If you know the motor trade and like the idea of buying and selling vehicles for a living, becoming a car dealer can be an attractive business opportunity. But there’s more to setting up a dealership than simply buying a few cars and advertising them for sale.
You’ll need to think about how the business will operate, where your stock will come from, how much money you’ll need, your legal responsibilities to customers and how you’ll prepare and advertise vehicles for sale.
You don’t necessarily need to start with a large forecourt either. Some motor traders begin on a much smaller scale before building their stock and premises as the business grows.
In this guide, we’ll look at some of the main things to consider when starting a car dealership in the UK, from planning and funding the business through to sourcing stock and selling vehicles.
1. Work Out Your Start-Up Costs
Starting a car dealership requires capital, and the amount you’ll need depends heavily on the type and size of business you plan to operate.
Your biggest initial expense is likely to be vehicle stock, but there are other costs to consider as well. These can include:
- Premises or storage costs
- Motor trade insurance
- Vehicle preparation, servicing and repairs
- Advertising and website costs
- Trade plates and vehicle movements
- Business registration and professional fees
- Warranties or aftersales provision
- Staff costs if you employ other people
- A financial reserve for vehicles that take longer than expected to sell
It’s also important not to tie up every available pound in stock. Cars may need unexpected repairs, customers can raise legitimate problems after purchase, and some vehicles will inevitably take longer to sell than you anticipated.
Before buying your first vehicles, work out how much capital the business can realistically commit to stock while still retaining enough cash to cover its day-to-day costs.
2. Set Up the Business Properly
Before you start trading, make sure the business itself is set up correctly and that you understand the rules that apply to the way you intend to operate.
Depending on your circumstances, this can include registering the business, arranging suitable motor trade insurance, keeping appropriate business and tax records and making sure vehicles are handled correctly through the DVLA when you buy and sell them.
Motor traders can also apply to the DVLA for trade licence plates where eligible. These can be useful for permitted activities such as moving or demonstrating vehicles, but there are specific rules governing when and how trade plates can be used.
If you intend to offer or arrange finance, provide other regulated financial products or operate additional services alongside vehicle sales, further regulatory requirements may apply.
The important point is that there isn’t one simple piece of “car dealer accreditation” that covers everything. Your responsibilities depend on how your dealership operates, so check the current requirements that apply to your particular business before you begin trading.
3. Understand the Business of Buying and Selling Cars
Knowing cars is useful, but running a successful dealership also requires a good understanding of the numbers behind each vehicle.
When buying stock, you need to look beyond the purchase price and consider the complete cost of getting that car ready for sale. That can include servicing, MOT work, tyres, cosmetic preparation, advertising, warranty provision and any unexpected repairs.
You also need to understand your local market. A vehicle that appears cheap isn’t necessarily good stock if there is little demand for it or similar cars are taking months to sell.
Useful skills for a motor trader include:
- Assessing the likely retail value of a vehicle before buying it
- Understanding preparation and repair costs
- Managing cash flow and stock levels
- Keeping accurate business records
- Marketing vehicles effectively
- Negotiating purchases and sales
- Providing good customer service
Ultimately, the aim isn’t simply to buy cars cheaply and sell them for more. You need enough margin to cover the costs and risks involved while still offering customers vehicles at competitive prices.
4. Create a Business and Stock Plan
Before you start buying vehicles, create a clear plan for the type of dealership you want to build and the customers you intend to serve.
You might specialise in affordable first cars, family vehicles, prestige models, vans or a particular manufacturer. Alternatively, you may choose to carry a broader range of used vehicles. What matters is understanding what is likely to sell in your market and avoiding the temptation to buy a car simply because you personally like it.
Your business plan should consider where you’ll source vehicles, your typical purchase price, expected preparation costs, target selling prices and how quickly you expect stock to turn.
It’s also worth deciding how you’ll source vehicles. Dealers can acquire stock through auctions, part exchanges, trade contacts and directly from private owners.
As the business develops, keeping records of which vehicles sell quickly — and which ones sit in stock — can help you make better buying decisions and use your available capital more effectively.
5. Decide Where You’ll Operate From
You don’t necessarily need a large traditional forecourt to start selling cars, but you do need somewhere suitable and lawful to operate the business.
Some dealers begin with relatively small premises or a limited number of vehicles before expanding as the business becomes established. Others operate primarily online while using appropriate commercial premises or vehicle storage facilities.
