As vehicle inventory shortages continue to linger and consumer buying behaviors shift, it's more important…
More and more consumers are choosing to purchase used vehicles over new ones. Selling used cars might seem like a lucrative business, but it can also be competitive. Consumers have also become more savvy shoppers, turning to online sources to research their options before setting foot on a sales lot.
Tens of millions of used cars change hands annually in the United States, so there is a market for your services, but how can you achieve success when faced with stiff competition and customers with high expectations? Here are some tips for running a successful used car dealership, whether you are a startup or an established business.
Starting a Used Car Business — The Basics
If you don’t already have a used car business up and running, this is the place to start. It’s important to understand that starting and running a used car business requires an investment of money and time, but with the right strategy, you can achieve massive success. Here are a few basics for starting a used car business.
1. Think Like an Entrepreneur
When you sell used cars, you have to think like an entrepreneur. Your business and its success will be your responsibility, but the rewards can be virtually limitless. If you aren’t sure how to get into the entrepreneurial spirit, read some books. Just as important as knowing how to run a business, you need to know about cars. This isn’t something you can fake. Invest some time in learning about what you plan to sell.
2. Study Your Market
Running a car dealership in a small town in Texas is much different than operating one in Los Angeles or Chicago. The markets are completely different, so it’s vital that you learn as much about your market as possible.
Research the demographics in your area so you can understand your typical buyers and any peak car-buying seasons. For example, if it snows where you live, many people rush out to buy 4-wheel-drive vehicles and trucks just before winter hits. In other areas, convertibles will be hot commodities as the weather begins to warm up in the spring.
3. Secure Startup Costs
Just like any other business, you’re going to need some capital to get your used car business off the ground. Some of the main costs associated with starting and running a used car business include the following.
- Business Registration
- Auto Dealership License
- Auto Dealership Bonds
- Location and Rent
- Office Supplies
- Fire & Health Dept. Licenses
- Branding and Marketing
4. Source Your Vehicles
One of your biggest challenges and expenses will be finding the right inventory for your used car dealership. Sure, there are tons of used cars out there, but you need to buy quality vehicles that will appeal to your target audience.
If you’re in a small town, you may not want to focus on luxury vehicles. If there are a lot of families in your area, you may do well with SUVs and more affordable cars. Most used car dealers get their vehicles from dealer-only auctions. Once you have your dealer license, you can participate in these. Some of the leading auctions in the U.S. include Manheim, ACV, Copart, and ADESA.
How to Run a Successful Used Car Dealership
Now that you know how to start a used car dealership, how do you keep the doors open and make it a massive success? Here are some tips for running the best used car lot in town.
1. Choose a Niche & Audience
You can set your used car dealership apart from the competition by targeting specific audiences. Obviously, anyone would be welcome on your sales lot, but choosing a niche will help you stand out from other dealerships in your area.
Many used car sellers achieve success by selling what they know and love. If you have years of experience selling or working on classic cars, it may be beneficial to open a classic car dealership if there is a market for those vehicles in your area. The same holds true for full-sized trucks, luxury vehicles, or hybrids.
There are nearly endless possibilities. Once you decide what you’d like to sell, confirm the margins and volumes you will need to produce the results you want for your business.
2. Hire Quality Employees
You might want to be the face of your used car business and help everyone visiting your lot, but you probably won’t be able to do this effectively and run a successful business. You need some quality people on your team.
You’ll want to hire one or two high-quality salespeople who will represent your business well. These professionals should be able to make a connection with people who walk through the door, identify their needs, and look for a vehicle that matches them. Your salespeople should be equally comfortable handling negotiations online and over the phone since many of today’s consumers prefer to do this before traveling to a business.
Finally, the most successful used car dealerships will have a skilled technician on their payroll who will fix any problems before listing a vehicle for sale as well as help determine the value of trade-ins. If there is an issue with a vehicle immediately after leaving the lot, you’ll also create more goodwill by addressing it in-house.
3. Work on Your Branding
Every business has a brand, whether they participate in shaping it or not. This is particularly the case for used car dealers, which will develop a reputation as either a place people want to go for their next purchase or one to avoid. If you want to be successful, you should invest some time and attention into your business’s branding.
Your brand is the image you project and the values you represent. It’s also your business’s core message to the public. Some of the things that encompass your brand include the following.
- Your car dealership’s name and logo
- Your dealership’s slogan
- Your list of approved fonts and color palette
- Any key brand messages
- Your tone — professional, friendly, etc.
- Any approved dealership images
With a consistent brand message, you will begin to create awareness about your brand in the local community. People who may not be in the market for a used car at the moment will remember your name when they are or think of you first to make a personal recommendation.
4. Create a Strong Online Presence
As with any industry, your business needs a strong online presence to achieve success. Most consumers today are going to research your business before they decide to trust it. This means you need to have a dealership website listing your inventory and services.
In addition to having a website, you’ll also want to claim and optimize your Google Business Profile. This is where many consumers will end up when searching for a “used car dealer near me.” Finally, ensure you are making full use of social media. You can use sites like Facebook to build your brand, and many people look for used vehicles on Facebook Marketplace.
