Last month, we analyzed the Amazon generation (see the article at https://www.futurewealthllc.com/the-amazon-generation/).
Since then, Amazon stepped into another area that could bring the end to the brick and mortar auto dealer shops. Last week, Amazon announced Amazon Vehicles. While the initial step is to offer car research similar to those found in Edmunds.com and other car sites, it is clear that Amazon has bigger plans.
When was the last time you looked forward to going into an auto dealership? The experience is universally miserable. Most are filled with dorky inflatable gorillas or helium balloons resembling a pony ride station rather than a serious shopping experience. One obvious move for Amazon is to enter the car buying market allowing Amazon’s massive user base to purchase directly from dealers and manufacturers and have it delivered to their doorstep. Tesla has proved that direct sales model works and Amazon will likely take it to the next level. And dealers will have little choice but to play along with Amazon. While state laws will prevent Amazon from negotiating directly with the automobile manufacturers and bypassing auto dealers, Amazon could enable dealers to compete with each other online and Amazon’s user base will benefit in the process.
Here is how Amazon could change the car buying experience. Amazon allows dealers battle it out to offer a compelling price to the user online at its website. The user places the order. Amazon provides the financing and paperwork and orders for the car to be delivered to the buyers doorstep. The key exchange is made and the shopping is over. If this scenario plays out, dealers will no longer need to have automobiles sitting in their showroom parking lots. More than likely, they will have move out of their expensive showrooms from cities and townships to low cost warehouses in the middle of nowhere to reduce their overheads and still be in business.
And then, we can add the disappearance of brick and mortar auto dealerships to the growing list of Amazon’s victims and we will never have to wonder how many days old are the coffee and pastries found in every auto dealership.
Future Wealth’s View
Companies like Amazon are disruptive companies and traditional methods of valuations i.e. price to earnings (P/E) etc. are meaningless. Instead, at Future Wealth, we look at the intrinsic value of companies in making investments for our clients.
Call or email us to find out more about our valuation approach to disruptive companies.
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