How to Start a Used Car Dealership

Category: Auto Dealers News
Published: Aug 25, 2022
From California to New York and Alaska to Florida, US towns and cities were designed with vehicles in mind. So, it’s no surprise that cars still hold an important place in the nation’s heart. If, like millions of Americans, you have a love for cars, now could be the perfect time to turn your passion into your profession and open a used car dealership of your own.

Launching a used car dealership business takes work, commitment, and determination. However, with many dealership owners making significant returns on their investments, it could be a great choice for your next career move.

Market Research

The first step in launching your new car dealership is research. You need to find out who exactly your target audience is as this will inform your choice of stock, your brand identity and your business’ USP.

Your market research should include things like customer age, customer interests and the financial stability of potential customers. It should also look at the rival dealerships operating in your area. This will help you to find the best spot for your business, ensure you stock the vehicles that your customers want and give you the edge over rival dealers.

Business Plan

The next step is to write your business plan. A business plan is essential when starting any new venture. Writing and researching the document gives you the opportunity to think clearly and methodically about how your business will be structured, financed, and run.

The more detail you include in your business startup plan, the more useful it will be. The main elements of your business plan should be:

  • An executive summary
  • A description of your company
  • Market analysis
  • An outline of your company’s management and organization
  • An overview of your products and services
  • A marketing plan
  • A logistics and operations plan
  • A financial plan

Used Car Dealership Startup Costs: Additional and Ongoing Items

If your auto dealer business is going to be successful, you need to get a handle on your finances. There are numerous costs involved with launching any type of small business. Some of these, like rent, wages, marketing and insurance payments, will be ongoing, while others, like your business registration fee, will be one-off.

You’ll also need to factor in the cost of getting your dealer license, setting up your limited liability company (or sole proprietorship) and buying stock. Once you’ve secured your license and have started trading, you’ll need to pay for dealer plates if you want to take customers out for test drives. A dealer plate can cost up to $100 depending on your state, so it’s important to add this in when doing your sums.

Can You Start a Car Dealership with No Money?

A lot of used car dealers work to very tight margins and many operate with limited financial reserves in the bank. However, there are some startup costs that are unavoidable and it’s not really feasible to start a used vehicles business without any money at all.

For a start, even if you don’t pay out for an expensive showroom, you’ll still need cash to secure your professional business license. Having money available to put into social media marketing campaigns, buy cars for resale and maintain any vehicles you own will also make it easier to launch your new venture with a bang.

Apply for Your Dealer License

Getting your dealer license is one of the most important parts of starting your limited liability company and launching your new business. In order to get a license, you’ll need to contact the authority that handles dealer licenses in your state (this is often the DMV) as they’ll be able to give you a detailed breakdown of the licensing requirements you need to meet and provide you with the correct application forms.

Most states have two main types of auto dealer license.

  • New dealer license
  • Used dealer license

If you choose a new car dealer license, you’ll be able to buy and sell new cars as well as used vehicles. You’ll also be able to buy cars at auctions. If you choose a used car dealer license, you won’t be able to sell new vehicles but will still be able to buy at dealer-only auctions and deal in used cars.

Some states also offer a wholesale dealer license. Unlike new and used dealer licenses which allow holders to sell directly to the public, a wholesale license only lets dealers sell to other registered dealers.

You’ll also need to post an auto dealer bond in order to secure your license. The cost of an auto dealer surety bond will vary depending on your location, the type of business you plan to run and the types of cars you plan to sell. Your bond premium will be a fraction of the total auto dealer bond amount. The exact amount you’ll pay will depend on your credit score, your experience in the automotive industry and your history as a business owner.

Choosing the Right Location

As with any customer-facing business, location is very important when opening your own car dealership. Your car lot will need to be somewhere that’s easy for customers to get to. It should also be somewhere that’s highly visible as this will attract passing trade and help to boost business.

Choose somewhere that isn’t close to other dealerships so that you have a captive audience. Alternatively, find a location near existing car sales businesses to create a destination for people looking for new vehicles.

Do You Need a Physical Location to Sell Cars?

Most states require car dealers to have an office where they keep files and records. New and used dealers are also generally required to have a lot where they are able to display the vehicles they have for sale. Your business location will need to meet the rules and regulations set out by your licensing authority before you’re able to start selling cars.

Building Inventory

You’ll need to invest in inventory for your office as well as for your car lot. In the office, you’ll probably need a choice of admin supplies, furnishings and tech tools. This will include things like desks, chairs and tables, computers and printers and office supplies.

Outside in your lot, you’ll need to build up enough of an inventory to get customers interested. Look at your market research when deciding which types of cars to buy. If you think your potential customers are young families, look for large, reliable vehicles with plenty of storage. If you think they’re likely to be professionals, you could go for more upmarket, pricier vehicles, while older people will often look for good value cars they can rely on.

Where to Find Used Cars to Sell?

There are various marketplaces you can explore when building your inventory. A good place to start is a dealer-only auction. These auctions often give you the opportunity to pick cars up at a great price, increasing your opportunity for profit when selling on.

Dealer-only auctions in the US include:

  • ADESA
  • Copart
  • ACV Auctions
  • Manheim
  • DAA

You can also look in online marketplaces like eBay and at other local and online listings. Ask friends and family to recommend you to people they know looking to buy or sell a car and post about your services on social media. Word of mouth is a very powerful marketing tool, so make sure everyone you know is aware of your new venture.

How Profitable Is Owning a Used Car Dealership?

Owning and operating a used car dealership can be very profitable. As a car dealer, you can make up to 15% on every motor vehicle you sell. So, the more you sell, the more money you’re likely to make. You can attract customers to your business by giving them a warranty and by offering a low interest rate on any finance you provide.

You can also maximize profits by selling cars yourself instead of paying a salesperson. Cutting out unnecessary wages is a good way to keep expenses down and keep more of the money you make for yourself.

The US used car market is growing fast. According to recent figures, it’s expected to be worth US$ 2,120.5 Bn by 2027. So why not launch your dealership today?

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Robin Kix

Robin Kix is currently the Renewal Department Manager. Since joining Lance Surety in 2014, she has helped thousands of businesses throughout the nation remain compliant at the federal, state and local level. She has significant experience supporting commercial bond lines, particularly in the automobile, transportation and construction industries. Robin and her team work together to create a positive customer service experience at the time of every policy renewal, whether that be finding the best pricing or offering additional assistance.

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