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Old 01-30-2017, 07:31 PM   #1
Vallman
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Default Need Critiques Please

Hello all once again,

I am here to try and get some critiques of my currently business model. I have been researching, thinking and trying to execute slowly my launch into the small used car lot for about 2 years now. I currently work for a new car dealer as the GSM but have been looking to invest my time and money into my own endeavor.

The brief lowdown; small used car lot holding 40-60 cars at a time. Small showroom with two offices and a back room and restroom. Small back lot with paint booth and for service bays. Rent is cheap and over-all overhead kept to a minimum.

Inventory will be cheap cash cars with a single price of $2995 no matter the year, make, model or mileage. Warranties will be offered for a cash price or financed through the Underwriter and accessories like VTR, paint protection or a low jack like system will be offered for additional fees.

Other than the additional products offered no other dealer fees will be charged. Only a $2995 price with local tax and smog if applicable.

Hoping to keep the per unit cost with small cosmetic recon down to $1800-$2000. No financing will be offered for these vehicles and they will be a cash for title. Hoping to market it as the 99 cent store of used cars. With the goal of turning the inventory every 45 days.

With this quick and basic low down I am hoping to get some basic thoughts on this model. I know that I am leaving money on the table by not financing but I think the low price and one priced inventory model will allow me to move higher volumn and make up for the difference without the hassle or risk of diving into BHPH or outside lenders.

Thoughts? Suggestions?

Thank you!
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Old 02-02-2017, 01:46 PM   #2
mryan55
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These are just some quick thoughts since I don't have much time right now. I can definitely respect wanting to go out and do your own thing. I have been at that stage a few times in my career and even did give it a try for a while.

I am not sure what part of the country you call home, but in my area the overhead for renting a place much smaller than your plan details would be prohibitive if you have this size inventory and gross $1,000 PUVR. Figure at an average of $1,000 gross per unit retailed and a 60 day turn rate on a 40 car inventory, and you might only gross $20,000 in a month. Obviously it's hard to guess what expenses might be like in your case, but it's walking a tightrope. Unless you get repeat customers coming back for customer pay service, you can't really consider a customer-facing service department, and doing the reconditioning in-house would be difficult, especially at $20,000/mo gross.

$3,000 cars break down. Some people will get upset. You might end up spending money to fix a car after the fact. It's good to do right by the customer, but I have lived through struggles of a 30-40 unit used car department in a new car store that struggled with turn and gross on an average cost of $15,000.

I think that the best approach would be to very, very frugal. Maybe even start out smaller. Hard telling. Used "B" lots aren't really my specialty, so hope others will chime in.
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Old 02-02-2017, 03:32 PM   #3
Vallman
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Thanks for the reply!

I am hoping to run 1100 front end and am looking for a company what will sell warranties for these type of cars that may allow financing.

I will be operating in Arizona which requires very limited recon. I have a dent, paint and wheel guy that will slap some lipstick on them for $150 a car.

I am hoping that with the low price of $2995 and the one price model I can run at a 45 day turn. Over head is very frugal (rent under $6000)
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Old 02-06-2017, 11:14 AM   #4
Benny
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I've lurked on this forum for quite some time. Never joined because I'm an independent dealer and this place seems to be geared more towards new car dealers. Seen your thread and figured I'd join to throw in my 2 cents.

I'm only 27 so by no means would I call myself an expert, but hopefully something I share is useful to you. I started my dealership 5 years ago. I was very naive when I started. I was one of those people who thought it would be easy money selling cars. Not quite the case. You might think your overhead is low but you will quickly find out it isn't.

When I started I had to start in a warehouse because zoning around here did not favor car dealerships. I would not suggest doing this because relying solely on online advertising to get customers really raises your overhead and brings you all the price shoppers. My rent at this place was $1,500 per month, which is cheap rent for anything commercial. By the time you added in the other expenses I was a little over $3,000 per month.

The few actual car lots I found on a main road were about $3,000 per month for rent. After a year at the warehouse, I found a spot on a main road for $1,000 per month but it was dump and a bad location. After 5 years, I am just barely starting to take a paycheck for myself from the dealership. Before that I relied on my other business for income, if I didn't have that I wouldn't be in the car business any more.

I'm a firm believer if you want to start a dealership from scratch and do it the right way, it takes years to get established before you make money. I see big shots who start a dealership, sell junk cars and start making money off the financing etc and then neglect the customer when there are problems. Next thing you know they are out of business.

