Used Car Dealership 101: How to Start and Manage Your Business

If you’d take a look at last year’s sales, you’d thought that the US automotive industry is in great shape. According to CNN Money, the sales in 2016 were the highest since the start of the decade, with more than 17.5 million cars and trucks sold during those 12 months.used car dealerships

However, the situation is actually not so great.

You see, sales are expected to fall this year. In fact, sales have already declined and hundreds of thousands of cars are currently sitting on dealer lots across the country, which is why General Motors has recently announced its first major layoff since 2010.

The Right time for Used Car Dealers

But don’t let this fool you, people aren’t looking for other form of transportation, despite the decline of car sales. The last time the government registered active driver – back in 2009 – there were more than 210 million licensed drivers in the United States.

Furthermore, the aforementioned report revealed that almost every person in the country either owns a car or is in the market to buy one. And most of these drivers aren’t actually willing to commit to buying a new car.

The matter of the fact is, a brand new car is simply a terrible investment these days. Its value declines almost 19% as soon as you drive it off the lot, according to statistics gathered by And just after five years of ownership, a car is valued around 40% less than its initial price.

And while the depreciation isn’t good for the original car owners, it provides second-hand sellers a great opportunity to purchase high-quality cars and trucks at notably lower prices. And of course, make a significant profit when they finally re-sell them.

Should You Open a Used Car Dealership?

Before we continue, it would be also important to note that used car sales account for almost 75% of overall car sales in the United States, according to data from CJ Pony Parts.

When you take all of the facts into account, it’s clear that the use car dealerships now have a great chance to make a huge profit. So if you were thinking about investing some money and starting your own business, you might’ve found what you were looking for.

But, as you’re aware, you can’t simply go out, buy a few used cars and start your own dealership overnight. Things are a bit more complicated than that. Things like high startup costs, licensing procedures and ongoing security issues are just a couple of things you’ll face.

However, if you’re even remotely interested in starting and running your used car dealership, you should read the tips we prepared, that could inspire you to tart your business and prepare you for any obstacles in your path.

How to Start a Used Car Dealership

·         Research your market carefully

First things first, if there isn’t a demand for used cars in your area, then you probably won’t see too much profit. That’s logical, right? So before you even start, you need to do some research and assess the existing demand in your area.

When you choose a couple of potential locations for your dealership, you should research the numbers of used cars within 5 or 10 miles of those locations. Also, make note of models that sell frequently and look for competing dealerships in the area.

·         Identify your target demographic

What’s the most important factor to the success or failure of your business? Well, your customers, of course. That’s why you need to take some time and identify your target consumers, so who they are and what they care about.

You also need to take a look at the types of vehicles you plan on selling and do research to determine your ideal consumer. This includes determining the gender, age and income level of the average consumers who owns these types of cars or trucks.

·         Determine all of the costs in advance

After you find the location and your target demographic, you need to determine the costs. Opening any business is a big investment, and running a car dealership can be particularly expensive. You need to lease a location, hire employees and pay a number of fees for licensing and franchising,

This means you’ll need to do even more research, but keep in mind, if you fail to do your homework, you’ll end up spending even more money down the line. And you’ll have a good of what your initial costs are going to be, so you’ll know if you have to find more funding before you open up shop.

·         Don’t forget about the legal requirements

First, if you want to operate a car dealership in the US, you’re going to need a specific license. The procedures for acquiring this license are vary from state, but you luckily have there to help you with any question you might have.

Moreover, if you plan to do any construction or even do a simple renovation of any building on your lot, you’re also going to need some building permits from your local officials. And lastly, you’re going to need to ensure your property, so you’ll need liability insurance and dealer bonds.

How to Manage a Used Car Dealership

·         Hire the right people

Since you won’t be able to afford a full management staff, you’ll probably work as a manager of your dealership for the first few years. So you have to know that it’s vital to hire the right people from the get go, because it will cost you a lot to replace them.

A recent CAP study revealed that average cost to replace a low-paying employee is 16% of his or her annual salary. So let’s say you’re paying an employee $10 per hour, it would cost you more than $3,300 to find and hire a new person.

·         Keep prices reasonable

Selling sub-standard vehicles is of course, dishonest. However, did you know that it’s also illegal? So if you want to make sure that your business stay profitable for years to come, then you need to ensure that you’re offering more than bare minimum to your customers.

Furthermore, even if you’re not breaking the low, modern customers almost always recognize when they are being taken advantage of. And in most cases when this occurs, they refuse to do any further business with the company that’s trying to rip them off.

·         Invest in marketing

Today, an average consumer sees around 360 ads every day, according to a recent study of media exposure by Media Dynamics Inc. So naturally, consumers have become adept at tuning out most conventional forms of advertising.

This means, if you want get the initial exposure you need, you’ll need to devote a nice chunk of your overall budget to your marketing efforts. You can always hire a marketing agency to do the dirty work for you, or if you have enough time, you could enroll to some online marketing courses and finish the job yourself.

·         Focus on online user-reviews

Speaking of ads, did you know that one of the best means of advertising, doesn’t really involve any ads at all?You see, studies have now shown that consumers are 3X more likely to purchase a vehicle when the dealership has a good online reputation.

What’s more, almost a quarter of consumers thinks that online reviews are the most helpful factor, when it comes to making a shopping decision. So as soon as you make your first sale, you should start encouraging the customer to leave a good online review.

Final Thoughts

When it comes to car dealerships, the initial costs are in most cases are rather high, so you’ll probably have to wait a couple of months – in extreme cases more than a year – to turn a real profit. However, if you manage to provide the needed service and get a loyal customer base, your dealership will be successful.

So make sure to hire all the right people, deal with the legal matters before you open, focus on your customers’ needs and just hang in there. And while autonomous cars are on their way, don’t worry, regular vehicles aren’t’ going nowhere. People still need classic cars, and your job is to show the people that you have the vehicles they need in their lives.