For most people, shopping at wholesale warehouse giant Costco usually means stocking up on groceries in bulk and receiving discounted prices on big-ticket items such as large LCD televisions. What most people don’t associate Costco with is it being a place to buy their new vehicle. It hence comes as a big surprise to most that since 2008 Costco has emerged to become a leading car seller in the U.S. Auto sales negotiated through Costco have almost doubled in the 2008-2014 period, with number of vehicles sold increasing from 199,000 in 2008 to 398,000 in 2014.

The bigger surprise lies in the fact that Costco doesn't earn revenues off the vehicle sales it arranges, as the final sale of vehicles are conducted directly with the dealer. Costco simply arranges the deal between the dealer and the buyer and hence takes away the painstaking process of negotiation involved when one purchases a car from a dealer. Dealers, in turn, pay Costco a modest monthly marketing fee to operate the program. Costco’s prime motivation for entering the auto sales market is building a new channel to get more people to sign up for its membership, a step that translates into higher recurring revenues for the company in the future.

Costco’s Auto Sales Are Boosting As Consumers Are Looking For Easier, Cheaper Ways To Buy Cars

Costco’s bargaining power with suppliers is well known in the industry. It is one of the prime ways that Costco ensures its customers receive products at the low prices that they do. Costco has successfully replicated this model in the auto sales market as well. The company uses its bargaining power to negotiate discounts on vehicles for its members. Members are very receptive to this idea as it directly targets one of the biggest pain point for consumers looking to purchase a vehicle – the process of bargaining with the salespeople at auto dealerships. Costco is essentially making the process of buying cars simpler and relatively hassle-free, and the increasing number of auto sales through Costco is proof that this is indeed making members happier. They recently announced that Costco signed agreements with American Express.

Costco’s Auto Program is attractively designed to reel-in and retain members for Costco. Once a member of Costco, which comes at a small fee of $55 annually, consumers can buy new or used vehicles (and additionally, in some locations purchase boats, motorcycles and power-sport products) at prearranged prices. These prearranged prices help the buyer save an average of $1,000 per vehicle, besides giving them an easier car-shopping environment.Costco also adds in multiple sweeteners for members that participate in the Costco Auto Program. Costco members also receive 15% discount on parts, services and accessories, within certain constraints, on every vehicle in their household even if the vehicle was not purchased through CAP .These numerous incentives (including $500 store gift cards), packaged with additional offers run in conjunction with individual auto makers, are attracting more people to buy their vehicles from Costco. The tremendous response to this program has helped Costco accelerate its way into becoming the second largest auto dealer in the country – close behind AutoNation.

Dealerships Are Supporting Costco’s Auto Program As It Provides Them An Exclusive Channel Of Customers.

Even though car dealers are selling cars to Costco members at lower prices than they would traditionally, the large number of members that the dealerships gain access to through their association with Costco is helping them boost overall sales. Dealers typically pay a monthly marketing fee to Costco, which can be thought of as a minimal expense to pull the customer into the dealership. As customers reach the dealer through Costco’s easy program, they are also prone to be more satisfied. In most cases, more satisfied customers result in higher referrals for the program (frequently translating into new memberships at Costco) as well as the dealer. Overall, for the dealer this means higher sales and higher service revenues attributable to satisfied, loyal customers. Dealers that are part of Costco’s Auto Program also enjoy exclusivity, as Costco only picks one dealership per brand in an area to participate in the program. As a result of this, the selected dealership receives more customers than other same-brand dealerships in the area.

Costco’s Additional Incentive In Entering The Auto Sales Market

The most obvious advantage for Costco in entering the auto sales market is retaining and attracting membership. Membership revenues are one of the biggest drivers of profitability at Costco. Hence, increasing membership and renewal rates is one of the key focuses at Costco. One not-so-obvious advantage Costco receives by entering the auto sales market is it is relatively insulated from online competitors such as Amazon. Car sales is one of the avenues in which online retailers will not be able to disrupt traditional retailers operations anytime soon as consumers still prefer testing and feeling the cars that they wish to purchase. As Costco’s auto sales business keeps growing, it will increase the number of people who visit their brick-and-mortar establishments, and the higher footfall will give Costco the opportunity to generate higher revenues in their stores.

The Costco Auto Program is ready to save you money, time and hassle on your next new or certified pre-owned vehicle. With more than 3,000 participating car dealerships nationwide, buying a car couldn’t be easier. From SUVs to compacts, odds are your next new or certified pre-owned vehicle will be available at a participating dealership near you.

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