The idea of buying and selling cars might seem appealing, and may also appear a simple way of starting the perfect scalable business – starting small and working your way up. Before you take the plunge there’s much to consider.
The Ideal Scalable Business?
Some of the biggest names in automotive retailing developed from very humble beginnings. For example Lookers – now a multi-franchise national car dealership group – started in Manchester in 1908 selling bicycles and related parts before becoming a Ford dealer up to World War 1 and expanding thereafter.
It’s possible to start small by buying and selling a few cars from home before moving on to selling more cars each month from a modest premises. Further growth will likely mean more car sales and the move into a dedicated premises, and from here full dealership services may be added, such as a workshop and valeting facility.
Before reaching those heights, many start smaller. Going straight to the ‘dedicated used dealer’ model would take a considerable financial investment.
Car sales is a crowded field; can you make your mark? Is there room for you? Perhaps you’ll specialise in a certain area?
What Type of Dealer?
Some start by simply buying and selling cars privately just to get used to the mechanics of valuing cars, selling them and turning a profit. By simply selling your present car regularly and replacing it before repeating the process you won’t yet have to set yourself up as a trader or dealer.
Of course, you probably won’t earn much at this stage, but it’s a good way to learn.
If you move on to ‘trading’ by buying and selling more than one car, then you have to set yourself up in business properly. At this point, some people who are really traders may pose as private sellers to avoid any obligations under the Sale of Goods Act – they’ll offer the car ‘sold as seen’ in the usual private sale fashion.
If you’re looking to start an honourable business, don’t be tempted to operate like this.
Trade from Home or a Premises?
Selling cars from home is very dependent on where you live. In a residential street parking untaxed cars on the road isn’t allowed, and your local authority will likely object if there’s clearly a commercial business with potential to disrupt others operating.
There’s also harmony with your neighbours to consider – you’ll likely not wish to upset those objecting to cars with stickers all over them, vehicles being moved around and people coming and going.
If you’re retailing cars (as opposed to just buying and selling within the trade such as at auctions or moving cars on to other traders) you’ll really need some type of premises once you go beyond one or two cars at any one time.
It may be possible to rent a premises for reasonable money to start with. Perhaps another business has space they’re not using and will be willing to rent it out? A filling station is a good example; there’s also the added bonus they’re likely to be in a good location with plenty of motorists coming and going who will see your cars displayed.
If you scale up your car sales activities to having some type of premises, then you have to think how you’ll operate effectively. If you’re on your own, how will you man the premises when out inspecting cars to buy, attending auctions and running cars around such as to your mechanic for preparation and valeting?
Will your premises be unmanned some of the time or will you hire someone to work certain times there fielding enquiries?
Think how you would provide the proper Motor Retail Service
- You’ll need a reliable and economical mechanic
- Warranties – these are usually, in effect, an insurance product provided by various warranty companies
- Finance facilities – you’ll need to look into obtaining a credit broker license if you plan on offering customer finance in time
- A website can increase your ‘marketing reach’ enormously
The basics required for trading Professionally
Once you move up from getting your feet wet by ‘buying and selling’ privately (or if you start beyond this stage) you’ll need to consider the following:
- Trade Insurance -an absolute must so you can drive multiple cars and provide test drives. Costs will vary depending on the facilities – for example, a policy covering driving cars of any engine sizes and values will cost more than insurance restricted to certain values and specifications
- Trade Plates – enables you to drive untaxed cars for specific business purposes
- Valuation Guides – the most well-known are Glass’s Guide and CAP Black Book. Both are trade only publications so you’d need to apply to take out a subscription although both have websites you can obtain valuations from
- Accounting – you’ll need to set yourself up as self-employed and, if your turnover is likely to reach a certain level, register for VAT. Consult an accountant
- Promotion – consider the type of advertising and marketing you’ll require and the costs involved
Which area of the market are you operating in? Some dealers and traders specialise in certain types of car – say prestige brands only – others may focus purely on car variants such as 4×4’s or estate cars.
This decision will be influenced by your knowledge – perhaps you’ve worked at a dealer for a certain franchise you know well? Perhaps you’ve identified a local need for a certain type of car outlet?
Obtaining stock effectively at the right price is obviously important. You might think, say, selling convertibles is a good niche market – but can you source enough of them to make it viable? On the other hand selling ‘bread and butter’ models such as volume brands like Ford and Vauxhall might mean you’re up against more competition, but stock may be easier to find.
Gemma Sheldrick is Head of Strategy at DNA Insurance, who provide vehicle insurance advice and cover for individuals and businesses across the UK.