Are you about starting a used car dealership business online? If YES, here is a complete sample used car dealership business plan template & FREE feasibility report for starting a used car dealership business. Used car dealership business as the name implies is all about selling used cars to willing buyers. Aside from the fact that the owners of used car dealership shops are known for selling used cars, they also go out of their way to source for people who want to sell their cars.
They buy used cars at favorable prices and then resell at a good price that guarantees profits for them. In a nutshell, they are in the business of buying and selling used cars. If you are sure this type of business is what you want to do after you must have conducted your feasibility studies and market research, then the next step to follow is to write a good business plan; a detailed blue print of how you intend raising your seed capital, setting up the business, managing the flow of the business, sorting out tax and marketing your services etc.
The truth is that it is one thing to have a fantastic idea cum business plan but entirely another thing for the business plan to translate to money, which is why it is important to assemble a team of dedicated workers if you want to be successful with your used car dealership business.
Note that you can hardly run this type of business without the right network of other used car dealers. Below is a sample used car dealership business plan template that will help you successfully write yours without much stress;
A Sample Used Car Dealership Business Plan Template
Table of Content
- 2. Executive Summary
- 5. Job Roles and Responsibilities
- 6. SWOT Analysis
- 7. MARKET ANALYSIS
- 13. Startup Expenditure (Budget)
1. Industry Overview
Players in the used car dealership industry sell used cars and they may fall into any of the following niche areas; brick and mortar used cars dealership shop, online used cars dealership shop, used luxury cars dealership business and multi – brand and multi – maker used car dealers.
Recent statistics have it that the total annual revenue for used car dealership in the united states of America is US0 billion with an annual growth of 2.4 percent. 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.
For instance, in 2005, approximately 44 million used cars were sold in the United States, which is more than double that of the nearly 17 million new cars sold. 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.
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 used car 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 also the need to sell used cars as fast as possible.
Some of the factors that encourage aspiring entrepreneurs to venture into opening a used car dealership shop is the fact that the amount needed to start the business especially when you choose to start a small shop is not on the high side compared to other small – scale businesses.
That makes it easier for entrepreneurs who are interested in the business to come into the industry at any time; the entry barriers are quite affordable and any serious-minded entrepreneur can comfortably raise the startup capital without collecting loans from the bank especially if they can convince owners of used cars who are willing to sell their cars to drop the cars with them while they source for buyers.
Lastly, a used car dealership business might not be entirely easy to start, but one thing is certain, it is a straight forward business that can generate huge and steady profits if well positioned and properly managed. People often think that starting this type of business does not require any professional skills; in as much as it is true, you would still need a good knowledge of automobiles, good business and bargaining skills and of course customer services skills if indeed you want to build a profitable business.
2. Executive Summary
Jason Hyacinth® Used Car Dealership, Inc. is a registered used car dealership shop that will be located in one of the busiest streets in Spruce, Chestnut and Walnut Streets – Philadelphia. We have been able to lease a facility that is big enough (a 5 thousand square foot facility) to fit into the design of the kind of standard used car dealership shop that we intend launching and the facility is located in a corner piece along a major road close to the city center.
Jason Hyacinth® Used Car Dealership, Inc. sell and buy used cars from different manufacturers in the United States and abroad. We are set to service a wide range of clientele in and around Philadelphia.
We are aware that there are several large and small online and offline car dealership shops all around Spruce – Philadelphia, which is why we spent time and resources to conduct a thorough feasibility studies and market survey so as to be well positioned to favorably compete with all our competitors. We have an online service option for our customers, and our garage is well secured.
Jason Hyacinth® Used Car Dealership, Inc. will ensure that all our customers are given first class treatment whenever they visit our garage. We have a CRM software that will enable us manage a one on one relationship with our customers no matter how large they may be.
Jason Hyacinth® Used Car Dealership, Inc. will at all times demonstrate her commitment to sustainability, both individually and as a firm, by actively participating in our communities and integrating sustainable business practices wherever possible. We will ensure that we hold ourselves accountable to the highest standards by meeting our customers’ needs precisely and completely whenever they patronize our used cars.
Jason Hyacinth® Used Car Dealership, Inc. is a family business that is owned by Jason Hyacinth and his immediate family members. Jason Hyacinth has a Diploma in Automotive Technology, over 5 years’ experience in the retailing industry, working for some of the leading brands in the United States. Although the business is launching out with just one outlet in Spruce, Chestnut and Walnut Streets – Philadelphia, but there is a plan to open other outlets all around major cities in the United States.
