The impact of Amazon buying Whole Foods on other food retailers such as Kroger, Walmart, Costco etc. has been dissected ad nauseam in news over the past week. But, this deal has stirred up secondary effects on other companies. Walmart is now telling its vendors that if they want its business, they can’t run applications for the retailer on Amazon’s cloud computing service – Amazon Web Services. Microsoft, which has its own cloud computing platform – Azure is benefiting from a slew of customers switching over to stay in Walmart’s good books. The irony is that, not too long ago, companies were shifting away from Microsoft to other software and operating systems because of the stranglehold it had on the PC market.
Another effect of Amazon’s deal would be on the US automobile industry, which could suffer if consumers stop driving to the grocery store. Going to the grocery store is like going to the gas station. Its a trip that no one looks forward to but does it anyway. Trips to the grocery store are second only to physically transporting oneself to school or work. Moving large grocery bags regularly had necessitated the need for car ownership. Take away the 1.5 trips that the average American makes to the grocery store, the case for car ownership is not as compelling. Couple this with popularity of ride-sharing, drop in rental car demand, shift toward electric cars and self driving cars – the outlook for the automobile industry, which spends billions on rolling out new gasoline models every year to spark an upgrade cycle, looks pretty bleak.
Future Wealth’s View
The automobile industry is clearly going through a massive transformation. The auto giants i.e. Ford, GM, Honda etc. have to contend with, not only new technology – electric cars, self driving cars etc., but also new players – Tesla, Apple, Google, Uber, Samsung, Amazon etc. who are now threatening to disrupt the old business model that has served the companies well over the past century.
By far, the biggest impact for auto companies will be from less usage of the car by the average consumer. If consumers keep their cars for longer periods of time, drive less to work and the grocery store, put in well below the average 12,000 miles per year – replacement demand will eventually taper off to lower levels. Already auto dealerships are disappearing nationwide and Amazon’s grocery delivery service from local Whole Food stores, when it begins, will decimate, not just the remaining dealerships but the demand for automobiles themselves. We will have to then contend with UPS trucks driving around our neighborhoods at all times of the day delivering packages and fresh food from Amazon.
It maybe time for the auto industry to pivot toward building self driving electric delivery trucks instead of new models of gasoline cars. If that were to happen, the Detroit Auto Show attendance will likely drop off as it will be UPS truck drivers in brown uniforms, instead of scantily clad models, introducing the next new sizzling, ground breaking self driving electric trucks.