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Old 7th February 2011, 22:54   #1
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Default Feasibility of a *pre owned* Car Dealership

Hey guys,
Enough and more has been said about the high expenses involved in setting up a A.S.S for any single manufacturer. High cost of real estate, inventory costs, servicing costs etc.
I would like to ask the forum the feasibility,returns that can be expected from just a *pre owned* car dealership. I wouldn't be a True Value, or a First Choice Brand, but would want to have the same credibility.
But to make me different from other dealers out there already,The things that come on the top of my head are,Instead of freebies, A free Ratan Tata book of the nano, or Maruti way(not sure how many ppl wud appreciate that though), a JBL stereo+2speakers setup which would do wonders for the average indian family/cab.ribbons and plastic covers,Professional exterior/interior detailing to kind of give it a new car feel
But I wanted to know about the feasibility/returns of something like this before I could even think about it deeper or even try making a business plan out of it
The basic idea is
Buy a car from an individual, Do the required maintainence-oils, tyres, body work, mechanics et all and then sell it for a profit. Similiar concept to wheeler dealers but on a larger volume basis
I want to try and make a pre owned car owner have a similiar buying experience vis a vis a new one, I'm just hoping to offer more VFM.
I'm not sure if I'm fascinated by the show, or just by automotives in general.
But it's definitely an avenue i want to know a little more details about I just let it go
Thanks in advance
Mods: please move to the appropriate thread
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Old 8th February 2011, 09:19   #2
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Default Re: Feasibility of a *pre owned* Car Dealership

Hi Raghav,

many people atleast whom i know of are scared to go to car dealerships in bangalore is because of the astronomical prices they quote (Eg: 2007 Alto Lx 2.7L, another 60k will fetch you a brand new one, isn't it), not being transparent and lack for basic customer handling skills.

There's no point is you doing all the oil changes, many people would still do it after they buy the car, no one trusts anyone you see . Goodies are always good, but the unfortunately the deals aren't made based on goodies being offered, right ?

If you could think anything better on these lines, i think this is quite a good venture in today's market conditions.

Cheers,
Rajesh
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Old 8th February 2011, 09:55   #3
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Default Re: Feasibility of a *pre owned* Car Dealership

You might want to check out dr.car and study the kind of services offered by them.They are doing pretty good in Hyderabad and the owner of the firm has also gained a reputation of being reliable with the information provided on each car. Of-course, in some angles for some people, the past profession of the owner is also convincing them( he's a retired army officer), but all in all.......he offers more than the run of the mill 2nd hand showrooms.

The good 2nd hand dealerships in Hyd are said to have a turnover of 20-50lacs/month. Capital pumped in and returns pumped out is a whole different ball game because most deals would probably be "cash only" types.You'll never know the right figures and it all depends on which segment of customers you're targeting. Buying a car from an individual to turn over a profit is not as easy as well. There are so many other avenues to buying a car for a dealership....instead of me listing them out, id recommend you explore them .
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Old 8th February 2011, 10:19   #4
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Default Re: Feasibility of a *pre owned* Car Dealership

You can on an average expect to "earn" 20-50K per car sold.

However, you need to keep at least 10-20 cars in your "backyard" all the time to generate interest in the customer base.

That means and investment of minimum 10*3 lacs (cars of each kind - M800 to at least Octavia).

Keep in mind - this investment of 30 lacs or so is supposed to be liquid, but based on your good relations and money rotating abilities, you may be able to manage only with 10 lacs - but keep inventory of 30 lacs.

Three - four weeks is the gestation period (you buy the car, clean and make it presentable, ppl come looking for car, you go after ppl to attract them to your car, you sell the car).

So say you make 20K per car in a month, you need to be selling 5-6 cars per month, other wise your cash flow will go for a toss.

Of course, you would also need to keep greasing palms of RTO etc pretty regularly, and give commissions to other dealers, agents who pass the leads etc.
Per car earning would come down even more - thus compelling you to increase the no. of cars sold.

