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Expert Tips for Starting a Used Car Dealership - 5 Steps to Success
Read our step-by-step guide for starting a used car dealership to find expert advice on building a strong and successful business.
So you’ve decided to start a used car dealership. As a partner in this industry, we want to welcome you and help you set up. In this article, you’ll find out which essential steps you need to take to get your business up and running.
We’ll start with some market research and business planning practices, before moving on to more practical matters, such as finding the right location, building your inventory and ensuring a steady flow of customer through online marketing activities.
Let’s dive right in.
Where to begin when you're starting a used car dealership? Start with market research
Starting a business without knowing your market can be risky. To find success and see a profit, you should make sure you’re offering a product that people in your market really need. And the only way to find out if your products are needed is to do market research.
The good news is that used cars are always in season and your dealership will have a market, wherever you decide to set up shop. After all, everyone needs a car, right?
So what should your market research really be about? Two things actually.
The first one is an analysis of your competitors. You’ll want to check how many used car dealerships already operate in your area and what kinds of products and services they’re offering. Why? Because that will tell you exactly how difficult it’s going to be to make a name for yourself and run a successful business.
For example, did you know that Warsaw has the largest number of car dealerships out of any city in Europe? In fact, this city alone accounts for 4% of the European car dealer market share!
Illustration: eCarsTrade / Data: BoldData
Clearly, attracting customers in such a crowded market would be challenging because customers have so many options to choose from. But this shouldn’t discourage you from opening your own dealership. All you have to do is dive deeper into your research and find a way to stand out and offer something that’s lacking in the market. For example:
- Is there a car brand other dealers in the area don’t offer?
- Can you provide any additional services for your customers, such as a mechanic?
- Can you offer a more pleasant customer experience than others?
While we’re on the topic of customers, you should know that the other part of doing market research is finding out everything you can about your customers. In other words, that means doing some audience research.
In this phase, you’ll need to ask questions like: what kinds of used cars do your customers prefer? How much can they afford to spend? What are their driving needs?
One thing that can help you here is to look at car sales reports in your area. They could reveal some very important clues on what your audience wants.
For example, in 2022, the three top selling cars in Germany were all Volkswagens (the Golfin first place, and the Tiguan and T-Roc following close behind). What does that tell us about the German audience? Mainly that they look for reliability and vehicles that perform well in all driving conditions (city and motorway). And of course, that they show a preference for German-made cars. And so, you already have a few bits of information that can help you offer the right sort of cars to your audience.
Remember, every business exists in a market. To boost your chances of success, make sure you’re aware of your competition so you can offer something unique. Also, get to know your audience so you can supply exactly what they want to buy.
As you delve into market research and strategize for your dealership's future, understanding industry trends is paramount. Wondering will used car prices drop in 2024? Our detailed forecasts provide the insights you need to navigate the evolving landscape and fine-tune your business approach for the coming years.
eCarsTrade offers online auto auctions of ex-lease vehicles from:
Browse our used carsWrite a business plan
There are actually several reasons why you shouldn’t take any action toward opening a dealership before you have a detailed business plan, a document that details every element of your dealership: from your reasons for starting a used car dealership in the first place, to your plans for the long-term future.
The first one is that a business plan will help you think about your dealership in a logical and methodical way. Starting your own business is exciting and all, but you’ll need to carefully consider every cost, opportunity, and disadvantage before you get started because only then will you be prepared for anything that comes your way. A detailed business plan will lead you through all of these questions and make you provide answers to each on of them.
The second reason is that business plans are an important element of financial planning. For example, if you’re going to apply for a bank loan to start your business, one of the first things you will be requested do to is provide a business plan to prove your dealership has the potential to survive in the market and turn a profit.
So, what are some of the elements of a business plan and where should you start? Let’s take a look.
- Executive summary: this is an overview of your business. Explain why you think you would run a successful dealership and describe the market opportunity you want to explore.
