Archive for July 27th, 2010

27
Jul
10

Start a Used Car Dealership

Car enthusiasts often dream about opening a car dealership.  Wanting to buy and sell vehicles is a passion that they have that they would like to make a living off of.  For these types of people opening up a used car dealership might provide the best opportunity to make their dreams a reality.  Many people wonder what it takes to open a used auto dealership.  Throughout this article we will go over the steps that one will need to take to make the dream of owning a car dealership a reality. 

In the beginning most of the work in opening a used auto dealership will involve the city, landlords and DMV.  These will be the first set of obstacles when you’re setting up your business. Then you will need to learn the basics of the auto business, such as, managing inventory, getting financing, marketing, and customer service. 

If you run your business right, there is a lot of potential to make a lot of money in the auto industry.  Owning a used car dealership you have the ability to become a millionaire or if you do exceptionally well a billionaire!  The most successfully run auto business is on the Forbes 500 which means that there is potential to make a lot of money in this industry.

Used Car Dealership- Business Model

In the used car industry there are 3 different ways of generating money. Below are the three methods and the amount of money you would generate from the sale of a vehicle.

  1. Selling Used Cars Retail: $500-$2,000
  2. Selling Used Cars Wholesale: $300-$700
  3. Broker New or Used Cars: $250-$500

Selling Used Car Retail

The retail sale of a car happens at a car dealership or on a car lot.  A normal transaction for a retail used car dealership happens when a customer visits the dealership, talks with a salesperson, views the inventory to find a car they like and then purchase it. 

Besides the typical retail auto dealership there are other ways that allow a person to sell used cars in a retail setting. For example, you can sell used cars at a small office if you pass the legal criteria like a body shop selling cars they fix. 

When you sell a used car in a retail environment the average you can make is $1,000 per used car. That should be the amount that a used car dealer should aim for.  There are many reasons that the profit of a used car can fluctuate from the average $1,000.  Below are some of their reasons why the profit margin would fluctuate higher or lower than the average $1,000.

Factors for Higher Profit Margins

  • The car maybe in high demand
  • The car may have been purchased below the wholesale price
  • The car may have needed only a small amount of repairs
  • The customer may not hassle too much with the retail price
  • The car may be a luxury car that allows you to charge a premium
  • The dealership may have great service allowing it to charge a premium
  • The dealership may have subprime financing allowing you to charge a premium
  • The economy maybe booming so people are able to spend more

Factors for Lower Profit Margins

  • The car maybe in low demand
  • The car may have been bought above wholesale price
  • The dealership may have to do a lot of repairs on the vehicle
  • The customer maybe very good at negotiating
  • The dealership may need to compete with other dealerships on pricing
  • The customer may not be able to secure financing
  • The economy maybe in recession causing people not to want to spend too much

The factors in the list above and this simple formula below will help in determining the profit margin of each vehicle sale.

Retail Sale Price of Car – Purchase Price of Vehicle – Costs to Fix the Car = Profit Margin

By increasing the sales price or decreasing the purchase price or reducing the costs of repairs you are able to have a greater profit margin.  It is not unheard of for a dealership to make $2,000 to $2,500 off a used car.

Selling Used Car Wholesale

When you sell a car wholesale you basically buy the car at an auto auction or through a customer and sell it back to a dealer or an auction.  When you sell a car wholesale the average profit margin is $500.  In this field there is a lot less work and hassle so there is definitely an upside in being a used car wholesale dealer.

Broker New or Used Car

One way to make money in the auto industry is to broker either new or used cars. There are a lot of people that do not want to deal with taking the time to purchase a vehicle so they hire a broker.  The dealer will work with other dealers to purchase a vehicle for the customer and get a broker fee.  The broker fee can be taken from the customer or the dealer and the average broker fee is between $300 through $500. 

Be prepared

When starting up a used car business it is very important that you are prepared.  Most used car dealers have dealer management software or online used car software.  This helps the dealer with inventory management, working deals, credit reports, customized business reporting, financing, Buy Here Pay Here, web marketing and fraud solutions.

To read the full article on HubPages, please click here.




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