Need advice on business I am trying to start in the near future

[timothymoore]

Been a while since I have posted on this board. just been a lurker more than anything.

Im getting ready to graduate college in early may. One of the things I have on my radar is to get a Full Time job right off the bat, But my bigger goal is to start a used car dealership in or near my hometown. I was wondering if any of you knew what all goes into running a dealership and the rules and regulations. I have skimmed through some websites detailing the licensing needed to start one but wasn't sure of what else that I need to follow. going to do some research on this Thursday when I have a 6 hour break in between my 2 classes. Any insight or advice is greatly appreciated.

[Delorean Industries]

Been a while since I have posted on this board. just been a lurker more than anything.

Im getting ready to graduate college in early may. One of the things I have on my radar is to get a Full Time job right off the bat, But my bigger goal is to start a used car dealership in or near my hometown. I was wondering if any of you knew what all goes into running a dealership and the rules and regulations. I have skimmed through some websites detailing the licensing needed to start one but wasn't sure of what else that I need to follow. going to do some research on this Thursday when I have a 6 hour break in between my 2 classes. Any insight or advice is greatly appreciated.

Not to dissuade you but it is rather expensive. You are required to hold a location, structured business hours, floor plan for cars on the lot, dealers insurance etc. The process to receive the licensing is just about as bad as applying for a liquor license in Ohio. There was a study a few years back regarding the bare minimum financial requirement to meet state regulations for buying and selling cars. I believe the number was around 8700 per month in overhead as an average. You will need to be set up with a financial institution for lending purposes to your customers as well unless you want a buy here pay here situation. Less profitable for sure.....Plus you are liable for what you sell even if it is an as is sale. Just a few things to keep in mind. Just remember the consumer is all powerful and you don't have a leg to stand on ever.

[eagle-co94]

Do you know much about selling cars or have much business experience? I know that in FL you can sell up to 3 cars in a 12-month period before you're required to have a dealer's license. Then the requirements start. I'd check your state DMV website.

[DMCVegas]

It's something that has crossed my mind as well as something that I *might* do one day, but for now I would probably advise you to do what I do and just flip one or two cars at a time. It's profitable, and gives you a feel for what you would start to get into as a dealer. Some states may put limits on how many cars you can sell as an individual per year. In Nevada I think it was 3. But of course if you've got family members who are willing to sign the titles under their names you can move more vehicles per year. So this can also be a wonderful way of earning extra cash for college and other expenses.

Like I say, try your hand at flipping a few cars first, and see how you like it. It's not going to be a turn-key business I would recommend. In fact, no business really is. You have to develop skills and collect tools first.

Whether you're flipping cars, or you eventually decide to open your own full-fledged used car lot, you've got to have a foundation of some knowledge first.

First thing is you really should be mechanically inclined. Get yourself a nice, decent set of tools. Then as time goes on and you need special tools, you can acquire those one at a time.

Second thing is you need to educate yourself as a Buyer. This is not the same thing as a "Consumer". You're not buying a car for yourself. You're buying one for the business. You need to know which ones are difficult to work on. What some of the common quirks and outright problems are. Which ones tend to have better resale, etc. Here are a few examples that I myself follow:

• GM 3.8L V6 Engines are known to blow Head Gaskets thanks to DexCool. Avoid at all costs.
• Chrysler Transmissions in Caravans and 300s tend to have problems and need rebuilds.
• Jeeps with AMC 4.0 I6 engines tend to crack their exhaust manifolds and rattle.
• Chrysler 2.7 V6 engines are a PAIN to work on.

And that's just a small list of modern items. You also need to know what vehicle platforms share parts with one another so that you can source said parts for cheaper/faster repairs.

Next up is you're going to need to know which vehicles are not just popular, but you need to know the current and long-term values of them in order to gauge on the fly estimates of your repairs and what you should be paying in order to estimate proper profits. Remember, this is NOT a hobby car. This isn't a carte blanche DeLorean restoration that has no time limits in order to throw lots of cash at it. You are NOT going for a full restoration here. Just an attempt to make things reliable for a sale, and a bit of spit and polish to make it look good for that same sale. If you're going for an eventual business, you need to be able to crank out reliable cars for your own reputation.

Finally of course you need to haggle. Those are crucial skills in order to obtain those cars you need. You need to almost become a mix of Mike from Weeler Dealers and Rick from Pawn Stars. Know your profit boundaries. Know how to relate to people and win them over. And most important of all, know when they're screwing you over. My favorite line from the latter of those shows whenever someone says they saw something sell for a different price on the internet is, "Well, go and sell it to the internet!".

