Last Updated on 12 September 2022 by Gertrude
The first and only car my father bought was a used car.
I remember when he got home so happy and excited that he could get a nice vehicle at an affordable price.
Aside from the raving on his end, I was eager to find out how he got it when our finances were down the drain.
That is when I got to learn about a used car dealership.
This concept blew my mind and I thought “what a brilliant idea!” That was back in 2006.
Today, many people are looking for convenient forms of transportation to get them to work and move around with family and friends.
Cars have done just that. For this reason, automobiles are on the rise.
Getting a new car is not cheap.
That’s why people are opting for used cars.
The idea of getting a high-quality vehicle within your price range sounds very enticing.
If you are a car lover and you’d like to spend the rest of your days around cars, you should think about starting a used car dealership.
A used car dealership is a good business idea for all the car enthusiasts out there.
The demand for automobiles keeps on growing and this means you get to start a ready market.
You get to be your own boss and even earn a decent living with a used car dealership.
In this article, I will take you through everything you need to know about how to start a used car dealership.
What’s a Used Car Dealership?
A used car is a vehicle that has previously been owned by someone.
A used car is also called a second-hand car or a pre-owned vehicle.
Used car dealers sell these types of vehicles to potential owners.
A used car dealership is a business that primarily sells used cars to its customers at the retail level.
In a used car dealership, you (as the dealer) will be required to have a dealership contract between you and the automaker as well as warranties that will ensure the buyer’s protection.
When an interested person buys your used car, they will pay you the amount for which you have priced the used car.
This is how a used car dealership works.
Now, we can look at how to start a successful used car dealership.
How to Start a Used Car Dealership Business in Kenya [Step by Step]
A used car dealership has a very simple business model. You can start a used car dealership in these few steps below.
- Conduct research and analysis
Start by doing research on the market and find out who your competitors are. This is a good way to understand how the industry works and what you can do to survive in a used car dealership.
When you are doing a competitor analysis, ask yourself these questions:
Who are my competitors and where are they located?
What vehicles do they have in their used car dealership?
What are the prices and the age of these vehicles?
What other services and facilities do they offer?
What is their reputation?
What gives them a competitive edge in the industry?
When you get into the details about your competitors, you will get a few tips on how you can make good headway in the industry and gain a competitive advantage.
It will be easier to run your used car dealership.
When it comes to market analysis, you also want to know who your customers are and what it is that they want.
Where are your customers situated?
What cars do they commonly use?
How are they being underserved in the market?
What make, model and colour of vehicles do they want from a used car dealership?
It will be easier for you to get the right vehicle inventory once you know what ticks your customers and what does not.
You can also do a SWOT analysis in the used car dealership so that you are aware of the strengths and weaknesses that you can experience.
i) Pros of starting a used car dealership
High demand for vehicles; which means a ready market
You are your own boss
Serve a wide customer base; due to the rise in automobiles
High growth potential
ii) Cons of starting a used car dealership
Startup costs are too high
Strict legal requirements
Insurance costs and needs
N/B: You have to do thorough research and analysis to determine if starting a used car dealership is for you.
- Write a business plan
A business plan is a guide.
Write a well-detailed business plan that has the following components:
Products and services
A good business plan is important because it will help you get loans or attract investors into your business.
If you want to get funding for your used car dealership, you cannot skimp on the details here.
A lean business plan does not cut it.
- Find a niche
The next thing you want to do is to pick a niche to start your used car dealership.
For starters, you may want to go into a generalised niche or cars, ie selling a particular brand of vehicle to clients or focusing on a specific price point.
While this allows you to sell to a wide customer base, I recommend niching down on a particular type of vehicle so that you can gain your skills and expertise in it.
You will also get to focus on a target audience and that is going to be good for your used car dealership.
Find a niche that you identify with and invest yourself in it for your used car dealership.
- Decide on the services you want to offer
A used car dealership can offer more than just car sales.
If you want to make your used car dealership more profitable, you can offer a wide range of services that are going to give you income.
