How to Start Your Own Auto Dealership (Used Car)
93Do you love cars? Do you want to make a living buying and selling cars? Do you want to be able to drive around in different cars each day because they are your inventory? And do you want an opportunity to try and make the Forbes 500 and possibly a multi-millionaire or even a billionaire? Starting up your auto dealership may just be the next best move that you make.
In this Hub, I would like to try to explain the steps needed to start up your own auto dealership. Initially, a lot of your work will involve working with the city, landlords, and the DMV. They will be your first series of challenges before you go into business. And once you setup your business, you’ll then need to learn the business - managing inventory, obtaining financing, marketing your business, and customer service. So here we go with this Hub,
“How to Start Your Own Used Car Dealership.”
Step 1: Understanding the Business Model of the Auto (Used) Dealership
First of all, as always, I like to talk about the money involved in the auto dealer business right from the start. Let’s go over how you make money in this business, how much money you can make in this business, and what some of the drawbacks are in this business. By going over the business model from the start, it should help you to figure out if this business is right for you at this time or not.
*Also as a caution, when I refer to the “auto dealer business” I mean the “used car dealer business.” New and used car dealer businesses are different, and in this Hub, I will be going over How to Start Your Own Used Car Dealership.
The auto dealer business is a business that has enough potential to propel you to become a millionaire if you run the business right. If run your business extraordinary well, this industry also has the potential to get you up to a billionaire status. The best run businesses in this industry can be found on the Forbes 500 which means that the auto dealer business has a lot of upside profit potential.
The Business Model
In the used car business, there are three main methods of making money. The three methods are:
- Selling Used Car Retail
- Selling Used Car Wholesale
- Broker New or Used Car
These are the three main sources where you make money in this business. We’ll cover each one of these in detail below. Here is a table that summarizes how much money you can expect to make per sale as a used car dealer for each sale that you make.
- Selling Used Car Retail: $500-$2,000 per sale
- Selling Used Car Wholesale: $300-$700 per sale
- Broker New or Used Car: $250-$500 per sale
So as you can see, the profit you make per car is pretty big. Let’s try to go over each of the three business models above in detail.
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Selling Used Car Retail
Retail sales of a used car occur at a dealership or on a car lot. On the lot, customers will visit you, browse the cars that you have in inventory, and talk to your salespeople. The customer will find a car that they like and purchase it from your dealership. This typical transaction is the retail used car dealership.
Other than the typical retail dealerships, there are other situations that allow a person to sell used cars in a retail setting. You are actually permitted to sell used cars retail at a small office location if you can pass all of the legal requirements. A good example of this will be an auto repair shop selling cars that they fix up, direct to their customers. If the repair shop has passed all of the legal requirements, this is perfectly a legal way of selling cars.
When you sell used car retail, the average profit margin is around $1,000 per used car sold. As a used auto dealer, this is the profit margin that you will target for. Of course in each sale the profit margin does fluctuate rather significantly. It is typical to sell your cars at a profit margin that is significantly higher or lower than the average profit margin of $1,000 per car. There are many reasons why this happens, and I have listed it here. Keep in mind that it is the combination of the factors described below that will determine the profit margin of your sales.
Reasons of Higher Profit Margins
- You may have had a car that sell very well or is in high demand
- You may have purchased the car at a below wholesale price
- You may have had to do very little repairs or the repairs cost very little to do
- The customer was a no haggle kind of person that purchased the used car at its full retail price
- You may be selling a higher end car that may allow you to charge a premium at your dealership
- You may have great service allowing you to charge a premium at your dealership
- You may have a great financing plan allowing you to charge a premium at your dealership
- The economy is booming, and people are spending a lot of money
Reasons of Lower Profit Margins
- You may have had a car that is in poor demand of the car has been in inventory for a long period of time
- You may have purchased the car at above wholesale price
- You may have had to do a lot of repairs or the repairs cost a lot to do
- The customer was very demanding, negotiating the purchase price down to below average levels.
- Your dealership may compete based on price thereby lowering the profit margin per car
- The customer is unable to secure financing
- The economy is in a recession, and consumer spending is low
A combination of these factors will influence how much profit you will make per used car sales at your retail car lot.