Once you get the hang of things here, if you're still interested you may one day want to open up your own shop. Things of course get much more expensive, but the profit levels do shoot up. You may have to hire a mechanic and other sales staff for paperwork and the like. That's true. You can pay for commercial automotive insurance, or post a state bond in leu and not have that expense. There will be tax laws for depreciation you can profit from, and other items too.

The financing of course will be the biggest thing. You may partner with lenders who of course have certain incentives. If you're a "Buy Here, Pay Here" outfit, or at least have the option, there are other considerations. You may wish to install GPS equipment and lockout devices to prevent debtors from skipping out on you. But you can make some good cash.

Let's say you go to auction and buy a particular vehicle for $2,800. Great. Some buyer comes in off the street and wants it. You tell him you'll finance the vehicle and after "running the numbers" you need a down payment of $2,800 with a 24 month payment plan of $250 a month. That is a great deal for a buyer. Once you have cash in hand, your investment is paid in full and you've broken even. Each monthly payment is now nothing but profit. At the end of the loan you've pulled down $6,000 pure profit from the sale of that vehicle. And those are just the raw numbers to give you an idea of what kind of money you can make, I'm not even figuring in any interest rates here. Speaking of which...

You might list the price of the vehicle at say $6,500. Tell them if they pay cash you'll knock $500 or so off the price. That's an immediate profit of $3,200 rather than waiting 2 years. Then if they do finance, work the numbers so that you get the $6K profit off the vehicle for your troubles. No biggie. In fact it might be a monthly note less than $200 for the buyer for you to rack up such high profits with a higher interest rate.

You do then however have to worry about 2 things: Repossessions and Total Losses. You can easily charge the customer for the repossession fees each time you send someone out. Stipulate that in their contract. The other aspect is going to be if the vehicle is a loss, how will you recoup said loss. Granted more investments in the form of multiple loans can help dampen financial loss, but you will end up with people who loose their cars to accidents, theft, mechanical work, or even fraud. Many finance companies have stipulations on insurance that the debtor must provide coverage less the lender provide it at a premium. No sure how this might work with a Buy Here, Pay Here joint, but you can always find out. You don't want to loose a vehicle you can't recover physically, or one that is destroyed that you can't recoup any profit from at all. Otherwise you can charge-off the debt and just resell the car to someone else.

Again these are just some ideas for you to consider. I'd really suggest flipping a couple of cars right now to see how you like it, and possibly consider a part-time gig at a used car place to learn the business a bit better with a more hands-on approach.

[Mike C.]

My dad was a partner on a small car lot in the 80s, and got out just before he lost his a$$.

Everyone's advice so far has been spot on. Definitely start out with a couple of cars first, and flip them privately. See if it is something you are really interested in doing.

As James stated, you want to see if your state has a requirement for a maximum number of cars you can turn as an individual before requiring you to become a licensed dealer.

First, figure out WHAT you want to sell. Can you get them at a reasonable price and can you turn around and sell them for a reasonable price. Remember, people aren't buying specialty cars the way they used to...

Forget what you see on TV. I hear alot of people talk about wanting to be a Wayne Carini, or a Gas Monkey Garage, or a Graveyard Cars, Wheeler Dealer, etc... but you have to remember those are edited TV shows with people who can afford to sit on inventory, no matter what they say on TV. Some cars can take months to unload.

[SamHill]

A fellow I know in a rural area with a small warehouse started out selling used cars, but quickly changed his business model. He bought up all the salvage title PT Cruisers he could. Why? They are cheap and they made a lot of them. Sometimes he sells the parts, over the counter and on the internet. Sometimes he chops them up and uses parts to do insurance collision work. Sometimes he would get one from a private owner and he'd clean it up and fix it and resell it. Specializing in one model has its benefits.

[LEVY]

My dad was a partner on a small car lot in the 80s, and got out just before he lost his a$$.

Everyone's advice so far has been spot on. Definitely start out with a couple of cars first, and flip them privately. See if it is something you are really interested in doing.

As James stated, you want to see if your state has a requirement for a maximum number of cars you can turn as an individual before requiring you to become a licensed dealer.

First, figure out WHAT you want to sell. Can you get them at a reasonable price and can you turn around and sell them for a reasonable price. Remember, people aren't buying specialty cars the way they used to...

Forget what you see on TV. I hear alot of people talk about wanting to be a Wayne Carini, or a Gas Monkey Garage, or a Graveyard Cars, Wheeler Dealer, etc... but you have to remember those are edited TV shows with people who can afford to sit on inventory, no matter what they say on TV. Some cars can take months to unload.

