Costco tests new used-car sales model

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Costco's auto sales arm is testing a program that allows franchised dealers to list for sale on its site used vehicles of any brand that are still under warranty. Participating dealers have agreed to sell the vehicles to Costco members at less than their lowest advertised prices.

Borg: "Value in these vehicles"

Costco Auto Program's Select Pre-Owned vehicles have at least 12 months and 12,000 miles of new-car warranty remaining, says Rick Borg, Costco Auto vice president of program operations.

Costco says the idea is to give the warehouse club's members another option to buy quality used vehicles and dealers another venue to sell late-model used vehicles that they can't cover with factory certification because they don't operate a new-car franchise of that brand.

"It is not uncommon to have other brands in inventory that can't be certified by the dealership," Borg says. "There is value in these vehicles for both dealers and Costco members."

Costco members who buy Select Pre-Owned vehicles must take their vehicles to a dealership operating a franchise of the vehicle brand for service covered under the factory warranty.

Costco Auto began testing the program last January in Phoenix and West Springfield, Mass. By summer it had added Tucson, Ariz.; San Diego and San Luis Obispo, Calif. Vehicle listings are available on costcoauto.com to members with ZIP codes in those markets.

Participating dealers list vehicles for free, recondition them to their dealerships' standards and agree to sell them to Costco members for at least $1,000 below their lowest advertised price or the midpoint between Kelley Blue Book's wholesale and retail prices.

Listings are accompanied by vehicle descriptions and specifications, mileage, vehicle history reports and dealership contact information. The listings also have dealerships' advertised prices and a note: "This is not your price. Costco members pay less."

Paolino: Good for dealers, members

The test program has been fully operational for six months and is still under development, says Gina Paolino, president of Costco Auto Program.

During that time Costco members bought about 1,000 vehicles. About 1,200 vehicles are listed for sale. About 135 franchised dealers, with which Costco already has a relationship, are participating.

"It's turning out really well for dealers and the members," Paolino says.

"The close ratio is about 38 percent, which is a little lower than Costco Auto's typical close ratio of 40 to 42 percent."

Rick Doschadis, sales manager at Lunde's Peoria Volkswagen in Peoria, Ariz., near Phoenix, says he likes the program because Costco members in the market for vehicles usually are creditworthy and have researched the vehicles they are interested in buying.

He says his used vehicles typically are priced at the Kelley Blue Book midpoint price or lower. If the dealership's price is lower than Kelley's midpoint price, it knocks off another $250.

"We believe Costco members should get some sort of discount," says Doschadis, who has sold at least a dozen used vehicles under the program.

Borg says Costco will roll out the program "slowly but surely" and expects it to be available to members in at least 75 to 80 percent of Costco's markets by December.

Costco Auto also has programs to help its members buy new and factory-certified vehicles.

Paolino says those programs do not lend themselves to vehicle listings because consumers who request referrals for those vehicles are referred to dealerships that operate specific franchises.

You can reach Arlena Sawyers at asawyers@crain.com.


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