Now for the value added services.
India is a country of misers who have come out of poverty. Ppl go by minimum hygiene requirements.
No one is going to pay extra to you over the neighborhood garage-walla.
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Old 8th February 2011, 12:01   #5
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Default Re: Feasibility of a *pre owned* Car Dealership

First of all,I knew i could trust team-BHP for a reality check, Thanks for your replies guys! so replying to you guys,
@2500cc, The prices of used cars in bangalore are astronomical because so are the new car prices,What your quoting is also probably(My guess) is from a TrueValue outlet, they tend to charge a premium because they're Maruti True Value and they know people trust second hand maruti's blindly, I'm not sure if it's a direct comparison but it's like Honda charging a premium for being Honda, you understand what i mean?
@absynthguzzler
I did go onto the Dr.Car website, and whilst I was at it, I was wondering if instead of starting a venture on my name, I could take a franchisee of something like a Mahindra First Choice or a Dr Car itself, because these are multi brand pre worshipped dealerships that people already trust.
For me, it's a business, not a legacy that i would want to leave behind, If at all I get an opportunity to expand in future, I can do it with another franchise of the same brand right? If not, I can terminate the franchise and then start out on my own, because by then ill know how the business model works(this is only assuming i want to start out with my own brand name). Now to that I'm sure you guys will say, first get a job at the dealership and then see how it works out, but as what? who'll hire a fresh engineering graduate to run the place? Please correct me if i'm going wrong somewhere, because I have no commerce background and thats exactly why i want a reality check if this is actually feasible(financially) or not
@alpha, I was just reading on team-BHP,That approximately 5000-6000 new cars are sold on a monthly basis in bangalore alone
The following are completely my assumptions in my head, I'd love for someone to give me a pretty hard reality check,so lets assume, 20% of this figure, ie about 1000 cars approximately are sold in the second hand car market,divide that by about 100Used car dealers-authorized+regular(could be more, could be less), they do manage to sell about ten cars a month right? and Even if it is about 10k a car, after all the greasing, expenses, it's not a bad figure which can only improve with experience in the field right?(of course, i'm taking 10k an average, some cars make you more, some cars make you less)
Even if this doesn't work out, makes for a pretty good discussion eh? food for thought for enthusiasts in us!
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Old 8th February 2011, 13:14   #6
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Default Re: Feasibility of a *pre owned* Car Dealership

Few things Raghav,

1st of all, I would like you to know that this used car business is very very tricky. Buyer always looks at the dealer with a feeling that he is overpriced, and the seller always has the feeling that he is underpriced. No matter what these prices are. So, the trick is to bridge the gap between these two.

Well some of the points you mentioned, does help. Give out a complete professional car detailing, so that the seller is convinced that you are charging a bit extra than given to him, as you deserve it. In a buyer perspective, its always a treat for the eyes, when you see a neat, spanking car. Even for a non-enthusiast.

Freebies, are a good idea, but I don't think it would work in a used car business.. Think about it. When you go to buy a used car, will you prefer more car/$$$ or some freebies along with a used car, whose condition you are unsure, whatsoever.

Regarding maintenance. Its better you NOT do a complete maintenance, but its MANDATORY to clear out small visible niggles, like non-working power windows, switches, rattlings, electrical glitches et al. Now, this is because, an average customer, including me, would never trust a dealer, however credible he is. I would definitely change ALL the oils to my liking, and do some preventive maintenance myself. Think about it, would you trust a used car dealer with your car's mechanicals?.

Regarding buying a car from individuals. Even though most of the dealers work like this, it will involve big $$$. Money in used car business are always locked up, one way or other. Instead of this why don't you work on a commission basis. I'll tell you how.

When individuals, come to you to sell cars, you don't buy it straight. Instead, you ask them to leave the car for display for prospective buyers. This way they get a PLATFORM for individual-individual selling. Also, you may have a professional car detailing center, and a small workshop alongside.

You do all the detailing works. This should be done perfect, and as you mentioned, give them a new-car feel(visible). Also, sort out the small glitches, if there are any. I would even suggest to change a pair of tyres if existing ones are worn out. As they can fetch double value when in a car.

