dealer structure will remain, but pressures on the cost of stocking inventory on expensive real estate, and our general distaste for car dealerships, will leave these retailers with no choice but the Amazon model, and this is also why newly revived brands like Scout will go direct to consumer.

Or put more simply, we tend to dislike car dealers. However, we tend to like the carmakers themselves, and smart branding is forcing this change. And for older brands, getting rid of the ‘ick’ of the purchase is step one for Ford, Hyundai and likely many other brands in the future.

Source: FordHavas Edge, Auto Pacific