Used car dealerships brought in more than $118 billion in revenue this year. This business may be perfect for those who are interested in selling cars without having to franchise through a major automotive manufacturer.
Many used car lots are independently owned and include cars of various makes, models, conditions and prices. So there’s plenty of room for you to make the business your own.
How to Start a Used Car Dealership
If you’re interested in getting started in this industry, here are some of the basics you need to know.
Perform Market Research
Before you can get started as a used car dealer, you need to know what your market looks like. You should learn about the consumers in your area first. What types of cars are they looking for? Where does price come in? What attracts them to a particular dealer?
Then you should get to know the competition. Is there already an influx of one particular type of car dealer in your area? Is there an opportunity for you to stand out in another way or should you focus on a market that is less saturated?
Choose a Location
During your research, you need to zero in on a location for your used car lot. Ideally, it should be somewhere easy to access with enough vehicle traffic to attract customers. Start by getting a general idea for the area you want, then focus down further to find an open lot with enough space for all the cars you want to eventually include in your inventory.
Identify a Niche
Even though many used car dealers do not specifically affiliate with a single auto manufacturer, you still might find it useful to choose a niche for your business. You could sell just one brand of vehicle or even just focus on a specific price point. This will help you more effectively market to your target audience. As you grow, you could always branch out into new brands or price points as well.
Learn About Regulations
Used car dealerships do need to comply with the Federal Trade Commission’s used car rule, which states that dealers must include a buyer’s guide for each vehicle and allow buyers to inspect the vehicle before purchasing, among other requirements. Some states and local communities also have rules that apply to car dealerships. So make sure you do your homework about compliance standards before starting up.
Register Your Business
In order to officially get started, you’ll need a business license, dealer’s license and you’ll probably need to register with the DMV in your state. Specific processes vary by state and local community. So check with your state and local governments or converse with someone from your local chamber of commerce to make sure you meet the necessary requirements in your area.
Build an Inventory
When starting a used car dealership, you probably aren’t franchising with a manufacturer who provides you with vehicles. So you need to source them yourself. Register with auctions in your area so you can find low cost vehicles to sell, or source cars from social media. Most independent dealers will need to start small and then build inventory as you earn money over time.
Jamie Jones, who has managed car dealerships across the U.S. for more than 25 years, said in a video “As your cash flow builds, you’re workflow has got to build. That’s just how it works. You kind of have to crawl a little bit. Then you get a little bit faster pace. Then you start to walk. And then you start to run.”
Develop Buying Policies
Moving forward, you’ll need to come up with a plan for keeping your lot stocked with vehicles without draining all of your resources. Whether you’re in charge of stocking your inventory or relying on a team member or partner to do so, it’s important to have a limit or number in mind.
Dale Pollak stated in his book, Like I See It: Obstacles and Opportunities Shaping the Future of Retail Automotive, “I propose that every dealer institute a hard cap or limit on their used vehicle inventory investment. Managers have X dollars to spend and manage in a given year, and that’s it.”
Develop an Online Presence
Today, car shoppers do a ton of research online before even heading to a dealership. That means there needs to be enough information about your business and the products you offer on those relevant online platforms. According to Garrett Smith of RepCheckup, it’s important to have accounts and accurate information on online business directories, social media sites and review platforms. You might also list cars on your website and other marketplaces that people can easily find online in order to bring more traffic to your dealership.
Consider a Service Department
Used cars tend to need more repairs and service than newer models. So you have the opportunity to build in a significant extra income by offering a service center right at your dealership. This might be something you choose to open after building your dealership income for awhile. In order to do this, you’ll need a garage, some equipment and skilled mechanics. Then you might offer specials or incentives to keep your car buyers coming to your service centers over other auto repair shops.
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