3. Our Products and Services
Jason Hyacinth® Used Car Dealership, Inc. is in the used car dealership industry to service a wide range of clients and of course to make profit, which is why we will ensure we go all the way to make available a wide range of used cars from top manufacturing brands in the United States and other countries of the world.
We will ensure that we do all that is permitted by the law of the United States to achieve our aim and objectives of starting the business.
4. Our Mission and Vision Statement
- Our vision is to run a car dealership garage that deals in used cars from all the brands in the United States of America.
- Our mission is to establish a world – class used car dealership garage business that will make available a wide range of used cars from top manufacturing brands at affordable prices to the residence of Philadelphia and other key cities in the United States of America and Canada where we intend opening of chains of used cars dealership garages.
Our Business Structure
Our intention of starting a used car dealership business is to build a standard used car dealership garage in Philadelphia. Although our business might not be as big as CarMax dealership, and AutoNation Inc.et al, but will ensure that we put the right structures in place that will support the kind of growth that we have in mind while setting up the business.
We will ensure that we hire people that are qualified, honest, customer centric and are ready to work to help us build a prosperous business that will benefit all the stakeholders. As a matter of fact, profit-sharing arrangement will be made available to all our senior management staff and it will be based on their performance for a period of ten years or more.
In view of that, we have decided to hire qualified and competent hands to occupy the following positions;
- Chief Executive Officer (Owner)
- Garage Manager
- Human Resources and Admin Manager
- Sales and Marketing Manager
- Information Technologist
- Sales Agents/Customer Services Executive
5. Job Roles and Responsibilities
Chief Executive Officer – CEO:
- Increases management’s effectiveness by recruiting, selecting, orienting, training, coaching, counseling, and disciplining managers; communicating values, strategies, and objectives; assigning accountabilities; planning, monitoring, and appraising job results; developing incentives; developing a climate for offering information and opinions; providing educational opportunities.
- Responsible for fixing prices and signing business deals
- Responsible for providing direction for the business
- Creates, communicates, and implements the organization’s vision, mission, and overall direction – i.e. leading the development and implementation of the overall organization’s strategy.
- Responsible for signing checks and documents on behalf of the company
- Evaluates the success of the organization
Admin and HR Manager
- Responsible for overseeing the smooth running of HR and administrative tasks for the organization
- Maintains office supplies by checking stocks; placing and expediting orders; evaluating new products.
- Ensures operation of equipment by completing preventive maintenance requirements; calling for repairs.
- Enhances department and organization reputation by accepting ownership for accomplishing new and different requests; exploring opportunities to add value to job accomplishments.
- Defining job positions for recruitment and managing interviewing process
- Carrying out staff induction for new team members
- Responsible for training, evaluation and assessment of employees
- Responsible for arranging travel, meetings and appointments
- Oversee the smooth running of the daily office cum business activities.
- Responsible for managing the daily activities in the used car garage
- Ensures that proper records of cars are kept and the garage does not run out of cars
- Ensures that the garage facility is in tip top shape and cars are properly arranged and easy to locate
- Interfaces with third – party suppliers (vendors)
- Controls distribution and supply chain inventory
- Supervise the workforce in the used car garage sales floor
Sales and Marketing Manager
- Manages external research and coordinate all the internal sources of information to retain the organizations’ best customers and attract new ones
- Models demographic information and analyze the volumes of transactional data generated by customer purchases
- Identifies, prioritizes, and reaches out to new partners, and business opportunities et al
- Identifies development opportunities; follows up on development leads and contacts; participates in the structuring and financing of projects; assures the completion of development projects.
