Monday, May 14, 2018

Costco’s Auto Buying Program... Costco’s Achilles Heel?


Have you ever heard of the “Affinity Development Group” based in San Diego? Neither had I until I did a little investigating. The web page graphic you see displayed above is from their web page, not Costco. Affinity is a separate company that makes their money by marketing products and services for other companies with well-known brand names like Costco. I’ve been a member of Costco for many years and my dealership has been a participant in the Costco Auto Buying program for almost as many years. Until recently, I thought that Costco was the authority behind the Costco Auto Buying program and responsible for its implementation and oversight…not so…Its owned, operated, and managed by the Affinity Development Group.

This revelation came when I complained to Costco about the lack of transparency and apparent deliberate deception by Costco dealers that Costco was referring their members to for auto purchases. I spoke to an executive Vice President of Costco, Rick Dergaradebian, who seemed very concerned that Costco members were unknowingly paying higher prices for cars in the Costco Auto Buying Program than the Costco price sheets indicated they should be paying. He had Rick Borg, Executive VP, Program Operations at “Affinity Development Group” call me.

Rick Borg and I had a lengthy conversation, heated at times, about my allegations. I explained to him that I have mystery shopped dozens of Costco approved auto dealers and my allegations derive directly from my discoveries about how they treat Costco members. I’m not accusing Rick Borg, Affinity, and certainly not Costco of deliberately deceiving Costco members into paying higher prices than indicated on the Costco pricing sheet that each dealer must have. These prices are approved by the Costco Auto Buying program (Alliance) and I presume Costco’s intent is to offer its members lower prices than they could otherwise obtain. Rick Borg and I agreed that most car dealers do not deal honestly and transparently with their customers and they presumably are not dealing honestly and transparently with the Affinity Development Group aka Costco Auto Buying Program either. Rick Borg did say that Affinity does mystery shop its dealers and had found no evidence of deception, but when I asked him how many car dealers Affinity mystery shopped in South Florida, he couldn’t answer me. Rick Borg’s Affinity Development Group implements the Costco Auto Buying program in all 50 states and state laws are different in each state with respect to “Dealer Fees” which is the crux of the problem. Rick Borg admitted that I probably know more about the Florida dealer fee law than he did…he’s correct. He thought a dealer was required by Florida law to charge every customer a dealer fee if he charged just one…NOT TRUE. He didn’t know that most dealers in Florida charge multiple dealer fees all by different name and amounts and that’s legal. He seemed to know that Florida law required that all dealer fees be included in the advertised price of the vehicle, but he didn’t believe that the Costco price sheet shown to customer to induce them to buy was an advertisement. I do think it’s an advertisement.

Rick stated that Costco Auto Program dealers are required to state the amount of their dealer fee at the top of the first page of the official Costco price sheets. He admitted that they don’t include the dealer fee in the price. In my experience from mystery shopping, most Costco members never see the Costco price sheet, but take the salesman’s word for the Costco price. I’ve studied a copy of my dealership’s official Costco price sheet and I see no place to list a dealer fee (I do not charge a dealer fee). Rick Borg admitted that Schumacher Chevrolet (who I mystery shopped) did not all list all three of his dealer fees at the top of his Costco price sheet, only one. I haven’t seen that price sheet and, as I say, I see no provision or reference to dealer fees on my price sheet. I’m not sure how Schumacher Chevrolet do state their dealer fee; in fact, I’m skeptical that they do.

Rick Borg and I left it that we would work together to improve the transparency and honesty in the way Costco dealers sold cars to Costco members based on the promised price on the Costco price sheet. Here is what I propose:

1. The vehicle price stated on the official Costco Auto Buying Program Members Only Price sheet must be the final out-the-door price plus government fees only.


2. The Costco member must sign the Costco Auto Buyer Member Only Sheet ensuring that he did see the Costco member only price of the car he or she is buying.


3. All dealer fees by any name and any amount must be included in the Costco Auto Buying Program Members Only Price.


4. All dealer installed accessories must also be included in the Costco Auto Buying Program Members Only Price.


5. The Costco Auto Program Dealer must email or fax the final vehicle buyer’s order indicating the out-the-door price charged the Costco customer plus government fees only on every transaction directly to Costco and Affinity Development Group.


6. The Costco Auto Program Dealer will allow only Costco Authorized Dealer Contacts named in the official Costco Auto Buying Program Members Only Price Sheet to sell a vehicle to a Costco member. This name must be displayed on the vehicle buyer’s order furnished to Costco on every transaction.


7. Every Costco Auto Program Dealer will be mystery shopped at least once every 3 months.


8. Any Costco Auto Program Dealer that receives more than one failing shopping report in a 12-month period will be canceled.

I urge Costco’s Mark DerGarabedian to personally oversee the changes in the Costco Auto Buying Program. The success of the Costco Auto Buying Program is solely due to the trust Costco members have in the Costco name brand. Costco, to me and all its members, means honesty, transparency, consistently low prices, quality, 100% return policy, and total customer satisfaction. My wife, Nancy, and I shop at Costco frequently and order online. I normally comparison shop price when I deal with other stores, but I know that Costco marks up nothing over 15%. Just this last week I bought a supply toothpaste from Costco for $20 less than advertised on Amazon as “Amazon’s Choice”. If Costco has a product we want, we buy it from Costco…no place else.

Unfortunately, at this time, I can’t say the same thing about the Costco Auto Buying Program. Car buyers should shop and compare the Costco Auto Buying Program Members Only Price with at least 3 competing dealers before buying a car. Hopefully this situation will be corrected and this will no longer be necessary.

Earl Stewart

www.EarlStewartCode.com

cell 561 358-1474

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