Despite a massive switch from big box retailers to online shopping, car sales are still done the old fashioned way, via a network of franchised dealerships, typically selling a single manufacturer’s lineup of cars.
Tesla does sell its own cars directly, but some states do no permit such sales. Now Amazon is entering the fray. Instead of buying from a dealership, or from the manufacturer, customers can directly buy three different Fiat Chrysler models right over the internet.
Initially, this is available only in Italy, but the practice is sure to spread.
Please consider Fiat Chrysler Teams Up With Amazon to Sell Cars Online Via Amazon.
As reported by Gizmodo, Amazon is getting closer and closer to that 1-click car buying future we’ve all wanted.
Fiat Chrysler announced today that it will be be partnering with the shopping giant sell cars online at discount.
Before you get too excited, it’s important to know that this will only be offered to buyers in Italy (for now), and it will be limited to three models, the Panda, the 500, and the 500L.
A new Reuters report explains how it will work: “So, after making their clicks online, buyers will be contacted by Amazon to decide on a dealer where they can finalize their purchase and pick up the car. The vehicle should be ready within two weeks of the initial click.”
Still, this is great news for individuals who would prefer to buy a car online in order to avoid the hassle of haggling and bargaining. You do still have to go to the dealer to pick it up, but that’s an improvement over the current car buying process which can be tedious and full of upsells. After all, you do your car research online, you might as well buy it online too.
So will this sort of thing come to the US? It’s certainly possible. One of the hurdles facing online car purchases Jalopnik pointed out back in August had to do with dealer franchise laws that allow only authorized dealers to sell automobiles. In Italy, it looks like sales and pickup will still ultimately be with the dealer – Amazon is just your shopping and payment middleman – so it’s possible Amazon could do something similar stateside.
Tesla Files Federal Suit Against Manufacturers
Tesla does direct selling of cars, but many states have laws that require consumers to purchase form a dealer.
On September 22, Bloomberg reported Tesla Cranks Up Pressure to End Ban on Direct Auto Sales.
Tesla Motors Inc. is cranking up the pressure to sell electric cars directly to customers, filing its first federal lawsuit over the practice on the home turf of General Motors and Ford. Tesla sued the state of Michigan to overturn its ban on direct sales by auto manufacturers.
Until now, Tesla has been challenging prohibitions of its sales model on a state-by-state basis. A federal court ruling over the constitutionality of the ban would have national implications as the company races to bring the Model 3, it’s more affordable electric sedan, to market late next year.
“States can regulate business but can they do what they appear to be doing here, keeping Tesla out?” asked Carl Tobias, a professor of constitutional law at the University of Richmond. “It’s not a frivolous claim. They have a strong argument, but it depends on the judge and what they can prove.”
Tesla says it’s been stymied by the grip of automakers and dealers on the legislature in Michigan, which along with Texas, Connecticut and Utah are the only states where it has so far been unable to get a license to sell directly to consumers. The Palo Alto, California-based maker of electric cars and energy storage devices currently operates stores in 23 states and the District of Columbia, as well as in 20 other countries.
“Solving this legislatively always has been and continues to be Tesla’s preferred option,” the company said in a statement Thursday. “Unfortunately, the local auto dealers and local manufacturers have made clear that they oppose any law that would allow Tesla to operate in Michigan.
Self-Serving Manufacturer Propaganda
USA Today reports Auto Dealers Chief Warns of Tesla Direct Sales Model.
“Tesla’s sales model of selling cars directly to consumers would eventually lead to higher prices if the electric carmaker is allowed to move forward in Michigan, the chairman of the National Automobile Dealers Association says.”
What a hoot. If direct selling led to higher prices, consumers would buy from dealers.
End of Car Dealerships?
Having something like 18,000 car dealer middleman cannot do anything but jack up car prices.
Tesla will eventually get its way in the US, as will Amazon. Consumers, who do not like haggling with dealerships, will ultimately force the decision.
Spotlight on Distribution
I discussed car dealerships in Inventory to Sales Ratios: What’s Really Going On?
The distribution mechanism and the way autos are purchased has not changed in decades.
- Manufacturers ship autos to dealers.
- People buy autos from dealers.
- Dealers hold acres of cars.
