New Guy Starting My Own Dealership

[Vallman]

Originally Posted by 57years

Good luck. Reinvest every dollar back into business by paying off debt. I guarantee you will keep track of your business better if you watch CASH!

Thanks! I plan on taking a very low salary for the first year until I do just that. My over-all goal would be to pay back my investors and then re-invest a majority of the profits into buying my own lot instead of leasing it from someone, then have enough on hand to no longer need a flooring plan. I am hoping to achieve those three things within the first 3 years.

[XDCX]

Originally Posted by Vallman

Just a little update to revive the thread to hopefully continue gaining some new insight and information.

I am still on the path to opening my own used car lot. Been trying to find the time in between being a manager at a large new car franchise store.

Yesterday I found what I think may be the PERFECT location for what I have in mind. Cheap, on a main road and in a lower-income part of town. The owner of the property is open to a 10-15 car lot for now with the potential to grow it out.

I am pretty excited to see how it pans out. With how low my over-head is looking now I can just sell 10 cars a month there and be in a good place just with my doc and recon fees. Everything else looks like it can just be pure profit for me (assuming I run 90% of the entire business).

So hopefully I can be another step closer very soon to making this happen!

Thanks for the update.

It sounds like a location with low overhead on a main road that allows you expand as your business warrants it would be perfect.

I've heard that lower end car lots tend to have more seasonality in their sales volume due to the surge they see during "tax season." The wholesale (auction) prices for these vehicles also tend to follow the same pattern - slightly accelerated. The only reason I mention the "tax season" impact is to make sure you don't pay inflated prices at the auction and then miss the retail sales opportunities because the process to get your license approved is so lengthy.

[mryan55]

Originally Posted by XDCX

Thanks for the update.

It sounds like a location with low overhead on a main road that allows you expand as your business warrants it would be perfect.

I've heard that lower end car lots tend to have more seasonality in their sales volume due to the surge they see during "tax season." The wholesale (auction) prices for these vehicles also tend to follow the same pattern - slightly accelerated. The only reason I mention the "tax season" impact is to make sure you don't pay inflated prices at the auction and then miss the retail sales opportunities because the process to get your license approved is so lengthy.

it is prime tax season. The Buy Here-Pay Here portion of our business is on pace for 26 retail units this month and their best month ever was 37 units last March... normal average is around 15 units month on BHPH. We are pretty selective with who we will give a loan to... the hard and fast rules are 20% down, no cash selling price over $10,000, 2 years at job and residence, verifiable income, must live in the same county as the store (with some exceptions)... we started reporting to the bureaus in 2013, so we have actually converted some clients to traditional finance customers since we started reporting.

Not that you're going the BHPH route, but obviously many of the competitors you will be bidding against will want the cars for BHPH.

We aim for $2000 front per used retailed via BHPH, collect a $250 prepaid finance charge to fund repos, collections, tax liens that get put on our titles, and charge 20.95% universally. Max term 36 months. I'm no BHPH expert but ours is reasonable successful.

[Vallman]

10-15 cars sold a month, lot will hold 10-15 vehicles at a time. Located in North Las Vegas on a major street in a low-income area, Attached to an existing auto repair garage.

Profit centers: Fees, warranties, rate reserve, BHPH loans, general front-end profit. Fees include; $399 doc, $199 VTR and $995 reconditioning

Whole sale cost + recon + transport + advertising + flooring cost + over-head = vehicle cost

Yearly legal cost:
Bond- $1,500
Insurance - $7,000
DMV License – $400
LLC/ State License – $400
Business License – $400
Misc – $1,000

Start-up:
First/Last month rent: $3,000
Office furniture: $2,000
Office equipment: $2,000
DMV and legal forms: $1,000
Utilities: $1,000
Misc: $2,000

Flooring Plan: $25,000 – $100,000 (Nextgear and/or AFC)
Per Vehicle: $98 (60 days) $30 (30 additional) $60 (30 additional) + 9.5% interest (daily)

Total start-up cost for 1st year = $20,700
Monthly Over-Head (including 1 hourly employee) = $5,000
Average per-copy gross profit (front and back): $2,100
Cars sold each month: 10-15
Average Gross Monthly profit: $21,000-$31,500
Inventory: 70% finance, 20% cash, $10% Carry own paper
Vehicle Value: $2,000-$10,000, majority in the $4,000-$6,000 range

This is my general lay-out for the numbers right now. I was hoping to get one last final opinion from you guys to see if everything is adding up correctly. I am constantly worried that I am missing something big that will end up setting me back and costing me more money. But I think I have everything pretty much figured out.

