The Tips, Insights, and Resources You’ll Need to Start a Used Car Dealership
In this post, you’ll find a large unique collection of handpicked resources that can help you start your used car dealership.
Before you get to the resources where you’ll get all the fine details, let’s go over a few important issues to consider about your dealership.
A used car dealership can be extremely profitable if you perform a few critical steps. One key is purchasing vehicles that are in demand and desirable. Another important key is the profit is determined by how much you purchase the vehicle and the cost of repairs.
Buying a vehicle at a great price with little repairs can make you a decent profit. If you pay too much for a vehicle, you won’t be able to make a profit. If you purchase a vehicle for a great price, but you end up paying a lot of money for repairs, you won’t make a profit.
The whole idea can be summarized as the following, “Buy Desirable Vehicles That Don’t Need Expensive Repairs, at a Great Price!”
Are You Suited for This Opportunity?
To succeed in any business, you need to be interested in what you’re doing. If you’re not interested, you can’t give it your best. When challenges appear, you’ll be thinking of getting out of the business rather than looking for solutions. Passion and determination are one of the requirements to succeed.
For example, It’s been a month, and you have many vehicles on the lot, and sales are slow. You may start to think, Hmm, maybe I should get into a different business.
If you’re dedicated and passionate about your dealership, you’ll come up with ways to make sales when you’re in a sales slump. The ideas are only limited by your imagination, and your imagination is limited by your passion.
For more see, Passion – An Important Key You Need to Succeed in Business.
Do You Have the Necessary Skills?
Running a business requires a certain skill set. You can put it in two categories. The business skills and the second in this case has to do with buying, selling, and servicing vehicles.
If you have the background for buying and selling cars but don’t have business experience, you can learn how to run a business. It’s the same if you have a business background but not a lot of experience buying and selling vehicles; you can learn that part.
Naturally, when you’re in the learning stages, you don’t want to make big decisions if you’re not sure of something. You can always find someone experienced in either area and consult with them when it comes to big decisions. For more on the business skills you can expect, see, How to Run a Business – A Quick Look Into Skills You’ll Need
Points to Consider Before Starting a Used Car Dealership
Pros and Cons
As with any business, there are pros and cons; below are a few to consider for a used car dealership.
- You’re the boss.
- You have the potential to make large profits.
- The business is expandable.
- It’s enjoyable to go to an auction.
- You can build a strong customer base with the right people skills.
- Car sales are impacted by the economy because they are high ticket items.
- Vehicles have hidden problems.
- If you can’t make sales, you have a lot of Floor plan financing costs.
- Competing with new car dealerships can be challenging, with their financing and warrantee deals.
Dealership Setup Options
Have you considered what type of used car dealership you’ll be opening? You can specialize in certain vehicles, such as imports. Or you can specialize in a certain make or category, for example:
- Domestic Vehicles such as Ford, Chevrolet, Chrysler.
- Asian imports like Toyota, Hyundai, Kia, Subaru, Acura, etc.
- European imports such as Mercedes, BMW, Audi, Volkswagen, etc.
- Jeeps and off-road vehicles.
- Muscle, cars.
- Classic cars.
- Exotic cars
Even if you specialize in certain vehicles, that doesn’t mean you can’t have other brands on your lot. Sometimes you’ll get trade-ins, and you won’t have a choice. Specialization would mean the majority of your vehicles fall under a certain category. Even new dealerships have cars that don’t fall under their brand because these are trade-ins.
Will you include a maintenance and repair service? Some advantages of including an onsite maintenance and repair facility include the following:
- When you purchase a vehicle that requires repairs, it could be cheaper to repair it at your own facility than send the vehicle out for repairs.
- When sales are slow, you can generate revenue from your repair service.
- Suppose there is a problem with a vehicle a customer purchased. In that case, you can resolve it by repairing the vehicle in-house, quicker, and cheaper compared to having it repaired elsewhere.
- When you have a repair service, you can extend your warranty because you’re performing the repairs in-house.
- You can perform detailing to make your vehicles stand out on your lot.
Will You Do All the Work Yourself or Hire Employees?
Are you planning to do all the work yourself, or will you hire someone for sales, a manager, and possibly a mechanic? Naturally, this will depend on the size of your business.