The auto inventory-to-sales ratio is the least volatile in the group simply because the auto business has not changed. The number of auto dealers has not skyrocketed like the number of Wal-Mart stores. The number of US auto manufacturers changes very little over very lengthy periods of time.
Auto Inventory-to-Sales
Dramatic Changes Coming Up
Routine buying of cars online is ultimately a sure thing even if dealerships survive primarily as a customer service and maintenance setup.
On October 19, Tesla announced All Tesla Cars Being Produced Now Have Full Self-Driving Hardware.
We are excited to announce that, as of today, all Tesla vehicles produced in our factory – including Model 3 – will have the hardware needed for full self-driving capability at a safety level substantially greater than that of a human driver. Eight surround cameras provide 360 degree visibility around the car at up to 250 meters of range. Twelve updated ultrasonic sensors complement this vision, allowing for detection of both hard and soft objects at nearly twice the distance of the prior system. A forward-facing radar with enhanced processing provides additional data about the world on a redundant wavelength, capable of seeing through heavy rain, fog, dust and even the car ahead.
Auto Trends: Self-driving, Online Purchased
Not every car will be purchased online, but within a decade they will all have self-driving capability.
Car insurance will undergo dramatic changes as well.
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Mike “Mish” Shedlock
Free shipping for Prime members?
Cars delivered by drone?
They’ll drive themselves to your door.
I feel like I’ve already bought my last car. Can’t wait to be shuttled in near-perfect safety, have all that free time and not have to pay for maintenance or insurance.
Deflationary?
Commoditising the sales channel.
Fewer people to build them, fewer to sell them.
Won’t even need to drive them soon.
Have to ask where this is going for Amazon, what is the big plan?
Amazon ride hailing? What?
Bezos is one covered man, there must be a plan.
All inc. to your door and ready to roll. Brings buying autos to the level of buying anything else.
Free returns with Prime???
Cars that drive themselves won’t need insurance.
Sarcasm right?
I think customisation will be offered as an adder. Not just colour. Many features to differentiate. The channels will commoditise but the product offer more personalisation options.
Manufacturing processes will change to. More customisation off the same production line equals need to product track more accurately through process. There’s money to be made there.
Manufacturers will want maximum flexibility off the fewest and shortest possible lines.
Clever production software and location tracking needed from start-finish of the vehicle.
Curiously, at least in Massachusetts, there are a certain number of auto dealerships that have gone over to the model of offering a low but non-negotiable price. They do quite nicely with people who are not interested in haggling.
“low but non-negotiable”
…until you walk in with a check written for 5 percent below ask.
Don’t be silly.
Until self-driving cars become a reality (and that is still several years off) I can’t imagine anyone buying a car without first trying it.
I’ve done it. Bought online, then a phone call, no dealership, delivered to the door. This was back in 2005 and didn’t drive that type of car previously or test drive it. Was an import. No regrets.
Interesting. I don’t drive myself, so I’m not the best judge, but I find it really provoking that someone would make such a large purchase from catalog. Could you return it?
A lot of different attitudes around to vehicles. Think rentals, lease, company car etc. . Buying for the feel of the vehicle is ( or only needs to be) a small part, you get used to whatever you drive, as important is reputation ( build, reliability etc.) for which there are fair online reviews ( for feel also). Nowadays people many times don’t see the actual vehicle until after they have paid as they are often built to order.
No – my responsibility but saved about 23% from memory and it was perfect, full warranty etc.
eBay is a better model.
“General Motors reported the best profit margin in its 107-year history in 2015, just six years after the company was saved by a federal bailout… Last year, GM reported net income of $9.7 billion, more than tripling its 2014 results. The company’s profit margin reached 7.1%, up from 4.2%. GM also reaffirmed its forecast that results will continue to improve this year.”
Seven percent profit margin on a $30,000 purchase is $2100. Would they say no to a $1000 profit? Never. In theory they would accept $1 profit, in practicality they’d settle for a few hundred.
One click, and the car delivers/drives itself to your home!
Craaaazy.
Wait til you see the drone that delivers it… It’ll blow the shingles off your house.
Couldn’t happen soon enough for me. I hate nothing more than haggling: reminds me of third world rituals. And the feeling that I might have been screwed. The only request would be: please do not use Amazon, hate it more than haggling.
