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Starting a small car lot of used vehicles below $10K?
Old 02-24-2009, 05:43 PM   #1
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Starting a small car lot of used vehicles below $10K?

So my brother who is in the auto industry (auto auctions, auctioneer) asked me if I was interested in starting a small car lot with good quality low mile vehicles below $10K, in either CO or AZ.

he and I are both pretty car savy, both he and I been in auto related business's for many years (not selling but auto related)
good idea or bad idea? lets hear your thoughts.

Please keep it constructive, we know all about the car manufactuers having tough times etc. we are not manufacturing we are just looking at getting good used vehicles and selling them at fair prices, we want to focus on being honest and upstanding dealers, we also know this economy is not going to stay crappy forever.

just looking for some opinions and feedback.

Thank you.
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Old 02-24-2009, 05:57 PM   #2
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Consider the impact that the new stimulus deal will have on you. A refund of sales tax on NEW cars only up to $49,500 purchase price. Could that put a damper on used car sales?
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Old 02-24-2009, 06:21 PM   #3
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In Houston, on just about every corner, in some areas, are used car lots. What is going to set your used car lot apart from others? There are national used car dealers that tout warranties and such. If the intent is just to be another used car dealer, I would have no clue what percentage go under. Seems to me you need a 'gimmick'. Something like the certified cars sold by dealers. Or 'Largest' used car dealer in LA. Or, 100% satisfaction guaranteed, money back in first 6 months.
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Old 02-24-2009, 06:26 PM   #4
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Used car prices at auctions are very high as there's a big demand for used cars under 10K. I also thought of doing the same thing but I like retirement too much.

No reason why you can't give it a go. What's the worst that can happen? You take the cars back to the auction and lose a few bucks?
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Old 02-24-2009, 06:32 PM   #5
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Quote:
Originally Posted by 73ss454 View Post
Used car prices at auctions are very high as there's a big demand for used cars under 10K. I also thought of doing the same thing but I like retirement too much.

No reason why you can't give it a go. What's the worst that can happen? You take the cars back to the auction and lose a few bucks?
I need mention I would be leaving a job to run the lot.
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Old 02-24-2009, 06:39 PM   #6
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Originally Posted by xtradoe View Post
I need mention I would be leaving a job to run the lot.
Your current job have health benefits? If so, I wouldn't. Maybe as a side venture.
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Old 02-24-2009, 06:40 PM   #7
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Well, that changes the game completely. Lot's of things to consider, can you survive with out money for a while, your age, if you like your job, etc?

If you have plans to leave your job anyway then it makes it easier to decide. If it doesn't work out how easy is it to get back to work.

Give this one a lot of thought.
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Old 02-24-2009, 06:59 PM   #8
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One of the biggest stumbling blocks I think you'd face is the credit crunch, and the more stringent requirements that lenders are enforcing on new loans. A large percentage of people buying cars at those small lots finance their cars. I participate in other forums that are frequented by small independent dealers, and they're saying that:
a) not many people are buying
b) they're having a heck of a time getting prospective customers financed

It seems like a lot of the small-car lots in my area are going out of business. I would definitely not make this move now.
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Old 02-24-2009, 07:27 PM   #9
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Quote:
Originally Posted by Rustic23 View Post
In Houston, on just about every corner, in some areas, are used car lots. What is going to set your used car lot apart from others? There are national used car dealers that tout warranties and such. If the intent is just to be another used car dealer, I would have no clue what percentage go under. Seems to me you need a 'gimmick'. Something like the certified cars sold by dealers. Or 'Largest' used car dealer in LA. Or, 100% satisfaction guaranteed, money back in first 6 months.



I agree with Rustic, you have to ask yourself what is going to set you apart from existing, established used car lots?
  • It appears there's excess capacity in used cars/lots, so odds are it's going to be more competitive (thinner margins for you).
  • Credit has gotten tighter, how are you going to finance your buyers? And many 10K cars are higher mileage, harder to finance even in good times.
  • And to my first sentence, all else being equal if you have a car I want and another established lot has one I consider comparable - my business would go to the established lot every time.
So again, if you can't identify several aspects in your business model to set yourselves apart, you're chances of surviving as a business are are at best 50/50 - and none of us want to see you fail (we've all worked hard towards FI). Best of luck whatever you decide...
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Old 02-24-2009, 08:26 PM   #10
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You can offer some good value used vehicles for $10k and under. I would be looking at putting minimal time into hanging around the lot. Take some points from the curbsiders. Many of the customers will have weak credit. Tote the note would be a good gimmick if you could tolerate the hastle. I would be looking at a very small lot and lots of internet marketing.....Maybe outsource some product to nearby dealers.