- Business overview: start with the name and business structure of your dealership. Add a mission statement to outline your vision, business objectives and core principles that will help you get there. Remember to make it convincing and impactful.
- Market analysis: this is where you will put the results of your diligent market research to prove that the market you will operate in can sustain your dealership.
- Products and services: describe what kinds of used cars you will be selling and the services you will offer to your customers. It’s also a good idea to explain how you plan to make your products and services safe and high-quality for your customers.
- Marketing strategy: How will you attract customers? Do you plan to focus on online promotion or activities in the real world?
- Financial plan: arguably the most important part of the business plan. It should include a detailed budget you plan to use to open your company, financing needs, as well as profits and losses predictions for at least the first year.
Once you’re satisfied with your strategy and your financal plan has shown you a realistic way to turn a profit, should you start approaching banks about taking out a loan and taking the first steps toward starting your dealership.
Choose the right location for your used car dealership
Choosing the right location is essential because almost all car buyers still prefer in-person purchases and nearly half of them visit just one dealership before making up their minds about their purchase.
Illustration: eCarsTrade / Data: JW Surety Bonds
Taking those figures into consideration, it’s clear that picking the right spot will increase your chances of being the lucky dealership your customers choose to buy their next used vehicle.
But how do you know if you’ve found the right place? Here are some considerations.
For one, it’s important to choose an accessible location. You should pick a location near the main roads in your areas, where there’s a fair amount of traffic and where you’ll be visible to passing cars. This will make your dealership easy to find and it will also increase spontaneous visits from potential customers who were “just passing by”.
Your second consideration is lot size. As a used car salesman, you’ll need enough room to show off your supply and allow customers to interact and test-drive your cars. In addition, bear in mind that your goal will be to expand your dealership. Therefore, don’t just look for a lot big enough to house your initial supply of cars. Instead, look for a place where your business can grow freely.
Thirdly, remember that cars are valuable merchandise and pick a location you know to be safe. For example, consider if the location has enough public ligthing and check the crime rates in the area to ensure your supply is safe, night and day.
Next, consider the neighbourhood you’ll be operating in. Are there other car dealerships in the area? What about car washes or car mechanics? Opening your business in an area already known for automotive activity could bring additional customers to your door, even if they didn’t originally arrive to visit your used car dealership.
Have a look at the example below. It’s clear that locals in this area consider this area a central place for all things related to cars with several dealerships, a mechanic, car wash, and even a car parts store. If they were looking to buy a used car, this would probably be the first place to come to mind.
Start your used car dealership in an area already known for cars
Finally, refer back to your business plan and budget. It’s vitally important to buy or rent a lot that’s within your budget to ensure your business stays feasible and financially sound.
Of course, another option is to opening an online dealership and operate a business without a physical location or an on-location stock of cars. Remember, almost 20% of buyers prefer to buy their cars this way so it’s definitely worth your consideration.
And the advantages here are clear. Operating an online dealership lets you avoid substantial costs in buying, renting, and maintaining a lot. It also makes your stock available to a much wider audience that doesn’t need to invest any effort to visit your dealership. They can just select the car they need from your website and arrange delivery or pick up.
Clearly, choosing the right location is going to involve a lot of consideration, as well as compromise. But this is actually one of the more enjoyable activites of starting a used car dealership because you get to go out there and explore interesting locations to find the perfect one.
Build your inventory of used cars
With your business founded and your dealership almost ready to open, all that’s left to do is shop for used cars you’re going to offer to customers, right?
Not so fast. First, it’s a good idea to come up with a list of buying policies that will guide your inventory building process. You don’t want to buy just any cars. Your supply should respond to a real need in your market as well as your business model, just how we talked about in the first two sections of this post.
With that in minds, here are some buying policies you might find useful:
- Inventory limit: this is the policy that determines how many used car you can have in your lot at any given time. You should set this according to the size of your lot as well as your budget for buying cars. Sticking to this limit will make your lot more manageable as well as ensure you don’t go into too much debt when securing your cars.