But, but, but… what if I want to order mine special with Corinthian Leather?
Corinthian leather being non-existent….
You might get a kick out of this, then:
http://arstechnica.com/cars/2015/05/bill-to-allow-tesla-to-sell-cars-in-texas-dies-in-committee/
Keep up the good work Mish.
Apropos of nothing, Hillary Clinton will NEVER be president of the United States.
You’re welcome.
What kind of real man wants a self driving car? I like a big V8, rear wheel drive, 4 on the floor, massive horsepower, gas guzzling and carbon-spewing. My greatest joy would be to lay rubber through San Francisco.
May the Trumpster repeal Tesla’s tax credits and outlaw ethanol.
Who does the warranty work?
An auto repair shop.
Arizona, I’m sorry to say, is one of the states that doesn’t allow
Tesla to sell cars except through dealerships (if there are any that sell Teslas). Not that I’d buy one, but people should be able to choose.
Car sales online are done now and so nothing new here, and yes, a self-driving car can deliver itself within say ~100mi, but not from the out-of-state or a German or Japanese factory. As Prof. L’nL said: “Who does the warranty work?” For that matter, where will any maintenance and repairs get done? Sure there’s some SW updates via the internet. Hacking an auto is another topic for another day. Think ISIS and IoT. An auto is still an electro-mechanical system and will need physical work done on it in a brick and mortar shop. I don’t see the amazon.com value proposition here. There must be some infrastructure to support this and the supply chain. Also note that I personally would never buy a used car sight unseen. How does that work? Are there no used cars in the future? Until self-driving cars become available, a real person will have to deliver your car. I can’t imagine a drone big enough to land in a residential neighborhood without clipping some trees (or pedestrians). I’m not a car dealer, or in any way assoc. with the industry, but there are some issues to work out here. Good luck with that Jeff. The amazon business model already has me scratching my head on profitability. So far this new idea would, I think, be rejected on “Shark Tank”.
Just think, a driverless car can be given your GPS at the factory and sent on its way. It will end up in your driveway. How bout that America?
I recently was looking a transporter online and was impressed by the program (flash view?) that one could customize the vehicle according to ones needs and look the result in 3D images. So why not? I have nothing against avoiding not wasting time going around.
What bugs me is that in our country – part of free trade EU (Hah!) – we can’t freely buy cars from Germany or Sweden where they would be around half of the prize compared here. Our state has decided in their wisdom to tax the imported cars taking the value from supposed similar prize here. It’s been in courts for years and nothing still has changed.
EU – free trade. My ass!
Same applies to alcohol. They allow only a certain amount bought for personal use. Not that would bother me since I drink very rarely but the principle is that when we joined all kind of promises were made and later denied ever been made.
I bought French car, imported to UK, 2005. No big tariff, nothing. Saved about 23%, was registered to a UK dealer that didn’t touch it and delivered to the door. Not sure it still works like that now but at the time was a no-brainer for a run-around car for work.
It was customised too. Paintwork and interior options. Took 6 weeks start-finish and had no reason to complain.
Once driverless cars roll out in numbers, there will be no need to own a car. Just get on your cellphone, schedule a car at your door at whatever time you need it and voila!, step out your door and your ride is there, all warmed up with your favorite music playing.
Driverless cars are going to kill dealerships, car service (will be done by fleet maintenance like airplanes) and car insurance. How about registration fees for states? Buh-bye.
No matter how nice and convenient hotel rooms and reservations get, it’s still nice to have a place you don’t have to clean all your stuff out of every time you walk out the door.
Lots of car use scenarios will be better served by ever improved ride-for-hire schemes, but for people who need a car regularly, often and overwhelmingly in the same area, having your own will remain desirable.
That is a good point I have not heard of in the past. It will be interesting to see how owning and maintaining YOUR OWN driverless car would work.
Of course, other than being very wealthy where it does not matter, would it make financial sense to own a car(s) yourself just because it makes it easier to leave stuff in it? I don’t think this is going to be so.
Something everyone forgets about is what about the trade? I recently retired after many years in car sales and the trade is always the issue. With the special pricing programs many people are eligible for, many pay under invoice anyway. Some other issues will be service and repair. For many customers the salesman is the key to understanding the car’s features. I still handle questions from my previous customers. By the way, before I retired I was the Internet Sales Manager and did sell cars to people I only met when they came in to pick up the car. After that, they just called or emailed for future purchases. Finally, everyone looks at car buying as a logical thing. Cars are an emotional purchase but no one admits it!
