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How to Start a Used Car Dealership Business

Do you want to start a used car dealership business? Find in this article step by step guide to starting a successful second-hand car dealership company.

The used car dealership business is a profitable automobile-related business worldwide.  In the United States, less than 30% of car purchases are for new vehicles.  More than 70% of people prefer to buy used cars. The reason for selling a used car is primarily because of the too-high purchase cost of new vehicles. The other reason is the fast depreciation of new vehicles. The moment someone buys a new vehicle, the selling price of the new vehicle reduces by 10% or more and then steadily depreciates with time.

11 Steps to Start a Used Car Dealership Business

pic of a used car

1. Understand the Market

Research the local market as much as you can. Unless there is a local demand for used cars, making a good profit out of the business is going to be difficult. Talk to car dealers and existing car repair shopowners and collect information on car trading.

You also must research which cars are selling most of their model numbers. It is advised to do market research and collect as much information as possible regarding the local trends, buying patterns, pricing of other players, competition level, and so on. This information will help you in creating the existing gaps in the used car market and plan accordingly.

2. Create a Business Plan for Your Used Car Selling Business

Developing a business plan is essential for starting a used car distribution business. More so, if you are looking for finance in funding your project.

Some of the basic topics that must be addressed in your used car dealership business plan document are the following:

  • Startup and recurring costs
  • Target customers
  • Pricing strategies
  • How do you plan to sell used cars to prospective customers

3. Name Your Used Car Dealership Business

It is extremely important to create an attractive name for your used car dealership business. A catchy business name not only helps in creating a brand personality but also fetches new customers. As more and more customers will identify your products,  sales volume will increase.

Suggested Read: How to Name Your Business? Step-By-Step Guidelines

4. Choose the Location

It is the most important decision and the main part of starting a used car dealership business. You need a good amount of parking space to display your cars for sale to customers. There is also a need for an indoor space for office work. Therefore, it is extremely critical to estimate how many cars you intend to display and thereby select the space accordingly.

It is preferred to have a good frontage for your dealership location.

5. Buy Used Cars

There are two most important entities in the used car selling business.  One is the one where you will source the used car and the other one is the buyer who will buy that car.

You must create an effective network of sourcing used cars. Talk to car repair shop owners, mechanics, and independent car owners. Attend auctions wherever you find them happening.

6. Costs of Starting a Used Car Dealership Business

Calculate your start-up costs. Broadly you will be in need of money to buy vehicle inventory and working capital costs for at least 12 months. The cost of an average used car in the United States is around $35,000.

Talk to financial institutions or money lending companies and place your loan requirements.

7. Find a Location for your Business

Finding a proper location is extremely critical in making the car distribution business profitable. You need to find a location where you can have your office as well as sufficient space to display cars to customers.

A commercial location is always preferred. However, check your finances, and how much you can afford, and then talk to real estate brokers and let them know your requirement.

8. Make Your Business Legally Compliant

Before you approach to get permits and licenses, you need to decide on the business structure of your used car dealership business. You can start as a sole proprietorship or partnership if you have someone.

For example, if you are from the United States, forming an LLC is a popular option as it protects your personal assets as well as helps in the easy filing of annual taxes.

On the other hand, in India registering your business as a private limited company will help you in getting funds from financial institutions.

9. Procure Licences & Permits

Talk to local authorities and learn what kind of licenses and permissions are required to start a legally compliant car dealership business in your locality. It is advised to talk to a consultant and get the job done.

Also, check your used car dealership abides by the Federal Used Car Rule. In addition to this, you follow the Consumer Rights and Safety laws, and used car dealership lemon laws.

10. Hire Manpower

If you are yourself a car mechanic, then u may not require the same to start your used car selling business. But if you are not then hiring a car mechanic is a must. You need someone to check the cars you are purchasing or selling. It will help you in setting the right buying and selling price for cars.

Other manpower u will need will be an accountant and sales personnel.

11. How to Market Used Car Dealership Business

Marketing is the key to success in the used car dealership business. Let us list down some of the actions needed to take to promote your own car second-hand car dealership venture.

  • Set up Social Accounts on platforms like Facebook, Twitter, and Instagram, and promote your inventories.
  • Create a Website and make an easy-to-use contact us page
  • Create a logo and create eye-catching business cards, flyers, and brochures and distribute them to potential clients

Hire local professionals to create marketing materials. If you are looking to do the job online, Fiverr is a good place to find able professionals.

Networking is the key to being successful in this business. Having presentable sales personnel with good communication skills goes a long way in converting prospects into buyers. Consider creating a media kit for your business.

You can also place an advertisement in the local newspaper and magazines. In today’s world having your own website is a must. It also helps in creating more confidence in your reputation in the customer’s mind.