Anyone own a Car Dealership
Discussion
Hello,
To start with a bit of background about me; I've been working for car dealerships for the past 5 years and fancy starting working for myself. I have been both a Sales Exec and a Sales Manager for Nissan and Mercedes and have to date had a successful career. It's just I think I have more potential and owning/running my own car dealership could help me realise it.
What I am trying to ascertain is the start-up costs for running my own dealership. I don't really want to run a franchise (too much red tape) I would just like to sell quality used cars (£2-£10k's worth). I know that stocking plans can be sought for buying stock but would finance companies want to see an established business before they give me a stocking loan? Also what costs would be involved in aquiring a site? I understand a bit of research would let me see how much P.A. a lease is, but having never leased anywhere is this all payable up front? I know there are everyday running costs such as heat, light, rates etc. but I would obviuosly account for this in my Business Plan.
Would a bank be willing to help out with start up costs or would I have to eat into the equity in my House to be able to start?
Any help would be gretly appreciated.
Thanks
Mat
To start with a bit of background about me; I've been working for car dealerships for the past 5 years and fancy starting working for myself. I have been both a Sales Exec and a Sales Manager for Nissan and Mercedes and have to date had a successful career. It's just I think I have more potential and owning/running my own car dealership could help me realise it.
What I am trying to ascertain is the start-up costs for running my own dealership. I don't really want to run a franchise (too much red tape) I would just like to sell quality used cars (£2-£10k's worth). I know that stocking plans can be sought for buying stock but would finance companies want to see an established business before they give me a stocking loan? Also what costs would be involved in aquiring a site? I understand a bit of research would let me see how much P.A. a lease is, but having never leased anywhere is this all payable up front? I know there are everyday running costs such as heat, light, rates etc. but I would obviuosly account for this in my Business Plan.
Would a bank be willing to help out with start up costs or would I have to eat into the equity in my House to be able to start?
Any help would be gretly appreciated.
Thanks
Mat
Edited by matc on Monday 10th September 10:46
No-one has jumped in from the car industry, and this is an area I don't have experience in, but can help on the finance bit.
Unless you have a lot of equity, and you are effectively willing to sign it away I think you will struggle getting finance.
There is also the factor that I am guessing you will be looking at possibly a three figure sum to get things off the ground, which the banks wont fall over eachother to lend you. Similarly, with the car industry, especially used a location with through traffic is almost essential to success, though for the same reason the rent for a good site is gonna be pretty expensive.
I think realistically as the only way that you will get finance is by signing your equity away on behalf of the business you will actually get a better interest rate by just freeing up the equity in your house directly, and in effect lending it to the business yourself.
That said there *may* be specialist finance companies who specialise in car stocking in this way, and perhaps run something like an overdraft, that would suit you personally as you will only be paying for the exact amount owed on a daily basis.
Unless you have a lot of equity, and you are effectively willing to sign it away I think you will struggle getting finance.
There is also the factor that I am guessing you will be looking at possibly a three figure sum to get things off the ground, which the banks wont fall over eachother to lend you. Similarly, with the car industry, especially used a location with through traffic is almost essential to success, though for the same reason the rent for a good site is gonna be pretty expensive.
I think realistically as the only way that you will get finance is by signing your equity away on behalf of the business you will actually get a better interest rate by just freeing up the equity in your house directly, and in effect lending it to the business yourself.
That said there *may* be specialist finance companies who specialise in car stocking in this way, and perhaps run something like an overdraft, that would suit you personally as you will only be paying for the exact amount owed on a daily basis.
Thanks very much for your replys, Coyft why wouldn't you do it again? (feel free to e-mail me)I would really appreciate some real life experience with it. Do you not think I would be able to aquire any funding from the bank? It's just the £100k start-up costs see fairly large but i'm probably being a bit naieve. Would this take into account paying for a lease for the whole year up front? or is this payable monthly? Also is there no chance of a stocking loan? or would it all have to come from the start-up costs?
Would a bank if presented with a sensible business plan not look at funding any of it? I was expecting to use some equity but to gamble £100k put's things in perspective. I guess going int partnership could halve my exposure?
Would a bank if presented with a sensible business plan not look at funding any of it? I was expecting to use some equity but to gamble £100k put's things in perspective. I guess going int partnership could halve my exposure?
Edited by matc on Tuesday 11th September 10:49
matc said:
So in this case my start up costs would be lower?
Slightly O/T escargot how is Group20 going? I did enquire about a franchise a while ago but didn't gt any urther with it. Am I right in thinking you took one of these franchises?
Thanks
Mat
Slightly O/T escargot how is Group20 going? I did enquire about a franchise a while ago but didn't gt any urther with it. Am I right in thinking you took one of these franchises?
