How to start a successful used car dealership

If you have a genuine passion for automobiles and want to start your own business, then opening your own used car dealership could be a match made in heaven. Running a small or medium car dealership is a great way to get your foot in the door and requires a moderate investment when compared with other business ideas.

However, it doesn’t mean that it’s a full proof business model and if you want your car dealership to actually be successful, there are a few things you’ll have to evaluate first. In this article, we’re going to give you the basics of starting a successful used car dealership.

Evaluate your market

Since you have already decided that you are going to sell used cars, you have to check if there’s the demand for used vehicles in the area you’re thinking of establishing your business in. Choose a potential location for your dealership and research how much used vehicles are sold for within a 15-mile radius. Refine your research to see which types of vehicles are being sold, like estate cars vs sedans for instance. Try to take note of which models and brands are being sold as well. Then start looking at other dealerships in the area and their service offering. If you identify an unfulfilled demand in that market for used vehicles, then it’s time to move to the next step.

Identify who your target clients are

Understanding your clientele is essential if you want to tailor your service offering correctly and know where to direct your marketing costs. Once you’ve identified which type of vehicles you’ll be selling, try to get to know the average age, gender, family structure and income of your average client. You’ll then be able to find out how and where to market to them. And whatever you do, don’t make assumptions and try to get real data.

Consider franchising

Starting your own dealership from the ground up can be a challenge, and many decide to go the franchise route to benefit from an established brand. In addition to getting some brand recognition, you’ll get to sign franchise agreements with car manufacturers who will supply you with quality used vehicles and let you use their marketing material and established branding. However, as a dealership owner, you’ll have to be able to prove that you have the talent and resources to successfully operate a profitable dealership. While there will be some fees involved, in some cases, the rewards outweigh the costs.

Consider offering servicing

If you’re going to sell cars, then it would be wise to offer servicing as well. Used cars are more likely to have issues, and this will allow you to offer a maintenance and repair service to your clients. This will also help you if you do decide to accept trade-ins.

If you have a service department, you’ll be better able to evaluate the cars that are being brought in and see how much you should be offering for them. You’ll also be able to see which vehicles are salvageable, and which ones should be scrapped entirely.

If you’re going to offer trade-ins, it’s also very important that you form some sort of relationship with a local car scrapping operation. You have to find a service that will be able to give you quick quotes and take vehicles off your hands quickly. They also have to be able to offer competitive prices. Over time, you’ll start to become a regular which will make the whole process easier for you.

Calculate your startup costs

Some dealers start with nothing but a free lot and some office space while others decide to go bigger. It’s up to you to know how much you are willing to invest. You also have to consider how many vehicles you’re going to start with. You can start with only a few vehicles and work your way up or immediately start buying vehicles wholesale. You also have to set money aside for promotions, hiring potential employees, and consider franchising and licensing fees as well. Once all of this is calculated, this should give you a general idea of how much your startup costs will be.

Consider financing

If you decide to go big, then you might have to think about financing. Starting a used car dealership business can cost you in the hundreds of thousands, even millions, so unless you already have a lot of seed capital, you’ll have little choice but to seek out a loan. Banks will usually use the cars on your lot as well as any assets that you may own as collateral. They’ll also need to see clear projections and a well-drafted business plan to make sure that their investment is safe, so make sure that you have a professionally drafted plan with realistic projections as well.

Opening a used car dealership can be a great way to get your feet wet in the business and learn the ropes. Make sure that you understand the market first and foremost and consider starting small and learn gradually as you expand.