Costco Auto Buying Program: Your Best Bet for a Low Price

This is not the first article that I’ve written on Costco’s auto buying program, but because I receive so many questions about it, I thought it useful to write another column on the subject.

Click on Costco Auto Program and navigate through their recommended process for buying a new or used car. You must be a Costco member, but this costs only $60 for the basic membership. I promise you that you’ll same many times this cost when you follow their instructions to buy from their dealers. Costco has new and used car programs, but I recommend you use only the new. Their used car program requires only that their dealers discount their list price to Costco members. The dealers with the highest asking prices for their used cars offer the discounts, but dealers with low prices can’t.

Carefully follow these recommendations for purchasing your car through the Costco Auto Program:

• When you put in your zip code, you’ll be shown the nearest authorized Costco dealer. You should find other authorized dealers in your market so that you can compare prices, especially on those that add extra non-government fees, like Doc fee, Electronic Filing Fee, and Tag-Agency Fee to the prices on their “Members-Only Price Sheet”. Costco requires that these be itemized separately on the Member-Only Price Sheet but ARE NOT INCLUDED IN COSTCO MEMBER-ONLY PRICE. 

• Dealer installed accessories like window tint, floor mats, protection packages, nitrogen in tires, stripes, etc. are SUPPOSED to be included in the Costco Member-Only Price Sheet at NO CHARGE TO COSTCO MEMBERS. Be sure to verify that these items aren’t added later for additional charges. 

• On the Costco Website you will be offered the Costco Auto Program Price Verification. It’s VERY IMPORTANT that you check this box giving the Costco Auto Program permission to obtain a copy of your purchase agreement from the dealer. If you’re not contacted by Costco and suspect a problem, call Costco immediately at 800 755-2519.

• Deal Only with the Costco Authorized, Trained Contact(s) at this Participating Dealership. Call the authorized contact and make an appointment. NEVER deal with another salesman that’s not listed on the Costco website. 

• Insist on seeing the official Member-Only Price Sheets (two of them) to verify the price you’re given. One price sheet if just for the car you indicated online that you want to buy. The second price sheet shows all of the cars the dealer offers for sale. The prices are indicated by an amount below or above invoice. A high percentage of cars are usually shown at hundreds of dollars BELOW invoice, because invoice is not the true cost of the car to the dealer.

• Insist on seeing the dealer’s factory invoice on the car you’re buying. You can then verify the amount under or over invoice the dealer has promised Costco they will see this to their members for. 

• Before you sign on the dotted line, be sure that the check you’re writing to the dealership is for the total amount you have to pay plus government fees only…sales tax and license/registration paid directly to the state department of motor vehicles. This amount should be for the amount, under or over invoice, shown on the Costco Member-Only Price Sheet. Dealer installed accessories must not be charged to you, and should not alter the amount below or above invoice you’re charged.

If you believe all the above is very complicated, I totally agree with you. I’ve had many, long discussions with the Costco Auto Buying program about why they don’t simply give you their price online for what you can write your check out for…an out-the-door price. But, with that said, if you do carefully follow the above procedure, you can buy your next new car for a very low price.

Legal Advice When Buying a Car

I’m not a lawyer and I don’t even play one on TV, but I’ve learned a lot from my lawyers, the plaintiff’s lawyers, and my customers in the last 52 years I’ve been a car dealer. I don’t get sued much anymore, but back before I became a “Recovering Car Dealer” I did. There’s something to be said for “The Law School of Hard Knocks”. One thing is that you tend to learn your lessons well and rarely forget. Here are five tips which, if followed by you, can make your car buying experience a lot safer.

• Get all promises in writing. Car salesman love to talk, and most of what they have to say is targeted to induce you to buy the car. Be sure that all relevant promises and comments are written on your vehicle buyer’s order. Not quite as good, but better than verbal, is a confirming email or text from the salesman. Some examples are, “after you buy this car, I’ll be sure you get a free service loaner whenever you bring it in for service”, “Bring your new car back next Friday and I’ll give you a free set of floor mats” and “the blind-side warning sensor is standard on the car we ordered for you”. Probably the most promise by the salesman to get in writing is “this is the out-the-door price plus government fees only.”

• Always bring a friend (witness) when buying. When I have an important meeting or negotiation, I always make sure I have at least one more person in the meeting than the other party. You’ve heard the expression, “He said-she said”. This means that a judge won’t find for one party or the other when both claim something different was said. Furthermore, a car salesman is less likely to make false promises in front of a witness. 

• Get a signed copy of all documents you’re asked to sign. Be sure you get thesebefore you drive the car home. Ideally, you should read these documents, but in reality, no one does, including me. It’s virtually impossible to read and/or understand all the documents (especially with fine print), that you’re asked to sign. I believe that lawyers created these lengthy, voluminous documents unnecessarily and on purpose so that we require their services. Remember that you won’t see any legal documents until after you think you’ve bought the car. You probably signed another document called a “worksheet”, and the salesman and manager might have shaken your hand and thanked you for buying the car, but it’s not official or legal until you sign a lot more documents in the F&I or business office (also called “the box”). There is one very important document you’ll see before you go into “the box” and that’s your credit application. Be sure that you get a copy of that. 