In my area, most used car business owners also own used auto parts stores or junk yards, so I believe they go hand to hand with each other.

I know some people who started small and now they have a lot of inventory so, follow your dream.

A little known trick used by a lot of used car dealers (it might be illegal too):

When they sell an used vehicle that is dealer financed, they also install a GPS tracking device, in case customer defaults and that car needs to be repossessed. Some also install an engine disabling device.

What they do is, at the time of sale, they offer a free oil change due after the customer pays the note, at that time, dealer remove the tracking device and it is ready to be installed on the next vehicle. I believe installing a tracking device without the owner's consent or a court order is illegal but it seems to be a common practice.

Again, used car is a big business, if you still attending college, ask your teachers and advisors for an opinion. Good luck.

LEVY

[Mike C.]

Levy has some good advice as well.

Never overlook the used car part market. Junkyards and recycling centers are great businesses, but you have a lot of overhead. For a while, I was planning out a parts recycling/ self pull type of business, but you have to remember there are alot of EPA things you MUST contend with, specifically removing every drop of fluid out of vehicles, fluid recycling, etc...

Needing tons of land, some heavy equipment to move, and then you have to contend with disposing the rest of the car and the parts that don't move.

The GOOD news is with the internet and a good programmer, you can run a completely itemized inventory and ship parts with ease, once you learn to i.d. and mark them to prevent fraud.

To be honest, the major hurdle I haven't been able to overcome is the land issue.

I haven't heard of lojacking the sold cars, although what a good idea!!

In my area, most used car business owners also own used auto parts stores or junk yards, so I believe they go hand to hand with each other.

I know some people who started small and now they have a lot of inventory so, follow your dream.

A little known trick used by a lot of used car dealers (it might be illegal too):

When they sell an used vehicle that is dealer financed, they also install a GPS tracking device, in case customer defaults and that car needs to be repossessed. Some also install an engine disabling device.

What they do is, at the time of sale, they offer a free oil change due after the customer pays the note, at that time, dealer remove the tracking device and it is ready to be installed on the next vehicle. I believe installing a tracking device without the owner's consent or a court order is illegal but it seems to be a common practice.

Again, used car is a big business, if you still attending college, ask your teachers and advisors for an opinion. Good luck.

LEVY

[DMCVegas]

A little known trick used by a lot of used car dealers (it might be illegal too):

When they sell an used vehicle that is dealer financed, they also install a GPS tracking device, in case customer defaults and that car needs to be repossessed. Some also install an engine disabling device.

I don't know about the disclosure aspect per se, but GPS and Disabling devices aren't illegal. They're also quite well known. In fact due to their cost, lenders need to recover them, so they'll disclose their installation before hand so that the buyer is aware they have to return the device to get their title. In fact usage of the devices are sometimes apart of the loan approval terms. Other times they're incentives for shaky buyers to receive lower interest rates and monthly payments if they voluntarily accept the installation.

In fact, there is a guy on YouTube named "reponut" who owns his own asset recovery business up in Utah. He records the interactions and collateral pickups for his own protection, and started posting the videos online. Fascinating stuff. There are a couple of videos where lenders have sent him out to repair/reinstall the GPS units when they either fail or are disabled by debtors (or else they get their property repossessed), and even where he has been sent out to clients who successfully fulfilled their loan obligations so that he can remove their devices and deliver the released titles to them.

Here's his channel: http://www.youtube.com/user/RepoNut

The engine disablers aren't anything new either. They install a device that goes into the car and it has a keypad. Let's say you have a 24-month loan. The dealer programs the device with 26 separate codes. Every 33 days or so, the device requires you to enter in the code so that it can allow the engine to start for another 30 days. Presumably whenever you make a payment either in person or over the phone, the lender gives you the next month's code. When you come in to make the last payment, they just remove the device entirely. They also give you 3 emergency codes to use in case you miss a payment, and need the vehicle for an emergency.

Some cars can take months to unload.

