Special program for Costco members shaves cash off a GM vehicle

General Motors stands to potentially sell tens of thousands of new vehicles by the New Year to Costco members alone.

Since Oct. 1, about 138,000 Costco members have applied for a voucher to get $1,000 off a GM vehicle in the Costco Auto Program Savings Event running to Jan. 4. Another 12,000 potential buyers have applied for a similar discount from Volvo, which is offering $1,250 off.

But beyond this incentive deal, GM has been a partner with the Costco Auto Program, a third-party service that regularly offers special pricing on vehicles for Costco members across most car brands, for a decade.

For GM, the fee it pays to partner with Costco Auto Program and the cost to discount its cars to members is worth it for the access to millions of potential customers.

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"Costco is one of the most recognized retail brands,” said Chris Karaboyas, senior manager of GM retail planning and incentives. “It has 85 million members that are primarily concentrated in key states where we're trying to sell more vehicles, such as California, Texas and Florida. They have high demographics of loyal customers who are mostly college-educated, so it goes in hand with what we’re trying to do, which is to sell richer vehicles such as full-size pickups and SUVs.”

For car buyers, the auto program offers special pricing on most brands beyond GM on a regular basis besides special events like the one running now.

"The idea is (members) don’t have to haggle. It’s straightforward: Here’s the pricing and there’s no back-and-forth with the dealership manager, no shell games," said Rick Borg, general manager of Costco Auto Program. "We're looking to offer the best pricing for our members that they can’t get anywhere else.”

Sticky and loyal customers

The benefit of the Savings Event Program and the regular program to GM and its dealers is the potential for increased car sales and new customers, who will hopefully be loyal, buying more cars in the future. 

“Costco has a very sticky membership, by that I mean they are loyal, and usually those leads that come in through the program are high-performing leads," said Dave Katarski, COO of Feldman Automotive Inc. in New Hudson. "There are higher closing rates and their customer base tends to have the means and the credit to make a purchase, so they’re good, solid leads.”

Feldman Automotive has five Chevrolet stores in Michigan. In Ohio, it has two Chevrolet stores and one Buick GMC store. The Ohio stores are all co-owned by actor Mark Wahlberg. Katarski said across their eight GM stores, they have sold 823 vehicles to Costco members using the $1,000 voucher since Oct. 1 when the program started. 

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“It’s been a really good program," Katarski said, noting that $1,000 is a "substantial" discount and "an enticement to look at a Chevy product. I think there’s a percentage of customers who were going to buy a Chevy vehicle already and this was an additional benefit for them.”

The Costco Auto Program Savings Event is applicable to Costco members who purchase or lease certain new 2020 or 2021 models, and they can also get any manufacturer discounts, too. They can go to any dealership. They get the voucher through Costco Auto Program's website or their dealer can help them get it. 

Here are the GM models discounted by $1,000:

• Chevrolet: Colorado, Silverado 1500/2500/3500, Blazer, Suburban, Tahoe, Traverse and Trailblazer
• Buick: Encore GX and Enclave
• GMC: Acadia, Canyon, Sierra 1500/2500/3500, Yukon and Yukon XL
• Bolt: $3,000 off a Chevrolet Bolt EV

Costco members can also get $1,250 off:

• Volvo XC40, XC60 and XC90 SUVs

Of the 150,000 members to request the vouchers to get cash off on the GM or Volvo vehicles, Borg said, typically 60% of them actually make a purchase.

The cost of exclusivity

Costco Auto Program is a vender that serves Costco. It started in 1989 with the purpose of securing the best prices on new and certain used vehicles for Costco members, Borg said.

It works with just about all carmakers including Ford Motor Co. and Fiat Chrysler Automobiles to offer its regular special pricing. The dealerships pay Costco Auto Program a fee to participate, but it declined to disclose that monthly fee, saying it varies by market and other factors.

Feldman Automotive has been an exclusive dealership partner with Costco Auto Program with its Kia brand, the company confirmed. Katarski said the dealership pays $500 a month to get the Costco member leads. Feldman Automotive also sells Hyundai, and Fiat Chrysler beyond Kia, Chevrolet, Buick and GMC. 

Of the Detroit Three, GM is the only one to do a limited-time special promotion such as the current Savings Event, on top of the regular program, Borg said.

For the regular program, a member who is interested in buying a vehicle from a specific brand can visit the Costco Auto Program website. The member will be directed to an area dealership that Costco Auto Program has an exclusive partnership with, Borg said. That means those dealerships are the only ones to get those valuable customer leads. Unlike the Savings Event, the regular program discount has to be used at a participating dealership.

"In exchange for exclusivity, they give us preferred pricing for the customers we would refer to them," Borg said. "It’s a very defined, straightforward and transparent program where the customer goes in to the dealership, selects a vehicle and they get a Costco endorsed price."

GM's program push

In its regular savings program, Borg said that a vehicle's price is typically $1,100 or $1,200 off the price a customer might have negotiated personally. So if a vehicle had a $35,000 sticker price and a buyer could negotiate that price to $32,500, the Costco Auto Program price might be $31,400. Any manufacturer discounts would then be applied on top of that, Borg said.

There are 3,400 dealerships across most carmaker brands that participate in the regular program that represent about 550 Costco warehouses across 45 states, Borg said.

"Not only are the dealerships exclusive, but the people you’d interact with at the dealership is limited to that who we’ve trained and certified, typically the most senior and experienced people with high customer satisfaction scores," Borg said. 

The program appealed to GM in 2011 when it started a pilot with Costco Auto Program and found success, GM’s Karaboyas said. While he declined to provide data as to how much the partnership has boosted GM’s quarterly U.S. car sales over the years, he said, “if we thought the program wasn’t performing to our standards, we wouldn’t continue to do it.”

He declined to share the fee GM pays to partner, saying it is contractual and proprietary. But the program's value to GM comes in the fact that Costco's membership is concentrated in California, Texas and Florida. GM aims to sell "as many vehicles as possible in those states" because it can sell a higher mix of the profitable, high-trim versions of pickups and SUVs there. 

Beyond those markets, Karaboyas said, Michigan, New York and New Jersey are also key targets for GM and Costco has large memberships in those states, too.

No games

Costco member Roberto Hernandez of San Antonio, Texas, has bought two GM vehicles through the Costco Auto Program in recent years, including a new pickup in the current program using the $1,000 off voucher on Nov. 3.

Hernandez had been shopping for about eight months for a deal to trade in his 2015 Ford F-150 pickup for a 2020 Chevrolet Silverado pickup, he said. A decade-long Costco member, Hernandez knew of the Costco Auto Program because a few years ago he and his wife, Maria, bought a 2017 Cadillac XT6 SUV using it. They got a $750 Costco gift certificate on top of special pricing, he said. 

"I talked to the wife about it and figured last time it was good so this time it should be good," Hernandez said. 

This time he used the $1,000 voucher to get a 2021 white Silverado pickup. The sticker price on it was $47,713, he said. The price came down to $39,000 with GM discounts, then minus the $1,000 from Costco and his trade in the final price was $31,000, he said.

“That $1,000 was a very welcoming thing on top of everything else," Hernandez said. "So it made it affordable for me to go to a 2021 over a 2020.”

Not only was the price great, but he said the sales experience is enjoyable.

“Like any consumer you want to go there and be treated professionally and no games. We’ve bought cars before from other dealerships and it’s back and forth but here, because you’re a Costco member, they’ll treat you differently," Hernandez said. 

Contact Jamie L. LaReau: 313-222-2149 or jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.