How To Become A Used Car Dealer

How To Become A Used Car Dealer

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  1. It has been said that new car dealers are out numbered 3 to 1 by used car dealers.  It is also said that a smaller used auto dealer has the potential for higher profit margins because of lower overhead.  It is not difficult to become an auto dealer, but it is a process that could discourage most people.

    And while there is no substitute for proper training and experience, it is possible to start a used car lot from scratch.  I have geared this article toward you and your fresh start.

    Getting Started As A Used Car Dealer

    Step One – First you should determine the direction you wish to conduct business.  Do you have a partner?  Or will you have a sole-proprietorship?  Will you Incorporate?  Or will you consider a limited liability company?  These are all questions that should be answered before you make a step toward finding your location.  It is beyond the scope of this article to consider all of the facets of building your business plan.  You were going to do a business plan right?

    Step Two – Among all of the things you should be talking to your local revenue office about, are your business license, occupation license, dealer license (more on this in a moment), tax identification number, and any other issues such as your surety bond.  Some of these issues should be asked of your city office rather than your state office.

    Your Used Car Dealer License – You may just be thinking this is just another way for the government to charge you for your hard earned money.  Well, maybe, but this is the right to sell as many cars as you want to in a year’s time.  What else can this license entitle you to?

    You can now get in to those "dealer only" auctions and purchase those $300 dollar cars that will sell for $1000 dollars.  $1500 dollar motorcycles that will sell for $3000 dollars. $5000 dollar pickups that will bring $13000 on your lot.  You can also now go to the new car lots and buy the "trade-ins" that are going to auction, with a sealed bid.  No more time wasted with hunting through the classified ads in the papers.  You will be a small business owner with tax-write-offs, access to Gold Corporate Cards, and Small Business Loans.

    Not only do you get those handy tax breaks at the end of the year from the gas station and such, but you can also buy sales tax exempt from auto parts stores and new car dealers.  You get to drive around with one of those cool "dealer tags" on your vehicle, and switch it to a different car in your inventory to drive when ever you want.  Buy wholesale new cars from dealerships for yourself and friends.  Plus you are half way to becoming an Auto Broker!

    Step Three – Now it will be necessary to obtain your financial backing.  Whether by your own savings or finding a silent partner or even just applying for a loan, these are actually things which that business plan you created for your car lot, should address.  The more complete and detailed you made that plan; The happier a financier will be with giving you money.  Also, your business plan should have included that you will need ‘x’ amount of dollars to carry on with your life, finance the operations, and offer liquidity to your assets for the business for six months or more.  And don’t forget your employees as well.

    This would also be a good time to consider your options as far as offering credit to your customers.  This will be important, as you will probably need to carry a customer.  As the vehicles you buy get more expensive, the more important this becomes.  Now while we are talking about the customer:

    Step Four – It is in your best interest to rise above the "stereotype" of the typical used car dealer.  In fact, you will have an up hill battle to rise above this stereotype.  There are many things to consider doing to make the customer feel like you are their best friend.  But one of the best tactics is to is to do a follow up call.  About a month after you have let them drive off in your car, call them and let them know how much you appreciated their business and that you would like to have this opportunity to hear if they have any points that you should change about your business plan.

    And you know what?  That tax break you get for auto parts?  How much does an oil change really cost anyway?  Sure you could offer it as a coupon when they drive away, but it would mean so much more when you tell them to bring the car in for an oil change and a lube job..  For free?  No, I’m not crazy, you see what happens.

    Step Five It is true that the best form of advertising is word of mouth.  You will not find better advertising.  Even if you pay to have a Super Bowl Ad produced.  But there are little things you can do.  If you live in the mid-south, you should be able to understand how important it is to be able to give away cool ball caps.  Koosies and ink pens are usually a staple of any advertising campaign. 

    Don’t forget the power of local social media.  A Facebook page should be a concern, and a dedicated Twitter account should also be a priority.  make sure your @name is on you business cards.  Anyone worth shaking hands with is worthy of your card.

    Don’t forget "hype" events.  What I mean here is, a concrete horse out front that gets painted with a new design every month, Rhino liner an entire truck that has a horrible paint job, or put an outrageous graphics job with a wrap then add your name and business address to the back window in vinyl letters.  Drive the truck everywhere then after you have used up all of the tax deductions you can to break even on the original purchase of the truck, raffle it off!  Of course, check with local authorities to make sure that this isn’t an illegal practice.  You don’t need to pay the fine just for an advertising stunt.

    Step Six – I have already mentioned the importance of social media, but don’t forget to do such things off-line as well.  Attend Chamber of Commerce luncheons and breakfasts, allow the baseball/soccer/scouts/gymnastics kids to have fund raiser car washes at your lot.  Sponsor a team.  Build a custom car to give away every couple of months to a deserving local leader or just one of your customers. 

    Why not host a few barbecues and community events?  Maybe a battle of the high school rock bands?  Pay someone to bring in a race car or an exotic car and offer a photo opportunity for a dollar a picture.  Host a carnival.  A car show.  A audio sound-off.  But spin it in your advertising that it is a community event, not something that you are putting on for advertising.

    And There You Have It – With sincere diligence and determination you could have a used car lot that could be a success.  It has been does before and can be done again.  And above all, make sure to have the integrity to follow your own path away from the bad taste in everyone’s mouth over the stereotypical personality that is known as the used car salesman.


    Photo courtesy of matthew_hull of

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