Yup. And you also have misleading buyers to deal with. Some are grinders that will just try and chip away at you to sell your vehicle for a ridiculously low price, and some are fools that live in fantasy land who have convinced themselves that for whatever reason you're gonna give them the sale of the century. I had a kid one time who called 4 times in one month (in different voice pitches, not realizing I have caller ID), trying to get me to sell a truck for $3K less than I advertised (OBO doesn't me free, desperate, gullible, nor senile). Interestingly enough I sold it to his father whom I only had to knock the price down $500 for, and I think he kept it for himself. I've had people who argue that because they "misread" my ad, they shouldn't have come out and that I should somehow compensate them for their time by knocking my price down on a vehicle they didn't actually want. The list of things I've dealt with goes on:

• Yes, it is sad that you're young/single parent/old/etc. and cannot afford this vehicle. No, I will not take a loss because of you. Perhaps when UNICEF starts selling used cars, things will change.
• No, I am not signing a title over to you in exchange for a personal check. Especially not one you want to post-date!
• No, I WILL sell this vehicle, and it will be at the reasonable price I am asking. I will not undercut myself for a quick sale despite how much you tell me I will never sell it.
• No, I will not back out of a sale with my current buyer because you now want to offer more. You were wrong 3 hours ago that I wouldn't sell this car because I now have cash in hand. You should have bought it when you had the chance.

Again though, buying cars is just as important. You really have to come armed with knowlege of not just specific types, but what to look for in terms of collision damage.

• Check your fender bolts under the hood. If they're not painted into place, that fender has been off. Check the chassis for collision damage.
• Why are the headlights/turnsignals/tail lights two different shades? One was replaced! Check for chassis damage.
• Why are there screws in the fender flares/sheet metal lip on the wheel arches?
• Why are there extra screws in body trim places that they shouldn't be?
• Why does one side of the front suspension look clean, and the other has grime?
• Why is the engine AND the underside of this car steam cleaned? What's leaking?

This will also piss some people off, but you also have to examine the type of person who is selling the car. Some young women bathe themselves in cheap perfume before they get out to go to the club. Some ethnicities have issues with body odors from spices of bathing habits that can make a car reek. Some wire-haired pets can have fur that is harder than hell to get out of the upholstery. People who have bratty kids will piss, vomit, throw food all around and stain the interior of the car worse than a Tijuana drunk-tank. You have to account for this. Do you have the industrial deodorizers and cleaning products on hand? Or will you have to spend hard cash having a professional detail and delouse the car?

BEWARE anyone selling a car who uses the phrase "Adult Owned"! This means one of three things:

1. I want an unreasonable amount of cash for this car.
2. I know jack shit about cars, and I'm terrified of milage affecting the price. So mainly this car just rots in the garage/driveway. I don't maintain it at all.
3. This car is fucked six ways 'till Sunday. It's got some major mechanical issues that are gonna cost a fortune to address. Hopefully you'll just see "Adult Owned" and not question me on mechanicals and just assume everything is alright. I'll crank the radio on the test drive and talk lots about sports, poontang, and anything else I can to distract you from inspecting the car.

[LEVY]

I don't know about the disclosure aspect per se, but GPS and Disabling devices aren't illegal. They're also quite well known. In fact due to their cost, lenders need to recover them, so they'll disclose their installation before hand so that the buyer is aware they have to return the device to get their title. In fact usage of the devices are sometimes apart of the loan approval terms. Other times they're incentives for shaky buyers to receive lower interest rates and monthly payments if they voluntarily accept the installation.

In fact, there is a guy on YouTube named "reponut" who owns his own asset recovery business up in Utah. He records the interactions and collateral pickups for his own protection, and started posting the videos online. Fascinating stuff. There are a couple of videos where lenders have sent him out to repair/reinstall the GPS units when they either fail or are disabled by debtors (or else they get their property repossessed), and even where he has been sent out to clients who successfully fulfilled their loan obligations so that he can remove their devices and deliver the released titles to them.

Here's his channel: http://www.youtube.com/user/RepoNut

The engine disablers aren't anything new either. They install a device that goes into the car and it has a keypad. Let's say you have a 24-month loan. The dealer programs the device with 26 separate codes. Every 33 days or so, the device requires you to enter in the code so that it can allow the engine to start for another 30 days. Presumably whenever you make a payment either in person or over the phone, the lender gives you the next month's code. When you come in to make the last payment, they just remove the device entirely. They also give you 3 emergency codes to use in case you miss a payment, and need the vehicle for an emergency.

Engine disabling devices are not illegal but GPS systems are!

There is a federal law that protect you from being tracked. A dealer might get away by writing something on the fine print or by let the customer know his car will be equipped with a tracking device.

Good disabling devices need no intervention from the owner of the vehicle, in fact, a lot of people don't even know his vehicle have a disabling device until his vehicle stops working, dealer can disable the vehicle at any time at will.

Don't believe everything you see on TV/Youtube, is not that easy to repossess a vehicle, they can not touch you, they can not repossess a vehicle with people inside, etc. TV shows are "Shows", nothing more. Youtube, well, anyone can upload whatever they want.


LEVY