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Costco and GM Want You to Buy a Cadillac

Paul Ausick

The latest promotion being offered by Costco Wholesale Corp. (COST) and General Motors Co. (GM) has been a rousing success according to an Tuesday announcement from Costco. Costco sells cars? Who knew?

Well, we knew that Costco offers its members a discount at certain auto dealerships around the country, and now we’re let you in on the secret as well. Costco has corralled more than 3,000 auto dealerships around the country into its auto program, and the company said that it sold more than 15,300 GM cars during a similar promotion last winter. Costco does not sell cars directly, instead

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Costco sold more than 300,000 cars to its 40 million U.S. members in 2012 out of roughly 14.5 million new cars sold in the entire U.S. That’s about 2% of all new cars sold in the U.S. The number isn’t all that big, but it’s within shouting distance of the 2.98% market share of electric hybrid cars sold in the U.S. last year. AutoNation Inc. (AN), the largest auto retailer in the U.S., sold nearly 268,000 new cars in 2012, so Costco could be the big dog in U.S. car sales if it really wanted to be. But the company probably thinks that discretion is the better part of bragging rights.

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Tesla Motors Inc. (TSLA) has bypassed the traditional dealership model completely, setting up its own stores where customers can take a test drive and place an order directly. Tesla also lets buyers order a Model S sedan online provided they’re willing to put down a refundable $2,500 deposit. Delivery takes 2 to 3 months according to Tesla. And the Tesla model infuriates traditional auto dealers, which is fine while the company sells fewer than 30,000 cars a year, but may get to be a problem if Tesla ever sells enough cars to justify its share price.

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Having to walk into a dealer showroom and go through an experience that is still as mysterious as making a souffle could be on its way to being an historical artifact. With the Costco program, the price is essentially negotiated before a buyer ever sets foot on the dealer’s lot, and that price is likely to be the best price available. It will probably be some time yet before buying a car eliminates the need for dealerships as we now know them, but 2% of sales here and 2% of sales there, and before we know it, buying a car could be a completely different experience.

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