5. Embrace Available Technology
Third-party websites such as KBB, Edmunds, and CarGurus have revolutionized the used-car-buying experience for consumers. Shoppers have more information at their fingertips about what’s available in their area, as well as specific data about vehicle valuation and reliability.
If your dealership isn’t using all available technology, it may not be as competitive as possible. In addition to having your listing on your own website, it’s helpful to be listed on online directories like AutoTrader and the ones listed above. As consumers research vehicles, they will also do searches for available ones in their area. You want yours to show up at the top of the list.
Many used car dealerships also use a dealership management system (DMS), which offers a suite of services to help run your various business operations. A DMS can help with vehicle pricing, regulatory compliance, accounting, client relationship management, and much more.
6. Watch the Trends
If you want your used car dealership to remain successful long-term, it’s vital that you pay close attention to various trends. First, watch what is happening with the economy. For example, banks stopped offering credit during the Great Recession. While many people couldn’t get financed to purchase cars, this created an opportunity for low-priced cash sales and Buy-Here-Pay-Here dealerships.
Vehicle trends are important, too. In some areas, more people are switching to hybrid and electric vehicles, but in others, full-size trucks remain the most popular vehicles. In many parts of the country, people are looking for nostalgic vehicles, such as square-body pickups. Staying on top of these trends can give you an edge as a used car seller.
7. Keep It Clean
Many consumers will decide whether or not they will look at a used car or step foot on a car lot based on its outer appearance. For this reason, it’s critical that you make cleanliness one of your dealership’s priorities.
When a vehicle comes in that you plan to sell, don’t take any photos of it or let anyone view it until you have it completely detailed inside and out. If you don’t have a professional detailer on-site, create a partnership with one in your area.
The appearance of your business and its employees is just as important. Regularly pick up trash around your lot and keep the area well-maintained. Make sure your sales area’s waiting room and restrooms are cleaned thoroughly as well. Finally, establish and enforce a dress code for employees so that everyone looks professional.
8. Emphasize Trust and Reliability
There’s nothing consumers hate more than a dishonest used car dealer. You can establish trust by being honest with people. When a vehicle has a flaw, or you have a bottom-line price you can’t go past, tell them. You can create a lot of goodwill by using this strategy.
Most consumers would like a nice car or truck, but more than anything, they want something they can rely upon. When you buy vehicles at auction, avoid the ones with flood damage or those that have been in multiple accidents. Have a mechanic go through the vehicles thoroughly and fix any glaring issues so you can sell working and reliable vehicles to your customers.
9. Add Value to Your Products
People who buy used cars are generally looking to save as much money as possible and find value in what they’re purchasing. In other words, these buyers don’t have unlimited resources to pour into repairs and upgrades. Your used car dealership will experience more success if it adds as much value as possible.
You can provide customers with a free CARFAX or AutoCheck report so that they can see the service history and information about any past accidents. You could also consider offering free oil changes or car washes to your customers.
We highly recommend adding a Why Buy Here program to your lot. Why Buy Here programs provide customers with peace of mind by insuring their vehicle against theft and breakdowns. Titan Warranty Administration offers 30-, 60-, and 90-day short-term powertrain or engine limited warranty programs. These programs protect your valuable customers from the hardships of everyday life and help your dealership stand out from the competition.
Another one of the best ways to deliver exceptional service and peace of mind is to offer clients value-added products that safeguard against unexpected financial obligations. Examples include vehicle warranties and service contracts, vehicle maintenance plans, and guaranteed auto protection (GAP).
Vehicle service contracts (VSCs) provide protection when a manufacturer’s warranty doesn’t or ends. They provide coverage for the cost of parts and labor associated with covered repairs based on plan choice. VSCs can provide a lot of value to your customers, giving you a leg up over competitors.
10. Solicit and Respond to Feedback
As a used car dealer, one of your goals should be superior customer service and constant improvement. How do you know how well you’re doing if you don’t ask? The best way to find out is to solicit customer reviews and let customers know you appreciate their feedback.
Online reviews have become vital for businesses. Prospective customers want to see feedback from your past customers. They also want to see how your business responds to any negative feedback, and the more positive feedback you receive, the higher your business will rank in local search results.
When you deliver value and offer customers peace of mind with their purchases, they will be more satisfied, turn into lifetime customers, and recommend your business to others. You can achieve all of these goals by offering limited warranty and valuable service programs, the cost of which can be financed with the vehicle purchase. When a customer needs a covered service, they can access the program’s benefits instead of using their savings.
Titan Warranty Administration specializes in creating and administering customized “Why Buy Here” limited warranty and full spectrum service contracts for vehicles. We serve franchise auto dealers, independent auto dealers, and RV dealers with partners nationwide.
Titan’s products are completely customizable and flexible, unlike others in the industry. Please call (833) 317-3720 or email firstname.lastname@example.org to learn more about how these solutions can create a valuable and unique service for your customers!