No, Hyundai and Amazon Aren't Killing Car Dealerships

Tesla proved to everybody that you don't need middlemen to sell cars. All-electric startups like Rivian or Lucid followed suit. The direct sales model became important quickly. As Tesla rose to become the world's most valuable auto manufacturer, other brands noticed that a simple buying process that mostly happened online was something more and more customers preferred.

But for legacy auto brands, giving up on dealerships is nearly impossible. Ford attempted to but quickly realized that it wouldn't work out in its favor. It still wants to sell cars online but won't do it without its partners.

Dealers help most automakers optimize their business. These middlemen buy cars from the manufacturer and take most of the risks associated with finding a customer. Various agreements may include provisions that force dealerships to acquire cars they might not want to spend money on.

A good example in this regard is the BMW 6 Series GT. Although it is a more affordable 7 Series, few people are willing to buy one because of its odd shape. Resellers don't want these cars occupying a slot on their sales floor for too long because it will incur losses. But it's all part of the carmaker-dealership relationship.

One courageous step forward

So, why is Hyundai partnering with Amazon all of a sudden?

Well, first things first, the two brands have worked together before. Seven years ago, the South Korean auto brand and the American e-commerce giant partnered up for online test drive bookings. Those who took advantage of the offer were able to drive their car of choice for up to one hour. If they liked it, the next step took them from Amazon to the dealership.

That's more or less what's happening now. Prospective Hyundai buyers will be able to go to Amazon, choose the new car they like, press "add to cart," and then continue with the payment details. But they're not buying directly from Hyundai.

The automaker invited dealerships to join this new venture. It's not forcing anyone to partake if they don't want to. The participating middlemen choose what vehicles they want to sell on Amazon. They also establish and take care of the shipping process, according to what the incoming chairman of Hyundai's National Dealer Council, Andrew Wright, said on an episode of the CDG podcast.

Wright explained that dealers selling Hyundais on Amazon have a minimum advertised price they need to stick to. That figure is usually negotiable at the dealership, but the customer buying through Amazon won't have that opportunity. They should get the lowest possible price, though.

For dealers, that's important because it helps them keep their profit margins intact. Some might even be incentivized to participate in this project because it could help them avoid giving discounts to secure a sale.

Wright also underlined that selling new cars through Amazon comes with some downsides. There's no way to discuss a trade-in, for example. If customers want to finance, that'll only be possible through Hyundai. Normally, dealers have financial partners that help them speed up the process. However, that convenience is usually detrimental to the customers' interests because they could end up with a higher interest rate.

Seeing the silver lining

Still, for some customers who don't have the best credit score, financing through the dealership might get them a new car, whereas securing a loan by themselves might have resulted in nothing. Given today's economic outlook, either option is complicated. Many small banks and credit unions have exited or restricted their car loan business.

Thus, Amazon won't do to dealerships what it did to small booksellers. It's just helping Hyundai out while also securing some more revenue for itself. It's a win-win for everyone except for the salesperson who might not be able to gain a commission for themselves any longer and the customer who is not getting any extra discounts any longer.

While the move to buy cars via Amazon is smart, it doesn't come close to what the likes of Tesla, Rivian, and Lucid offer. Hyundai shoppers can get a new car more easily, but they still have to discuss it with a dealership.

What's clear is that legacy automakers noticed what the newcomers are doing right and want to follow suit. But instead of establishing a separate entity that can take care of online sales and home or service center deliveries, they prefer to make everyone happy. Hyundai is compromising because consumers are changing their car shopping behavior.

But maybe that's for the best. Not everyone is willing to deal with an app for service appointments or to have someone come to their house for a repair. Some people like knowing their mechanic and having someone to pick up the phone to offer real, non-scripted answers.