Here is a simple formula that will help you to understand and determine the profit margin per each sale:
Retail Sale Price – Purchase Price of Inventory – Costs to Tune Up the Car = Profit Margin
To increase your net profit, you can either increase your sale price, or decrease your wholesale purchase price, or the repair price of the car. Many dealers that are also repairman are capable of doing their own repairs, and hence may have a higher margin then other dealers. You can also have an exceptionally good sales team, allowing you to sell your cars for more then what it would usually go for. It’s not uncommon for dealers to make $2,000-$2,500 per used car sale if you can do any of the above.
Selling Used Car Wholesale
Next way you can make money is by selling the cars you buy at an auction or through a customer wholesale to other dealers, or back to the auction. Usually, dealers that do wholesale sales are able to fix vehicles or find them at a bargain to sell it back to other dealers for a profit. In this market, and average profit margin is about $500. But since there is less work and hassle involved in this business, there are many extremely successful wholesale dealers out in the market today.
Broker New or Used Car
One other way that you can make money in the auto dealer business is to broker new or used cars. There are many people out there that may not have the time or just want other people to do the purchasing the car for them. You, as the dealer, will work with other dealers in order to broker a deal with the customer, and collect a broker fee. Broker fees can be collected from either the customer or the dealer, and you should be looking to get somewhere between $300-$500 per transaction.
So these are the three basic business model of the auto dealership. At this point, I am hoping you understand when I say that it’s not very difficult to make your first million dollars in this business. At $1,000-$2,000 per car, you’ll need to sell somewhere between 500-1000 cars to hit that number. Breaking it down to days, that’s 1.3 to 2.7 cars a day. Even if you do 1/10th that amount, you still have the potential to make $100,000 in income. Not bad.
This is indeed a business where someone with the right amount of smarts, passion, and hard work can become a definite millionaire. So good luck!
If you're still interested, this Hub continues into Part 2 and on. Part 2 of this Hub will go over some of the legal requirements that you need to meet to get licensed as an auto dealer. Click here to read on...
How to Start Your Own Auto Dealership - Part 2
Enjoy!
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thanks, i was searching for this article
a good piece, i will twit it too for others.
Very Kool Hub! I have always had a passion for cars and have wanted to get into the car business. Everybody needs transportation.
What is the steps in creating financing in your dealership?
This is a bit misleading to say the least. I urge anyone looking to get into the car business to please put their money elsewhere.
THE BUSINESS IS GOOD IF YOU ARE THE BANK. I GOT OUT OF THE BUSINESS BECAUSE THERE ARE NO BANKS THAT WANT TO LOAN ANY MONEY.
thax for providing essential information...........
as sales go up so does the overhead... u may make 30k per month, but your expenses will probably be about 27k.. good luck
Don't think now is a great time to be getting into the car business
I know people that make a very good living doing retail or wholesale in this business. It is a bit harder than a couples years ago but still has potential for very good money.
All: I have been working for the federal government for the past 22 years. I have always ventured into selling things and making money with cars however the lack of knowledge and maturity led me to a Chapter 7 BK over 10 years ago. Today at 41 I still have my day job and until recent and I guess I finally learned a few things here and there. I am looking towards retiring at 50 (9 more years) and sale cars full time. Maybe open my own dealer or just build a huge warehouse and sale hand picked vehicles one by one. That’s the plan and for the next 9 years as I plan my exit strategy far and away from the gov.
My suggestion to all is that you need a plan. Believe me, I have been praying and hoping to find a mentor in this business that could throw me a bone and help/teach me about the business. I haven’t had much progress in that area. What I do know is that along the way I have adopted some very serious ethical principles from dealing with some really bad elements out there. This business is flooded with a bunch of not so good people folks.
If you want to establish a great auto business or anything else that has to do with people, you have to come out clean from the get go. Don’t sale garbage to people folks. Take ownership of the cheap car and threat the customers as if they are buying a Mercedes Benz. I have purchased cars that I particularly enjoyed such as 911’s, BMW’s and Mercedes Benz. Today I am selling a Toyota Corolla (2003) and quite enjoy the same. There will be a time in the future that I will be driving other high end cars. Today I buy what ever is in popular demand.
Know your target and be aware of scammers. Its all good and God bless you. Hopefully we can do business in the future.
Regards,
Glenn A. Torres
glenntpr@aol.com
Im locking for a partner to open a dealer together...but ???
