Every business has its unique characteristics, and that is particularly true for a used car dealership. There are strict licensing and regulatory requirements that must be carefully met to minimize the risk of fines and closure. In addition, the business owner needs to build a good reputation for honesty and delivering excellent customer service from the moment the doors open. The first step is to research the specific federal, state and local laws, and regulations that apply to licensing, zoning, truth-in-advertising, and so on, to make sure the startup and operating plans meet their requirements. Car dealers usually choose one of two business paths: sell vehicles as a wholesaler or a retailer. A wholesaler sells cars and trucks to other car dealerships who then resell them to the public. The second option is to become a retail business and sell directly to the public. There are different regulations that apply to each type of business.
Once the type of business is selected, it is time to develop the operating details.
The used car dealership business plan walks the car dealer through the startup process, while creating a document that can also be used to support requests to potential investors or financial institutions making business loans.
• Obtaining appropriate licenses is critical because any business selling vehicles is not legally allowed to operate without a business license and a dealer’s license. The dealer’s license gives the business owner the right to sell vehicles for profit. The license application is usually submitted to the state department of motor vehicles.
• The choice of locations is important for three reasons. First, zoning laws limit where car dealers can setup their business. Second, the location needs adequate space for displaying vehicle inventory, creating off space, and customer parking. Third, the location needs to be easily accessible and visible to potential customers, especially if it is a retail business because heavy traffic flow is beneficial.
• A surety bond is required in most locales. The surety bond covers satisfactory delivery of cars and trucks to customers and limits potential loss from supplier contracts.
• The sources of inventory should be outlined, including information about the type of vehicles the dealership plans on selling. A used car business can limit itself to particular makes and models or sell a variety of vehicles. Will vehicles be accepted on trade-in and resold?
• The targeted customers need to be clearly described. Who are the most likely customers if retailing, i.e. middle class families, young adults, working professionals, people with credit problems, etc.? If wholesaling, are there contracts in place already with other dealerships and is a network of connections already developed?
• Many used car dealerships offer vehicle financing, and especially if marketing to customers who have credit problems and difficulty using mainstream financial institutions. The dealership can directly finance the sale or serve as an intermediary between the customer and a financing company working with the dealership.
• The business owner needs a well-developed marketing plan because the competition is intense. The dealership can advertise in newspapers, on television, and through direct mailings. Most businesses have a website which can become a powerful marketing and sales point, as more people shop online for the best deals in used vehicles.
As mentioned, used car dealerships are highly regulated, and there are numerous laws and regulations the business owner should prove familiarity with in the business plan and before doing business. They include the Federal Used Car Rule, Federal Trade Commission regulations concerning warranties, Employment and Labor laws (if hiring staff), and state ‘lemon laws.” In addition to five-year proforma financial statements and the operational plan, there should be a description of the business owner’s experience in retailing and wholesaling used cars and trucks and any other relevant experience and knowledge.
For assistance in developing a used car business plan, contact OGS Capital consultants. Clients get the benefit of working with professionals who have industry business planning expertise and a well-developed network of potential funders.
Illustrative business plan samples
OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.