What Is Needed to Start a Used Car Lot?
Although the government's "Cash For Clunkers" program in 2009 took almost 700,000 used cars off the road, the used car business is still revving. Recent figures show that used car sales remained strong at the beginning of the summer in 2009. Used car volume was up 13 percent compared to the same period one year ago. With the right location and right cars, owning a used car lot can be fun and viable.
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Location
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Similar to the real estate industry, it's all about location, location, location. Search for a commercial location that has high traffic, good visibility, space for an office, space to visibly display autos, to store, to repair and to recondition vehicles. If you do not perform mechanical work, most states require that you have a service agreement with a service station. Before purchasing or leasing a property, check with the city or town to determine whether the location will comply with zoning ordinances. Some towns require permits and charge a fee while others do not.
State Regulations
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Most states have agencies that regulate used car lots. Check with your state's division of motor vehicles to review the regulations, to review the building requirements, paper work requirements, sign restrictions, eligibility requirements and to receive a dealer handbook. States will require a completed application, a surety bond, liability insurance, attendance at educational classes and might require applicants to pass a written test before a license can be issued. Dealer license fees range from under $300 to more than $1,000. There is an additional charge for dealer plates.
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Inventory
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Determine how you will stock your lot. Dealers can buy locally, take trade-ins, buy from other dealers, buy at online auctions or go to wholesale auctions. To buy at wholesale auctions, the dealer must be registered with the auction. Registration requires that a dealer be licensed, bonded, submit a financial application, a credit check and sometimes a criminal check. Though there is paperwork involved to buy at auction, there are usually more than 1,000 cars to choose from.
Financing
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The majority of used car customers finance their purchases. Establish a relationship either with a bank or credit union that lends to the used car industry. Credit unions are usually more inclined to work with smaller dealers and some have direct dealer lending programs. There are companies that will finance customers with less-than-stellar credit, however these programs do not usually give the dealer all the money up front so unless the dealer does a rather large volume this can be a risky business. It's important to set up financing for your business and establish a credit line for purchasing cars.
Used Car Guides
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To determine how much a car is worth, dealers review auction reports and use two guide books: Galves, which is the wholesale price book for used cars, and NADA which is a series of guides on the market value of used cars and trucks. The banks also use NADA to determine how much they will lend on a vehicle.
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