Do you want to start a car dealership business? If YES, here is a full analysis of how car dealerships work plus 17 smart ways to make money as a car dealer.
In order to have a grasp of how car dealerships work and how they make their money, it will be better to first understand the car dealership industry, and here is a preview of the industry.
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Car Dealership Industry Overview
Operators in the car dealership industry sell and buy both brand new and used cars and they may fall in any of the following niche areas; brick and mortar car dealership shops, online used car dealership shops, locally produced car dealership shops, imported car dealership shops, luxury car dealership business, multi – brand and multi – maker car dealership.
Some of the recently released statistics has it that the total annual revenue for used car dealership in the United States of America is US$370 billion with an annual growth of 2.4 percent. No doubt, with massive annual sales of nearly US$370 billion, one can confidently say that the used vehicle dealership industry represents almost half of the United States’ auto retail market and it is of course the largest retail segment of the U.S. economy.
Available records show that, in 2005, approximately 44 million used cars were sold in the United States. The average price of used cars in the United States is $8,786. The industry has 127,940 registered car dealership businesses that employ a total of 237,788 people.
It might interest you to know that in the United States used car dealership market, the top four major players account for less than 20.0 percent of industry revenue in 2015, with the biggest used car dealer, CarMax dealership, generating about 12.6 percent of revenue. Recent findings also indicate that the industry concentration has increased over the last five years prior to 2015.
The automotive industry with reference to both brand new and used cars dealership, is indeed flourishing because more and more consumers are becoming aware of the need to cut unnecessary spending as it relates to purchasing cars, insurance policies and the need to sell used cars as fast as possible.
Authorities in the industry projected that in 2017, the used car dealership shops industry is expected to profit from growing global economic conditions. Per capita income levels have scaled across the globe and the growing middle classes in emerging economies have looked to purchase their own cars.
How Car Dealerships Work
As the demand for used cars increase, used car dealership garages will make more sales. A decline in demand for new automobiles has stimulated increased sale of used cars. Steady growth in economic conditions will create avenues for consumers to release pent-up demand for used cars, hence the increase in demand for upstream supplies.
One notable trend in the used car dealership industry is that most used car dealers are leveraging on online stores to sell their used cars to a large market. As a matter of fact, it is easier to sell and export used cars from the United States and Canada to countries in Africa.
Please note that in order to work as a car dealer and make money in most countries of the world, you are required to apply and obtain a car auction license or car dealership license as it is called in some countries. If you live in the United States of America, then here is the process to follow to;
Getting a Car Auction License in USA
Every state in the USA makes it compulsory to obtain a car auction license before you can participate in car auctions (i.e. the buying and selling of brand new and used cars) in any part of the country and it might interest you to note that despite the fact that there is a standard procedure to follow in obtaining a vehicle dealership license, it involves several steps.
The process of getting your license involves purchasing a car dealer bond which is also known as a motor vehicle dealer bond or an auto dealer bond and you can get information about this from your local DMV (Department of Motor Vehicles) or DOL (Department of Licensing).
You are expected to fulfill the condition as stipulated by your state and then register your business, meet the zoning requirements, attend a pre-licensing seminar, provide proof of insurance and of course pass a background check.
Other steps that you are expected to follow through before getting your car auction license in the United States of America are filling a car dealer license application, purchasing Motor Vehicle Dealer Bond, and lastly, submit your car dealer license application alongside your car dealer bond, proof of insurance, and all other necessary papers to your local DMV or Auto Dealer Licensing Service Department and wait for feedback. You will be contacted to come collect your car auction license once it is out.
7 Direct Ways of Making Money as a Car Dealer in USA
Interestingly, there are different ways of making money as a car dealer in the United States of America, it goes beyond just buying and selling of cars, you must be able to carve a niche for your business and reach out to your target market.
For example, you don’t expect a ‘Top – Rated’ celebrity or superstar to patronize your car dealership garage if you only sell used cars or even the average brand – new car. In essence, if you are targeting superstars and top-rated celebrities, then you should go into the sale of luxury cars.
1. Making Money as a Franchise Car Dealer (Owing a Franchise Dealer License)
One of the ways that car dealers make money is to operate as franchise dealers and operating as a franchise dealer requires that you apply and get the appropriate franchise dealer license. Franchise dealer license gives you the opportunity make money by selling new motor vehicles under an agreement with a manufacturer.
The agreement could be commission based or on a percentage as agreed by both parties and it could be on a car sold or the number of cars you are expected to sell over a period of time.
Interestingly, operating as a franchise car dealer also gives you the permission to make money by selling used motor vehicles and also, you can make money by servicing the brand of cars that you sell. This is so because franchise car dealership license gives the licensee the privilege to service the makes of vehicle that they sell.
2. Making Money as an Independent Car Dealer (Owning an Independent Car Dealer License)
Another way a car dealer can make money is to operate as an independent car dealer. Please note that in the United States of America, you are expected to apply and get the required license (independent car dealer license) before you can legally operate as an independent car dealer.