Think carefully about:
- How many vehicles you need space for
- Where customers will view and test-drive cars
- Security and insurance requirements
- Vehicle preparation and cleaning
- Access for deliveries and vehicle movements
- Local planning or property restrictions
- The professional impression the premises give customers
Operating from home may be possible in some circumstances, but don’t assume that simply keeping several cars on a driveway or in a garden automatically makes it suitable for a motor trade business. Your mortgage or tenancy conditions, insurance, local planning requirements and the effect on neighbours may all need to be considered.
Whatever premises you choose, make sure they are appropriate for the way you intend to trade before committing money to stock.
6. Source the Right Vehicles
Finding a reliable supply of good vehicles is one of the most important parts of running a used-car dealership.
Stock can come from several sources, including vehicle auctions, part exchanges, other motor traders and cars bought directly from private owners. As you become established, repeat customers and industry contacts can also become valuable sources of vehicles.
Wherever a car comes from, don’t base your buying decision on the purchase price alone. Before committing your money, consider its condition, history, mileage, specification, likely preparation costs and realistic retail value. It’s also worth understanding which maintenance issues are most likely to put used-car buyers off before deciding how much preparation a vehicle may need.
A cheap car can quickly become expensive stock if it needs extensive mechanical or cosmetic work before it can be offered for sale.
It’s also important to avoid putting too much of your available capital into one vehicle. Particularly when you’re starting out, a sensible spread of stock can reduce the impact of one car taking longer than expected to sell.
Over time, your own sales data should help you identify the makes, models and price points that work best for your business. Successful stock buying is as much about knowing what not to buy as spotting an apparent bargain.
7. Understand Your Responsibilities to Customers
Once you start selling vehicles as a motor trader, you have legal responsibilities to your customers that don’t apply in the same way to somebody occasionally selling their own private car.
Under the Consumer Rights Act 2015, vehicles sold by a trader to a consumer must meet legal requirements including being of satisfactory quality, fit for purpose and as described. What counts as satisfactory quality can depend on factors such as the vehicle’s age, mileage, price and condition.
Dealers also need to make sure vehicles offered for sale are roadworthy and that advertisements and descriptions don’t mislead customers. Important information about a vehicle shouldn’t be hidden simply because it might make the car more difficult to sell.
A warranty can provide customers with additional protection, but it doesn’t replace their statutory rights.
Good preparation and accurate records can therefore protect both the customer and the dealership. Keep evidence of vehicle inspections, preparation work, servicing, MOT information and any important facts disclosed to the buyer. Our guide to MOT advisories and repair recommendations explains why advisory items shouldn’t simply be ignored when assessing a vehicle’s condition.
Understanding these responsibilities before you begin trading is far better than trying to learn them after the first customer complaint.
8. Know What Your Cars Are Worth
Accurate valuations matter at both ends of the deal. Pay too much when buying a vehicle and you can wipe out your potential margin before you’ve even prepared it for sale. Price a car too high and it may sit in stock while your money remains tied up.
When valuing a used car, consider factors such as its age, mileage, condition, specification, service history, previous owners and current demand. You should also allow for any work required before the vehicle is ready for retail.
Don’t rely on one advertised price to tell you what a vehicle is worth. Similar cars can vary considerably depending on their history and condition, while an advertised price doesn’t necessarily tell you what a car will eventually sell for.
This becomes increasingly important as you build your stock. Knowing approximately what a vehicle is worth before you buy it helps you decide how much you can afford to pay while leaving enough room for preparation costs and a sustainable margin.
If you need a starting point, our Car Valuation Guidance explains more about the factors that influence used-car values.
9. Find More Ways to Source Stock
As your dealership grows, developing several reliable sources of stock can make it easier to find the right vehicles without relying entirely on auctions or part exchanges.
jamjar also works with registered buyers who want direct access to vehicles being offered for sale by motorists. Our buyer subscriptions allow businesses to make offers on vehicles through the jamjar platform and select the areas they want to buy from.
If you’re building or expanding a used-car business, you can find out more about becoming a registered jamjar buyer and view our subscription plans.
Conclusion
Becoming a car dealer can be a rewarding way to turn knowledge of the motor trade into a business, but successful dealerships are built on much more than simply buying cars cheaply and selling them for more.
You need enough working capital, a clear stock strategy, suitable premises, reliable vehicle preparation and a good understanding of your responsibilities to customers. Just as importantly, you need to understand the numbers behind every vehicle you buy.
Starting relatively small can give you the opportunity to learn which vehicles work for your market before committing larger amounts of money to stock. As the business develops, good records, accurate valuations and a strong reputation can all help you make better buying decisions.
And when you’re looking for another way to source stock, buying vehicles directly from motorists can form part of that strategy. At jamjar, we help car owners compare offers when they’re ready to sell.
Looking to sell a car? Compare offers and see what your car could be worth with jamjar.