When discussing the process of purchasing an electric vehicle, traditional automakers face significant disadvantages compared to emerging companies like Tesla and Rivian. If individuals are interested in acquiring an electric vehicle from General Motors, Ford, Hyundai, Kia, or virtually any other conventional automaker, the only option is to make the purchase through a dealership. It’s difficult to overstate how frustrating this process can be. Particularly in the post-pandemic era, dealers consistently tack on exorbitantly priced accessory packages and put pressure on customers to spend every last dollar. General Motors is unable to address this issue effectively, but perhaps Costco can step in.
Automakers are bound by stringent agreements with their dealerships. These contracts—and often state legislation—prohibit automakers from setting pricing for dealerships, which are intended to operate independently. Hence the inclusion of “Suggested” in “Manufacturer Suggested Retail Price.” Consequently, when dealerships impose excessive markups, sell overpriced accessories, and offer questionable extended warranties to customers seeking a new Equinox EV, General Motors is essentially powerless.
The Predicament Faced by Dealers
The process of purchasing a car in the United States is widely condemned. From bait-and-switch tactics to deceptive pricing advertisements, markups, intense negotiations, and strong pushes towards overpriced accessories, dealerships have garnered a well-deserved reputation for taking advantage of consumers.
A new wave of electric vehicle startups employs company-operated stores and fixed pricing, whereas the majority of brands continue to solely distribute vehicles through dealership channels. These dealerships have consistently opposed the adoption of electric vehicles, both through interactions with regulators and by dismissing potential buyers.
On the other hand, Costco possesses more leverage in negotiations, as outlined in a report from CNBC. This could potentially serve as an ideal starting point for purchasing a General Motors electric vehicle. Costco’s Auto Program features pre-negotiated incentives for Costco members, which can be redeemed at authorized dealerships.
“It has a pre-negotiated price already established that we work with the dealer every month to make sure that it’s updated and it’s market competitive,” shared Costco Auto Program General Manager Jay Maxwell in an interview with CNBC.
The concept involves customers capitalizing on pre-arranged pricing and being connected with a sales representative who is well-versed in the Costco Auto Program. Nevertheless, the actual transaction is still handled by a regular dealership, which means Costco likely cannot prevent them from offering enticing accessories in the finance department. However, there exists a significant strategic opportunity here for Costco.
Chevy, GMC, Cadillac, Volvo, and Polestar are among the current partners of the Costco Auto Program. Costco indicates that about 7% of its Auto Program participants are considering electric vehicles—a proportion roughly equivalent to the overall market share of electric vehicles in the United States last year. Electric vehicle buyers generally belong to wealthier demographics, exhibit keen interest in new technology, and are homeowners—precisely the type of clientele that Costco aims to engage and retain within its customer base.
By becoming an ally in the battle against what I personally perceive as one of the primary obstacles to electric vehicle acceptance—many dealerships are hesitant about electric vehicles succeeding. While some dealerships are embracing this shift and investing in areas such as training and on-site charging capabilities, many others are reluctant to learn, educate, and market a product that requires significantly less servicing. As per a report, Dealers derive 49% of their profits solely from servicing, with a majority of that stemming from newer vehicles. Recognizing that one might not require anything beyond tires and brakes within the initial 100,000 miles of owning a mature electric vehicle platform, dealerships can foresee the imminent shift.
However, Costco possesses a unique advantage that manufacturers do not. It boasts an extensive customer base of affluent, discerning individuals who trust the brand’s recommendations. Dealerships willing to collaborate may not witness the same service-related revenue they would from an internal combustion engine customer, but making a sale without service requirements is preferable to no sale at all.
Presented with the choice between forfeiting 49% of potential profit or losing the entirety of potential profit, the decision is quite clear.
There is no better time than the present to foster loyalty, both for dealerships and Costco. The majority of electric vehicle purchasers never revert back. Companies that excelled in the era of internal combustion engines do not always lead the way in the electric vehicle era. Exceptional electric vehicles from Hyundai and Kia are prompting consumers to reassess their perceptions of these Korean automakers, while Chevy currently offers a more enticing electric crossover compared to any gas-powered crossover it has produced previously. If buyers can be educated on the value proposition, provided with fair deals, and kept satisfied, the potential benefits are limitless. Costco enjoys a commendable reputation for excelling in all these areas, and it is hoped that they will facilitate the acquisition of better electric vehicle deals for individuals.
Contact the author: Mack.hogan@insideevs.com.