Monday, April 30, 2007

AUTO BUYING PROGRAMS AT WHOLESALE CLUBS

Everyone is familiar with wholesale warehouse-style buying clubs. The stores always resemble warehouses and skimp on the typical amenities you find in a conventional retail department store. The products are often sold in bulk which sometime requires you to buy a lot more than you might need. Usually you have to help yourself and there are no sale people to assist you. The brands and products they buy change often because they buy large quantities of a particular brand when they can buy it a low price. You pay an annual fee to be a member. Some of the more popular and wider spread wholesale clubs are Costco, Sam’s Club, and BJ’s Wholesale Club.

In general, this concept works and prices are generally lower at these kinds of stores. It is easy to see how wholesale clubs can afford to sell products cheaper than conventional department stores. But most wholesale clubs have begun to branch out into other areas that are outside their original concept. One of these relative new areas is an “auto-buying service”. Unfortunately for the consumers, wholesale clubs are unable to buy cars from the manufacturers in bulk and pass along the savings to their customers like they do rice and TV sets. What the wholesale clubs do is sign agreements with car dealers like me who are supposed to sell you cars at a very low price. The car dealers pay the wholesale clubs a monthly fee for the privilege of being the exclusive dealer of that make authorized to sell cars to their members. The fee the dealer pays the wholesale warehouse increases their cost of sales to wholesale club members, but the theory is that the referral of members will increase their volume to more than offset this fee.

I am signed up with one local wholesale club and am in discussions with another. What disappoints me about these programs is that many wholesale club members buy cars from the dealer associates based on their trust in the wholesale club. The problem with this is that many dealers often do not abide by the prices they are supposed to quote. Dealers are supposed to have one person designated as the wholesale club member contact. But what often happens is that the first salesman who sees the wholesale member enter the showroom handles the sale. Salesmen are paid on commission and will mark up the price as far as they can get away with. Because wholesale clubs have hundreds of dealers and thousands of club members, it is impossible to police what is happening on the showroom floors during the sale to club members.

What all this means is that, just because you are a member of a wholesale club with an auto-buying program, don’t relax your vigilance when buying a car…even if it’s from the dealer endorsed by your wholesale club. There is a lot of due diligence that you must do before you pay a dealer for a new or used car. The most important is shopping and comparing prices on the same year, make, and model car you have decided on. You should get at least 3 “bids” and the Internet is the easiest place to do this. You should shop your financing separately and choose the dealer’s financing only if it is lower or competitive. You should shop the value of your trade-in separately, getting at least three bids on its value. When you have done all of this homework and preparation, only then venture into the dealership recommended by your wholesale club. Hopefully, the price from this recommended dealer will be lower, but I’m betting in most cases it won’t be. The wholesale clubs will show you statistics about the savings the club members have realized by using their recommended dealers, but these savings are from lots of people who did not do their homework, especially with competitive comparison of prices.

When you enter a dealership recommended by your warehouse club, insist on speaking to their designated representative. If he is off that day, come back when he is there. If you get an uneasy feeling about the price you are quoted or anything else regarding your visit then contact your wholesale club immediately and report it. Some wholesale clubs are taking steps against dealer fees, but some are not. The price that you and the wholesale club think you are paying often does not include the dealer fee which can range up to $900 or more. If your club does not insist that its dealers include their dealer fee (simply additional profit for the dealer) in their club pricing, they should.

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