Car dealership is a retail business that sells new and used cars. Some dealerships have contracts with car manufacturers and work as subsidies, while others sell used cars and car parts. In order to establish a closer relationship with their customers, dealerships often have a service and maintenance department that also conducts warranty repairs.
Costs of opening a car dealership are very high, and they can easily exceed $1 million. Thats why you should carefully plan your future business operation and determine its profitability before you start. In this article, were going to review some of the basic steps for opening a car dealership.
1.Perform market research
Before you start a car dealership business you need to determine whether theres a demand for new or used cars in your area. This can be done by investigating the number of sold cars and conducting further analysis in order to learn which manufacturers, categories and models are the most popular ones.
This is very important, because if you for example determine that Ford F-1500 is the best-selling vehicle in your area, you can open a Ford franchised dealership or dealership which specializes in trucks. Since the initial expenses for opening a car dealership are very high, you need to fill your car lot with vehicles that are both useful and affordable to local consumers.
Market research usually continues with establishing the profile of an ideal customer. It is essential to determine their age, gender, employment level, interests and other demographic and behavioral characteristics. In order to gather the information, you can implement market research tactics used by car manufacturers. You can also assign names and photos to each ideal customer profile in order to make your future marketing campaigns more personal.
2.Choose the type of dealership
There are several types of dealerships to choose from. Most big dealerships are franchised by car manufacturer giants. Franchise allows them to use the manufacturers logo and become a part of their marketing strategy. In order to open a franchise, youll need to sign the franchise agreement, provide financial disclosures to the car manufacturer and pay them a franchise fee.
You also need to choose between selling new cars, used cars or both. Most dealership owners go for the third option, but you should know that this requires you to invest a lot of time and money. Used cars usually attract customers who want to spend less than $15,000 per vehicle and they also require more service and maintenance.
You can easily turn these used cars shortcomings into a business opportunity. Many used car dealers decide to open a service and maintenance department, which allows them to earn more money and build strong relationships with their customers.
3.Plan your finances
Buying the first batch of cars and filling out the inventory is the biggest cost of every new dealership. When you add property lease and costs of building renovation, franchise fee and service department opening, you can easily spend several millions of dollars before you even start selling the vehicles.
Don't forget to also include auto dealer bonds, as most states require you to have one in order to operate a dealership. Auto dealer bonds also offer tax benefits, since by incorporating them you are allowed to write off expenses such as health insurance and life insurance premiums.
Since financing your dealership is such a huge commitment, you should carefully review every potential funding option. Most car dealers finance their floorplan through specialized bank loans, where their car inventory serves as a collateral.
4.Dont forget the regulatory requirements
Whatever car dealership you choose to open, youll need to go through an auto dealership license application process. In order to get the license, youll need to buy an auto-dealership surety bond that protects your buyers from frauds related to car purchase. Youll also need to obtain several other forms of insurance and building permits if you want to build the car lot and dealership offices from scratch.
5.Employ skillful car salesmen
Dealerships employ car salesmen who work for commission and have great negotiation and presentation skills, since used car prices are often negotiable. You should employ at least one qualified salesmen per shift who will teach the new, less experienced staff the basic car sales tactics.
The nature of car salesmen work is the source of many prejudice. In popular culture, they are often depicted as manipulative and greedy. Some of the most notorious car salesmen characters include: Mad Man Mooney from Muppet Movie, Harry Wormwood played by Denny DeVito in Matilda and a fast-talking car salesman from American Graffiti played by John Brent.
Since the nature of car salesmen business drastically changed after the 2008 Economic crisis, you need to explain to your employees that hard sell tactics are not as effective as they used to be. At the moment, Tesla Motors is lobbying and filling lawsuits against the states that have forbidden them to sell their cars directly to consumers. Significant portion of the public supports Tesla Motors appeals, which is why new car dealerships need to cater a harmonious relationship with their customers, build an e-commerce website and use it for online car sales.
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