How to Start a Successful Car Dealership (800-1k)
With the popularity of SUVs and crossovers at an all-time high in the USA, many automakers have decided to completely halt the production of their sedan and hatchback nameplates. It’s certain that there will be no more new or improved Ford Hatchbacks around moving forward, or at least for a while. That means hot-hatches such as the Fiesta ST, Focus ST, and Focus RS will no longer grace the back streets of suburbia with their power-packed engines and corner roasting antics. While the transition over to the more versatile and practical SUV and crossover body styles makes sense, there will be many car enthusiasts heartbroken to see the end of the accessible, fun-to-drive, and quirky pocket-rocket class.
Despite the compact nature of hatches, which made them nimble and easy to drive and park, they were still always perfect for hauling friends around and proved decently practical thanks to their spacious cargo hatches behind the back seats. That means even the more casual drivers that may have appreciated the small yet practical cars will have to settle for the more expensive and larger-in-size SUV or crossovers. That being said, however, this may present an opportunity for entrepreneurs to take advantage of. With so many hatchbacks taken out of productions, establishing a second-hand car dealership focused around hatchbacks, may just be the move to pursue, considering the new gap in the market.
The Basics of Establishing a Used Car Dealership
The used car market pulls in an attractive amount of revenue every year in the USA. New vehicles and upgraded versions of existing models are being released year on year by the progressive automobile industry. As a result, car owners capable of upgrading to those newer cars on a routine basis or simply just wish to sell their current auto’s, are always in abundance. Because of this, there are many successful privately owned used car dealers that stock a wide variety of vehicles, which along with the lowered prices, targets a diverse array of appeals. So even if nobody remembers the driving glory that hot-hatches offered, the risk of missing the gap can be mitigated.
Formulate a Business Plan
As with any startup business, there will have to be a lot of planning and research done before going about establishing an independently run used car dealership. To improve the chances of success, every possible internal and external consideration will need to be taken into account, you’ll need to comprehensively look into things such as:
- Market Research – The target audience for used cars will first need to be identified after which a comprehensive level of information will need to be gathered on that audience. Information such as:
- What used cars are most commonly purchased by the audience?
- What’s the average amount of money the audience is willing to spend?
- In what areas do a high percentage of the target audience reside in?
- Competition – Once the target audience has been determined, then the existing used car dealers catering to those audiences will need to be identified. You’ll need to consider how much of the market share each competitor holds and where these dealers are located. This should help reveal where the most viable location is for the brick and mortar location.
- Location – Once enough information on the market has been accumulated, an ideal location for the physical dealership will need to be found. The best possible location must be identified in order to ensure that the right audience will have convenient accessibility to the offerings. This is something the market research in demographics and competition would reveal.
- Financials – Here, one will want to found out what the initial costs are of establishing a dealership and what the running costs will be going forward. The average purchasing costs of used cars and the typical markups secondhand dealers apply will also need to be determined in order to get an idea of the starting capital required to get started, what buying policies to develop, and to determine when the business will break even and begin making a profit.
- Name and Brand – Once the business idea has been deemed viable, a company name and brand identity can be created. This will revolve around what the market research suggests the target audience would appeal to.
Comply with the Legalities
There are a lot of laws and regulations around starting a business and a used car dealership in specific.
- Selecting the Appropriate Bussiness Structure – Every formal business owner has to first determine what legal business entity their business should fall under. This will separate the individual’s personal liability from the business entity’s.
- Registering for Tax – In the USA, it’s required that every business register for both state and federal tax processes. This is the law and could also prove beneficial for a startup enterprise.
- Obtain the Relevant Permits and Licenses – Selling from a vehicle lot and dealing in used cars are just some of the practices that require the possession of certain permits or licenses. Operating without the necessary legal papers may lead to costly fines and even closure.
- Finding Business Insurance – Covering aspects of the business is highly recommended for all new business owners. This will potentially assist the owner in covering costs when an unexpected incident occurs that affects the business financially, from theft and damage to worker compensation and more.
- Opening a Business Bank Account – Having a bank account and credit card separate from your personal accounts are vital to effectively running a business and protecting your own assets. This will also aid in building a good credit score for the business and subsequently improve the chances of future investment.
Build an Inventory
As a used car dealer, you won’t be purchasing cars directly from manufacturers and will need to source your own supply. Here are some ways:
- Register with local auction houses
- Browse social media market places
- Approach your personal network
- Advertise that you buy used cars
In order to effectively and efficiently run a business, you will need to hire some permanent staff to optimize performance and assist in the daily procedures of the dealership. Some of the staff positions to consider are:
Once everything is in place, you will want to get the word out there that your company is up and running and ready for business. There are countless ways to advertise and promote a business, from a store opening event to online posting. Even offering test drives and including reviews of the lot’s vehicles on your website could invite interest. Some other options include:
- Social media posts
- Online advertising
- Cold calling
This basic guideline serves only a very rudimentary approach to the very complex and risky endeavor of establishing a startup. The automotive industry is a highly competitive one and the new and used markets, both notably saturated. But with the slow disappearance of sedans and hatchbacks, in particular, there’s somewhat of a viable approach in tackling the market, specifically with a focus on these body styles. The opportunity lies in how rare they may become over the next few years which could increase their value or in how affordable they may become as low-demand cars, increasing their accessibility to the market.