Some of the services you can offer in a used car dealership include:
Vehicle servicing and repairs
Motor part and accessory sales
There are also other added-value services you can give them extended warranty schemes.
Offering a range of services in your used car dealership allows you to have more clients and make more money.
- Get the tools and equipment
If you are doing more than car sales, you need to get quality tools and equipment to help you in your used car dealership.
Create a list of all the tools and equipment you will need and stock up.
Some of the tools and equipment you’ll need include hammers, screwdrivers, wrench and other vehicle repair tools.
You can buy or rent equipment based on your budget and how long you plan to render these services to clients in your used car dealership.
- Build an inventory
When you are starting a used car dealership, you have to find out how you are going to get the vehicle inventory for your business.
If you are sourcing these vehicles yourself, where are you going to find them?
You can register with auctions and build your inventory or source vehicles on social media.
You also have the option of getting your stock directly from car manufacturers.
Choose a method that works for you and go with it.
Before you build your inventory, consider the following things:
- Types of vehicles in demand/needed
- Prices that people can afford
As an independent used car dealer, you can start small and then expand your business as you keep on earning money over time.
- Pick a good location
Location can make or break your business.
When you are starting a used car dealership, location is everything. You have to start thinking about where you want to have your outdoor showrooms and a garage for the used cars.
There are certain things you just consider when you are selecting a location to start a used car dealership:
- Accessibility; it should be in a place that is near roads and motorways
- Visibility; it should be seen by people from afar
- Parking access; your customers need to find a place to park their vehicles before going into your used car dealership
- Crime; start a used car dealership in a crime-free zone to prevent theft of cars and vandalism
- Zoning laws; a used car dealership should be situated in a place that is not red-marked as government property. This will prevent business discontinuation.
- Foot traffic; having a used car dealership in places with high foot traffic increases your chances of getting clients who want to buy a car.
Always do your diligence when you are finding a location for a used car dealership before you get settled.
I have seen a lot of businesses shut down or run at a loss because they set up shop at the wrong place.
- Meet legal requirements
There are certain legal requirements that you must meet before you start a used car dealership.
You need to meet these legal requirements and obtain the necessary permits and licenses for you to start operating as a used car dealer.
The first thing you must do is register your used car dealership with the local authorities so that it can operate as a legal entity.
You don’t want the government to flag you down for selling “illegal cars.”
Choose whether you want to start a used car dealership as a sole proprietorship or an LLC and register it with the state.
You also have to make sure that you have your business licenses and all other necessary permits required by the authorities.
If you do not know what is needed, you can ask the local government and they will give you a list.
Starting a used car dealership on the wrong side of the law is very risky.
You can have your business shut down or pay heavy fines.
This should not be a risk you are willing to take.
- Hire help
Whether you are just selling cars in a used car dealership or offering other vehicle services, you need help.
You cannot do everything alone.
You need to find skilled personnel and train them on how to operate in a used car dealership.
Your team will help you source vehicles for your used car dealership and also with vehicle maintenance and repairs.
You need to train them how to practice excellent customer service skills so as to give your customers the best experience and satisfaction.
Some of the skills you can pass on to your employees include:
Persuasion; basic salesmanship
Interpersonal skills; as they will be connecting with people.
Having a good team on board will help you to run a successfully used car dealership.
- Set prices for the used cars
You need to know how to price your used cars and even the different types of services that you offer in a used car dealership.
When you are thinking about pricing, I recommend basing your charges on these three main factors:
- Competition; what your competitors are charging for similar types of vehicles
- The type of car; luxurious brands will cost more
- Additional services are performed on the car; for example, if there are any repairs.
Ask yourself these questions to help you set the right prices for the vehicles.
How did you get the vehicle and how much did you pay for it?
How long has the car been in stock?
What is the bargain limit?
How much are customers ready and willing to pay for the car?
What is the car’s book value?
When you are setting prices for the used cars, you need to keep the prices competitive, profitable and fair.
This is good for your business and for customers.
- Have a website
You cannot have a used car dealership and don’t have a website.
A lot of car shoppers go through numerous online searches before they even decide to visit any dealership.