- Responsible for supervising implementation, advocate for the customer’s needs, and communicate with clients
- Develops, executes and evaluates new plans for expanding sales
- Documents all customer contact and information
- Represents the company in strategic meetings
- Helps to increase sales and growth for the company
- Manages the organization website
- Handles ecommerce aspect of the business
- Responsible for installing and maintenance of computer software and hardware for the organization
- Manages logistics and supply chain software, Web servers, e-commerce software and POS (point of sale) systems
- Manages the organization’s CCTV
- Handles any other technological and IT related duties
- Responsible for preparing financial reports, budgets, and financial statements for the organization
- Provides managements with financial analyses, development budgets, and accounting reports
- Responsible for financial forecasting and risks analysis
- Performs cash management, general ledger accounting, and financial reporting
- Responsible for developing and managing financial systems and policies
- Responsible for administering payrolls
- Ensuring compliance with taxation legislation
- Handles all financial transactions for the organization
- Serves as internal auditor for the organization
Client Service Executive
- Ensures that all contacts with clients (e-mail, walk-In center, SMS or phone) provides the client with a personalized customer service experience of the highest level
- Through interaction with customers on the phone, uses every opportunity to build client’s interest in the company’s products and services
- Manages administrative duties assigned by the human resources and admin manager in an effective and timely manner
- Consistently stays abreast of any new information on the organizations’ products, promotional campaigns etc. to ensure accurate and helpful information is supplied to customers when they make enquiries
- Provides information about warranties, manufacturing specifications, care and maintenance of merchandise and delivery options
- Responsible for cleaning and washing all the cars in the garage at all times
- Ensures that toiletries and supplies don’t run out of stock
- Cleans both the interior and exterior of the garage facility
- Handles any other duty as assigned by the garage manager
6. SWOT Analysis
Our intention of opening just one outlet of our used car dealership in Spruce, Chestnut and Walnut Streets – Philadelphia is to test run the business for a period of 2 to 5 years to know if we will invest more money, expand the business and then open other outlets in other cities in the United States.
We are quite aware that there are several used car dealership garages all over Philadelphia and even in the same location where we intend locating ours, which is why we are following the due process of establishing a business. We know that if a proper SWOT analysis is conducted for our business, we will be able to position our business to maximize our strength, leverage on the opportunities that will be available to us, mitigate our risks and be welled equipped to confront our threats.
Jason Hyacinth® Used Car Dealership, Inc. employed the services of an expert HR and Business Analyst with bias in car dealership business to help us conduct a thorough SWOT analysis and to help us create a Business model that will help us achieve our business goals and objectives. This is a summary of the SWOT analysis that was conducted for Jason Hyacinth® Used Car Dealership, Inc.;
Our location, business model (we will operate both a physical garage and online store), varieties of payment options, wide range of used cars from different manufacturing brands and models and our excellent customer service culture will definitely count as a strong strength for Jason Hyacinth® Used Car Dealership, Inc. So also, our team of highly qualify staff is also a plus for us.
A major weakness that may count against us is the fact that we are a new used car dealership garage in Philadelphia and we don’t have the financial capacity to compete with multi – million dollars used car garages when it comes to retailing at a rock bottom prices.
The fact that we are going to be operating our used car garage in a corner piece property along a major road close to one of the largest residential estates in Spruce, Chestnut and Walnut Streets – Philadelphia provides us with unlimited opportunities to sell our used cars to a large number of individuals and corporate organizations.
We have been able to conduct thorough feasibility studies and market survey and we know what our potential clients will be looking for when they visit our used car garage.
Just like any other business, one of the major threats that we are likely going to face is economic downturn. It is a fact that economic downturn affects purchasing/spending power. Another threat that may likely confront us is the arrival of a new used car dealership outlet in the same location where ours is located and even online. So also, unfavorable government policies may also pose a threat to businesses such as ours.
7. MARKET ANALYSIS
- Market Trends
Experts 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 class in emerging economies have looked to purchase their own cars. As the demand for used cars increase, used car dealership garages will make more sales. A decline in demand for new automobiles has stimulated an increase in the sale of used cars.
One notable trend in the used car dealership industry is that most used car dealers are leveraging on online store to sell their cars to a larger 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.
Lastly, in recent time, the used car dealership garage landscape has seen tremendous changes in the last 20 years; it has grown from the smaller outlets to a more organized and far reaching venture. The introduction of franchise and online car dealership garage makes it easier for a used car dealership garage to reach out to a larger market far beyond the areas where his physical store is located.
8. Our Target Market
Those who patronize used cars cut across all genders who are above 18 years and with the financial means; hence the target market for used car dealership garage business is all encompassing. Your target market can’t be restricted to just a group of people, but all those who desire to own a car.
In view of that, we have positioned our used car dealership garage to service the residents of Spruce, Chestnut and Walnut Streets – Philadelphia and every other location where our franchise cum outlets will be located all over key cities in the United States of America and Canada. We have conducted our market research and feasibility studies and we have ideas of what our target market would be expecting from us.
