Costco's rising used-car sales grab attention

After a big jump in used-vehicle sales in 2018, Costco Auto Program expects those sales to keep growing — perhaps even double in 2020 — as more automakers contact the company about offering Costco promotions.

Talks are ongoing with "several" automakers about using the program to drive sales of certified pre-owned and incoming off-lease vehicles, said Rick Borg, Costco Auto Program executive vice president of operations. Borg declined to name the automakers but called them major players. They are automakers that have used the Costco program, as well as some new to the program, a spokeswoman said.

Any resulting partnerships would involve automakers' franchised dealerships, Borg said.

"We're not going to get into a scenario where it's going to exclude the dealer body," he said.

With the volume of off-lease vehicles expected to peak this year, Costco Auto Program, which offers discounts to Costco members on new and used vehicles, is forecasting sales of 110,000 used vehicles in 2019. That would represent a 5.8 percent gain from 2018.

Last year, the program's used-vehicle sales soared 57 percent to 104,000 vehicles. New-vehicle sales last year rose 21 percent to about 543,000 vehicles. In the first quarter of 2019, used-vehicle sales through the program rose 8.7 percent to around 23,000 vehicles, a spokeswoman said. First-quarter new-vehicle sales rose 4.4 percent to around 90,000.

Given planned marketing initiatives and interest from automakers, the program should be able to double its used-vehicle sales in 2020, Borg said.

Costco Auto Program has around 3,300 participating franchised dealerships. Around 1,200 of those sell automaker certified pre-owned vehicles through the program, as well as Costco's own Select Pre-Owned vehicles.

The Select Pre-Owned program is for lightly used vehicles that cannot become automaker certified because, for example, they're sold at a dealership that doesn't represent the brand on the new-vehicle side. Select Pre-Owned cars and trucks must have at least six months and 6,000 miles left on their original factory warranty. Costco's Select Pre-Owned program is in 12 urban markets, having opened in four in 2018.

The Costco program could add dealerships, but growth would be slow. The company works with just one dealership per brand in a given market.

"We're naturally self-limiting on our dealer body," Borg said.

As of Wednesday, May 8, Costco operated 535 U.S. stores and had more than 50 million membership cardholders.

Automakers also are considering arranging discounts for Costco members on parts-and-service work, Borg said. The company is in talks with automakers, so he declined to give specifics. But he said possible initiatives stem from automakers trying to get more competitive in the service drive.

Costco's parts-and-service program offers members a 15 percent discount on parts and larger services — items such as oil changes are not included. Use of that program rose 68 percent in 2018.

Meanwhile, the retailer continues to partner with automakers on member incentives for select new vehicles. For instance, through a tie-up with Honda, eligible Costco members can get a $500 Costco cash card after the purchase or lease of a 2018 and 2019 Ridgeline pickup through July 8.

Members also qualify for $1,000 spiffs on new Volvo S60, S90, V60, V90, V90 Cross Country, XC60 and XC90 vehicles through July 1, or $3,000 for new S60 T6 R-Design and S60 T6 Inscription cars. That's in addition to a $100 Costco cash card for completing a survey.