You should learn basic English skills. Specifically the difference between man and men in a plural sense. And for God's sake, learn the difference between the word "then" and "than" and when you use each of them. You should never write an article again. Geez. Get an education for crying out loud!!
you guys are very ignorent how old are you? really, this is a hub for helping grown mature people to move foward and you guys really worry about this persons writting, he need to learn and you guys need to learn mannors and how to grow up instead of a dealer biz......
i have been in the car business for a while worked
started car washer ,service department ,saleman ,sales manager,business ownwer used cars,and the only advice i would give is dont waste your time,if you work for someone else they treat you like a dog only as good as your last sale no loyalty,no pession plan 60 hour a week job,started my own business when your not a big dealer people expect you to be the cheapest so you make no money
the bank charges you interest on the cars,rent electricity,bond fees,insurance,you have to sell 9 cars a month just to cover your expenses,and thats not paying yourself,average pay of a salesman 25000$to 35000$ for 60 hours a week,i closed everything and i make more money mopping floors working at a public school with full benifits retirement at 55 years old no salesman retire at 55 its all the truth
Actually depending on what state you live in, bond fees vary. Where I live bond fees were 10% of the actual bond ($75,000) and lot insurance is about $5,000. Also depending on what state you live in there are guidelines and regulations with MVED (motor vehicle enforcement division). And those regulations are acquiring a business lot with at least 3 parking spaces for sale, and a 6X6' sign for business fees. After passing an online test which was 8 hours for me, I was approved and able to get a dealers' license.
Of course there is startup capital you will need in which I got by selling all my other cars, house, and moved into a small apartment. But in the first months things were skinny, however as things picked up the startup costs had been covered, and now I love what I do. Cars are the love of my life so I consider my job not so labor intensive, however I just go to auctions and pick cars that I know market well, and know will sell quickly.
It is not for everyone. But this can be said for any business. Know what your doing, and market really well, and you can have a solid 6 figure income which I should eclipse next year.
I really wish everyone could be as optimistic as Jeff. this probably isnt the business to get into if you dont know some basic figures in the auto world but there is hope for those who do. If this is your passion and you are a hard worker what is not to be hopeful about.
Hi Nikhil G, that is a very lucrative offer and you will save approximately 25000 to 30000 INR on that offer. ABS is a plus point and it is better to get it fitted from the company rather than upgrading it in a car without ABS. Plus one more thing, I know Glistering Grey is a good color and I saw a brand new Wagon R yesterday of same color but my friend white color always look awesome as it is an evergreen color. All new colors come and go according to the trends but white and black colors always remain there. Better to grab that offer. If I were you, I would have done that.
Thanks for all the info it was very usefull, and i hope to start my own business importing and selling right hand drives from japan which over here is a high demand and popupar small business
i am a minor.. An african and i want to go into the car business .. I have a feeling it's not going to be easy combining education and car dealing together ..but this info i read's good.. But as a fresher in this biz, i'm about to take the greatest risk by using my school fees and all my saving to start from the scratch.. I hope it turns out well.
i really love to become a car dealer in my country nigeria..and thanks 4 dis information
die boy
Do you have information/ideas/plans on starting a NEW CAR dealership?
Hear from you soon, Chris.
Currently starting my own dealership. I have done different jobs in the car business for the last 10 yrs and I was sick of always traveling.
Good business to get in too. I found a nice zoned lot on a major state rd. my total overhead each month including insurance, bond, rent, and utilities is only $1400/month. I only need to sell 6-8 cars a month to make a great living and NOT have a boss!
I am looking to open a used car dealership myself but I do not have the capital for it yet. I study business administration and work full time in a Ford dealership. I plan on selling cars on the side and save up more money to open up a business in couple years but in order for me to get a hold of profitable vehicles, I need access to auctions which requires a dealer license. Anybody has any idea what is a good way of acquiring a license without leasing/renting a lot? Any information would be appreciated (I am in Illinois). Feel free to e-mail me if you wanna chat used car business.
Thank you,
Tom P.
tomek88pl@yahoo.com
my dad sold cars for 15 years and has 4 workers and big gargae now no one wants cars he cloesed up and nw is maken a living else were he said he lost more money than made
Gin Delloway 2 years ago
I really like your hub!! Thank you!!!!