How to Start Sales of Used Cars Business
Step by Step Guide on How to Start Sales of Used Cars Business
If you are planning to start selling used cars, this article will be useful for you. Some car lovers and also people who have great skills in handling automobiles whether as mechanics or drivers, starting an independent used car business is a perfect combination. Former car sales managers and car salespeople may be good candidates for this type of business.
But no matter where you are coming from, building a used car business from the scratch is not an easy task. It is a great advantage to know about cars, how it works and their features, but you must know a lot about marketing strategies, business finances, licensing and all the other legal requirements as it concerns licensing, permits and taxes.
One of the initial choices you would be faced as a prospective dealer is between signing into a franchise or having your own used car business. However, you must realise that franchise entails huge financial investment upfront to pay up for the franchise rights. More so it will require a larger scale operation generally; you will start like in the middle as if you have been in the business for a while. As a result, you need to have some level of experience to embrace the path of the franchise.
On the other hand, owning an independent business is cheaper to start and can involve sourcing your cars inventory from various sources, but you can trust me. both options are by no means easy.
To start a used car business, you will be ready for an uphill task for the first few years at most until you begin to reap the rewards of your hard work. In this article, I am going to outline the process you require to begin this business and progress gradually until you get at the pinnacle of this lucrative business if the right tactics are applied.
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How to start sales of used cars business.
As has been said, owning a used car dealership is far more than just displaying some cars on a lot and hoping for customers to come and make enquiries. It requires a good knowledge of the car models, the ways they work and their differences, having a good idea of competitive prices of similar models and how to go about getting vehicle financing. So before you even create the first “For Sale” sign on a windshield, you’ll have to choose the type of cars you want to market, your location, learn about local licensing requirements including other legal issues and create a plan for procuring your first cars.
- Develop a business plan
- Give your company name and legal backing
- Determine the industry total market as well as your target market
- Determine what to spend at start-up and the on-going running costs
- Licensing requirements:
- Find out what the competitors are doing.
- Choose the right location
- Comply With Various Dealership Laws
- Craft your marketing strategy
- Seek funding
- Procure vehicles for sale.
- Commercialise your business.
Develop a business plan
You should have a clear plan about where you are taking your new used car business. The plan will guide you set specific achievable goals and help uncover some of the unknowns in terms of challenges and weaknesses in your plan. For example, you need to identify and plan your business in the following way:
Give your new company name and legal backing.
Determine the industry total market as well as your target market?
Determine what to spend at the start-up and the on-going running cost.
Research competitive activities in terms of marketing strategies used and profit earned in the past year or two years.
Find out the position of the used car industry.
Work out when you are likely to break-even
Map out marketing strategies you will be adopting to market the cars?
Determine the best location for your business.
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Give your new company name and legal backing
It is necessary to pick the right name for your new company – a name that people can easily pronounce and remember. Once a name has been selected, find out at once if the name is available as a web domain and secure it immediately so that no one else will have it.
Also, choose the legal form for your business which will protect your assets such as limited liability company (LLC). There are other forms you can choose from such as corporations and a sole proprietorship, but LLC is suitable for used car business.
Once you have registered your domain name, the next thing is to create an email account (@yourcompany.com). you can take advantage of Google G Suite since it offers a business email service that is generally available with other useful tools like spreadsheets, word processing and others.
If you want to be pretty sure that you have fully complied with state requirements and protecting your privacy, do well to use an agent. After registering you used car business, there are other steps that you need to take and these include the following:
- Register With Tax Authority
It is important that you register your business with relevant tax authorities both at state and federal levels. As an entity, there are certain taxes your business should pay. Also, if you hire staff working for you, you need to deduct tax from their salary which you are expected to remit to the state tax authority. Doing otherwise will be seen as tax evasion. Of course, this has its own legal implications.
- Open a Bank Account
It is important that you have a bank account for your business. Even though you have a personal bank account, you still need to open a separate account for your business where you can lodge all your revenues. Also, you should make all the expenses relating to the used car business from the company’s bank account. This makes you more accountable. At the same time, it will be easier for you to source loans from the bank when needed. Furthermore, having a bank account makes it easy for your accountant to prepare the financial statements of the car business.
Determine the industry total market as well as your target market?
The total used car market will be analysed and estimated. This will involve looking at the registration of new used cars (change of name) as well as trade-in of new and more expensive cars.
Market segmentation: The used car market will be segmented to identify which market you should be concentrating on. Four basic segments can be identified; singles, families, retired and students.
Singles: This group are working-class professionals who would prefer flashy and more expensive cars than the students. They are more likely to afford to pay more for modern and better quality cars.