If you’re starting off small, I would suggest doing everything yourself. You’ll gain experience, keep your cost down, and have a better understanding of what jobs to hire when it’s time to expand.
For more, see:
What Type of Company Structure Will You Setup?
When running a business, whether large or small, you need to register. There are different types of structures to choose from, and each has pros and cons. The easiest is a sole proprietorship. It also has the least protection for your personal assets because you and the business are considered as one.
A corporation protects you because the corporation is a separate entity. In case of a lawsuit, the suit is against the corporation and not you as an individual. A corporation offers you more protection compared to a sole proprietorship.
Suppose you’re unsure what type of structure to use. In that case, you can consult with an accountant and lawyer; for more see, How to Register Your Business Using These Resources.
Your startup cost is impossible to determine unless you have a clear plan. For example, a few questions that come to mind are:
- Where will you locate your operation?
- Will your dealership include a service shop?
- Will you buy or rent your lot?
- How many vehicles will you start with?
Once you have a plan, you can get an estimate of the startup funding you’ll need.
For more see, Estimating Startup Costs: Are You Missing Anything?
You’ll need excellent coverage for a dealership. You’ll need a dealer plate that will allow the customer to test drive the vehicle and have insurance coverage while on a test drive. You’ll also want coverage for fire and theft for all the vehicles on your lot.
In the resources further down the page, you’ll find companies that offer insurance for dealerships. It’s to your advantage to contact them or any experienced insurance broker to get an overview of what coverage you’ll need and get an estimate of your monthly costs.
Getting the Word Out and Getting Customers
You could visit all the mechanics and body shops in the area and talk to the owners to see if they would be interested in a joint venture. Every referral that turns into a sale would result in a referral fee for the shop that sent them. This could be a flat fee or a percentage of the sale price.
Repair shops are good candidates because some repairs are extensive and could be more than the vehicle’s value. This is where the owner would refer their customer to your dealership.
You could also refer your customers to get their vehicles repaired at the shops you have a joint venture with. Naturally, if you have your own shop, you’re not going to compete with them. This joint venture will work well for the service you don’t offer or if you don’t plan on a repair and maintenance facility.
To make sales, you need to offer value, such as financing, warranties, etc. Once you have identified the value or selling points, you’ll be focusing on those points as you advertise your business.
You need to offer vehicle financing because many customers won’t have the cash to purchase a vehicle. This doesn’t mean you need to finance the deal yourself.
You could find a finance company to work with. You may need to work with a couple. One that deals in high-risk loans and charges a high-interest rate and others that offer a better rate to customers with good credit. When you master the art of getting your customers approved, you’ll make more sales.
When you offer decent warranties, you’ll make more sales. One of the reasons people opt for new cars is they don’t want the headaches of repairs.
You can offer a warranty covered by your dealership, or you could use an external company specializing in used vehicle warranties. Your main goal is to offer peace of mind to your customer. You could even pay for the warranty and roll it into the price. You want to make sure your customer understands the warranty is from another company.
Stratification Garanateed or Bring It Back
You could offer a trial period for the owner to try out the vehicle; if they don’t like they can bring it back and choose another or get their money back.
Will people return their vehicle with a money-back guarantee? Yes, you will get some returns, but you have reduced the customer’s risk to zero with this deal. Your increase in sales will out weight the small number of people that have returned the vehicle.
You can add your ideas to the examples above. Once you have put your list together, start to advertise those features. You can look into some advertising fields, including your local Newspaper, Radio, and Local Advertising methods. Online advertising is another avenue you can take.
A Word of Advice:
A used car dealership can be profitable and satisfying to operate. One word of advice, be careful of the vehicles you purchase because of the problems they may have. You don’t want to purchase a problem just to pass it on to your customers. Instead, you want to avoid passing on a problem to any customer.
It should be a priority to do the very best you can to identify problems with vehicles before you purchase them. You may have a system where you inspect the vehicles using a checklist or do your research before you make a purchase or a combination of methods. Create a system that works for you.
If you do find a problem with any car, make sure your customer is aware of what they are getting into. It’s better to have customers that trust you and when you put your ethics and values in place from the start you’ll have loyal customers and a clear conscience.
As mentioned earlier, you have reached the resource section. There are a lot of articles and sites to go over. You won’t be able to go through all the information from one visit. The good news is the resources are here anytime you want to use them.
Good luck with your startup.