August 13, 2020 Last updated August 13th, 2020 117 Reads share

How to Start a Used Car Dealership Business

Image Credit: DepositPhotos

Used car dealerships bring in billions of dollars each year. Many consumers prefer purchasing a used car as they want someone else to experience the initial depreciation when a car is first sold and driven off the lot. And with cars being built to last for years (most cars will last an estimated eight years or 150,000 miles or more), customers feel very confident that a used car purchase is a smart investment.

This article is designed to provide some helpful information for those considering opening a used car dealership.

Develop a Business Plan

As with any business, it is important to start by documenting your business plan. Templates for business plans can be located easily online, and are designed to allow the business owner to document critical information about the business.

There are many reasons to develop a business plan, including:

  • To prove that you are serious about starting a lawful used car dealership
  • To help you establish critical milestones that you wish to accomplish with your business
  • To help you understand your competition
  • To ensure you understand your customer and target market
  • To determine your financial needs and how you will achieve funding to get started (and pay off money you may have borrowed to get started)
  • To manage expectations for your employees

Location

Leverage your business plan to determine the size of the lot that you will need. Your business plan should include information on the number of vehicles that you will need to sell each quarter to help you meet your business objectives. You will want to ensure that your car lot location is large enough to house those cars, but not so big that you will have too many empty spots.

Seek out a plot of land (or a vacant commercial building) that will satisfy your business needs, and that is within close proximity of your target audience.

How Will You Finance Your Car Dealership?

Your business plan should include documentation on the funding you will need for your business. This document can then be shared with various small business loan providers to see if they will provide funding to you. There are a variety of small business loans available, so be sure to research the option that will work best for your needs.

Register Your Business and Get Licensed by the Government

Many business owners or those who desire to start a business, go through the process of registering the business and obtaining government licensing while the business plan is developed. If you have not yet registered your business, now is the time to do so. Here are the key steps you will need to take.

  • Select the name of your LLC (limited liability company). To do this, start by searching the local Secretary of State website to see if your desired car dealership name is available.
  • Apply for a Federal Tax Identification Number (FEIN) with the Internal Revenue Service (IRS).
  • Complete the articles of organization and pay any applicable registration fees.
  • Develop your LLC operating agreement.
  • Complete any remaining steps as required by your local Secretary of State. In many cases, consulting with a business attorney can help reduce business risk and ensure that the appropriate steps are not missed.

Buy Your Cars and Acquire Vehicles to Sell

Used car dealerships obtain their inventory in a variety of ways. A great way to get some cars is through outward advertising in local newspapers and on social media. Advertisements with messages such as “get cash for your car” can be intriguing to potential customers who are ready to sell their cars and buy a new, used car.

Dealerships also obtain their inventory through trade-ins, auctions, and rental companies.

Get Quality Staff

No car dealership will be successful without the appropriate high-quality staff. Most used car dealerships start small with just a few critical staff members. Preliminary roles may include:

  • Sales manager
  • Sales associate
  • Finance manager
  • Receptionist
  • Parts manager
  • Mechanic

As the used car dealership grows, more roles may be added.

Legal Considerations

Used car dealerships are required to abide with federal and state laws. A great place to start is by researching the Federal Trade Commission’s (FTC) Dealer’s Guide to the Used Car Rule. Per the FTC, used car dealerships that plan to sell or offer for sale five or more cars within 12 months, must comply with the Rule.

Used car dealership owners will also need to obtain the necessary bond. These bonds, called surety bonds, are financial guarantee agreements that protect consumers and businesses from fraud.

You will also want to research lemon laws within the state that your used car dealership will operate. Though few states offer used car lemon laws, it is important to understand if your state is one of them.

Develop an Online Presence

The used car market is highly competitive. Further, today’s customers do a lot of homework before purchasing a used car. If your dealership isn’t online, it is highly likely that you will be missing out on revenue.

Digital marketing, another term for online marketing, includes channels such as email, social media, mobile, and of course, your website.

Check this list of some trusted of auto sales platform.

How Much Does a Used Car Dealership Make?

Used car dealership owners can make a pretty lucrative salary that is far above the national median. The typical car dealership owner will make just under $100,000 annually. Of course, the number is highly volatile base on the number of vehicles sold each year, and other operating expenses.

The Bottom Line

Starting a used car dealership business requires many considerations. However, with the proper planning and research, it can be a highly competitive yet fulfilling business venture. Used car dealerships that provide reliable cars and excellent customer service will be sure to benefit from word of mouth and repeat business for years to come.

used car lot -DepositPhotos

Daniel Bailey

Daniel Bailey

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