• Get the cell phone numbers of the salesman and key managers. I’ll guarantee that the salesman will almost insist that you give him your cell phone number. Before, you do that, insist that he give you his number, and tell him you want his manager’s cell phone number too. While you’re at it ask for the cell phone numbers for the service manager and general manager. You’d be amazed at how hard it can be to contact anyone in a car dealership AFTER you’ve bought and paid for your car. Even if they don’t answer the phone, you can text your message. This is a matter of record and legally binding. Also, when they know you do have their cell phone number, their likely to be more careful about making promises they can’t keep.

• Ask the F&I/Business manager to delete the Arbitration Clause on the Vehicle Buyer’s Order. Almost every car dealer includes an “arbitration agreement clause” in their purchase contract. You may have bought lots of cars and never seen, but it’s there in the fine, voluminous print. This clause says that you agree not to sue the car dealer for any reason. In other words, it says that you want to waive your right to a judge and jury of your peers, one of your most precious rights as an American.

Whether you want to “stick to your guns” on all these recommendations or not, just using some of them is better than none. Also, by merely asking you’re signaling that dealer that you’re alert and aware. Too many car-buyers are too timid and afraid they’ll offend the nice car salesman or his manager. These are the customers that are most likely to be taken advantage of.

Open Letter to all Florida Car Dealers

SUBJECT: ELIMINATE HIDDEN FEES

Dear fellow Florida car dealer,

I started in the retail auto business in 1968, about 52 years ago, and I have seen a lot of changes in the way we dealers sell cars and the expectations of our customers. My remarks in this column are made sincerely and with a positive intent toward you and your customers. I am not trying to tell you how to run your business; I am suggesting a change that will reward both you and your customers.

Virtually every car dealer in Florida adds several charges to the price of the cars he sells, variously referred to as a “tag agency fee”, “do fee”, “dealer prep fee”, electronic filing fee etc. These extra charges are printed on your buyer’s orders and programmed into your computers. It’s regulated in many states including California. You charge this fee to every customer and it ranges from a few hundred dollars to several thousand. Florida law requires that you disclose in writing on the buyer’s order that this charge represents profit to the dealer. Florida law also requires that you include this fee in all advertised prices. You rarely, if ever, do this.

The argument that I hear from most car dealers when I raise this issue is that the dealer fee is fully disclosed to the buyer on his buyer’s order. But most car buyers are totally unaware that they are paying this. Who reads all the voluminous paperwork associated with buying a car? The few who notice it assume it’s an “official” fee like state sales tax or license and registration fee. Those few astute buyers who do question the fee are told that your dealership must charge this fee on very car which is not true. These astute buyers are also told that all other car dealers charge similar fees. This is almost true, but, as you know, my dealership does not. When my dealership is mentioned, many of your salesmen say that “Earl Stewart hides his fees in the price of the car he advertises”. Of course, we charge no such fees but, if we did, they would be included in our advertised and quoted prices. This gives our customers the ability to shop and compare our honest, total, out-the-door price. You sneak your dealer hidden fees in after the your customer buys the car.

The reason you charge these fees is simply to increase the cost of the car and your profit in such a manner that it is not noticed by your customer. This is just plain wrong. Dealers will admit this to me in private conversations, and some will admit that they have considered eliminating the fee as I have, but are afraid of the drastic effect to their bottom line. By being able to count on an extra $999 in profit that the customer is not aware of or believes is an “official fee”, you can quote a price below cost and end up making a profit. Or, if the price you quote the customer does pay you a nice profit, you can increase that by several hundred dollars.

This “extra, unseen” profit is even better for you because you don’t pay your salesmen a commission on it. That’s being unfair to your employees as well as your customers. When the rare, astute buyer objects to the dealer fee, the right thing to do would be to decrease the quoted price of the car by the amount of the dealer fee. This would have the same net effect of removing it. The salesman won’t permit this because he will lose his commission (typically 25%) on the decrease in his commissionable gross profit.

If you don’t know me, I should tell you that I don’t profess to be some “holier than thou” car dealer who was always perfect. Although, I never did anything illegal, when I look at some of my advertising and sales tactics 20+ years ago and more, I am not always proud. But I’ve evolved as my customers have evolved. My customers’ expectations, level of education, and sophistication are much higher today. Your customers are no different. As I began treating my customers, and employees, better I discovered that they began treating me better. Yes, I used to charge a dealer fee ($495), and when I stopped charging it a few years ago, it was scary. But I did it because I could no longer, in good conscious, mislead my customers. Just because everybody else was doing the same thing did not make it right.

Now here is the good news. My profit per car did drop by about the amount of the dealer fee when I stopped charging it. But when my customers realized that I was now giving them a fair shake and quoting the complete out-the-door price with no “surprises” the word spread. My volume began to rise rapidly. Sure, I was making a few hundred dollars less per car, but I was selling a lot more cars! I was, and am, selling a lot of your former customers. My bottom line is far better than it was when I was charging a dealer fee. You can do the same!

Why am I writing this letter? I’m not going to tell you that I think of myself as the new Marshall that has come to “clean up Dodge”. In fact, I’m aware that this letter is to some extent self-serving. Lots of people will read this letter to you and learn why they should buy a car from me and not you. And, I am also aware that most dealers who read this will either get angry and ignore it or not have the courage to follow my lead. But maybe you will be the exception. If you have any interest in following my lead, call me anytime. I don’t have a secretary and I don’t screen any of my phone calls. I would love to chat with you about this. My cell phone number is 561 358-1474. (Do you have the courage to give your personal cell phone number to your customers and the public?)

Sincerely,

Earl Stewart