Families will go for safe, rugged vehicles; something that will be used for shopping and will be durable. It will be used to carry the entire family and be taken for long-distance journeys. Many families will budget for it and are likely to consider price as a primary factor. They will tend to research before making up their mind as they will be looking for a particular model.
The retired group are likely to prefer vehicles that are well known and can travel long distances. They will tend to go for quality and better features rather than consider price; the price may not be an important factor. This group may value comfort, a well-equipped vehicle that is reasonably priced. They will always go for cars that will last for a long time.
The students’ group will comprise of college and university students who want safe, affordable and less expensive cars to maintain. Since they are young undergraduates, they will prefer flashy and at the same time be mindful about the price. They will naturally tend to buy on impulse, paying a price that may not be considered value for money. They are more likely to purchase cars more frequently than other groups.
It is important to determine the market share of each of the various segments and choose which segment your company will be able to serve and still be profitable.
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Determine what to spend at the start-up and the ongoing running costs.
The cost involved in opening a car dealership in the US is huge since you will need a surety bond, acquire relevant technical and marketing experience and be properly licensed to be able to compete favourably.
In most cases, before an Auto dealer can be licensed, they must apply for a surety bond to the Department of Motor Vehicle (DMU). The process of obtaining a dealership license differs from State to State but the bottom line is the same; it lets them sell vehicles in that State. The process of procuring of a surety bond is cumbersome and can also be confusing. But obtaining it is crucial since it serves as a form of insurance which is meant to protect consumers and the State against fraudulent practices. Different types of bond abound; you may not need all to operate. As a car dealer, you need only Used Car Dealer bonds to operate.
Bond premiums are payable but it depends on your special situation. As a result, it makes it difficult to calculate the cost to start a dealership with ease. By and large, the price you pay for a surety bond is dependent on:
Your financial status
The bond sum
Your choice whether to finance or not to finance the premium
The score of your credit
It follows that if you have good credit, your premium is going to be relatively low. So there is an inverse relationship between your credit score and the premium you pay.
Licensing requirements.
In addition to acquiring a bond, however, you need to be licensed to operate as a dealer. The State, County and Local define the type of license you need to operate within a particular State. The States have different things for different people about dealer licenses. As a retailer, you need a Used Car Dealer license. Other types of licenses include the following:
New car dealer licensing
Wholesaler car licensing
Rebuilder car licensing
Re-conditioner car licensing
The general process of becoming a dealer is long and it begins with filling out an application form, getting a surety bond, buying liability insurance for your stocks of vehicles etc, to getting your dealership tags from the local county courthouse and finally your sales license is issued.
Find out what the competitors are doing?
The used car market will have to be researched to identify competitors Marketing strategy must, of necessity be based upon a clear and detailed understanding of each competitor’s strengths and weaknesses. As a first step, therefore, you need to collect information under several headings as a prelude to a full comparative assessment of the principal competitors. You need to collect information about their:
• Total market sales and sales of major players and trends
• Market shares of top car dealers.
• Cost and profit levels and how they appear to be changing over time.
• Cash flows and profit projections of car dealers.
• Return on investment.
• Model of cars sold and their quality.
• The size and pattern of the customer base.
• Suppliers of used cars
• Marketing and their selling capabilities.
• Promotional activities.
Choose the right location
Select a visible location that is accessible from the major roads. Make sure other facilities are available such as adequate security, lighting, places of convenience and plenty of parking space for you and your customers. Don’t rush to commit to a lease arrangement, or begin to refurbish the property, but find out from your local zoning office to make sure you are legally permitted to operate your office in that location.
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Comply With Various Dealership Laws
Your dealership business must comply with Federal Used Car Rule, the dealership, the used car dealership lemon laws, and the Consumer Rights and Safety laws. These requirements of the law include provisions relating to full disclosure on all known making sure your new dealership abides by the Federal Used Car Rule as well as the Consumer Rights and Safety laws and used car dealership lemon laws. These include stipulations concerning full disclosure on all known motorized issues about the cars put up for sale. You must be aware of the requirements of dealership which are meant to guide dealers regarding issues of warranties.
Craft Your Marketing Strategy
Your marketing strategy refers to how you are going to blend and use the elements of the marketing mix (product, price, promotion and distribution) to attack the market.
Product: in procuring used cars for sale, you must be selective about the cars you buy to make sure you are buying only the cars of a little number of years, not only to comply with State law requirements but also to satisfy the needs of your current and prospective customers. Once you have understood your customers’ needs, you must tailor your products to their needs. That goes to the models you choose and whether they locally made or imported.