- Buying budget: this one is connected with the inventory limit. You should carefully plan how much you can afford to spend on cars and you can set your budget on a monthly or quarterly basis for maximum control over your spending.
- Car types: align this policy with your business plan and decide what types of cars you’re buying. This includes makes and models, car size, mileage, vehicle condition, etc.
- Vehicle turnover: set a turnover goal for your dealership. Determine how much time a car can spend on your lot before it’s sold and then take action (marketing activities, reduced pricing, etc.) to sell it before this deadline.
- Vehicle sourcing: where will you get your cars from? Used cars can come from private owners, resellers, and even used car auctions. With so many options, it’s a good idea to make a clear choice and develop your relationship with your supplier from there to avoid chaotic buying practices.
For example, it’s a good option to choose sourcing your cars from an online used car auction platform. They usually have a large selection to choose from and you can bid on cars from the comfort of your office to get the best possible price.
eCarsTrade is this kind of platform and it offers used car sellers a selection of more than 3,000 used cars of all makes, models, and conditions. All you have to do is complete a simple registration process and then use the easy search method to find exactly the car you need for your lot with all the information you need to make an informed purchasing decision.
Try eCarsTrade for all of your used car sourcing needs
Once you have all of your buying policies in place as well as a dependable supplier to work with, you can start to fill your lot with your product and doing business with your customers. Your used car dealership is officially open!
Market your used car dealership online
Every business is a living organism. You need to keep putting in effort to build customer relations and get customers through your door. The best way to do exactly that is to invest in marketing.
Now, there are two essential ways to promote your business: online and offline. While billboards, flyers and newspaper ads still have a use, your most powerful tool when it comes to marketing your dealership is building your online presence. And yes, that’s also true for physical dealerships, not just online traders.
Why? Studies have shown that as much as 97% of customers look for a local business online. Therefore, if you don’t have an online presence, your potential buyers might just go to another dealership because they couldn’t find you.
So, where to start? The best option is claiming your Google Business profile. This is a totally free resource where you can add your business location and contact information so that people can easily find you when they’re looking to buy a used car.
In addition, your business will also show up on Google Maps to help customers navigate to you. Remember our map from the section about choosing the right location? Well, every one of those business has a Google Business profile, that’s why we can find them on the map.
Setting up your profile is really easy. Here’s a short video that will guide you through the process.
How to add or claim your Business Profile on Google
But what about when people aren’t looking for your used car dealership specifically? What about when they haven’t even made the decision to buy a used car yet? Well, the perfect tool for those cases is social media.
Having a presence on popular social media channels will let you reach and influence your customers, even if they’ve never heard of you before. Best of all, creating a business page for your dealership is also completely free and can be done without any technical knowledge.
The most visited social media sites today include:
- X
- TikTok
- YouTube
Starting and maintaining a profile on each one could involve a lot of work, so a good course of action (if you don’t plan to employ a social media manager) would be to focus on just one or two of these channels.
We recommend Instagram and, if you have the capacity to create quality videos of your dealership stock and activities, YouTube. You can also look into WhatsApp Business for an additional channel of selling cars.
Illustration: eCarsTrade / Data: AM Online
Once you have your profiles set up, you can start sharing company news, media of your excellent stock, promotions and sales, useful tips and tricks, and much more. Keep in mind, the more you share, the greater your reach and the higher the chances customers will notice and remember your brand.
Online marketing activities are a must-have for any business these days, and that also applies to used car dealerships. Ensure you have a strong online presence and share valuable content whenever you can to attract customers to your dealership.
Good luck with opening your used car dealership!
We hope our advice has provided you with a strong starting position in opening your used car dealership. The key to success here is patience. Make sure you know enough about your market and that you’ve planned your business down to the last detail. Also, devote enough time to coming up with your buying policies and building relationships with your suppliers. Finally, keep in mind that your dealership should be active online as it is in real life.
As you’re filling your lot with quality used vehicles, check out eCarsTrade and our offer of used cars. We have something for every one of your future buyers.