I was very lucky that after renting for 3 years that I was able to scrounge enough money together to buy a location for myself. I was even luckier when I was able to buy it for cash and not have to have a mortgage. I have to tell you that makes a huge difference on the monthly overhead. Currently my overhead is about $1,900 per month but at the end of this month I cancelled carfax and am trying to make a go without it. We'll see how that turns out but if I can make a go without it, my expenses will be $1,300 per month. I don't think anyone can really beat me there, the electric bill at most dealerships is probably more than that.

I think your biggest hurdle is going to be finding those cars you want to sell. Around here, those cars are very sparse to get. I'm in PA about an hour from Manhiem, PA which is where the flagship manheim auction is. We are very spoiled where I am in that we have so many auctions within an hour or two of here. I don't buy the cheap cars, I only sell off lease cars because that's what I chose to specialize in. I mainly compete against the franchise dealers. But the cheap cars I see go to auction get scooped up by the Buy Here Pay Here lots. They run the price up because they make the money on the financing. That's why I say it's going to be hard to buy cheap cars.

It's very difficult to try and buy dealer trades direct from the big dealers. Most of them only deal with established wholesalers and you have to be part of the "good ole boys club." And then we have the biggest wholesalers in the world around here who have most of the market locked up, but they don't usually touch the old junk.

I would stay away from floor plans at all costs. I have always owned my inventory outright. Floor plans can put you under quick. Nextgear and everyone else always stops by trying to sign my up and I won't do it. I also think you buy smarter when you use your own money.

You better start figuring out how you are going to offer financing for your cars. To you and I $3,000 might be nothing, but the customer probably won't have it. The few times I sold old junk, even for $1,000 the first questions were "Do you finance, and what kind of warranty does it have." That's why I usually send all my unwanted trades to auction. I'm hooked up with a large regional bank for financing but they won't finance anything older than 6 years or 90,000 miles. The terms of the subprime finance companies are laughable. They basically hold you accountable if the customer doesn't pay, even after you had to pay them a hefty fee to buy the deal. That's why I don't get involved with subprime but as time goes on there are fewer qualified people with prime credit that I can get financed.

I hope this helps. If you would like to know anything else just ask.
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Old 02-06-2017, 01:56 PM   #5
57years
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Great comments. Glad an independent spoke up.... Good Luck and easy buying!
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Old 02-10-2017, 07:51 PM   #6
mryan55
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Great comments and perspective. A lot of stuff we don't think about every day on the new car side. Thanks for posting! The world of independent dealer floorplan has always interested me, with the huge number of small/medium size floorplan sources. One of my good new car customers is a Nextgear employee and it sounds like they certainly help sink many of their dealerships every year.

Benny -- question from the new car side of the room... do you find that specializing in off-lease vehicles puts you directly in the targets of CPOV or even new car lease customers? I'm always interested when I see an independent with loads of late model stuff that is off-lease. Of course, here in my neck of the woods new car lease penetration is 70% to 80% for domestics, so sometimes late model used is just a tough sell with the prevalence of leasing.
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Old 02-10-2017, 08:04 PM   #7
Benny
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Quote:
Originally Posted by mryan55 View Post
Benny -- question from the new car side of the room... do you find that specializing in off-lease vehicles puts you directly in the targets of CPOV or even new car lease customers? I'm always interested when I see an independent with loads of late model stuff that is off-lease. Of course, here in my neck of the woods new car lease penetration is 70% to 80% for domestics, so sometimes late model used is just a tough sell with the prevalence of leasing.
I very rarely lose sales to CPO vehicles at the franchise dealerships. I am very aggressive with my pricing and I think that is what helps. I'm out in the country, about a half hour from the city, so if I don't price aggressive it is hard to get people to drive out to me. Some people are too lazy to drive an extra 15 minutes to save a thousand dollars or more, other times I'll get people who drive 2 hours to save a bundle.

Occasionally people will ask if my vehicles are CPO. Usually the customer doesn't quite understand what certified means and that I can't offer a certified vehicle to them. I take the time to explain it. If someone is a serious buyer, they usually come out and at least look at my vehicle. Every once in awhile I get someone who has to have a CPO vehicle and I lose that sale. Most people are just looking for the best deal and realize you probably will come out ahead by not buying a CPO vehicle if you play the odds.

I've never heard from a customer that they decided to lease a new vehicle instead of buying one of my off lease vehicles. The people that seem to buy off lease cars are interested in owning their vehicle, not leasing it. They enjoy getting a slightly used car with low miles that still has factory warranty. They like letting the first guy "eat the depreciation."

I can say that I think it is harder to sell only off lease cars. Sometimes they can get close to competing with the price of new cars. I have that problem right now with Honda Civics. I think it's easier to sell middle of the road or lower end cars if you want a faster turn.

Last edited by Benny; 02-10-2017 at 08:07 PM.
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