When a buyer comes to visit your used-car delearship, inform the selller that he has a prospective buyer, and you be the negotiator. Also, as the deal is buyer-to-seller (with you negotiating), the whole deal is transparent. And much more trustworthy.

Finally, when the car is sold out, charge the seller the labor for the above mentioned works and also, your part of profit. May be 2-4% . This way you can get two business running alongside, without shelling out big $$$.

Finally make sure the car's you sell are not lemons or misused in any way, so that people develop a trust in your used car dealership. Develop a genuine'ity. Often, business with good reputation, go after more profit and spoil their reputation, and hence even existing profits.

These are my 2 cents. Please feel free to reject it if not felt suitable.

Last edited by dhanushs : 8th February 2011 at 13:20.
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Old 8th February 2011, 14:21   #7
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Default Re: Feasibility of a *pre owned* Car Dealership

Firstly Dhanush, Thank you for all the points that you have mentioned, I will reply to each of your points with my views, Please do not feel offended about the same, These are just my views and maybe right or wrong.Please find my replies in bold.
Quote:
Originally Posted by dhanushs View Post
1st of all, I would like you to know that this used car business is very very tricky. Buyer always looks at the dealer with a feeling that he is overpriced, and the seller always has the feeling that he is underpriced. No matter what these prices are. So, the trick is to bridge the gap between these two.
I agree,point noted


Well some of the points you mentioned, does help. Give out a complete professional car detailing, so that the seller is convinced that you are charging a bit extra than given to him, as you deserve it. In a buyer perspective, its always a treat for the eyes, when you see a neat, spanking car. Even for a non-enthusiast.
I agree,Point noted again

Freebies, are a good idea, but I don't think it would work in a used car business.. Think about it. When you go to buy a used car, will you prefer more car/$$$ or some freebies along with a used car, whose condition you are unsure, whatsoever.
It was just a point i thought about, from the top of my head,it may or may not work, but instead of freebies, It would be nice to add a basic jbl stereo+speakers and add that to the cost of the car,it's not necessary that all the hatchbacks out there have one in working condition, and people would be recultant to spend even further on accessories after buying a pre owned car, I've had enough sessions with my dad trying to convince him to put stereo's in new cars!
Another idea could be was fill the car up with "must have accessories on a new car" from the article on team-BHP, If I can get contacts for the various accessories, it'll eventually work out win-win situation for the accessories dealer, me and the and customer! It'll be a bonus if i can get a signature accessory that'll be able to say from a distance that the car's been sold through my dealership(not the stickers) something else, any ideas??


Regarding maintenance. Its better you NOT do a complete maintenance, but its MANDATORY to clear out small visible niggles, like non-working power windows, switches, rattlings, electrical glitches et al. Now, this is because, an average customer, including me, would never trust a dealer, however credible he is. I would definitely change ALL the oils to my liking, and do some preventive maintenance myself. Think about it, would you trust a used car dealer with your car's mechanicals?.
Isn't that what i'm trying to make my USP-reliability? Think about this, agreed..you/I wouldn't trust a used car dealer with the mechanicals, but wouldn't you trust a Maruti True Value/Mahindra FirstChoice Blindly, It's all in the name, which would take time to build,Takes years to build a reputation, seconds to destroy it

When individuals, come to you to sell cars, you don't buy it straight. Instead, you ask them to leave the car for display for prospective buyers. This way they get a PLATFORM for individual-individual selling. Also, you may have a professional car detailing center, and a small workshop alongside.
The one biggest problem here, How many people would leave their cars there, and for how many days? Would this model work to justify my costs of real estate/manpower involved? By that i mean, showroom rent, sales people salary would be paid off thru 2% on either side, ie 2% of an average car of 3,00,000 ie about 6000/-, ie 12000/- on each car on a "as is" basis, just brokerage, Margin on repairs extra,That's not too bad a proposal, just how many people will keep the cars in my showroom is the question

You do all the detailing works. This should be done perfect, and as you mentioned, give them a new-car feel(visible). Also, sort out the small glitches, if there are any. I would even suggest to change a pair of tyres if existing ones are worn out. As they can fetch double value when in a car.
This part i want to do,but this can be done with cars that i buy from owners, not the owner displayed cars

When a buyer comes to visit your used-car delearship, inform the selller that he has a prospective buyer, and you be the negotiator. Also, as the deal is buyer-to-seller (with you negotiating), the whole deal is transparent. And much more trustworthy.