We are in business to retail a wide range of used cars to the following groups of people;
- Middle Class Families
- Low Earners
A close study of the used car dealership garage industry reveals that the market has become much more intensely competitive over the last decade. As a matter of fact, you have to be highly creative, customer centric and proactive if you must survive in this industry. We are aware of the stiff competition and we are well prepared to compete favorably with other leading used car dealership garages in Philadelphia and throughout the United States and Canada.
Jason Hyacinth® Used Car Dealership, Inc. is launching a standard dealership garage that will indeed become the preferred choice of residents of Spruce, Chestnut and Walnut Streets – Philadelphia and every other location where our outlets will be opened.
One thing is certain; we will ensure that we have a wide range of used cars brands and models from leading manufacturers available in our garage at all times. It will be difficult for customers to visit our garage and not see the type of used car they are looking for.
One of our business goals is to make Jason Hyacinth® Used Car Dealership, Inc. a one stop used car dealership shop. Our excellent customer service culture, online store, various payment options and highly secured facility will serve as a competitive advantage for us.
Lastly, our employees will be well taken care of, and their welfare package will be among the best within our category in the industry meaning that they will be more than willing to build the business with us and help deliver our set goals and achieve all our aims and objectives. We will also give good working conditions and commissions to freelance sales agents that we will recruit from time to time.
9. SALES AND MARKETING STRATEGY
- Sources of Income
Jason Hyacinth® Used Car Dealership, Inc. is in business to retail a wide range of used cars to the residents of Spruce, Chestnut and Walnut Streets – Philadelphia. In essence, our source of income will be the retailing of a wide range of used cars from different car manufacturing brands.
10. Sales Forecast
When it comes to used car dealership business, if your garage is well stocked with various types of used cars from different manufacturing brands and models and centrally positioned, you will always attract customers and that will sure translate to increase in revenue generation for the business.
We are well positioned to take on the available market in Philadelphia and we are quite optimistic that we will meet our set target of generating enough profits from the first six months of operation and grow the business and our clientele base.
We have been able to critically examine the used car dealership industry, we have analyzed our chances in the industry and we have been able to come up with the following sales forecast. The sales projections are based on information gathered on the field and some assumptions that are peculiar to startups in Spruce, Chestnut and Walnut Streets – Philadelphia.
Below are the sales projections for Jason Hyacinth® Used Car Dealership, Inc. it is based on the location of our business and other factors as it relates to used car dealership garage startups in the United States;
- First Fiscal Year: $450,000
- Second Fiscal Year: $750,000
- Third Fiscal Year: $1.2 Million
N.B: This projection was done based on what is obtainable in the industry and with the assumption that there won’t be any major economic meltdown and any major competitor within our market space. Please note that the above projection might be lower and at the same time it might be higher.
- Marketing Strategy and Sales Strategy
Before choosing a location for Jason Hyacinth® Used Car Dealership, Inc. we conduct a thorough market survey and feasibility studies in order for us to penetrate the available market and become the preferred choice for residents of Spruce – Philadelphia. We have detailed information and data that we were able to utilize to structure our business to attract the number of customers we want to attract per time.
We hired experts who have good understanding of the used car dealership industry to help us develop marketing strategies that will help us achieve our business goal of winning a larger percentage of the available market in Spruce – Philadelphia.
In summary, Jason Hyacinth® Used Car Dealership, Inc. will adopt the following sales and marketing approach to win customers over;
- Open our used car dealership garage in a grand style with a party for all
- Introduce our used car dealership garage by sending introductory letters alongside our brochure to households, offices and other key stakeholders in and around Spruce -Philadelphia
- Ensure that we have a wide range of used cars from different brands at all times.
- Make use of attractive hand bills to create awareness and also to give direction to our garage
- Position our signage/flexi banners at strategic places around Spruce, Chestnut and Walnut Streets – Philadelphia
- Position our greeters to welcome and direct potential customers
- Create a loyalty plan that will enable us reward our regular customers
- Engage on roadshows within our neighborhood to create awareness for our used car garage
- List our business and products on yellow pages ads (local directories)
- Leverage on the internet to promote our business
- Engage in direct marketing and sales
- Encourage the use of Word of mouth marketing (referrals)
11. Publicity and Advertising Strategy
Despite the fact that our used car dealership garage is well located, we will still go ahead to intensify publicity for the business.
Jason Hyacinth® Used Car Dealership, Inc. has a long-term plan of opening outlets in various locations all around key cities in the United States and Canada which is why we will deliberately build our brand to be well accepted in Philadelphia before venturing out.