Price: the price at which a dealer charge for its used cars is determined by the manufacturer’s recommended retail price (MSRP). That doesn’t mean that the dealer is not entitled to use discounts to attract potential consumers. The dealer may offer a discount based on the invoice price and whatever price that is charged, the price doesn’t need to be disclosed to the customer. So what it boils down to is the fact that the dealer uses price as a marketing tool to woo prospective customers.
Promotion: you will start your promotion by setting up your website where customers can visit and view the vehicles you have in stock. By doing so, it saves the customer invaluable time by checking the site for specific brands before they visit the showroom.
You will advertise your business on social media and use quality contents to drag readers to your site. You will also use links to refer visitors of other websites to become visitors to your site.
All business documents and correspondence should carry information about the company, including business cards. Besides the social media, you should print and distribute flyers; advertise on local newspaper and radio. Also, encourage family members and friends to provide referrals to your used care business. Offer members of your family and friends good incentives to encourage them to try buying from your company and recommend their associates.
At the end of the day, you will measure your success rate looking at the number of enquires received and customers’ feedback.
Distribution: you should plan to execute orders promptly and if customers’ orders can’t be executed quickly because of non-availability of the specific brand of car requested, try all means, even contacting your rival to make sure a customer that has come to you go away a satisfied customer. Arrange of dispatch of cars purchased with the relevant agencies to ensure cars you sell are dispatched without delay. You will be able to manage inventory to make sure you are up to date with the model of cars you sell.
You can achieve the issue of updating your inventory regularly by verifying your stocks regularly to know when you should re-stock. So be conversant with the terms such as maximum stock level, minimum stock level, re-order level and the economic order quantity. These will help you plan your stock level for maximum sales.
Moreover, you can track your sales to get a fair knowledge which makes and models appear to have quick turnaround. This may not be so easy with the used cars but will fairly be easy with new cars. By sorting your inventory into how popular different make and model are, you should predict which models or makes you stock more.
If you are a vehicle mechanic, you should examine the condition of each car bought for re-sale. Apart from complying with the State laws, you are restoring the quality of your wares intending to serve your prospective customers effectively.
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Seek funding
Capital outlay for the marketing of used vehicles is enormous, and unless you already have the money for the investment, you need to funding from investors and financial institutions. Some options are available, but choose the right option that will maximise your profit.
Putting your finances in good shape will make it easier and quicken the process of obtaining finances. Most lenders and financier will be keen to sight your credit score, so look at your credit report and correct errors as necessary before you approach them for financing. In event that your credit score is bad, take steps to pay off your debts and thereby improve on your credit score before asking for funds.
Procure vehicles for sale
There are many ways you can get supplies of used vehicles in the US. First of all, speak to family members, friends and your business associates, ask to contact you if they vehicles for sale. Also contact vehicle owners who have advertised their vehicles “For Sale” in the classified columns of the local newspapers, as well as online traders websites and vehicle traders website. Sharpen your tongue to put up a good negotiation skill to ensure to obtain the vehicles at reasonably fair prices.
You should visit local and regional auction where you can buy fairly used vehicles at reasonable prices, and in good condition. You may also try to put up signage that announces that you would buy used vehicles, but to work, such an announcement must be in full compliance with the dealership regulations.
Commercialize your used car business
Once your business is about to open, you’ll start seeking out for customers. Having set up a web presence, show up on social media platforms and flag off your media campaign – online and offline. If you lack experience in marketing and selling, you may want to consult with a marketing professional who can help you develop and build your brand. Ultimately, you will be able to employ a marketing manager to co-ordinate your marketing activities.
There is no other better to declare your business open in the local community than to organize the event in a dignified way to attract the attention of all and sundry. So should consider serving some refreshments and provide live music to attract nosy visitors who may want to find out what is on the show. Feature an ad for this grand opening in the local automotive page of local newspapers. Also, place your flyers at the automotive parts and service centres
You should use the opportunity to invite both local and other business people near and wide to network and hand them flyers and other pieces of literature such as your vehicles’ catalogue. It may also be worthwhile inviting members of the local press. Don’t leave any stone unturned to make the event as eye-catching as possible since it is newsworthy, will be reported online and offline, and may also serve a spring-board to spread the news of your business.
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Conclusion:
The business of marketing used vehicles is not an easy one. One of the difficulties associated with this business is in the procurement of vehicles for sale since there is no regular place you can obtain the needed stocks as required. Most of the places where getting inventory is possible, you can only obtain what is available. But if you are a car enthusiast, a driver or a vehicle mechanic, you can leverage on this and the job will be easier. The bottom-line is good – the business is profitable if you have the right approach.