If you have an Independent Dealer License, you will be able to legally buy and sell used motor vehicles at the retail or wholesale level. You are permitted to participate in auction where you can out-rightly purchase cars, fix them and sell at your own rate. So also, you can sell on behalf of a client based on an agreed commission or percentage.
3. Making Money as Wholesale Car Dealer (Owning a Wholesale Car Dealer License)
Operating as a wholesale car dealer is yet another way that car dealers make money in the United States of America. Obtaining a wholesale dealer license gives you the right to buy, sell and deal in motor vehicles exclusively wholesale or with motor vehicle auctions.
Although, it might be expensive operating as a wholesale car dealer, but the rate of your turnover is huge; you are permitted to fix prices based on your discretion or by bidders when you call for auctions. You are not going to be working on any percentage because you are your own boss.
4. Making Money from Your Car Dealers Network
Car dealers leverage on their network to sell their cars. As a car dealer, you don’t necessarily need to have all brands and specs of cars in your garage before making money. Part of what you need to do is to ensure that you belong to a robust network of car dealers both within and outside your community and you have updates of what they have per – time in their garage. With that, it will be easy for you not to turn down any customer based on the fact that you don’t have what they are looking for.
For example, if a client comes to your shop and he is looking for Lexus 470, 2015, Sky – Blue color and you don’t have it, all you have to do is to make calls and inquire from members of your network to know who has the car in their garage and arrange for the car to be brought to your shop. With that, you can make some percentage from the sale of the car based on your agreement with the owner of the car.
5. Making Money as a Freelance Car Dealer Agent
Another means of making money is to operate as a freelance car dealer agent by selling used cars. One good thing about used the car dealership business is that you can start this business without money and still make profits because you can convince people who are looking towards selling their used cars to drop it with you, while you help them source for buyers, so as to get a percentage once you are able to sell off the car.
The truth is that if you are trustworthy and dependable, it will be easier for people to trust you with their used cars and wait while you help them sell. If the deal pulls out, it will be a win – win for both parties. You will make your profits and the owner of the car will make money off his or her used car. In other words, you would be automatically helping them get rid of the used car they do not want and in turn make your profit.
6. Making Money from Online Car Garage
You don’t necessarily need to own a brick and mortar garage before you can make money as a car dealer in any part of the world. As a car dealer, you can make good money by operating an online car garage business. All you need to do is to ensure that you have excellent pictures of different sides of the cars you intend selling on your website and also ensure that the specifications of the cars are posted alongside the picture.
Interestingly, loads of car dealers are leveraging on online car garage platform to sell their cars not just within their geographic locations but from all across the world. For example, it is easier for a client in Nigeria to buy a car from the United States or Canada from an online store and have the car shipped to them without stepping his or her foot in US or Canada.
9 Indirect Ways of Making Money as a Car Dealer with Car Auction License
Irrespective of the status of your car dealership license, you stand the chance of making money directly from the selling of cars or from owning a car dealership license especially if you live in the United States of America. The truth is that the advantage of getting a car auction license in the US is enormous and here are some of them;
- A car auction license gives you the opportunity to make money by going into private wholesale dealer auctions.
- With a car auction license, you can make money by going directly to new-car dealerships to buy wholesale cars with “closed bids”
- With a car auction license, you can save money for yourself, family members and friends by taking the advantage of purchasing wholesale cars for yourself, your friends and family members.
- As a car auction licensee, you can make as much money as you can by selling as much cars as you can sell. This is because you don’t have a state limit to how many cars you can sell per year. It gives you leverage in the industry hence you will be able to multiply your turnover
- Owning a car auction license as a small business owner qualifies you for gold corporate credit cards, small-business loans and other fringe benefits.
- As a licensed car dealer, you can make money by exporting cars from the United States to other countries of the world.
- As a car auction licensee, you can get tax rebate hence more money in your bank account
- With a car auction license, you can become a legal auto broker in the United States and make cool money based on percentage by just brokering a car sale / purchase deal.
- As a car auction licensee, you are qualified to get dealer discounts and make tax-free purchases from almost any business including factory car dealers and parts stores. This guarantees that you will save up some money.
In Wrapping Up
When starting a car dealership garage business, you just have to get your costing cum economic analysis right if your intention of building the business is to make money (generate profits), grow the business and perhaps expand and start exporting used cars to other countries.
In as much as you will make money as a car dealer, you should be aware that you are expected to sometimes spend unexpected money in fixing cars before selling them. It is important to note that spare parts replacement cost is one of the most important factors contributing to the overall cost of a used car dealership garage business and should be considered as a major factor when carrying out your costing and economic analysis.
Please note that making money does not deprive you of spending on your running cost especially if you own a standard car garage. For example, the cost of setting up and operating a full-service car dealership garage facility which has the following; car wash or car washing facility and mini auto repair, maintenance and servicing garage will be part of where you will be spending the money you make.