As a matter of fact, our publicity and advertising strategy is not solely for winning customers over but to effectively communicate our brand. Here are the platforms we intend leveraging on to promote and advertise Jason Hyacinth® Used Car Dealership, Inc.;
- Place adverts on community based newspapers, radio and TV stations
- Encourage the use of word of mouth publicity from our loyal customers
- Leverage on the internet and social media platforms like YouTube, Instagram, Facebook, Twitter, LinkedIn, Snapchat, Google+ and other platforms to promote our business.
- Ensure that our we position our banners and billboards in strategic positions all around Spruce, Chestnut and Walnut Streets – Philadelphia
- Distribute our fliers and handbills in target areas in and around our neighborhood
- Advertise our used cars dealership business in our official website and employ strategies that will help us pull traffic to the site
- Brand all our official cars and trucks and ensure that all our staff members and management staff wear our branded shirt or cap at regular intervals
12. Our Pricing Strategy
Aside from quality, pricing is one of the key factors that gives leverage to used car dealership garages, it is normal for consumers to go to places where they can get used cars at cheaper prices which is why big players in the industry will attract loads of clients.
We know we don’t have the capacity to compete with big players in the used car dealership industry but we will ensure that the prices and quality of all the used cars that are available in our garage are competitive with what is obtainable amongst used car garages within our level.
- Payment Options
The payment policy adopted by Jason Hyacinth® Used Car Dealership, Inc. is all inclusive because we are quite aware that different customers prefer different payment options as it suits them but at the same time, we will ensure that we abide by the financial rules and regulation of the United States of America.
Here are the payment options that Jason Hyacinth® Used Car Dealership, Inc. will make available to her clients;
- Payment via bank transfer
- Payment with cash
- Payment via credit cards / Point of Sale Machines
- Payment via online bank transfer
- Payment via check
- Payment via mobile money transfer
- Payment via bank draft
In view of the above, we have chosen banking platforms that will enable our client make payment for purchasing our used cars without any stress on their part. Our bank account numbers will be made available on our website and promotional materials to clients who may want to deposit cash or make online transfers for our used cars.
13. Startup Expenditure (Budget)
In setting up any business, the amount or cost will depend on the approach and scale you want to undertake. If you intend to go big by renting/leasing a big facility, then you would need a good amount of capital as you would need to ensure that your employees are well taken care of, and that your facility is conducive enough for workers to be productive.
The materials and equipment that will be used are nearly the same cost everywhere, and any difference in prices would be minimal and can be overlooked. As for the detailed cost analysis for starting a used car dealership business; it might differ in other countries due to the value of their money.
These are the key areas where we will spend our startup capital;
- The total fee for registering the business in the Unites States of America – $750
- Legal expenses for obtaining licenses and permits as well as the accounting services (software, P.O.S machines and other software) – $3,300
- Marketing promotion expenses for the grand opening of Jason Hyacinth® Used Car Dealership, Inc. in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580
- The cost for hiring business consultant – $2,500
- Insurance (general liability, workers’ compensation and property casualty) coverage at a total premium – $2,400
- The cost for payment of rent for 12 months at $1.76 per square feet in the total amount of $105,600
- The cost for garage remodeling – $20,000
- Other start-up expenses including stationery ($500) and phone and utility deposits ($2,500)
- Operational cost for the first 3 months (salaries of employees, payments of bills et al) – $60,000
- The cost for start-up inventory (stocking with a wide range of used cars from different manufacturing brands) – $350,000
- The cost for counter area equipment – $9,500
- The cost for store equipment (cash register, security, ventilation, signage) – $13,750
- The cost of purchase and installation of CCTVs: $10,000
- The cost for the purchase of office furniture and gadgets (Computers, Printers, Telephone, TVs, Sound System, tables and chairs et al): $4,000
- The cost of launching a website: $600
- The cost for our opening party: $7,000
- Miscellaneous: $10,000
We would need an estimate of $750,000 to successfully set up our standard used car dealership garage in Spruce – Philadelphia.
Generating Startup Capital for Jason Hyacinth® Used Car Dealership, Inc.
Jason Hyacinth® Used Car Dealership, Inc. is a private registered business that is solely owned and financed by Jason Hyacinth and his immediate family members. They do not intend to welcome any external business partner which is why he has decided to restrict the sourcing of the startup capital to 3 major sources.
