Photo by Alex Suprun on Unsplash
There are roughly 250 million vehicles cruising the roads of America every year, and every day about 109,500 used cars will change hands. The trade in used cars is much larger than new car sales. Therefore, if you’ve always dreamed of having your own business, a used auto dealership is a great way to start.
Do Your Research Before You Start Your Auto Dealership
Whether your startup sells coffee, computers, or cars, you need to know your market. Who are you planning to reach? Will your auto dealership be entirely local or will you also sell online?
Once you’ve determined this aspect of your business, do a detailed analysis of used car sales in that area for the last three years. Compile as much information as possible. Also, be sure to consider the following points:
- What vehicles are being sold?
- Are there particular models that sell better than others?
- How many cars are being sold in a year?
- Who is your competition and how much business are they doing?
- Is there a niche your competition isn’t filling?
Run the Numbers and Set Goals for Your Auto Dealership
With all the information in hand, your next step is to find out if your auto dealership can be profitable. What percentage of the used car sales market in your area can you reasonably expect to get in a year? Combine that information with the average profit per vehicle sold and you’ll have a rough idea of what you can make.
Running the numbers isn’t all there is to it, though. You need clear, definable goals based on those numbers. Businesses fail all the time, and often in large part because their goals were abstract and ill-defined. Use the Objectives & Key Results methodology, or OKR, to make sure your goals for your auto dealership are clear.
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Will Your Auto Dealership Have a Service Department?
Service departments can be a real money-maker for an auto dealer. When sales are slow, you can still be bringing in revenue from emissions tests, repairs, and maintenance. Auto dealerships with service departments also have an aura of authenticity about them that draws in clients.
However, a service department will cost your auto dealership money to set up, staff, and kit out. What’s more, it will take some time to pay for itself. It can also harm your auto dealership as easily as help it if you don’t have good mechanics or you get a reputation for poor service work.
Determine Startup Costs for Your Auto Dealership
Once you’ve decided on a service department, have your numbers, and have set your goals, it’s time to work out exactly how much you’ll need to get your auto dealership off the ground. You’ll need space, vehicles, equipment, employees, training for those employees, advertising materials and revenue, and money to pay for fees, insurance, and licensing costs that come along.
You can source vehicles at great discounts by looking for salvage cars online, and you can also save money by expecting to do a lot of the work on your own as you’re starting out. Then, as your auto dealership grows, you’ll be able to hire more people and expand.
Get Financing
Unless you have the cash in hand to pay all your startup costs out of pocket, you’ll want to get a loan. In most cases, you’ll need to go to a bank for a loan. But if you are a member of a local credit union, consider that option, as credit unions often offer loans at better rates than a bank.
To get your loan, you will need collateral. This will most likely be the stock on your lot, though in some cases you can put up your own personal assets as collateral. Be careful about doing this, however, as most financial advisers suggest that you keep your personal and business assets entirely separate.
Conclusion
Once you’re started, concentrate on providing the best experience to every customer. When you have earned genuine customer loyalty for your auto dealership, you won’t have any difficulty making a profit.
