Costco has quietly become a top car-buying destination. Offering no-haggle pricing plus stringent quality controls, discounts and other benefits, the Costco Auto Program network of more than 3,000 affiliated dealerships is second only to Auto Nation as the No. 1 American sales leader – selling close to 400,000 vehicles of all makes and models in 2014.
The warehouse-styled membership chain, originating as Price Club in 1976 at a converted San Diego aircraft hangar, has grown to encompass 690 international locations, including 482 in the U.S. and Puerto Rico.
With 222 onsite Costco Tire Centers in 34 states offering minor installations and maintenance, the company is rapidly expanding its lineup of certified full-service independent mechanical repair shops.
“The upward trend in demand for the parts, service and accessories benefit reflects our members’ desire for a cost-saving and effective resource to address their vehicle maintenance needs,” says services manager John Conlon. “This benefit, combined with the multiple savings opportunities available through the Costco Auto Program, as well as the savings members receive on a variety of items and tire services at the warehouse, addresses virtually all our members’ automotive needs.”
“The affiliation’s been great,” says Keith Atkinson, service manager at the Christian Brothers Automotive location in Knoxville, Tenn. More customers are coming in for repairs, and the signup and inspection process went smoothly.
“I went into the local Costco here and I talked to their management team,” he reports. The deal was ultimately sealed upon referral to Auto Program executives and an onsite inspection. “I think it’s worth it.”
“We definitely feel the program has great potential, so we’re staying with it,” says Cynthia Varnell, marketing manager at the Gustafson Brothers repair shop in Huntington Beach, Calif.
Varnell’s somewhat-less-than-enthusiastic endorsement stems only from Costco’s membership-search algorithms that give preference to car dealer service centers in the local listings and a large amount of competing independents within the specified marketing radius.
“In our area there are dealerships all over,” she observes, “and you’re not going to drive eight miles out of your way to get an oil change.”
Nonetheless, the affiliation is a viable option for attracting additional customers, and the Costco regional manager has been exceptionally attentive to the shop’s needs. “Our representative is fantastic – he gets it,” says Varnell.
Costco’s Grone recently answered a series of questions posed by Aftermarket Business World about the independent shop recruitment efforts:
Q: You have about 50 shops already; are you actively seeking additional shops and chains to join your network? Do you have a figure in mind as to how many you wish to recruit?
A: We have added approximately 30 shops in the last month, bringing us to approximately 80 in total. We actively seek new shops to add to our network daily and anticipate reaching 100 before the end of this year (2015).
Q: What are the location parameters for a shop wishing to join your network?
A: Parameters vary based on market conditions and geography; however, our goal is to provide Costco members with access to shops within 15 miles from their home or office.
Q: Are there particular areas of the country where independent shops are especially desired?
A: We have many available openings throughout the country. In general, we want several independent shops available to Costco members in each of our 482 Costco locations.
Q: Is this program international?
A: Currently, it is only in the U.S.
Q: What are the operational and scope-of-business requirements for a shop wishing to join?
A: Prospective shops must have well-maintained equipment necessary to repair the vehicles they are willing to service. Professional appearance and cleanliness in all public areas, including reception, restrooms, service bays, etc. is important. Security is also important with the requirement that the shops have the ability to safely secure vehicles left overnight.
Q: Are collision repair shops included as well?
A: At this time, only mechanical repair shops are included.
Q: What is your inspection program for a shop wishing to join the network?
A: Our inspection process is very extensive and begins before we contact a shop or immediately after the shop contacts us to join the program. We thoroughly look at the shop’s online reputation, using review sites and other business reference sources. If the online reputation is outstanding, we complete a site inspection. Our process is so strict that we have actually refused more shops than we have added at this point.
Here are some of the details we look for:
- Minimum of six bays with at least one bay dedicated to alignments
- Limited use of subletting regarding minor repairs, alignments, etc.
- Industry recognition, reviewing the shops overall involvement in the industry
- Clean, well-maintained reception area, restrooms, service bays and grounds with the availability to secure vehicles left overnight
- Demonstrates great customer service
- Ideal location within local warehouse reach that is easy to access
- Shuttle service available
Q: Do the participating shops display a Costco banner or other signage denoting membership?
A: Shops do not display signage or banners. This program is an added benefit to Costco membership but it is also designed to bring new business to the shop. By advertising only through Costco channels (online and in the warehouse), we are able to measure how much new business we are able to generate, as well as work with the shop directly to ensure the program benefits both the shop and Costco members.
Q: How much does a shop membership cost?
A: For our dealers, the cost to participate in the program is already included in their monthly marketing fee, and for independents it currently is an annual or quarterly marketing fee, starting around $1,200 per year.
Q: What benefits, discounts, etc. does a shop provide to the Costco-referred customers?
A: They provide a 15 percent discount on parts, service and accessories, including labor, with a $500 maximum savings per use. Some exclusions apply, such as oil changes, tires, air bags and state-mandated inspections.
Q: Are chains welcome to apply?
A: Yes. Our goal is add value to Costco membership; if a chain is able to provide that value in addition to an exceptional experience, they are welcome to apply.
Q: Do you have a quality control/complaint process that the shops adhere to?
A: We have a dedicated team, called the Member Advocacy Group, ready to support both our members and our shops if there is a complaint or misunderstanding. They are available throughout the service experience to facilitate open and honest communications by answering questions, helping members understand the process and transaction details, and working with both parties to ensure a positive resolution.
Q: Costco has had the dealership network for a while; when did the effort start to recruit independent shops?
A: We launched the parts and service benefit in 2011, exclusively with new franchised dealers. In January 2013, we started testing and piloting independent shops in the Southeast to determine whether offering independents as part of the parts and service benefit would be a good fit for the shops and the members. After we determined that it was a good fit – at the end of 2014 – we began developing a plan and a team to recruit and include independents. Now, we are actively recruiting independent shops and have added new shops every month.
Q: How has this program been working out for you so far? Do you have statistics regarding member patronage of these shops?
A: It is working out very well. As of this summer, independent shops make up approximately 5 percent of service centers offered through our program and approximately 14 percent of the referrals for the parts and service discount that were sent to independent facilities.
We also survey Costco members who request a referral to a participating service center to gauge the benefit’s success; approximately 93 percent of those surveyed year-to-date have said that they find the parts and service benefit to be a valuable part of their membership.
Similar to our car buying service, our goal is to bring value to our members, while also driving incremental business to our independent repair facilities and dealer service centers. The discount can be applied to any vehicle in their household and can be used multiple times throughout the year, for savings up to $500 on each repair order. Providing this benefit adds more value to the Costco membership and another reason to become a member.
It’s important to note that we hold the independents to the same standards and objectives as our dealers, and that’s to provide great value and an exceptional experience for Costco members.
Q: Costco has a network of onsite company-owned tire centers that only perform routine maintenance and minor repairs. Will full-service shops be near these outlets, or will territories be defined as with the car dealerships offering repairs?
A: Costco Tire Centers offer installation, rotation, balancing and flat repairs. The full-service shops offer additional services not available through the Costco Tire Center. It complements what Costco offers to address all our members’ service needs. So yes, there will be shops near warehouses with tire centers.
Q: Do you have a list of the participating shops?
A: We want to make sure Costco members who require parts and service assistance submit their request through our program via costcoauto.com or our toll-free number, 855-703-2559. This allows us to monitor and follow-up on their experience to ensure the program is delivering on their expectations. Because of this process, we do not list our participating independent shops.
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