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Old 11-20-2007, 11:35 AM
 
Location: Nashville,Tn
355 posts, read 1,814,063 times
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Hi, I would like to one day open my own buisness and would like to ask a question. Is starting a car dealer costly? I would like to start my own new car dealer, but I am not sure how hard it would be to do that nor how much it would cost. How much does it cost and what do I have to do in order to open a new car dealer? I need answers. Someone please help.
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Old 11-20-2007, 12:05 PM
 
5,770 posts, read 7,875,198 times
Reputation: 5706
What do you know about the car business? How will you finance it?
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Old 11-20-2007, 12:15 PM
 
Location: Happy wherever I am - Florida now
2,914 posts, read 7,233,562 times
Reputation: 2498
Call up one of the carmakers and ask.

Chances are you're going to need a minimum of a half million in equity. Even if the carmaker has a line of credit you can buy your vehicles on you're still going to need a building that meets with their approval, signage, a lot of shop equipment, tools, and you'll have to have or send out mechanics for training.

Get a job in a car dealership first. I'd suggest working in both of these areas - sales and service underwriter. It would also help if you have a business background in finance and accounting.
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Old 11-20-2007, 01:54 PM
 
8,286 posts, read 22,030,562 times
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I don't know of any major line franchise dealership that is less than a couple million dollars up front ... unless you're looking at a single point dealership in a very small town with a cheap lease and low overhead expenses. The days of a Renault franchise sold to every corner gas station who wanted one has long passed ....

Successful ownership requires a background in sales, F&I, inventory control, staffing management skills, and marketing. If you don't have a broad spectrum successful background in all these areas, you will have to hire the people with these skills.

The technical side of the business ... service ... is another facet of a dealership, but generally adressed by a staff of trained managers, foremen, service writers, techs, porters, detailers, etc. It would seem that very few dealership owners know this side of the business except for marketing and general service concepts. Given the priorities of the new/used car sales/F&I/parts sales, the service side of a dealership is not generally a "profit center" that warrants a lot of attention from an owner.

Even a small "used car lot" (say, 20-30 cars) in a decent retail location in small city can be an expensive enterprise. With a few thousand dollars per month in lease to start with, add advertising budget, sales staff, overhead expenses, floor plan costs per month for inventory, insurance .... it can quickly add up to a 5-figure "monthly nut" just to open the doors. That's a lot of cash flow to sustain before you've even made a business profit, paid yourself some income, and made a ROI. There's a lot of competition in this business, too ... sometimes from sharp people who know what they're doing ... and sometimes, from people who don't and are giving away the store.
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Old 11-20-2007, 08:17 PM
 
Location: in drifts of snow wherever you go
2,522 posts, read 390,942 times
Reputation: 692
the car business is not so good right now.
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Old 11-21-2007, 08:35 AM
 
Location: Southwest Missouri
1,921 posts, read 4,105,771 times
Reputation: 879
Attempting to open a business that one knows nothing about is never a good idea.
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Old 11-21-2007, 10:37 AM
miu
 
Location: MA/NH
13,010 posts, read 22,156,229 times
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I don't think that it'd be too difficult to start off with being a small used car dealership. But you'd better be very mechanically inclined. One just gets a dealer license, then buys used cars carefully through craigslist, auctions and other dealerships. Then you would want to go through the car completely and make sure that all the mechanical and electrical systems are sound. My old mechanics would occasionally sell a good used Honda purchased from their customers that they knew the history of. Then they would put in a fresh battery, change the fluids, replace the brake pads, make sure the catalytic converter isn't clogged and that the car would pass inspection. I believe that they sold those used cars with a 12 month warranty. And being a garage, it was no big deal for them to stand behind the car mechanically.

Otherwise to become a new car dealership would be very very expensive. And it would be easier to buy an existing franchise, than starting from scratch and staffing it.
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Old 11-21-2007, 11:19 AM
 
Location: California
3,432 posts, read 264,205 times
Reputation: 138
Are you planning on selling new or used cars?
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Old 11-21-2007, 03:12 PM
 
8,286 posts, read 22,030,562 times
Reputation: 7988
LOTF, miu ... it's apparent that you've never done this yourself, or have any real knowledge of how this business works.

