How to start a used car dealership business
A used car dealership or vehicle local distribution is a business that sells new or used cars at the retail level, based on a dealership contract with an automaker or its sales subsidiary. It employs automobile salespeople to sell their automotive vehicles. It may also provide maintenance services for cars, and employ automotive technicians to stock and sell spare automobile parts and process warranty claims.
Types of used car dealers
- Chain Used Car Dealer
Some entrepreneurs start national or multinational corporations to provide inexpensive used cars to the community. These large chain companies offer the most comprehensive warranties aside from certified used cars from a franchised used car dealer. Also, their cars are typically held to higher quality standards than that of independent used car dealers, due to the standardized checks every car goes through before being offered for sale.
This might mean that they charge more than other used car dealers. When you shop at a large chain dealership, your sales representative might not have the flexibility to adjust prices in real time.
- Franchised Used Car Dealer
When comparing different types of used car dealers, franchises incorporate some of the specific features attributed to both independent and chain stores. Essentially, corporations authorize entrepreneurs to sell products and services under their banner. As a result, many franchised dealerships offer quality assurance and warranty programs that rival those of national chains. Since they are typically owned by local, these used car dealers are free to adjust prices based on the needs of the local community.
- Independent Used Car Dealer
Independent used car dealers sell used cars to their local community and are almost always locally owned. Also, their profits are usually reinvested in the local economy. However, independent used car dealers are not held accountable by a national corporation. This might affect the condition of their vehicles. As a result, consumers face a degree of additional risk when making purchases from independent used car dealers.
- Choosing the Right Used Car Dealer
Different companies provide various types of warranties and financing options. Also, individual used car dealers might have more or less trustworthy reputations. It is important to consider the advice of friends and family when making such a critical decision. Also, consumer reports might shed light on the practices of different used car dealers. Before buying a pre-owned vehicle, a wise shopper should research local providers. Consumer research improves the relationship between used car dealers and the local community.
HOW TO START A USED CAR DEALER BUSINESS
- Secure Financing
- Find a location
- Apply for a license
- Obtain inventory
- Hire staff
- Promote your dealership
1 Secure Financing
The first step in starting a used car dealer business is to secure finance.Visit a bank or a financing institution to check the financing opportunities available to you. Calculate in advance the capital you might need to determining the cost of initial vehicle inventory and operating costs for six to 12 months. Complete the application process to get a loan to finance your new business venture.
- Find a location
Determine whether or not you want to lease or purchase a commercial space for your dealership based on your financing options. Meet with a local real estate agent or commercial property manager to review what locations are available in your area that suit your business needs. Used car dealerships often need office space and an outdoor lot to display vehicles. Have the location you choose inspected to ensure it complies with fire, zoning, health and safety regulations as required by city code.
- Apply for a license
Complete the application process required by your state government to get a license as a used car dealership. Submit proof of meeting zoning regulations, and provide consent for a criminal background check. Obtain a surety bond in the amount required by your state, and complete the registration with the state department of revenue to collect and pay sales tax on the vehicles you sell. Expect an inspection by a representative from the state licensing authority for used car dealerships.
Attend auctions conducted by local government agencies or banks to obtain vehicles that have been seized as part of criminal activity or nonpayment. Once you have initial inventory, you can maintain inventory levels by continuing to visit auctions as well as accepting trade-ins from customers seeking to purchase a vehicle from you.
Recruit sales staff to work with customers and get them to purchase vehicles from your dealership. Hire a finance manager to set up customers with loans if you offer financing through your dealership. If money is a concern when starting your used car dealership, handle many of these tasks on your own rather than paying someone else to do them.
6.Promote your dealership
Place some of your best vehicles or deals near public roadways or sidewalks where people passing by can see them. Utilize Internet advertising by developing your own website or Facebook page. Post ads for free on Social networks, or use eBay to extend the number of people available to see and purchase the vehicles at your dealership.
HOW TO MAKE PROFIT IN USED CAR DEALER BUSINESS
The used car business is very competitive, but there are opportunities for business people with a knowledge of cars and a way with people. Making a profit in the used car business requires skills that including the ability to find quality cars at great prices and the ability to fix cars and make them more valuable. Focusing on the skills you need to make a living in the used car business can help you be more more successful.
- Locate dealer-only car auctions in your area
These auctions are restricted to licensed car dealers. This tends to keep prices lower and provides a good outlet for dealers looking to start their own lots. A steady inventory of reliable used cars is important for those establishing a profitable used car business.
- Establish a relationship with a good mechanic
if you do not have someone on staff who is skilled at fixing cars. An employee who is an experienced mechanic is the best strategy, but using the services of a third-party mechanic can work as well. Making minor repairs to the used cars you buy at auctions or take in as trade-ins can provide you with a hefty profit when you sell.
- Provide reasonable warranties on the cars you sell
While it makes sense to sell low priced used cars on an “as-is” basis, providing a three- to six-month warranty on higher-priced cars helps establish trust and encourage word of mouth recommendations from satisfied customers.
- Advertise your used car business in local media outlets, including newspapers, local Internet sites
If costs allow, a short spot on a local television station can also be quite valuable. Contact your local talk radio station and ask about any public affairs and local business spotlights. These radio venues are an excellent way for new businesses to introduce themselves to the public
HOW TO OPERATE A USED CAR DEALER BUSINESS
Keeping your used car business in operation means taking every step to ensure that you’re an honest dealer. It is especially important for used car businesses to maintain a good, trustworthy image since there’s a good chance that you may have nearby competitors in your local used car market. Going above and beyond customers’ expectations to offer superior service and automobile repairs helps this image and your overall business success.
- Acquire more vehicle inventory at used-car auctions.
- Inspect, repair, and clean the vehicles on your used-car lot to get them ready to be sold.
- Maintain a neat appearance throughout your outdoor car lot and inside showroom.
- Offer warranties on all of your used cars, especially those which you have serviced and repaired
- Greet the potential customers who come to your used car dealership
- Calculate a “bottom dollar” for each of your used vehicles
- Make customer service one of your top priorities in your used-car business.
HOW MUCH DOES IT COST TO START A USED CAR DEALER
The factors involved in estimating the cost of the used car dealership are
1. Consider Location
The first and foremost consideration is to be given to the location. You need to have a large space since vehicles need to be displayed. the average investment for a franchised dealership, which includes the building and inventory of used vehicles, was $11.3 million per dealership.
2. Factors in Margin
A car dealer interested in opening a new shop must also face the expenses involved in purchasing new inventory. In general, it is best to focus on profit margins at this stage, or the amount of money that the dealer can sell the car for over what the dealer paid for it. It does not matter how much the car costs if the profit margin is right
3. Surety Bonds and Warranties
A surety bond is a type of guarantee, that allows the dealer to form relationships with suppliers and clients without fear that the dealer will back out of the deal. For a $25,000 surety bond maintenance can cost between $187 and $2,500 per year. Warranties, if required, only cost a $250 or so a year
4. Other Various Expenses
In general, dealers must receive licensing from the DMV, which can cost around $375 when all related fees are added in. Maintaining a license may cost around $125 per year. Signing up for certain auctions and newsletters may also have associated prices, although some sites and auctions are free to use.
Owning even a small used car dealership entails much more than just putting some cars on a lot and waiting for customers to come along. It requires knowledge of the cars, expertise in their features and differences, knowing competitive prices of similar models and how to arrange vehicle financing. Before you even put the first For Sale sign on a windshield, you’ll need to select a location, understand local licensing requirements and have a plan for acquiring your first vehicles