August 28, 2016 — Amazon.com surprised the automotive industry last week rolling out Amazon Vehicles, an extension of its Amazon automobiles portal. The question is, how does Amazon’s strategy affect automotive retail? The answer for now is, it doesn’t. But it will depending on what Amazon’s next move is.

The initiative is the first step of a strategy from Amazon that industry observers have speculated about for years — when would Amazon get into automotive retail?

A Research Site for Now

At the moment, Amazon Vehicles is merely a research site for car shoppers. The automotive site, which has existed for several years now, already has a vibrant parts and accessories business along with 35 million customers’ vehicles uploaded onto personal garage pages.

The vehicles site is a robust and impressive research site, though. It’s well-organized and comprehensive with just about every piece of information a shopper might want to know about the vehicle. The site also includes reviews of each vehicle along with forums for shoppers and owners to share information. It easily could become the first place shoppers go to in the car buying process.

But it is a dead end for consumers who find a vehicle they want. Amazon Vehicles does not provide a link or any means to connect with either dealers or manufacturers. Clearly, Amazon didn’t put together what possibly is the best vehicle research site because Jeff Bezos is a nice guy — they are going to want to monetize that traffic.

The question is how. Several theories have been presented over the last few days following Amazon’s announcement — and some of them consist of dire predictions for dealers or third party sites such as TrueCar.

New Car Sales? Not So Fast

Here’s what we do know. Despite its expertise in online transactions, Amazon’s future strategy — at least for several years — will not include selling new cars online unless it involves a partnership or solution for car dealers. State franchise laws prohibit entities such as Amazon from bypassing dealers and selling new vehicles directly to the consumer. That dynamic is not going to change for a long time. So dealers can probably take a deep breath here. Amazon is not going to take over the world of selling new cars.

Part of Amazon’s challenge is its own internal perspective of the automotive retail space — and that is one of the reasons the company has taken so long to even launch an automotive research site. Over the years we have heard a consistent message from people/companies that have discussed potential plays with Amazon — the online retail giant is wary of having its customer service reputation sullied by dealers.

Whatever move Amazon makes on the new car side, it will likely try to gain greater control over the entire sales process. If dealers aren’t willing to give up their control, Amazon will not get out of the starting gate — unless it’s willing to let dealers maintain control over the process.

A third challenge for Amazon is the complexity of automotive retail. Amazon’s director of its automotive category, Adam Goetsch, has about a year of experience in automotive — and that’s in the parts and accessories portion. Prior to taking over the automotive business, Goetsch ran Amazon’s home products and its lawn and garden categories.

Automotive retail isn’t a business where one can waltz in without experience and show everyone how it’s done. Even for “old pros,” this business can be challenging. AutoNation and Sonic Automotive have spent years developing their online transaction models — and they still have a ways to go. Another example is the GoogleAutos experiment from a few years ago which never got off the ground despite having some smart and experienced people driving it.

Furthermore, Amazon doesn’t have the infrastructure to make a big play in the automotive retail space. It requires a large sales and support infrastructure — a key dynamic that has kept some of the larger technology companies from getting into the industry.

Used Cars — Maybe

The pre-owned vehicle market, on the other hand, may be where Amazon can make some headway quickly. Much has been written about the Beepis, Vrooms and Carvanas of the world — but their long term success isn’t guaranteed. Fewer regulatory issues along with fewer state franchise laws to contend with make the pre-owned market more attractive.

But again, it will require a significant infrastructure to support any such moves into that space.

Could Amazon build that infrastructure through acquisition? Definitely. Since 1998, the company has made 38 different acquisitions, so it’s possible Amazon will make a purchase at some point.

What is the Ultimate Play?

We’re speculating, but it’s possible Amazon is looking at this as a data play. Subscribers have already uploaded 35 million vehicles into Amazon’s online garage. That is a lot of data for potential car shoppers. Add to that, every time a subscriber searches for a vehicle, or part, Amazon has that data — and it’s subscriber specific. Talk about a targeted advertising opportunity — both in sales and service.

Unlike the other players in the space which drive traffic to OEM and dealer websites — Autotrader, Cars.com, TrueCar or Edmunds, for example — Amazon has actual customer data. And it has traffic — nearly 90 plus million unique visitors each month in the U.S. with more than 300 million subscribers.

Investors are already seeing the potential threat to other companies. Immediately following Amazon’s announcement last Thursday, TrueCar’s stock price dropped about 10%.

Meanwhile, Autobytel, another company investors believe would be hurt by Amazon’s entrance into automotive retail, has seen its stock drop from $17.27 on Tuesday August 23 to under $15.90 yesterday — likely due to the announcement.

The other players, though, have years of experience building relationships with dealers automakers and shouldn’t be quickly discounted. As we mentioned earlier, this is a complicated industry — and Amazon’s success is no sure thing.

Regarding another tech giant, Despite Amazon’s size and resources, it hasn’t overtaken eBay Motors yet in parts and accessory sales. And eBay has beefed up its automotive team with the acquisition earlier this year of CarGigi. A bigger play in the automotive retail space is part of eBay’s future strategy.

No one really knows what Amazon’s future play will be — and Amazon itself might not yet know the direction it will take. We do know Bezos and his automotive team is meeting with various automakers and other industry players as they continue to map Amazon’s strategy. Many of these players would like to convince Amazon to do more (as long they are involved), and the company may yet do so.

Earlier this month, Amazon put its toe in the water and conducted a promotion with Hyundai over the course of two weekends in which Los Angeles-based subscribers to Amazon’s same day delivery service Prime Now were able to order 45 to 60 minute test drives online of the 2017 Elantra. As part of the promotion, which  was called “Prime Now. Drive Now,” a trained expert provided by marketing agency DriveShop delivered the vehicle to the location of choice for the shopper. If interested in purchasing, shoppers were directed to their local Hyundai dealer, once the test drive was completed.

For Hyundai, the promotion was a test to measure the level of customer interest in a valet-like service and remote test drives. For Amazon, it likely was educational play also, possibly evaluating a potential partner along with testing subscriber interest in various offers.

Amazon’s move into automotive retail will be an evolving strategy. Whatever the play is, Amazon’s timing is probably right as the industry is on the cusp of seismic changes that are projected to occur over the next decade.