Finally, when the car is sold out, charge the seller the labor for the above mentioned works and also, your part of profit. May be 2-4% . This way you can get two business running alongside, without shelling out big $$$.
By this i hope you mean buyer, because why would the seller of the car bear any costs on repairing it?, What your basically saying it,
1)Let the guy display the car,let him sell it on an "as is" basis,with 2-4% brokerage from either side
2)I buy a car from an individual, I add the cost of repairs of visible niggles, detailing to the cost of the car, sell these for a profit of more than 2-4%


Finally make sure the car's you sell are not lemons or misused in any way, so that people develop a trust in your used car dealership. Develop a genuine'ity. Often, business with good reputation, go after more profit and spoil their reputation, and hence even existing profits.
I completely agree, like i said before, It takes years to earn a reputation, and seconds to destroy it
Thanks alot dhanush, that really helped
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Old 8th February 2011, 15:24   #8
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Default Re: Feasibility of a *pre owned* Car Dealership

ah.. No offense taken if none meant.

Quote:
Originally Posted by raghav.carfreak View Post
It would be nice to add a basic jbl stereo+speakers and add that to the cost of the car,it's not necessary that all the hatchbacks out there have one in working condition, and people would be recultant to spend even further on accessories after buying a pre owned car, I've had enough sessions with my dad trying to convince him to put stereo's in new cars!
The sales and hence profits, of used cars, are really tricky. Sometimes you might have only wafer thin margins. And, how much would a decent ICE cost?. 10k?. AFAIK, the cost of ICE, accessories, et all are the ones which cant be recovered on a used car deal.

In our family, including me, we have bought ONLY used cars. and all those times, the Accessories have been a major turnoff. Like, sometimes, I wouldnt like the seat covers, or the ICE would be too basic, or high too high end (adding costs), sometimes there would be some stupid mod, that the owner praises a lot, but I would just hate it. Like chrome finish.

I guess accessorizing varies from individual to individual. Its hard to form a generalized accessory concept. From our very own tbhp article, some may not need sunfilms, safety features, tool kits, fire extinguishers, alloys et al. Some may have these already, (I have the tool kit, fire extinguisher), and some may not need it at all. and cost involved will shrink margins.

Its better to have an accessory shop alongside, and and 'make' the customers buy their preferred ones.

Quote:
Originally Posted by raghav.carfreak View Post
It'll be a bonus if i can get a signature accessory that'll be able to say from a distance that the car's been sold through my dealership(not the stickers) something else, any ideas??
Yes, it will add that exclusivity, which every one is looking for. How about nicely designed registration plates?.

As a matter of fact, tyres, reg plates, seat covers, and clean interiors, are the ones that add sheen to the car, knowingly or unknowingly.

Quote:
Originally Posted by raghav.carfreak View Post
but wouldn't you trust a Maruti True Value/Mahindra FirstChoice Blindly
It depends. I/We still would like to do the maintenance part our-self. Just to be sure, reliability is of high value for us.

Quote:
Originally Posted by raghav.carfreak View Post
just how many people will keep the cars in my showroom is the question
I know a showroom in Cochin which has about 50-70 cars. None of them belong to the showroom.
If you are buying the cars, to create an inventory of 60 cars at an average of 3,00,000/car, it would need 1.8 Crores . Add to that the real estate, infrastructure costs - approx 2.5 crores. Also, premium cars above 10L depreciate very fast. So if a car is not sold for say, 3 months, you lose a lac.

Quote:
Originally Posted by raghav.carfreak View Post
This part i want to do,but this can be done with cars that i buy from owners, not the owner displayed cars
Now, see it this way. 80% of these sellers and buyers are novice's and will be only looking to get the best deal. Just let them know that spending 3k on detailing the car will fetch atleast 10-15k more. They will definitely go for it.

Ultimately for you, the more cars you sell, the more profit.