Thanks
Mat
I'm a director for Group20 now too so if you wanted to have a chat with me about it, feel free.
Leases are usually payable quarterly in advance by most landlords.
go to www.rapleys.co.uk and you can get some details of motor trade property, also check out www.egpropertylink.com and do advance search under motor trade.
Going rate for a 3000-5000 sq foot showroom is between 80K and 250K a year in rent depending on location, on top of that your business rates are likely to be about half the rent on top.
You will need to put down a quarters rent deposit, and pay a quarters rent up front. You may struggle to get a lease not being a big company like HR owen so you will probably be limited to small sites and have to make some sort of personal garantor for the rent.
You will pay stamp duty on the lease, most leases are for 15 years full reapiring and insuring. the stamp duty is calculated on total rent payable on the entire lease - expect to pay 6-30K depending on rent and you will have to pay legal fees of about 2K or so to execute the lease.
Regarding stock funding you need to go to www.dashboard.co.uk - thats hte site of capital bank motor finance, there is information on wholesale stock funding htere. you need to ring them up and find out what your position would be as a start up business as they usually want to see 3 years accounts.
In any case you need a rock solid business plan for them to look at and they will usually set your credit limit for stocking at 25 percent of what you write out for them in finance business but they got more flexible with that, you need to ask them what their underwriting criteria will be.
You will need a consumer credit license to do finance, you need to apply about 3 months before you start trading, they are transferring over onto a new computer system at the DTI and as a result htere are huge delays.
My personal view is, take the advice and dont do it. The used car trade is in a terrible state at the moment, with the consumer credit crisis looming hardly anyone has any money to spend, the car supermarkets soak up massive trade now and you cant touch their prices due to your running costs and the internet brokers are really damaging the franchises which is costing them part exchange business which would be a good supply of cars for you. a lot of smaller used car dealers are packing up stock, for what you invest you will make maybe 2-3 percent return in profit after all your costs.
If you want to do it i suggest you buy yourself a nice roadside house on a busy A road with lots of frontage and try and get planning permission for a small pitch, buy 10 or so cheap cars and start that way. Most of the big showroom operators are making little or no money due to the huge rents so you are going to work yourself to death just to pay 100K a year in rent and rates before you even see a profit, on the sorts of cars you are talking about your average margin will be 1K - 2K if you are lucky, you will lose 17.5 vat on that, all the prep costs leaving you with maybe 600 - 800 quid tops, you will have to shift a huge amount of stock just to break even on the sort of rents that are being charged. unless you can find a 10K a year used car pitch or have at least a million quid to invest in a 300-500 unit operation there is simply no way you can cover 100K a year running costs unless you do franchise servicing for a big name at 150 quid a hour labor rate.
most garages pay the bills with the parts and servie work and the car sales is just hte profit, so i unless you can get a place dirt cheap it simply wont pay you to do it.
I would say you will need 150K startup capital, even if you get a good stock funding deal you will still need liquid cash to buy in auction cars with, part-exs that arent capable of being financed and so on.
If you can find yourself a house wiht a place you ca use as a pitch, then alll you need is a caravan some bunting and a few cars.
go to www.rapleys.co.uk and you can get some details of motor trade property, also check out www.egpropertylink.com and do advance search under motor trade.
Going rate for a 3000-5000 sq foot showroom is between 80K and 250K a year in rent depending on location, on top of that your business rates are likely to be about half the rent on top.
You will need to put down a quarters rent deposit, and pay a quarters rent up front. You may struggle to get a lease not being a big company like HR owen so you will probably be limited to small sites and have to make some sort of personal garantor for the rent.
You will pay stamp duty on the lease, most leases are for 15 years full reapiring and insuring. the stamp duty is calculated on total rent payable on the entire lease - expect to pay 6-30K depending on rent and you will have to pay legal fees of about 2K or so to execute the lease.
Regarding stock funding you need to go to www.dashboard.co.uk - thats hte site of capital bank motor finance, there is information on wholesale stock funding htere. you need to ring them up and find out what your position would be as a start up business as they usually want to see 3 years accounts.
In any case you need a rock solid business plan for them to look at and they will usually set your credit limit for stocking at 25 percent of what you write out for them in finance business but they got more flexible with that, you need to ask them what their underwriting criteria will be.
You will need a consumer credit license to do finance, you need to apply about 3 months before you start trading, they are transferring over onto a new computer system at the DTI and as a result htere are huge delays.
My personal view is, take the advice and dont do it. The used car trade is in a terrible state at the moment, with the consumer credit crisis looming hardly anyone has any money to spend, the car supermarkets soak up massive trade now and you cant touch their prices due to your running costs and the internet brokers are really damaging the franchises which is costing them part exchange business which would be a good supply of cars for you. a lot of smaller used car dealers are packing up stock, for what you invest you will make maybe 2-3 percent return in profit after all your costs.
