It used car dealerships with 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 auto 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 do your business.
How to start a used car dealer
If you are interested in getting started in this industry, here are some of the basics you need to know.
Conduct market research
Before you can get started as a used car dealer, you need to know what your market looks like. You must first learn about the consumers in your area. What types of cars are they looking for? Where does the price come in? What draws them to a particular dealership?
Then you should know the competition. Is there already an influx of a particular type of car dealership in your area? Is there an opportunity for it to stand out in another way or should it focus on a market that is less saturated?
Choose a location
During your research, you should zero in on one location for your used car lot. Ideally, it should be easily accessible with enough vehicle traffic to attract customers. Start by getting a general idea for the area you want, then work even harder to find an open lot with enough room for all the cars you want to eventually include in your inventory.
identify a niche
Although many used car dealers do not specifically affiliate with a single auto manufacturer, you may still find it helpful to choose a niche for your business. You can sell only one brand of vehicle or even focus on a specific price. This will help you market more effectively to your target audience. As you grow, you can always expand on new brands or price points too.
Learn about the regulations
Used car dealers must 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 buying, among other things requirements. Some states and local communities also have rules that apply to car dealers. So be sure to do your homework on compliance standards before you begin.
Register your business
To officially get started, you’ll need a business license, dealer 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 talk to someone at 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’re probably not franchising with a manufacturer that provides you with vehicles. So you need to get them yourself. Sign up with auctions in your area so you can find low-cost vehicles to sell or get cars from social media. Most independent dealers will need to start small and then build inventory as they make money over time.
Jamie Jones, who has managed car dealerships in the United States for over 25 years, said in a video “As your cash flow builds, your workflow has to build. This is how this works. You have to crawl a bit. Then you get a slightly faster pace. Then you start walking. And then you start running.
Develop purchasing policies
Going forward, you’ll need to come up with a plan to keep your lot stocked with vehicles without draining all of your resources. Whether you’re in charge of stocking your inventory or trusting a team member or partner to do it, it’s important to have a limit or number in mind.
Dale Pollak stated in his book, As I See It: Obstacles and Opportunities Shaping the Future of Automotive Retail, “I propose that every dealer institute a hard limit or cap on their used vehicle inventory investment. Managers have x dollars to spend and manage in any given year, and that’s it.
Develop an online presence
Today, car buyers 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 Repcheckup’s Garrett Smith, it’s important to have accurate accounts and information on online business directories, social media sites, and review platforms. He can also list cars on his website and other marketplaces that people can easily find online to bring more traffic to his dealership.
Consider a service department
Used cars tend to need more repairs and service than newer models. Therefore, you have the opportunity to generate significant additional income by offering a service center directly at your dealership. This could be something you choose to open up after building your dealership income for a while. To do this, you will need a garage, some equipment, and qualified mechanics. Then you can offer specials or incentives for your car buyers to come to your service centers through other auto repair shops.