Outside the cost of detailing, and repairs, if you get a 3-4% each from buyer and seller, its quite profitable.


P.S - Its your business and your money. Be well informed, exposed and make a wise decision.
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Old 8th February 2011, 15:47   #9
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Default Re: Feasibility of a *pre owned* Car Dealership

I was recently in the market for a used Fiesta.
What i figured out was most of the used car dealers operate as a chain.
i.e they interchange cars among themselves depending on customer preference. If you ask for Zxi they will arrange one in 30 mins by checking with thier competitors and they give a cut to that fellow.
Another trick is floating dealers, i.e they have no offices but good contact with all dealers and sell the cars to the buyer through the 2nd hand showrooms.
It's basically some sort of confusing orchestration that magically falls into place with many hands involved in between. Totally chaotic but works

And to get rid of the problem of owners not willing to leave their cars in the showroom these guys buy the car at a price minus the value of insurance and, keep the cars parked in their yards nearby.
Then they buy a new insurance with forged signatures.
That's why most used cars have recent insurance issue dates.
So when you ask for the car they arrange for the car to come from the yard and make you believe it's coming to you directly from the owners home.

No idea how Truevalue or First choice operate.

Last edited by Daewood : 8th February 2011 at 15:51.
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Old 8th February 2011, 16:24   #10
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Default Re: Feasibility of a *pre owned* Car Dealership

@daewood
I'm not looking at being a floating dealer,I'll have to get in touch with a floating dealer to help sell the cars that i buy, I was looking at the feasibility of having a full fledged shop and all the interchanging that your saying would come after alot of contacts,time in the business, not immediately.
And also, I wouldn't buy a car and forge the insurance papers, then what's the difference between the regular dealer and me? they all resort to these tricks, resetting the odometer, etc and thats what makes them unreliable in the first place. If at all this model has to work for me on a commission basis, it would through transparency, and where is the transparency if i'm forging insurance papers and keeping the car in a yard, whereas i can buy the car, and keep it straight in the showroom instead of a yard
@dhanush
I'm not saying buy all the 60cars, but when i start off, i can most display cars owned by the owner, and with time, i can start buying cars which i think will sell off within a month or so, something like a swift, or a OHC because agreed, with 2-3k worth of detailing, you'll increase 10-15k in your selling price, but how would i convince someone on new tyres? a set of 13-14inch tyres would easily set somebody back 10-15k and not be able to recover that while selling the car.
I like the idea of a separate accessories too, but don't you think that's a business in itself? LOL
My point is, I think your commission idea is great,
BUT having said that, It's for "as is" sales only, okay, i can probably convince people for the minimum detailing, But beyond that? i doubt
Let me give you an example,
My dad has a 10year old OHC, 96xxxkms, he'll probably be getting rid of it soon, But it's got an MUL light on, ie the 02 sensor is busted, it'll cost him 15k to get that fixed, body work is fine, but it needs a a complete new locking system,new power window motor, lets just say about 30-40k of work on it?
What's the price he can expect on it now? 2lakhs? after the said repairs, a max of 2,60,000? now will he be ready to spend 40k to earn 20k more?
So in cases like these,I'll buy it from him at 2, spend the 40k,to make 10k for myself, ill have to buy the car right? If he wants to sell on a as-is basis, that's fine, but if i think i can make more money out of it, i'll have to buy it out, so i make 2% of 2,00,000 ie 4000 from him, and 4k from the buyer on a commission basis, ie 8k as compared to 20k if i bought and sold it separately, but then i'd need to add interest/depreciation costs to that
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Old 8th February 2011, 16:55   #11
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Default Re: Feasibility of a *pre owned* Car Dealership

I am sure this idea has crossed the minds of many car enthusiasts. At least you have taken the first strep of trying to find some detail on it.
Some suggestions from my end before youd ecide to go the whole hog-
1) Decide what cars/customer segment you will tap at first (eg college kids, middle income family graduating from bike, second car, IT professional etc etc) and start on just one of them.
2)Specialise in a just a few models at first.
3)Try to sell one or two cars from your backyard at first to see whether you are cut out for the business and understand the nitty gritty (ie good mechanics, RTO contacts etc) of the trade before sinking money in a full on shop & franchise.