If you want to do it i suggest you buy yourself a nice roadside house on a busy A road with lots of frontage and try and get planning permission for a small pitch, buy 10 or so cheap cars and start that way. Most of the big showroom operators are making little or no money due to the huge rents so you are going to work yourself to death just to pay 100K a year in rent and rates before you even see a profit, on the sorts of cars you are talking about your average margin will be 1K - 2K if you are lucky, you will lose 17.5 vat on that, all the prep costs leaving you with maybe 600 - 800 quid tops, you will have to shift a huge amount of stock just to break even on the sort of rents that are being charged. unless you can find a 10K a year used car pitch or have at least a million quid to invest in a 300-500 unit operation there is simply no way you can cover 100K a year running costs unless you do franchise servicing for a big name at 150 quid a hour labor rate.
most garages pay the bills with the parts and servie work and the car sales is just hte profit, so i unless you can get a place dirt cheap it simply wont pay you to do it.
I would say you will need 150K startup capital, even if you get a good stock funding deal you will still need liquid cash to buy in auction cars with, part-exs that arent capable of being financed and so on.
If you can find yourself a house wiht a place you ca use as a pitch, then alll you need is a caravan some bunting and a few cars.
TerryTibbs,
Enough said, couldn't have put it simpler!
There is no harm buying a few cars either from auction or whereever you can, whilst still working at the dealership (?) you are at, and seeing if you can make a few quid selling cars from home, privately through the trader, its not easy as I have tried (very little) myself and found it really hard work, delaing with time wasters, having to ring round sorting insurance and go meet people etc etc.
Have you checked your contract of employement, as I feel that your current employer may not want you trading within x y z years/distance of them.
Good luck if you do choose to go it alone.
Enough said, couldn't have put it simpler!
There is no harm buying a few cars either from auction or whereever you can, whilst still working at the dealership (?) you are at, and seeing if you can make a few quid selling cars from home, privately through the trader, its not easy as I have tried (very little) myself and found it really hard work, delaing with time wasters, having to ring round sorting insurance and go meet people etc etc.
Have you checked your contract of employement, as I feel that your current employer may not want you trading within x y z years/distance of them.
Good luck if you do choose to go it alone.
Mat, why would you want to invest so much money in setting up a used car dealership, you should consider car/van brockerage, try www.vanlease.net to see what its all about, you coud be a virtual dealer for only £10k, selling new and used cars and vans from the comfort of your own home or small office!
Steve
Steve
steve_vanlease said:
Mat, why would you want to invest so much money in setting up a used car dealership, you should consider car/van brockerage, try www.vanlease.net to see what its all about, you coud be a virtual dealer for only £10k, selling new and used cars and vans from the comfort of your own home or small office!
Steve
Or, you could be a real broker and go out there and contact the finance houses directly (at no charge) and utilise their quoting systems. All for only £0k. Steve
I guess the general consensus is that Car Sales isn't the business to get into?
I'm still feeling a little bit un-deterred and feel that with well presented used cars and some decent service there could be some good potential to for me to make a go of it. I have seen a few sites in my area with an annual lease of about £30-35k p.a. with space for about 20-25 cars, which to be honest is the absolute maximum I would want to have. Som also have a work-shop I was thinking I could sub-let this or even bring in a manger to run the service side for me which could be another good source of income?
I have considered Contract-hire before but it seems like a massive amount of work for very little reward. It could be run from home, but it's all cold calling etc. which would obviously lead to massive phone overheads?
Thanks for all you comments so far. Terry - very informative.
I'm still feeling a little bit un-deterred and feel that with well presented used cars and some decent service there could be some good potential to for me to make a go of it. I have seen a few sites in my area with an annual lease of about £30-35k p.a. with space for about 20-25 cars, which to be honest is the absolute maximum I would want to have. Som also have a work-shop I was thinking I could sub-let this or even bring in a manger to run the service side for me which could be another good source of income?
I have considered Contract-hire before but it seems like a massive amount of work for very little reward. It could be run from home, but it's all cold calling etc. which would obviously lead to massive phone overheads?
Thanks for all you comments so far. Terry - very informative.
Mat,
You could set up a small contract hire brokerage from the pitch. It's really not a huge amount of work once you've got the main finance house systems in place. As a method of incremental business, it's certainly worth considering.
(just as you should offer on-site valetting, smart repairs, tyres etc etc).
You could set up a small contract hire brokerage from the pitch. It's really not a huge amount of work once you've got the main finance house systems in place. As a method of incremental business, it's certainly worth considering.
(just as you should offer on-site valetting, smart repairs, tyres etc etc).
Gassing Station | Business | Top of Page | What's New | My Stuff