These are the areas we intend generating our startup capital;
- Generate part of the startup capital from personal savings
- Source for soft loans from family members and friends
- Apply for loan from my Bank
N.B: We have been able to generate about $250,000 (Personal savings $200,000 and soft loan from family members $50,000) and we are at the final stages of obtaining a loan facility of $500,000 from our bank. All the papers and documents have been signed and submitted, the loan has been approved and any moment from now our account will be credited with the amount.
14. Sustainability and Expansion Strategy
The future of a business lies in the number of loyal customers that they have, the capacity and competence of their employees, their investment strategy and the business structure. If all of these factors are missing from a business, then it won’t be too long before the business close shop.
One of our major goals of starting Jason Hyacinth® Used Car Dealership, Inc. is to build a business that will survive off its own cash flow without injecting finance from external sources once the business is officially running. We know that one of the ways of gaining approval and winning customers over is to retail our wide range of used cars a little bit cheaper than what is obtainable in the market and we are well prepared to survive on lower profit margin for a while.
Jason Hyacinth® Used Car Dealership, Inc. will make sure that the right foundation, structures and processes are put in place to ensure that our staff welfare are well taken of. Our company’s corporate culture is designed to drive our business to greater heights and training and retraining of our workforce is at the top burner.
We know that if that is put in place, we will be able to successfully hire and retain the best hands we can get in the industry; they will be more committed to help us build the business of our dreams.
- Business Name Availability Check: Completed
- Business Registration: Completed
- Opening of Corporate Bank Accounts: Completed
- Securing Point of Sales (POS) Machines: Completed
- Opening Mobile Money Accounts: Completed
- Opening Online Payment Platforms: Completed
- Application and Obtaining Tax Payer’s ID: In Progress
- Application for business license and permit: Completed
- Purchase of Insurance for the Business: Completed
- Leasing of facility and remodeling the garage: In Progress
- Conducting Feasibility Studies: Completed
- Generating capital from family members: Completed
- Applications for Loan from the bank: In Progress
- Writing of Business Plan: Completed
- Drafting of Employee’s Handbook: Completed
- Drafting of Contract Documents and other relevant Legal Documents: In Progress
- Design of The Company’s Logo: Completed
- Graphic Designs and Printing of Promotional Materials: In Progress
- Recruitment of employees: In Progress
- Purchase of the needed furniture, computers, electronic appliances, office appliances and CCTV: In progress
- Creating Official Website for the Company: In Progress
- Creating Awareness for the business both online and around the community: In Progress
- Health and Safety and Fire Safety Arrangement (License): Secured
- Opening party planning: In Progress
- Compilation of list of used cars available in our garage: Completed
- Establishing business relationship with vendors – used cars auction houses and other used cars dealership garages: In Progress
Frequently Asked Questions
What Are The Costs Involved In Opening A Car Dealership?
The total cost of opening a car dealership is generally considered to be upward of $100,000 to as much as $200,000. The reason for the range in the cost is due to the difference in expenses depending on the state you are opening your dealership in, and the type of dealership you will be opening.
The costs involved are broken down thus:
- Business registration – from $50 to $750
- Business Location – between $8,000 and $53,000
- Accountant Fees – between $200 and below $600
- Business License – between $100 and $300
- Auto Dealer Bond – between $5,000 to as much as $100,000
- Insurance – $350,000
- Inventory – $100,000 or more
- Payroll – average weekly earnings of dealership employees in the U.S. are about $1,122
- Dealer Plates: Cars driven off your lot for a test drive need an attached dealer license plate. Cost averages $90 per plate.
- Advertising ($1,000)
- Computers, printers, phones ($4,000)
- Other Costs – $15,000 to $20,000
2. What Are The Keys To Launching A New Car Dealership?
The keys to open a new car dealership include;
- Decide what type of Car Dealership you want to open: Chain new Car Dealership, Franchised new Car Dealership, Independent new Car Dealership, Online new Car Dealership, etc.
- Research your competition. Know what your competitors are selling, for how much, and then make sure you plan to offer something they don’t.
- Find a great location. Car dealerships tend to be more successful when they locate in or near new developments, and in high-traffic areas.
- Have a business plan. This will help you set goals and give you a roadmap for achieving those goals. It will also help if you plan to approach potential investors.
- Business and financial plan: Your business and financial plans are two other important pieces of the dealership puzzle. Ultimately, these two will be informed by the choices you make with regards to where and what kind of dealership you wish to open.