Amazon (and others), solved the “information” issue a long time ago. The information you get from a printed description, in combination with comments and reviews, in general adds up to better quality than what you get from any given salesman.
“Trade Pricing” is an activity that is orthogonal to car sales. Dealers often (not always) like to obfuscate this, along with everything else related to the deal, by tying everything into a hairball. This makes it easier for them to cover up hidden markups. But the consumer never gains by this, unless the dealer is so confused he’s unwittingly losing money.
Servicing is certainly an activity orthogonal to sales.
In reality, some people will prefer Amazon, some vertically integrated, full service, dealers. It’s not like one model is “good” and the other “evil.” Just different. The great tragedy of no longer living in a free country, is that only one of the models is available. Not because there are noone who would want it, but simply because the guys with the best insider connections, are allowed to restrict people to the model that provides max benefits to themselves. Not others.
It strikes me, too, that sooner or later the Amazon model will reach the point of diminishing returns, if it hasn’t already. Not everything is ideally suited to online retailing.
The problem with buying a car online is that you don’t get to test drive the model of interest. My legs are long and my wife’s back can end up hurting from some of the seat designs. We need to at least sit in the car of interest to see “how it fits”. In the day, I could not fit comfortably into a Rabbit. My Geo Prism seats hurt my wife’s back on long trips. The visibility in some models is not good. The Prism’s 1.6L engine was a dog while the 1.8L made me feel like a teenager again. To me, the test drive to me is very very important. I will **not** buy a car online until I can test drive it?
Also, buying online or through a shopping service cuts out the sales guy or gal who went with you to explain the car (and to make sure your test drive did not last 10 years). They get cut out of the loop. How should that be addressed??? Tesla does this by appointment which is very reasonable to me.
If a retail store provides a product that I can see, touch, work or have someone who knows the product explain things to me, I’m not the type to go online to buy it cheaper. If everyone did that, the store would eventually close and the sales person would eventually be out of a job or be disincentivized to try to learn the products.
Until the issues of buying online versus value added at a dealer, brick and mortar, or main street shop are addressed, it is one more nail in the coffin of customer service.
I purchased 2 new cars in 2016 at a dealership and it was pretty simple. I test drove the cars, spent a few minutes negotiating a final price, wrote a check, signed some papers and that was it. It took maybe 2 hours for each purchase. I got email quotes before hand, so I had a general idea of what I would pay.
The predictors of the demise of auto dealerships inevitably don’t understand the industryt very well. I worked for a top Japanese auto mfr, then for the leading automotive internet provider in the late 90’s. Lots of “smart” Silicon Valley’ers proclaimed that the auto distribution channel was a mess and they’d show the yokels how it’s done, and “disintermediate” them out of business. 20 years later, that still hasn’t happened.
As a couple of commenters here pointed out, one key variable is the trade-in. THAT is where the margin is — Anyone reasonably sharp won’t pay above invoice on a new car, unless it is in short supply (the dealer margin is simply in the “holdback” and any finance income). Used Cars, and Service is where the profit is at!
$1,000 margin on $25,000 New car = 4%
$2,000 margin on $10,000 Used Car = 20% !
Most people do not like haggling with dealers over price
It will change
Inevitable
People don’t like bidding on a house either. However they know not to pay the ask in a down market.
For money > $1000, the market has gone opposite your position.
Airline ticket price used to be fixed or very slow moving . Internet has allowed them to become variable and volatile. Also cruise ships. Also hotel stays. Also event tickets.
Amazon exists but so do eBay, Craigs list, Stub Hub and a collections of gimmicky pay-per-bid auction sites.
Craigslist users post well over 80 million classified ads each month. I’ve never posted anything on Craigslist and not had someone low ball on the first day.
“Craigslist users post well over 80 million classified ads each month. I’ve never posted anything on Craigslist and not had someone low ball on the first day.”
That’s because you probably haven’t accurately priced your products on Craigslist, stipulated “firm price/no negotiating” in the ad and communicated via email only. I’ve never had someone try to haggle with me when the transaction is managed in this manner.