Get a web developer to build a website for your used car dealership.
You have to set up a good website and give information about your used car dealership.
Indicate the location of your used car dealership as well as the types of cars you have in your dealership.
Tip: Have your used car dealership on other online platforms like social media and online marketplaces for higher sales.
- Market your used car dealership
With a used car dealership, start thinking about the marketing strategies you are going to use to promote yourself both online and offline.
Effective marketing will get you clients and also expand your client base.
i) How to attract clients to a used car dealership
Use good signage; that has your business name and location
Use posters and flyers
Have a website
Social media platforms like Facebook, Twitter, Pinterest or Instagram
Have a business card
Word of mouth marketing
Ask for referrals
My Google Search
ii) How to promote a used car dealership
Get positive business reviews
Offer deals and discounts on vehicles and services
Have a website
Networking with other used car dealers in showrooms
Email marketing to established clientele
Social media platforms like Facebook, Instagram and Twitter.
Equipment Needed For a Used Car Dealership
This is what you need to start a used car dealership.
Furniture; chairs and tables, if you have an office
A suitable computer
Vehicle repair tools
Licensing Requirements For a Used Car Dealership
These are the licensing requirements you just meet for a used car dealership.
Register your business
Used car dealer’s license
Used car dealer bonds
Used Car Dealership Business Ideas
Starting a unique business is something everyone should do.
With the competition available in the used car dealership industry, you have to introduce something that can differentiate you from your competitors.
This will give you a good edge over the competition and you can run a successfully used car dealership.
Here are some used car dealership ideas that you can start today.
Start a car wash
Have an online car sale business
Mobile mechanic service
FAQs on Starting a Used Car Dealership
Q. Is owning a used car dealership profitable?
Yes. A used car dealership is very profitable and you can make a lot of money in this business.
Q. How much does it cost to start a used car dealership?
The amount of money it costs to start a used car dealership depends on the type of cars you want to sell, how you are going to acquire them and how you want to scale the used car dealership.
You need to create a list of expenses and have an estimate of what you will need to start this business.
- Cost of vehicle inventory
- Cost of tools and equipment
- Website costs
- Marketing expenses
- Licensing costs
- Insurance premiums
- Employee salary
On average, your used car dealership startup costs should be around $1000 to $5000.
Q. How do used car dealers make money?
Used car dealers make money from the sale of each used vehicle.
This is the basic dynamic of the business.
They can also make money by offering other additional services like vehicle repairs or selling motor parts and accessory tools to customers.
Q. How should I price the used cars?
The amount of money you charge customers for the used cars should be based on the type of cars you are selling and the competitive prices.
You also need to find out what customers can afford before setting the prices.
Always keep the prices fair to customers, but don’t forget that you also need to make a profit.
Q. How much money can I make with a used car dealership?
On average, you can make around $2000 to $5000 or more in profit in a day with a used car dealership.
This depends on the number of cars you sell as well as other additional services.
Channel your efforts towards getting more clients so that you can make more profits.
Q. How can I make a used car dealership profitable?
To make a used car dealership profitable, you can sell vehicle-related tools and offer complementary vehicle services like car hire and repairs.
These are additional income streams for a used car dealership.
The sale of used cars is at an all-time high now. Many people today prefer buying used cars because they can get their required type of car brands at an affordable price.
Automobiles are on the rise, evidently so, by the number of people who drive cars today.
If you want to start your own business and make money, the automobile industry is not one to be slept on.
There are huge profits that you can get when you invest your time, effort and money in starting a used car dealership.
If you have a passion for cars and you want to open a business, what are you waiting for?
There is no barrier to entry in this field and you can easily undercut competitors in a heartbeat.
Familiarise yourself with everything you need to know about how to start a used car dealership.
This article gives you very simple steps to start a used car dealership.
Launch a used car dealership today and earn a decent living from this trade.
Don’t forget to use the tips provided here to run a successfully used car dealership.
Do you want to start a used car dealership in Kenya?
Are you a used car dealer, how is the used car dealership business going for you?