What Costco does

The Costco Auto Program is a service that pre-negotiates discounted vehicle prices with participating local dealerships and then brings that dealership and Costco members together to complete the purchase. So a Costco member buying a car this way doesn't have to negotiate on price with the dealership or deal with a salesperson. As long as the buyer knows what he wants, the new-car financing is in place, and there's no hassle over a trade-in, it's about as straightforward as a new-car purchase transaction can get.

"What you get is a protected experience," explains Phil Reed, the senior consumer advice editor for Edmunds.com, an automotive-pricing website. "And this protected experience has value. Because without it, the customer can be aggressively sold all sorts of warranties and add-ons he doesn't need or, usually, really want. What consumers hate is the unknown, and with this you get an upfront price and a protected experience."

That experience starts with a visit to the Costco Auto Program website or a phone call to its toll-free number, 1-800-755-2519. With the information in hand about what car or sort of car the buyer is seeking, Costco puts the buyer in contact with a "certified" dealership that has at least one employee trained to work with the program. The buyer then goes to that dealership, picks out a particular car, test-drives the vehicle and is shown a Costco member-only price sheet. If the buyer is satisfied, the purchase is made.

For this protected experience, the Costco Auto Program charges the new-car buyer nothing, and the retailer gets no sales commissions. The program is funded by marketing fees that dealerships pay Costco.

The Costco price

"The Costco prices are very good prices," says Edmunds.com's Reed. "For some vehicles, probably close to within $500 of the lowest price possible."

The Costco prices are determined by what Costco's Paolino calls a "pricing matrix." That matrix uses information gleaned from Kelley Blue Book, Edmunds.com and other pricing websites, along with comparable-shopping reports and other elements, to determine "pricing modules" for each dealer. There is no one nationwide Costco price, and dealers certified in the program aren't obligated to accept one another's pricing.

"Our pricing is extremely competitive," Paolino says. "It's usually about $1,000 less than kbb.com (Kelley Blue Book) and Edmunds.com's TMV (True Market Value)."

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"It's best for mainstream brands," adds Reed, citing vehicles from carmakers such as Toyota, Ford, Hyundai, Nissan and Chevrolet. "When you decide to go to premium brands or for unusual orders or where availability is restricted, there's only so far that dealerships are willing to go."

In other words, it's easy to use the Costco program for commodity products such as the Honda Accord LX sedan, which has limited factory options and is stocked by the dozens by dealers. But Porsche dealers don't have lots full of new 911 sports cars, and 911 buyers often want to tailor their cars to their high-end tastes from the long list of options that Porsche offers.

That doesn't mean luxury brands such as BMW, Lexus, Mercedes-Benz or even Porsche don't participate in the Costco program. They do, and the Costco pricing on their machinery can be keen. But even those dealers want to move the iron that's in stock on their lots, not special-order vehicles for razor-thin profits.

"For hard-to-find things, it's almost better to go on your own," asserts Reed. Still, reports Paolino, at least one Aston Martin was bought through the program.