An independent mechanic/tech/bodyman/painter might be able to find a car now and then worth their time to recondition at home on the side, but they're really in the service/restoration business, not car sales.

frankly, the car business is not dominated by techs/bodymen/painters. It's dominated by sales organizations.

there's a huge difference in the costs of operation/cash flow between a working service shop re-selling a few known to them used cars ... where the overhead is expensed off in an existing service operation, and they don't have F&I services, a sales showroom, full service parts inventory targeted to a specific brand, etc. ... and a business that is capitalized, staffed, and targeted to selling cars.

the hardest part of a used car business is finding the right mix of merchandise for your market segment, in the right condition (to minimize re-con costs), and at the right price so you can maintain your margins.

You won't find your inventory on Craig's list, eBay, or other accessible to the public auctions where the RETAIL marketplace sets the price guidelines. The biggest sources of marketable inventory will come from wholesale (dealer only) auctions, new car dealership sales managers (getting bids for trade-ins they don't want on their lot), and independent wholesalers who act as go-betweens for the new car lot trade ins and the used car lots.

It's very much a people/contact game .... the sales manager at a given dealership has his preferred contacts for certain types of cars/price points, and will offer his best top line trade-ins to only his established contacts/buyers. The folks that he knows have good credit lines, know how to make a decision right now, and are active buyers in his marketplace. They won't call the little guy down the street who has to ask his banker if he's got enough floor plan credit line left to afford a car, or if the guy wants time to see if he has a buyer lined up for the car coming in so he can justify buying it, etc., etc., etc. Keep in mind that that sales manager may have a buyer in his showroom seeking to trade in his car and asking for the best deal he can get right now ... so, while he waits, the sales manager is "shopping" that trade in. The BlueBook be damned ... it's what the dealership can get right now for a confirmed sale on that trade-in that will allow the sales manager the opportunity to work on the numbers for the "deal" in his showroom. Otherwise, he's looking at an "auction" trade-in car, and he's got no better knowledge of what it's worth today than the most recent auction prices ... which typically are going to be a lower value than a used car dealer who wants the car for his inventory now; this all goes to make for a higher price on the new car and a lower trade-in value for the used car, so the consumer doesn't get as attractive an offer as might otherwise happen.

The fellow with the little used car lot simply isn't going to be called up with "nice" merchandise to bid on or buy ... if he's lucky, he might get offered a package deal with a nice car (at a top price) bundled with a bunch of "edgy" cars which have little room for profit remaining in selling them.

Consider, too ... that to have a modest selection of saleable average used cars today, let's say 20-30 cars (that's a small car lot) .... you're looking at an inventory worth maybe $100-120 K. The monthly payment on the floor plan and the rent and the insurance and your bond and your dealership overhead have all got to be met before you make a penny each month. So, if you sell ... let's say 5-10 cars/month ... you're going to need to make a couple thousand dollars on each one just to have an income when all is said and done. Just how easy do you think it is to find cars that have a couple thousand dollar upside after all of your re-con costs, marketing costs, sales costs, transportation costs, etc.? The ones you've paid the lot boy to clean every morning .... and the salesman to sell. You don't think one guy is going to do all the stuff himself, do you ... with such a modest inventory total?

Given that the focus of a retail car sales business is to have merchandise and turn inventory at a rate fast enough to meet overhead and expenses and have a profit when all the dust settles each month .... it's a very capital and personnel intensive business, far removed from the sideline of selling a good used car now and then at a service garage.
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Old 11-21-2007, 05:07 PM
miu
 
Location: MA/NH
13,010 posts, read 22,156,229 times
Reputation: 10198
Quote:
Originally Posted by sunsprit View Post
LOTF, miu ... it's apparent that you've never done this yourself, or have any real knowledge of how this business works.
I've found a good number of cars on craigslist really really cheap. Some I've bought, then later on resold for a profit. Others I had my friends buy. And I've met two men that specialized in buying high mileage well maintained cars that were traded in to dealerships and they would then peddle those cars themselves. Those guys seemed to make an okay living at it.

The O.P. never said what his business background was or what kind of dealership he would like to own and run.
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