Auto industry ponders impact of Hyundai's link-up with Amazon

LOS ANGELES — In a move to take online vehicle shopping to a new level, Hyundai and Amazon will partner on a digital storefront to sell the automaker's vehicles to consumers in the U.S.

Hyundai will be the first auto manufacturer to use Amazon's digital retailing tool to conduct a full end-to-end transaction. Buyers will be able to tap Amazon's digital shopping platform to select and finance a vehicle. The sales will be channeled through local dealerships.

"We learned through the pandemic how consumers were expecting to have a similar experience when buying a car or when they buy something else online," Jose Muñoz, Hyundai Motor North America CEO, told Automotive News during the Los Angeles Auto Show this week.

"Amazon was also looking into the car sales as one of the future opportunities, and I think we saw a win-win solution," Muñoz said.

The announcement immediately raised questions among some retailers and industry investors. Lithia,  largest auto retail dealership group in the U.S., saw its stock fall 5.1 percent in response this week. The stock price for No. 2 auto group AutoNation slid 6 percent. Online auto sales referral service TrueCar's stock dropped 7 percent.

The digital retail giant is starting with the Hyundai brand, Amazon executives told Automotive News, but they expect to partner with other automakers.

Marty Mallick, Amazon's vice president of worldwide corporate business development, said the next step will be to expand within Hyundai Motor Group's portfolio — "ideally Genesis and Kia" — and then with other brands.

The National Automobile Dealers Association had no immediate comment.

"We know that many customers crave personalization and the ability to do much of the car-buying experience online. This is a natural reflection of that," said Jim Lyski, chief innovation and strategy officer for used-vehicle retail giant CarMax.

While Hyundai characterized the Amazon partnership as an additional channel for its retailers, business details, such as how purchases will be financed, remain unclear. Industry analysts immediately began looking into what the partnership might mean.

"Our sense is that [Amazon] intends to play the role of a third-party lead generator for Hyundai dealers, and will likely not be participating financially in the transaction but rather provide the digital experience and customer purchase flow infrastructure to enable the transaction," J.P. Morgan's automotive analysts wrote in a discussion of the plan.

"AMZN's monetization plan is not disclosed yet, though a per-unit transaction fee charged to dealers and/or OEMs is likely a reasonable base case scenario.

"While consumers will be shown financing and payment options at checkout, it is unclear if AMZN/Hyundai will be intermediating in the F&I monetization given the big ticket and less instant nature of auto retail financing, specially when trade-in/equity transfers are involved," the J.P. Morgan analysts wrote.

Hyundai and Amazon will begin testing the program with 18 dealerships starting in January. Amazon's employees in regions near participating stores will serve as the test market, a beta process Amazon calls "dogfooding."

"If it's good enough for you, then presumably you can have others try," Mallick told Automotive News.

Based on availability, the new vehicle will be delivered to the buyer or set for pickup at the local dealership.

Hyundai also will work with Amazon to bring Amazon Alexa Built-In functionality to its vehicles. Drivers will be able to tap into music, podcasts and audiobooks, set reminders, update to-do lists and check calendar items via the voice-activated platform.

Alexa also will provide traffic and weather information and control the navigation system.

And functionality will extend to Hyundai drivers with connected homes, allowing them to set the climate, lock doors or control lights.

Additionally, Hyundai will use Amazon Web Services for its computing, storage and database needs.

Muñoz said Hyundai wants to move from "in-house development to cloud-first technology and strategy."

"We don't see this as an online sales thing. We see it as a big strategic partnership that could grow in the future," Muñoz said.

The automaker said its dealers are on board.

Mike Sullivan, owner of Hyundai Santa Monica and the LAcarGuy dealership group in Southern California, called the arrangement "a breakthrough."

"We know we've got to meet our customers where they are, and much of that time that's on their phone or laptop," he said. "The breakthrough here is this is Amazon. We're now partnering with one of the world's leading digital retailers."

Peter Lanzavecchia, an officer in Burns-Kull Auto Group and owner of Genesis of Cherry Hill, Burns Hyundai and Burns Buick-GMC, all in Marlton, New Jersey, welcomed the partnership, but he said it must be profitable for dealers.

"Hyundai dealers are always looking for ways to improve the customer experience," he said, "and there has been a lack of meaningful innovation [in digital auto retailing] from our customers' viewpoint."

Profitability, he added, will remain a vital component of the "desirability of this partnership" as well as what other products will be offered to the customer during the purchase process.

The Amazon partnership opens a giant market for Hyundai. The platform has tens of millions of U.S. visitors daily, including its Prime members. Amazon said it's possible Prime members could receive a discount or other benefits with a Hyundai purchase, but that has not been determined.

Hyundai's U.S. Amazon "store" will showcase the retailers' inventory, easily connecting them with in-market buyers. Consumers also will be able to search local in-stock vehicles by preference, including model, trim color and features.

Dealers will set their vehicle price, but, like with everything else on Amazon, consumers lose the ability to haggle or negotiate once the price is listed.

However, Amazon executives said dealers can adjust their prices anytime they want.

Amazon did not provide details on how financing will work, but it said it will begin with Hyundai's captive finance company and look at adding other lenders later.

Trade-ins are another complexity.

Fan Jin, Amazon's director of vehicle sales, said the trade-in process is under discussion.

"We are working with dealer groups to figure out the right solution for trade-ins because everyone values trades differently depending on the area of the country. We're taking all those variables into account," she said.

"We're very focused to make sure that the relationship of Hyundai gets launched right, and then we go from there."