Appreciate any input!!!

[79LilRedExpress]

Originally Posted by Vallman

10-15 cars sold a month, lot will hold 10-15 vehicles at a time. Located in North Las Vegas on a major street in a low-income area, Attached to an existing auto repair garage.

Profit centers: Fees, warranties, rate reserve, BHPH loans, general front-end profit. Fees include; $399 doc, $199 VTR and $995 reconditioning

Whole sale cost + recon + transport + advertising + flooring cost + over-head = vehicle cost

Yearly legal cost:
Bond- $1,500
Insurance - $7,000
DMV License – $400
LLC/ State License – $400
Business License – $400
Misc – $1,000

Start-up:
First/Last month rent: $3,000
Office furniture: $2,000
Office equipment: $2,000
DMV and legal forms: $1,000
Utilities: $1,000
Misc: $2,000

Flooring Plan: $25,000 – $100,000 (Nextgear and/or AFC)
Per Vehicle: $98 (60 days) $30 (30 additional) $60 (30 additional) + 9.5% interest (daily)

Total start-up cost for 1st year = $20,700
Monthly Over-Head (including 1 hourly employee) = $5,000
Average per-copy gross profit (front and back): $2,100
Cars sold each month: 10-15
Average Gross Monthly profit: $21,000-$31,500
Inventory: 70% finance, 20% cash, $10% Carry own paper
Vehicle Value: $2,000-$10,000, majority in the $4,000-$6,000 range

This is my general lay-out for the numbers right now. I was hoping to get one last final opinion from you guys to see if everything is adding up correctly. I am constantly worried that I am missing something big that will end up setting me back and costing me more money. But I think I have everything pretty much figured out.

Appreciate any input!!!

With the floor-plan providers that you mentioned, I might be concerned about " curtailments" and how you will address them when they are due.
Especially since on start up the cars will hit your floor line at the same time.
In the slow months that could destroy your cash flow if you are not careful.

[XDCX]

Originally Posted by 79LilRedExpress

With the floor-plan providers that you mentioned, I might be concerned about " curtailments" and how you will address them when they are due.
Especially since on start up the cars will hit your floor line at the same time.
In the slow months that could destroy your cash flow if you are not careful.

Great comments.

And not to dampen Vallman's enthusiasm, but I still think a 100% turn of your used car inventory is unattainable on a regular basis.

Also, remember that not every vehicle you buy at auction will turn out to be a winner - you might hit a home run with a few but you'll also end up with some vehicles that you end up losing money on.

Another issue, especially if your location is in a 'rougher" part of town, be sure to factor in some losses due to theft and vandalism. Even stores located in the best part of town have vehicles stolen or have instances where vehicles have been robbed of their tires/wheels, catalytic converters, etc.

As before, I don't want to dampen your enthusiasm and I wish you much success - I just want to provide you with some thoughts so you don't get blindsided by a potential pitfall that wasn't on your radar screen.

[Vallman]

No dampening at all! I appreciate you guys bringing things to light that I might be over confident on or over - enthusiastic on.

I am planning on visiting the auctions 3-4 times a month myself to continuously have enough inventory. I was hoping that since the location is already attached a mechanic I can have cars bought, transferred and through recon in a matter of days. So if my lot can hold 15 cars and I start out with 15. Hopefully by the 15th if I sell 5 I would be able to replace those 5 with new inventory rather quickly. Hopefully I explained that properly and hopefully it makes sense on a business level.

Again I might be over enthusiastic here and it could be clouding my judgement. Which is why I appreciate everyone responding here so much!

Since I will be dealing with moue-house banks a bit I know that I can expect a 2-week wait until the bank can send me the money. I have been working very hard to save more money and have been looking to possibly get a small investment from someone I know to help me raise 75k. With that I plan on having around 40-50k in the bank to help me float the inventory until the checks arrive.

I have heard that the number one cause of a independent dealer going out of business is not having enough cash-flow to support floating the sold inventory. So I want to ensure I do not fall into the same group!