Amazon.com Just Took a Big Step Toward Disrupting Car Dealers

By Markets Fool.com

In a move that should give car dealers nightmares, Amazon.com (NASDAQ: AMZN) will soon begin selling new cars online at a discount.

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There are a few big catches, of course. For now, the only cars offered are three Fiat models, and they'll only be offered to Amazon customers in Italy. But it's another step toward what many believe to be Amazon's goal: to shake up the way we buy new cars.

How this will work: buying a Fiat on Amazon at a discount

Here's what we know: Fiat Chrysler Automobiles (NYSE: FCAU) said this past week that it has teamed up with Amazon to offer three Fiat models via the giant shopping site. Buyers in Italy will be able to log on to Amazon and purchase a Fiat Panda, 500, or 500L at a discounted price.

There's no "buy it now" button for the Fiat 500 on Amazon's U.S. site -- yet. But buyers in Italy will soon have that choice. Image source: Amazon.com.

How much of a discount? It's not clear. But FCA's sales chief for Italy, Gianluca Italia, told reporters on Friday that existing promotions will be improved by up to 33% for online customers, according to a Reuters report.

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Traditional dealers will still be involved in the process. After buyers select the vehicle they want on Amazon's site and commit to the purchase, they'll be contacted by Amazon and asked to choose a dealer with which to finalize their purchase and pick up the car. Italia said the vehicles should be ready for pickup within two weeks.

Amazon may be gearing up to disrupt car-buying

Amazon raised eyebrows throughout the auto industry when it launched its Amazon Vehicles portal this past summer. For now, in the U.S. at least, Amazon Vehicles is just an informational tool, offering images, specifications, and customer reviews of thousands of new and classic vehicles.

Right now, the U.S. Amazon Vehicles portal is just a research and review site. That seems likely to change. Image source: Amazon.com.

It was immediately clear that Amazon had a larger vision for its new portal. State laws protecting franchised new-car dealers in the U.S. make it unlikely that Amazon will be able to sell cars directly to customers any time soon. But there are other ways for Amazon to profitably insert itself into the car-buying process and offer value to its customers.

One possibility is that Amazon could offer a service similar to that provided by TrueCar (NASDAQ: TRUE). TrueCar's site connects car-shoppers with dealers that have agreed to offer a no-haggle price. If the customer buys the car, the dealer pays a referral fee to TrueCar.

The referral fees paid to TrueCar averaged $319 per sale in the third quarter. With Amazon's scale and reach, that quickly could add up to a significant new revenue stream. Amazon's scale and reach would also make it an instant contender: While TrueCar has struggled to sign up dealers, Amazon could offer dealers a blunt choice: Sign up -- or be left out.

Good news for consumers, not so good for dealers

I said back in September that if Amazon decided to muscle in on TrueCar's turf, Amazon's dominant market presence would probably make it a short battle. That's not good news for TrueCar -- and it's not good news for car-dealers, either.

Dealers have been able to live with TrueCar because they're still making a decent profit on the sales -- and on any service work they might do for those customers down the road. TrueCar doesn't pressure the dealers to cut prices, and the dealers see the fees they pay to TrueCar as reasonable ones.

But Amazon will want to offer its customers the very best deals possible. It could, and very well might, push dealers to lower their prices to bare-bones levels. If Amazon were able to dominate retail vehicle sales in the U.S., that pressure would make life tough for all but the largest dealers.

On the other hand, if Amazon were able to offer a genuine good deal along with the ease and familiarity of using its site to select and buy a new car at a no-haggle price, that would be a huge boon for consumers. That's essentially what it will be offering in Italy. It will have to take a somewhat different form in the U.S., but I suspect it will be here before long.

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John Rosevear owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool recommends TrueCar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.