Should You Buy A Car Through Costco?

There are approximately 50 million Americans who shell out from $55 to $110 each year for a Costco membership in order to stock up on giant packages of steeply discounted paper towels, enormous jars of mayonnaise, or enough shampoo to last an entire year. But a growing number of Costco members are also turning to the retailer to score a nice set of wheels. Although it may not be obvious to the casual observer, Costco has become a major player, moving it to the number two car sales position in the US. Should you buy a car through Costco? Bloomberg reports last year nearly 400,000 people decided Costco was the best way to purchase a car, putting the warehouse right behind the No. 1 car seller, AutoNation. This growth comes as nationwide car sales have been relatively flat.

Costco, which is known for its no-frills, buy-in-bulk model, has already earned its members’ trust for selling high-quality goods at rock-bottom prices. Now it’s taken much of the agony out of the car-buying experience by putting fixed prices on all vehicles. This has been a key to their success because many consumers simply hate the haggling that often goes with purchasing a car. However, purchasing a car on your next trip to Costco isn’t possible. The retailer doesn’t sell vehicles directly, but instead works through an auto-buying service called Affinity Auto Group to negotiate the lowest prices for its members.

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What this all means is that Costco is acting as a middleman. In most instances, a middleman would mean you would be paying a higher price for your car than negotiating on your own, but that’s not necessarily the case with Costco. Because of the high volume they are able to send to dealerships, the prices they negotiate are better than most people would end up getting on their own unless they are truly good at negotiating.

A big reason Costco members get a great price even with the company as a middleman is because Costco makes no profit on the car sales, using them instead as yet another tactic to drive membership sales. Costco thinks of selling cars much like they do about selling rotisserie chickens. A majority of Costco’s profits come from selling memberships, rather than through retail sales as it sells its goods nearly at cost. And carmakers, who were at first skeptical, seem to be adapting to the model as Costco’s image and renown make it an attractive partner.

This also fits in well with other Costco services. Costco is also a major seller of gasoline and car tires. Over two-thirds of Costco’s 663 warehouses have gas stations, and almost all of them offer tire selling and mounting services. When people buy their car through Costco, they’re much more likely to think about the warehouse as a place to buy gas and replace tires. On the flipside, the same customer who is looking for cheap gas and inexpensive, quality tires is also likely interested in a good deal on a car when the time comes to buy a new one. In this way, Costco’s strength in each area simply reinforces the other.

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(Photo courtesy of Krista)