When it comes to the EV buying process, legacy automakers have a huge disadvantage compared to upstarts like Tesla and Rivian. If you want an EV from General Motors, Ford, Hyundai, Kia or pretty much any other traditional automaker, you have to buy it at a dealer. Words cannot capture how much that process can suck. Especially in the post-pandemic world, dealers are constantly slapping absurdly marked-up accessory packages and squeezing customers for every dime. GM can't really fix that, but maybe Costco can.
Automakers have extremely rigid agreements with their dealers. The contracts—and often state law—prevent automakers from dictating pricing to dealers, which are supposed to be independent. Hence the "Suggested" in "Manufacturer Suggested Retail Price." So when dealers push absurd markups, overpriced accessories and shady extended warranties on customers who just want a nice new Equinox EV, there's nothing GM Corporate can really do.
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The Big Dealer Problem
The car-buying process in the U.S. is widely reviled. Between bait-and-switch tactics, misleading pricing advertisements, markups, brute-force negotiations and heavy pushes toward overpriced accessories, dealers have a well-earned reputation for screwing consumers.
A new generation of EV startups use company stores and fixed pricing, but the majority of brands still only sell cars through dealerships. They have consistently lobbied against EV adoption, both with regulators and through blowing off interested buyers.
Costco, however, has more negotiating power, as detailed in a story from CNBC. And it may be the best place to start the buying process for a GM EV. The company's Costco Auto Program provides pre-negotiated incentives for Costco Members, which are redeemable at franchised 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,” Costco Auto Program General Manager Jay Maxwell told CNBC.
The idea is that customers take advantage of pre-negotiated pricing and then get matched to a salesperson who is trained in the Costco Auto Program. A regular dealer still handles the transaction, though, so Costco probably can't stop them from offering some "can't-miss" accessories in the finance office. But there's a big strategic opportunity for Costco here.
Current Costco Auto Program partners include Chevy, GMC, Cadillac, Volvo and Polestar. The company says 7% of its Costco Auto Program shoppers are looking at EVs—roughly the same as in the overall market share of EVs in the U.S. last year. EV buyers tend to be wealthier, more enthusiastic about new technology and homeowners, the exact sort of clientele that Costco wants to attract and keep within its subscription base.
Becoming their ally in the fight against what I personally believe to be one of the largest hurdles to EV adoption: Many dealers do not want EVs to succeed. While many are onboard and investing in things like training and on-site charging, many others don't want to learn, don't want to educate and don't want to sell a product that needs far less service. Dealers get 49% of their profit from service alone, and most of that for newer cars. Given that you're unlikely to need anything more than tires and brakes in the first 100,000 miles of (mature-platform) EV ownership, they can see the writing on the wall.
But Costco has another lever to pull that manufacturers do not. It has a large cohort of wealthy, smart, trusting customers who will go where Costco points them. Dealers that play ball will still not likely see the service revenue they'd see from an ICE customer, but a sale and no service is still better than no sale at all.
Faced with losing 49% of potential profit or losing 100% of potential profit, the choice is clear.
And there's no more valuable time to build loyalty than now, both for dealers and Costco. The vast majority of electrified vehicle buyers never go back. The companies that led in the internal-combustion era are also not always the leaders in the EV era. Great EVs from Hyundai and Kia have people rethinking their bias against the Korean automakers, while Chevy itself has a more compelling electric crossover than any gas crossover it's ever built. If you can educate buyers about the value proposition, get them a decent deal and keep them satisfied then the potential upside is limitless. Costco has a great reputation for doing all three of those things, so I hope they'll help people get better EV deals.
Contact the author: Mack.hogan@insideevs.com.
