New auto sales business model?

I’ve been considering buying a new car (though I’d rather not have to - mine has low mileage, but has had various mechanical problems over the past year). One option I’ve looked at it the Costco Auto Program, which claims to have fabulous prenegotiated prices with predetermined dealerships throughout the U.S. and a customer satisfaction level of 98%.

I filled out the web form, and a salesperson called me from the dealership yesterday. He explained that via this program, he had to show me detailed invoices showing what I would pay, as well as what the dealership had paid for the car, and that generally the dealership paid more for the car than they ended up receiving from the purchaser via this program.

“So how do you guys make any money, then?” was my question. His response was that hardly anyone makes much money on the sale of new cars in this day and age, and that dealerships make most of their money through their service departments.

Is this true? (I imagine they also make money from those customers who aren’t able to negotiate as good a price for their new cars as the Costco Auto Program, via dealer financing in some cases, and via trade-ins.) Or was the salesperson, as they say, selling me a bill of goods? Is it like computer printers, where the manufacturers make the bulk of their profit on replacement cartridges rather than on the actual hardware?

(I’m still hoping my car will hang on a good while longer - it’s a 1997 Sentra, but has less than 60,000 miles on it - but if it gives up the ghost, I’d seriously consider buying a new car via this program.)

Other than a few super-high MPG cars, and a few rare models, just about any car can be had now at less than Invoice.

Costco used to be a pretty good deal, but now you can likely get better. Try Edmunds and let them have a few local dealrs send you a few offers on what car you want.

Stay away from a Toyota dealer, however- biggest crooks in the business.
Hyundai, Ford, GM, Honda.

I think you’ve said this more than once, and as this is GQ, I don’t think I’m out of line for asking. So can you provide a cite?

While it’s possible that the invoice will reflect a higher price than your cash outlay, it’s uncommon for a dealer to take an actual economic loss. There are rebates, holdbacks, finance help, and all kinds of monetary agreements between dealers and manufacturers which aren’t covered in the invoice cost.

Now that you’re prepped to think that the dealer is taking a loss, you’ll be that much more willing to accept highly profitable add ons, like pin-striping (by God, I still see new cars with pin-striping!), paint protection, and other overpriced crap.

What specific car are you looking for? There may be other ways to get you a fixed price at a substantial discount.

Oh, I realize there is probably all sorts of stuff going on between the dealer and the manufacturer that isn’t reflected on the invoice, and I have done a good job in the past of rejecting overpriced add-ons (which is part of why it took me all goddamned day in the dealership when I bought my current car, but this time I am tougher and will just tell them that if I can’t get in and out of the dealership in a reasonable period of time without being pressured to buy all sorts of overpriced crap, I am just walking out and going somewhere where they will respect my time).

Again, I am hoping to continue putting off buying a car for a good long while yet, but if it comes down to it, I am looking at the Nissan Versa hatchback, or possibly the Toyota Matrix.

(The Toyota dealership near me closed - they were jerks, indeed. I once walked out of there after a salesperson treated me like an idiot. He quoted me double the Blue Book value on a used car, and when I pointed out the flaws, mileage, and that I had actually researched the value, he asked me exactly what kind of car I expected in my admittedly rather low price range. Told him I expected a car that would run, and that he was a pompous ass and that if he couldn’t treat me with respect, I wasn’t interested in giving him my money. Seriously, do auto salespeople not realize that women, even young women, do actually make purchasing decisions? I don’t get it. But that’s probably a discussion for the Pit. Apparently others also thought that dealership sucked, because it isn’t there anymore.)

Well, it’s generally agreed upon here. Also when CR rated “satisfaction with the deal” (not the car, the deal) Toyota always came in dead last.

And do a search here on the SDMB.

I’ve had similar experiences with local Toyota dealers. I like their cars, but I’ve had bad experiences with their sales staff.

I’ve used the Costco Auto Program for all of the new cars I’ve bought in the last 20 years, so I guess you can call me a satisfied customer. You deal with the Leasing manager, not a sales person, and there is (usually) no hassle, no pressure, and only the barest mention of the expensive add-ons previously mentioned.


I have purchased new cars from Toyota, Lexus, Honda and Mazda, and while some individual salespeoples have been pushy or rude, that’s what I expect and so I would immediately ask for someone else to work with. However I typically don’t waste their time and only go to the dealer when I have have money to spend and know what I want. If I know the invoice for the car and I meet with the Internet or Fleet Manager, I can usually be out of there within 2 hours. I refuse to do the back-and-forth 4 hour negotiation which some dealers use to wear you down. I have used the Costco program before and it went extremely smoothly.

BTW, dealers don’t sell cars they aren’t making money on. I know that’s the case since there is always some point in the negotiation where they are prepared for you to walk away. Having said that, in this day and age they need to dump a lot of cars and I’m sure they are willing to cut their margins to the bones to get you into a new car. I will be buying a new Tacoma truck in the next two months and plan to use the Costco program to get mutliple bids going. Yes, you can put in different zip codes and different dealers will call you so you can get multiple deals going at the same time.

Depends what he means by “this day and age”. If he means “this year”, okay, no one is making any money selling cars. But if he means “this decade”, then it doesn’t make sense - why not just close down the dealership, and open a repair shop?

My girlfriend bought her Toyota Matrix through the Costco program and was very happy with the service she got. She bought it outright in cash so that probably helped.

It’s a pretty cool car, comfy and reliable but still looks cool. She got the bright yellow one. It’s super easy to spot in crowded parking lots :slight_smile:

“This day and age” is my paraphrase; I don’t remember exactly what words he used. But as to why not just open up a repair shop? Well, I am no expert, but I imagine large numbers of new car buyers simply keep going back to the dealership where they bought the car whenever they need it serviced. There’s a built-in referral base. (I, however, love my independent mechanic.)

My own “sample size of one” with the Costco Auto Program is that they will give you quotes that are higher than the prices most folks are actually paying as reported by, and indeed, when I last used it to get an Infiniti FX35, I was able to knock an additional $400 off the price.

My feeling is, use the Costco price as the ceiling, and spend a few hours seeing if you can do better, even with the same dealership. Of course, that also assumes you understand the game and eliminate variable (i.e. have already gotten rid of your trade-in, checked with credit unions to see if you can get better financing than the dealer, understand the options you want, and more importantly DON’T want). If you don’t want to do the research and don’t mind leaving a few extra hundred dollars on the table to save yourself the grief and all the tricks, I certainly think Costco will get you a “fair” deal.

Yep. The whole invoice thing really doesn’t tell you much these days. Everybody and their brother knows to ask for a price “below invoice”, “at invoice”, or “$100 over invoice” and the dealers already know this so invoice these days might as well mean MSRP.
What dealers really pay for cars doesn’t match that invoice you see. Like Balthisar said they get kickbacks, holdbacks, rebates, discounts, refunds, you name it from the manufacturers. The “real” price they pay is something you will never see.

Wow - good tip re: Edmunds. Just for the heck of it, I requested quotes from 4 nearby dealerships. All responded within minutes acknowledging my request, and I have one quuote so far that is more than $2k below list price, and $1400 below invoice as quoted on (No idea what the Costco price is, because I never followed through with their designated dealership, which is way the hell out on the burbs from where I live, and I decided not to buy a car just yet.)