How to Start a Used Car Dealership Business

car lot; used car dealership
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The used car industry is booming. According to Precedence Research, the global used car market size was valued at $1.4 trillion in 2020, and it’s expected to reach $2.1 trillion by 2027, growing at a compound annual growth rate (CAGR) of 6% from 2021 to 2030.

In the U.S., the used car industry is worth $195 billion in 2021, and it’s projected to reach over $302 billion by 2027, growing at a CAGR of 7.51% between 2018 and 2028.

There may be no better time to start a used car dealership business than now.

However, this doesn’t mean doing so is easy. It takes a lot of planning and work to get a used car dealership off the ground. Here are some steps you should follow:

1. Perform market research

The first thing you should do is research your market. Learn what consumers in the area are like and what types of cars they tend to buy most. The better you know your target buyer, the better you can cater your used car dealership to their needs and wants.

2. Choose a location

You need to choose an ideal location for your dealership. Aim for somewhere that is highly visible and gets a lot of traffic. The property should obviously also have enough space for a car lot and be easily accessible from nearby roads. If possible, choose a location that’s near other related businesses, such as a car wash or a car repair shop. That way, you can take advantage of their traffic, too.

That said, be aware of the tradeoff of being located near competitors. On the one hand, it may mean you lose some business to the competition. On the other hand, you may benefit from the increased foot traffic generated by people coming to the area to look at a larger selection of cars.

3. Identify a niche

Every business needs a niche or specialization. This helps you differentiate yourself in a crowded market. You could specialize in selling a certain type or brand of car at a specific price point. You can always expand your niche later, but you should pick one initially to stand out.

Tiger Okeley at Oak Motors said, “We started a Buy Here Pay Here car dealership because we wanted to provide reliable transportation to customers who had credit challenges and were being turned down for traditional financing. Everyone needs to be able to get from point A to point B regardless of their credit history.”

4. Write a business plan

At this point, you must sit down to write a business plan. Among other things, this includes setting business goals and making a plan to achieve them. Your goals should follow the SMART criteria: specific, measurable, achievable, relevant, and time-bound. Your business plan should include a description of the company, a market analysis, and a marketing plan.

5. Register your business

You must register your used car dealership before you can legally operate it. This typically means getting a dealer’s license from your local Division of Motor Vehicles (DMV). Most states offer two types of dealer licenses: new dealer licenses and used dealer licenses. You’ll want the latter.

6. Build your inventory

Start building your vehicle inventory by registering at local auctions. Some popular ones include ADESA, Copart, ACV Auctions, Manheim, and DAA. Look online for the best deals and choose your inventory wisely. Start small and build your inventory up gradually.

7. Build an online presence

Finally, many consumers shop for cars online these days, so it pays to have a strong online presence. You can do this by having a website with your inventory listed and by running online ads that target your target audience. Either way, it helps get your name out there and generate more sales.

Running a used car dealership isn’t easy, but if you follow these steps, you’re off to a good start.

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