Where most new car dealers are limited in the number of brands they can sell, Costco Wholesale Corp. (NASDAQ: COST) has no such limitation. The membership shopping club functions as a broker for its members, negotiating a price on their behalf that is typically right around the dealer invoice price.
The program has been a huge success, both for automakers and Costco. The company reported Tuesday morning that it sold 520,000 vehicles in 2017, a 6% year-over-year increase. More than 87% (over 452,000) were new vehicles, while 13% were certified pre-owned. Included in the totals are powersports and recreational vehicles. The nation’s largest auto dealer, AutoNation, sold just over 563,000 vehicles in 2017, of which more than 329,000 were new.
Costco does not actually sell the cars. It negotiates a vehicle price with local dealers who are then obligated to offer buyers a set price and forbidden from offering additional options. Any dealer or manufacturer incentives are typically included. Costco does not make any money on the sale, although dealers do pay a participation fee to the company.
What Costco gets out of the deal is membership revenue from satisfied customers, 96% of whom give the program high ratings for value and overall experience, according to the company. In some ways, Costco’s car-buying program resembles Amazon Prime, where the membership is based on free two-day delivery but offers other “free” benefits to keep consumers paying the membership fee. And Costco’s been selling cars this way since 1989.
Here’s a list of the 35 vehicle brands that Costco has deals with:
- Alfa Romeo
- Land Rover