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Strategy People are obsessed with buying cars through Costco instead of on their own at a dealership — here's the verdict (COST)

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The Costco Auto Program makes a lot of the hardest parts of buying a car, like research and negotiation, easier.

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(Ted S. Warren / AP)

  • The Costco Auto Program allows Costco members to buy discounted cars through participating dealerships.
  • The program makes a lot of the hardest parts of buying a car, like research and negotiation, easier.
  • It also limits the customer's choices in some areas.


Shopping for a car can be an overwhelming process.

If, say, you know you're looking for an SUV, you have to determine the brand, model, and model year you'd like, as well as the dealership you want to use, whether you'd like to buy new or used, and whether you want to buy or lease. Where do you start your research? Which sources can you trust? What's a reasonable price for a given model?

The Costco Auto Program attempts to eliminate some of that uncertainty. In the past five years, over 1,000,000 Costco members have purchased a vehicle through the program, which allows members to research and compare vehicles, calculate monthly payments, and get a discount at participating dealerships through the program's website or call center. While the size of the discount varies based on the vehicle's class, brand, and model, a Costco Auto Program spokesperson told Business Insider that the average discount is over $1,000 off a vehicle's average transaction price.

And since the program uses the same customers as Costco's retail operation, it has plenty of reasons to vet dealers and salespeople so their customers don't end up feeling like they were tricked — and putting the blame on Costco.

"We're not just providing leads to dealers. We're creating a referral," Costco Auto Program senior executive Rick Borg told Business Insider.

Here's how using the Costco Auto Program is different than the average car shopping process:

1. You have to be a Costco member

1. You have to be a Costco member play

1. You have to be a Costco member

(Damian Dovarganes/AP)

This may sound obvious, but while non-members can use some of the Auto Program's research tools, you need to be a Costco member to be eligible for the discounted price.



2. Multiple strands of research are condensed into one place

2. Multiple strands of research are condensed into one place play

2. Multiple strands of research are condensed into one place

(Costco Auto Program)

One of the most difficult parts of car shopping is figuring out where to start and end your research, especially if you don't read car news and reviews for fun.

The Costco Auto Program brings reviews, safety ratings, a financial calculator, and vehicle comparison tool under one roof. While it never hurts to compare research from multiple sources, the Costco Auto Program's website gives customers a good place to start.



3. Your choice of dealerships and salespeople is limited

3. Your choice of dealerships and salespeople is limited play

3. Your choice of dealerships and salespeople is limited

(Carlos Osorio / AP)

According to Borg, Costco works with one dealership per brand in a defined geographic area around a given Costco warehouse. And at each participating dealership, only a handful of salespeople are authorized to work with customers shopping through the Auto Program.

Borg said Costco picks dealerships based on their prices, customer satisfaction index (CSI) scores, and reputations on social media. And authorized salespeople are also evaluated based on their CSI scores and must work at their dealership for at least six months before being eligible for the program.

But the limited number of dealerships and salespeople makes things a little more difficult for customers who don't end up satisfied with the first dealership Costco recommends to them. While Borg said Costco can point customers to other participating dealerships if they don't like the first one they're sent to, they may not be geographically convenient.



4. Costco has already negotiated the price

4. Costco has already negotiated the price play

4. Costco has already negotiated the price

(YouTube / Costco Auto Program)

Negotiating the price on your car can be an intimidating process. The dealership has much of the information — inventory, the dealership or salesperson's proximity to their quarterly goals, the average discount customers receive — you need to negotiate the lowest possible price.

Borg said Costco takes a holistic approach when negotiating prices with their participating dealerships, looking at national and local prices for given models, as well as the prices customers can find through other discount programs to determine the discount its members should receive. And since it has a large membership base it can funnel to selected dealers, it has more leverage than any individual shopper.



5. You have a multi-billion dollar corporation behind you that can resolve disputes

5. You have a multi-billion dollar corporation behind you that can resolve disputes play

5. You have a multi-billion dollar corporation behind you that can resolve disputes

(M. Spencer Green / AP)

If Costco's incredibly generous return policy is any indication, it will bend over backward to retain its members. Since buying a car is a much bigger investment than the average grocery shopping trip, the company doesn't wants its members associate Costco with a $40,000 purchase they regret.

While Borg said the company is "fairly selective" about which dealers it works with, it also provides customer support before and after a purchase. If a customer, for example, finds a scratch on her car immediately after buying it and it falls outside of her warranty, Costco can at least serve as a mediator between the customer and dealership.

"Are we going to advocate for members? Absolutely," Borg said. "Should a dealership have concerns as to whether they are responsible [for cosmetic damage] or the customer, we're certainly going to step in and have a conversation with the dealer and ask them to do the right thing."



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