Unfortunately realestate types and used car salesmen have very bad reputations and people do not trust them, however if you are able o change this perception, there is a lot of volume & money to be made here.

Overall, a good idea best of luck.
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Old 9th February 2011, 16:49   #12
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Default Re: Feasibility of a *pre owned* Car Dealership

Raghav,

There are broadly two types of used car dealers:

- The broker : Doesn't own any cars himself. Merely links buyers & sellers (sellers can be individual or dealer) up and takes a commission (between 1 - 2%).

- The investor / dealer : Who "invests" in used cars and then, flips them for a profit.

Personally, I think it's a business of "yesterday" and today's youth can get into far better entrepreneurial ventures. You need to be shrewd, street-smart, have great bargaining skills (buy the lowest, sell at the highest), a lot of cash (working capital), property / parking, network and ad money to make it in the used car business. You also need to be tough as nails as the pressure can get mind-boggling.

Nevertheless, remember : What can make or break a used car dealer's reputation is good, used cars. That's all there is. 10 people buy reliable cars from you, your shop will have a 100 customers waiting out.

The tricky part is:

- You will have to verify each & every car before accepting it in your inventory. Not only does this entail a huge investment of time (and time is $$$), but you'll have to say no to a poor used car that could reap high profits. Even after all these precautions, you can end up with angry customers. After all, new cars break down too, right? The probability of a used car going kaput is higher.

- Alpha1 made a great point on cost of inventory. Even a small dealer has 30 - 40 lakhs buried in inventory at any given point of time.

- The used car market is very well-networked. You have to "be on the inside". That's the only way your inventory will move fast. The quicker you flip your inventory, the more you will earn.
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Old 9th February 2011, 20:48   #13
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Default Re: Feasibility of a *pre owned* Car Dealership

Quote:
Originally Posted by raghav.carfreak View Post
Firstly Dhanush, Thank you for all the points that you have mentioned, I will reply to each of your points with my views, Please do not feel offended about the same, These are just my views and maybe right or wrong.Please find my replies in bold.

It'll be a bonus if i can get a signature accessory that'll be able to say from a distance that the car's been sold through my dealership(not the stickers) something else, any ideas??

Thanks alot dhanush, that really helped
The First Choice I had bought my car from in Gurgaon, they have these number plates with the same font on all their cars. It's the steel plates with the letters embossed on them. Costs around 700 in the market. Looks good and I have'nt seen many cars with the same ones, so now even I can guess the car is from that FirstChoice.

Last edited by Sinner666 : 9th February 2011 at 20:49.
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Old 10th February 2011, 09:39   #14
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Default Re: Feasibility of a *pre owned* Car Dealership

Hi Raghav,

Good to hear that you would like to have a business on something which you are passionate about - cars. I would suggest buy and sell to start off your business rather than pre-owned/refurbished dealership. There are big guys who are into it since a long time. Toyota, mahindra, hyundai and maruti. However, your immediate competitor would be someone like classic automobiles.

Instead of putting in a high capital on real estate, labour etc.. you could buy cars, do body work and then push it off. I am sure you will have enough buyers.However the key is consumer database and other dealer networks, both could you built over a period of time if you get your pricing right and not something like this

http://www.team-bhp.com/forum/what-c...ngalore-3.html (Does it make sense to buy a used car in Bangalore ?)
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Old 10th February 2011, 10:34   #15
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Default Re: Feasibility of a *pre owned* Car Dealership

The issue of valuations is something I have not seen addressed atleast in the used car price check thread.

My question is very basic. How does one evaluate a used vehicle objectively before factoring in the variables such as interiors/tyres/general upkeep/body/paint conditions? Is using the value derived from the actuarial models of the insurance guys a logical starting point - prior to factoring in the subjective pluses and minuses ?

This is somewhat of a mystery to me atleast and I sure would like to hear the views of those clued in to the workings of this business.
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Pre-owned Ford mondeo vs Pre-owned Skoda octavia azifali Sedans 6 24th July 2006 13:46


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