This Retail Giant Could Save You Big Money on Your Next Car

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Almost nobody likes contending with the hassle and stress of buying a car from a traditional dealership. Unfortunately, given the many legal restrictions on auto sales, there's often little alternative for a car buyer.

But one option has been growing exponentially popular lately. It's from a source that few would expect to "move metal." But it's been selling a lot of cars, doing so by sticking to its traditional strength of selling goods at attractive prices.

Believe it or not, this big success on the auto-dealing scene is Costco Wholesale (COST). Let's open the hood and see what would-be car buyers are getting from the retail giant these days.

An Affinity for Autos

Although Costco has become a big-time vehicle seller, don't expect to see Fords (F) or Hondas (HMC) crowding the aisles of its stores.

That's because -- due to those many burdensome legal restrictions -- the big retailer isn't a dealership, and thus is barred from selling vehicles directly. Instead it offers a buying service, Costco Auto Program, for its members.

This service is managed by an outside specialist company, Affinity Auto Group. Affinity is essentially a middleman between buyers and sellers.

Costco, with its roughly 80 million members, represents a potentially huge group of purchasers. As a result, the retailer can require that the over 3,000 dealers it transacts with in Affinity's network promise to beat the prices of other sellers. And Costco manages a network of mystery shoppers to make sure Affinity's sellers follow through on their beat-the-price commitment to the retailer.

For these reasons, shoppers who do their car buying at Costco can save significant dough. A recent Bloomberg report on the subject cited one example of a 2015 Toyota (TM) Highlander. A Costco customer buying through the service paid around $39,000 for the car, $4,000 or so below the manufacturer's suggested retail price.

It's not only the low price that attracts buyers to Costco's virtual car lot. Another advantage of purchasing services like the retailer's is that the price is final. In other words, ideally there's no haggling and no negotiating over the number.

Convenience at a Cost

Costco built its retail empire by delivering lower prices on a dizzying range of goods. Since the car business operates with opaque pricing and often tricky sales methods, the retailer must have sensed an opportunity to disrupt this traditional but consumer-unfriendly business model.

Costco's done a fine job growing car sales since launching the service in 1989. In 2014, through its service it sold nearly 400,000 of them. This made it the country's No. 2 vehicle sales point, behind Auto Nation (AN), with 533,000 cars sold.

That's impressive. But it seems not every one of its methods is customer-friendly. Some users haven't experienced that low-price/no-hassle ideal through the service.

On the blog, for example, several people vented about their experiences in the comments section of a blog post devoted to Costco's auto sales.

More than one complained that the dealerships found by the service engaged in shady practices. These included forcing customers into disadvantageous financing arrangements and adding unanticipated charges to the final invoice.

It wasn't only the dealerships that were the target of the complaints. A few claimed that Costco had passed their data along -- without their knowledge -- to certain dealerships.

Subsequent to that, one reported getting "harassing phone calls and emails on a regular basis from the aggressive dealer reps." Another complained that a selected dealership "immediately started calling us."

"Really, Costco?" wrote another. "Is that how you should treat your customers' personal data?"

Driven to Buy

At the end of the day, thanks to the many often-ridiculous legal protections afforded them -- guaranteed exclusivity within a given radius, to name but one of many -- there's really no way of fully escaping the nation's car dealers.

But those Costco complaints aside, the numbers from the retailer's service are growing for a good reason -- consumers are going the extra mile to cut dealerships out of the process as much as they can.

So it's worthwhile for a would-be buyer to investigate car-buying programs. Costco's is big and powerful, but it's not the only one on the lot. TrueCar (TRUE) is a buying service that has carved out a big slice of the market, while specialty organizations such as AAA operate similar offerings.

Services like the Costco Auto Program have become a big part of the vehicle sales landscape, and as such might be the source of your next ride. See you on the road!

Motley Fool contributor Eric Volkman bought the family Honda at a dealership and thinks he could have done better. The Motley Fool recommends Costco Wholesale, Ford and TrueCar and owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. Check out our free report on one great stock to buy for 2015 and beyond.

Editor's note: Costco has since contacted The Motley Fool to clarify that the Costco Auto Program only provides a member's information to one participating local dealer, and emphasized that members should begin their auto-buying process through or via its toll-free number, so that they can be assured they are working with a Costco-authorized dealer. Prospective buyers who have questions about the process can contact Costco's Member Advocacy Group at 855-703-2559
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