- Licensing requirements: To open a dealership in any state, you will need to obtain a business license allowing you to sell vehicles of a particular kind.
- Legal considerations. Find out the regulations for running your dealership. You will need to know the specifics of the regulations concerning consumer protection laws before you open your dealership.
3. What Is The Growth Potential For A Car Dealership?
Global sales of cars and SUVs had been in gradual retreat from the 94.3 million high of 2017, but then dived about 16% to 76.5 million in 2020, according to IHS Markit as the coronavirus came out of nowhere to shut down many economies.
In 2021, the global auto market is predicted to zoom ahead by 9% to 83.4 million, advance another 5% in 2022 to 86.9 million, followed by another solid 4% in 2023 to 89.7 million. January forecast for new-vehicles sales in 2021 is 15.7 million, growth of 9% from 2020.
4. What Are The Ongoing Expenses For A Car Dealership?
Some of the ongoing expenses for a car dealership include;
- Staffing – staffing constitutes one of the largest overheads for dealers – up to 60 per cent of running costs in some cases.
- Land and rent – Land and rent values are traditionally high in the auto sector, with brands striving to place their showrooms in the most high profile – and high cost – areas.
- IT investment – Increasingly complex compliance requires updated IT structures to manage it all, a concern when IT is already one of a dealership’s main overheads.
- Advertising – Advertising is essential when you’re running a dealership
- Office and shop supplies – These are small costs but they add up overtime
- Inventory – Those cars sitting on your lot cost you money every single day.
- Others – credit card interest, legal, postage, repairs and maintenance, insurance,
5. How Much Does It Cost To Open A Showroom For A Car Dealership?
You can spend anywhere between $100,000 and even $950,000 to set-up a car dealership showroom. Initial startup costs will include;
- Building lease or purchase and renovation
- Equipment and professional installation
- Store fixtures and office equipment and supplies
- Surety bond
6. If I’m Opening A Car Leasing Company, How Do You Get Dealing With The Car Manufacturers?
Car Leasing Companies purchase cars from the manufacturers via an instrument called floorplan financing. Generally, all new vehicles are financed through the manufacturer, and dealers pay interest monthly on that loan.
7. What Happens During A Typical Day At A Car Dealership?
What happens during a typical day in a car dealership would depend on which spectrum you are viewing the business from. If you work in finance, you’d likely sign sales documents and will likely offer an extended warranty or other products to customers.
The insurance office will likely be sorting out insurance for new car sales. There are also employees in the car park hosing down cars that are set to be driven off the lot after getting purchased. But one of the major things that happen in a car dealership is car sales and closing deals. The average car sale takes about four hours.
Yes, it’s a long time, and that’s because there are a lot of pieces to it. The dealership needs to run your credit, get your loan approved, appraise the car you’re trading in, figure out the pay-off amount to your current car and agree on a price for the new car you want to buy.
8. Where Can You Start A Used Car Dealership Without Having A Large Lot?
To the untrained eye, most used-car lots look alike, but that is not so. Some are larger than others, but it is usually dependent on the kind of consignment they carry. New-car dealer lots are usually larger than independent car lots and used car lots.
But this is not compared to Consignment used-car lots, Specialty used-car lots and “Buy Here, Pay Here” car lots. These dealerships can be started is all states of the United States, you just need to make the necessary inquiries.
9. Would Buying A Car Dealership Be A Good Investment?
Yes, a car dealership is a good investment. But know that before you can make the big bucks off this business, you must be a good sales person because the money can only come in by selling cars. If you want solid facts, know that the Kerrigan Blue Sky Report estimated that the average dealership return on equity over the last ten years had an annual low of about 12% and a high of over 30%.
The big profit usually comes through arranging car loans, selling add-ons, and making money on your trade-in. Dealers can easily make a profit of $3,000 just through the financing alone.
10. What External Factors Affect The Car Dealership Industry?
External forces are causing the automotive industry to go through a period of accelerated change, and these external factors include;
- Per capita disposable income
- Price of new cars
- Aggregate household debt
- Average age of vehicle fleet
- World price of crude oil
- Interest Rate
- Demand and Supply
- Government Regulation
- Environmental Influence
11. What Is The Average Gross Margin For An Independent Used Car Dealership?
Independent used car dealerships on average are performing even better and are projected to sell 20.6 million used vehicles compared to 19.8 million in 2018. This is a 4% increase. The gross margin of the business is noted at $1,216 per vehicle.