I met with a group of tow truck operators last year. Many were joyous over having had a great year in the repo business, but many were concerned that all the storage lots were completely full!
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Old 02-24-2009, 08:32 PM   #11
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Are you aware that this would make you a used car salesman?

There is a used car dealership in my area that specializes in high end used cars - they are doing fairly well and seem to have carved out a unique niche but don't have much on their lot for under 30K.
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Old 02-25-2009, 12:01 PM   #12
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I have an ex-BIL who opened a lot selling junkers cars priced under 10K. He is starving to death slowly. The clientele is difficult to deal with (read: cheap) and the inventory is distressed (high miles, used and abused, auction rejects) His carrying costs are high, everyone wants financing that they can't qualify for elsewhere. You mention this would be a new experience for you -he has been in the car business his whole life-used to have a full-line dealership (Oldsmobile-but that didn't work out so well either...) There is a lot of competition out there in the used car industry right now, prices are down, big cash incentives, trade-in programs and attractive payment plans on new vehicles- and most buyers are cash-strapped. I'd stay away from it.
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Old 02-25-2009, 12:07 PM   #13
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Here is what I had to say on this topic:

Do interest and dividends count agains the SWR?
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Old 02-25-2009, 01:54 PM   #14
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Could you follow the model of charging someone a 20% downpayment on an inflated price on a junker (call it underwriting fees and application fees, etc) and then self finance. Assume you can charge usurious interest and repo the car 3-6 months later after they default, then you resell the car to the next sucker.

This seems to be the business model for the low end used car dealers locally.
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Old 02-25-2009, 02:52 PM   #15
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Just a couple of observations:
- If your brother is in the automobile business, is there a particular reason he wants to team up with you? I don't mean that in a negative way, but if he brings, say, all the expertise and all the money, how are you going to feel? How will he feel as this business grows to consume a lot of his life and yours. Does he maybe need some money to get this going?
- Going into business with a family member can sometimes end very badly. As you likely know, most new businesses fail, and it is possible that a failure (or even a stressful successful business) could put at risk some very important family relationships. It will be much easier to say "no" now than to quit after this gets going and your brother has cash at risk.
- I don't think that selling cars in an easy business. There are a lot of dedicated people out there doing it, and they have a lot of experience. I also don't get the feeling that small lot owners are making a lot of money.
-As you can tell, I don't think I'd be very enthusiastic about this if my brother brought it up (if I had a brother).

A totally unrelated comment: There was a small car lot near where i lived in SoCal in the early '80s. It was strictly consignments: People who wanted to sell their used car brought it there, and they paid a monthly fee. For that price, the lot would advertise the car (with their other cars in a big display ad), and prospective buyers could test drive cars with one of the lot staff. If they wanted to make an offer on the car, they would call the owner and they would arrange a meeting. The folks at the lot would also help with the paperwork of doing a private sale. It was very low budget--set up in the parking lot of a vacant supermarket, they probably leaased the lot for very little money. They had no money tied up in inventory. It seemed like an interesting business model, as buyers could come to this one lot and inspect a bunch of FSBO used cars, and without any pressure from the "salespeople." It also took a lot of the hassle out of selling a car. Anyway, I don't think I've seen another lot like that, so maybe it's not such a great idea. Plus, with the availability of info on the Internet it has become much easier for buyers ansd sellers to find each other.
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Old 02-26-2009, 09:04 AM   #16
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I would do a LOT of research in the area you want to open it in BEFORE you sign any leases or whatnot.

It is a BIG RISK.........
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Old 02-27-2009, 02:55 PM   #17
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I voted against.

I've seen 6 used car dealers go out of business in the last 2 months. Two new car dealers ditto. One owner of a new/used car dealership torched 3 new cars on his lot, then died of a hart attack 30 feet away. The empty gas can was next to him.

Reportedly there were tax liens against the business of $ 720000.- plus a number of outstanding debts.

So if you have unlimited funds, lots of intestinal fortitude, and big brass brass cohones, go for it.
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Old 02-27-2009, 03:04 PM   #18
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The poll is currently running against the idea by almost a 5:1 margin. Extradoe, are you in or out of the used car business?
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