12. What Are The Key Costs In The Car Dealership Industry?
Purchases are the greatest expense for Used Car Dealers, and account for over 84% of revenue. In addition to purchasing used cars at auction and from customer trade-ins, used car dealers must also repair and recondition these vehicles.
Wages are also a major expense, but increased automation with regard to inventory management and online cataloging has resulted in minimal wage growth. Marketing costs can be significant for used car dealers. According to the National Independent Auto Dealers Association, car dealers spend 33.6% of their marketing budget on internet advertising
13. What Are Some Skills And Experiences That Will Help You Build A Successful Car Dealership?
For you to run a profitable business, you need to build industry skills. Some of the skills needed if you want to build a successful car dealership include;
- Education or experience in the industry
- Product knowledge
- Negotiation skills
- Financial literacy
- Persuasion skills
- Ability to listen to what the customer has to say
- Ability to sell effectively over the phone
14. Do you want to employ people or sell cars yourself?
This depends on the size of your dealership and the type of business you want to run. If you are running a standard dealership where you have a car lot full of vehicles, note that you may not be able to make enough sales to cover up your fixed expenses.
So invariable you need to employ salespeople. But if you are a just running a small business where you sell less than 5 cars a year, then know that you can run your sales on your own.
15. What Makes A State A Good Place To Open A Dealership?
The success of a dealership depends on many factors. These range from sales to state-specific factors such as business climate, fees, surety-bond amounts and more. A common indicator of state dealership-friendliness is average annual sales per store.
Here are the best states to start your car dealership business in the United states based on their volume of sales;
16. How Much Money Do You Need To Open A Toyota Dealership?
The initial investment for a Toyota dealership franchise is at least $500,000. However, the price can vary according to the size of the dealership. In order to set this business up from the scratch, you will require an investment of up to $11.3 million, including working capital, physical facilities, land and inventory.
17. Where Are You Going To Buy The Inventory For Your Dealership?
Car dealers order their inventory based on their reading of the marketplace, how well certain models have sold in the past, on feedback from consumers and – of course – what the OEM (Original Equipment Manufacturer) wants them to order and keep in their inventory
Used car dealers get their inventory from a number of sources, which include trade-ins, auctions, rental companies, fleets, finance companies, private sellers, ex-demonstrators and pre-registered new vehicles.
18. What Is The Difference Between A Franchise Dealership And An Independent Dealership?
A franchise car dealer sells both new vehicles and used vehicles, whereas an independent dealership will only sell used cars. As a result, one of the biggest differences between a dealership and a franchise is that typically, an independent car dealer will have a much broader selection of used vehicles than a franchise dealer.
Another dealership and franchise difference is that franchise dealers often feature service departments where technicians can perform a variety of necessary services to keep customer cars running at peak levels. The vast majority of independent dealers will not offer a service department, which means customers are on their own if something goes wrong.
19. How Do Most Dealership Owners Finance Your Floor Plan?
Floor plan financing is a revolving line of credit that allows the borrower to obtain financing for retail goods. Much like a credit card, a floor plan financing company extends a line of credit to a car dealer. Dealers can then use their floor plan line of credit to purchase inventory from auctions and other inventory sources.
If a dealer purchases a car on a floor plan, takes it back to their lot and it doesn’t sell within a contractually determined number of days, dealers are charged a small fee. As a dealer sells their inventory, they pay back the original loan.
20. How Much Profit Does A Car Dealer Make On A $50,000 Car?
Car salespeople make between 20 to 30 percent of profit from the sale of a car. So in the sale of a $50,000 car, the salesperson can count on making from $10,000 to $15,000.
But there is really no percentage when it comes to the amount car dealerships make when it comes car sales. This is because they are left with what is remaining after all the fees and deductions have been made. Sometimes a car dealership can be left with just $700 at the end of a $50,000 car sale.
21. Will An Indoor Dealership Be Subject To Stricter Rules And Regulations?
All dealerships are subject to the same type of rules and they all have to abide by laws and regulations imposed by federal and state governments. Some of these rules include;
- Gramm-Leach-Bliley Act Privacy Rule
- Gramm-Leach-Bliley Act Safeguards Rule
- Disposal Rule
- Used Car Rule
- Equal Credit Opportunity Act
- Red Flags Rule
- Form 8300 and Reporting Cash Payments of Over $10,000
- Office of Foreign Assets Control (OFAC)
- OSHA 29 CFR 1910.157
- Regulation Z