I'm a small dealer, I've always paid cash for all of my inventory, thus I've exclusively dealt with cheap vehicles, I rarely retail a vehicle over $3000. I've been in business about 4 years now and my 150 square foot office and 12 vehicle dealership is feeling a little small, I've hit a ceiling where I'm at, I want to expand but I'm a little apprehensive about getting in over my head. I have no employees, I do all the buying and selling and everything else that goes along with it. I spend 3-4 days per week buying, repairing, detailing and transporting the vehicles. I feel I could make much better use of my time and hopefully make more money if I were to expand to a larger lot and hire a salesperson to sit at the new location while I'm out getting new inventory. I'm just interested in some feedback from some independent dealers about your growth and expansion in the business, pros/cons of running a larger operation. Any help, advice and wisdom is appreciated. Thanks.
I wouldn't make a huge change. Sounds like you are having success at your level. A slightly bigger lot, with more lot room and a "small shop" might help. If you could find one person that would do lot work and sales would be good. Someone who's hair isn't on fire all day. See if the two of you could double your dollars.
Mark, if you can find that salesperson you can trust then by all means hire them but don't move until you have this person hired & tested over a little time! I started in a lot like you describe & if you hire the wrong person or if you hire & lose the right person you will have more expenses & just your time & ability to pay for it. I would suggest that if you find a good one that you give them a "dog in the fight" in the form of a % or $$ bonus if business grows, not just commission on sales, that way they are invested!
I would first hire someone in your location today to free more time up for you. There are a lot of good old car guy's that might just help you out part-time. See by freeing yourself up if you can buy more cars and turn them quicker. Also you must look at your cost ratio to sales. If you move how many more cars will you have to sale? Sometimes it is not worth the risk. 4 years is a good amount of time at a location, your customers know where you are and that is important.
Congratulations! In a period when many dealers your size are going out of business, you are ready to expand. The key factor you should consider is customer retention. If you've been doing this for 4 years, some of those folks who bought cars from you are likely in the market again. Are they coming back to buy from you again? If you can retain a high percentage of those prior purchasers, then you must expand! It's like compounding interest in an investment.
Call everyone you've ever sold a car to and survey them. Something like "Hi this is Mark. I'm not calling to try and sell you anything, I'm just trying to calculate my customer retention. Have you bought another vehicle since I sold you one back in 2006? No? Ok, thanks. I'm thinking about opening a new lot this year. If I do, would you like an invitation to the grand opening party? There will be free food and drinks and we'll be doing free oil changes all day. Yes? Great. Let me just confirm your mailing address..."
On the other hand, if you never see your previous customers again, then you might consider some additions or changes to your business that will improve retention before making the investment in a new lot or another employee.
I'm hoping I can give you a little insight. I started exactly as you describe even to the office and lot size! That was 13 years ago. I slowly expanded using floor planning and at this current time I have a 1 acre lot, 1000 sq ft building and about 18 vehicles! I used to have 80-90 vehicles, 12 employees and even a second lot. I never have netted (what I keep) as much as when I was exactly like you. Floor plans are the problem. Independents are held to much tighter standards than when I was a new car dealer. Curtailments, payoffs, interest and fees nearly bankrupted me. I would proceed with your plans, but don't go the floor plan route! 1 car at a time and you could be like a friend of mine. He started as my lot man in 1991 and now owns 2 indep. stores, has 2-2 acre lots, 300 vehicles in inventory and no debt. All cash! I am starting over and hope to do the same! Best wishes! Brad
I suppose I forgot to include a key piece of information. I have to move, my landlord isn't going to renew my lease in a few months because he wants to use the property to build a different business with his brother. I also forgot to mention I've moved 3 times in the 4 years I've been in business from different small offices with a few parking spaces, I know it's not an ideal situation but at my first location, my landlord died, the second location my landlord got foreclosed on and now this. I guess I've just had a bad run. The "success" I'm having at my level isn't something I'm content with, it's a good living for a single guy with a small house payment but it would be tight to raise a family on, not to sound like an evil greedy succubus but I want to make some real money.
What I'm currently looking at is approximately a 60 car lot, I refuse to use credit or floorplanning if at all possible so it will take a while to fill it up, the best part I think is the price, the rent there is double what I'm paying now (I'm paying less than $1000 per month now) but instead of being located on a road 2 miles off of the freeway in a run down area of town I'll be on a frontage road right on a major interstate freeway in an area where there are no other used car lots.
I've always liked running a smaller lot because I get some satisfaction from doing it all myself, but I'm 25 years old now and should probably start working towards my future. I'm going to see if I can strike a deal at the new location I mentioned above or anywhere else, I'll probably go for one rather than go through the zoning headache with the city and zoning of renting a small office that was never a car lot before me. I figure worst case scenario it doesn't work out and I'm forced to downsize, I'm very cautious and conservative with my business so it's not like I face bankruptcy if things don't work out, I'll just have to re situate once again.
Thanks for the input, sorry I didn't include all the information in the original question.
Your rent factor seems exceeding low. If you have that kind of a deal in the works, I'd definitely go for it. You can rent a GE cap building, ready to go for about $400 per month. Sounds like you have quite a neat opportunity ahead of you!
DO NOT USE THE TYPICAL FLOORPLANS THAT ARE OUT THERE FOR INDPENDENTS IT IS HIGHWAY ROBBERY!!! THEY CHARGE YOU FOR EVERYTHING EVEN FOR A FLOORPLAN CHECK. IT WILL BREAK YOU.THE FINANCE RATES THAT YOU USE FOR CUSTOMERS WHICH IS ALMOST THE STATE LIMIT IS THE SAME THESE FINANCE COMPANIES WILL CHARGE YOU. NOW, THERE IS A BUSINESS TO GET INTO BECOMING A FINANCE COMPANY. GOD FORBID YOU MISS A PAYMENT IT WILL BE WORSE THAN THE SOPRANOS COLLECTING. THIS BUSINESSS IS NOT FOR THE SMALL GUY ANYMORE. IF YOU CAN GET AWAY WITH JUST ONE MORE GUY SO BE IT.
I don't plan on using a floorplan, I have a decent amount of cash to stock the lot. I live like a broke son of a bitch so I will be able to re invest almost all of the money I make back into the business. I'm worried about owning the vehicles, my main concern is taking on employee(s) and adding considerable overhead.
MARK I STARTED LIKE YOU ARE DOING. STARTED WITH 7 CARS 27 YEARS AGO. THEY WERE MAY CARS GOT TO 15 CARS. MAKING GOOD MONEY . THE I WANTED TO GET BIGGER. GOT FLOOR PLAN. THEN BOUGHT A PLACE HOLDS 50 CARS. COULDNT KEEP UP WITH CLEANING UP MY SELF. MORE EXPENSE OF DETAIL . $4000.00 PER MO. THIS IS JUST THE START OF YOU INCREASE IN YOU OVERHEAD. SO IF I WAS DOING IT AGAIN I WOULD GET A LOT THAT I COULD STOCK 15 CARS 5 IN PROCESS IF GETTING READY TO SALE.THEN I WOULD SEE WHAT TYPE OF CAR I COULD TURN IN 30 DAYS THEN WORK ON TURNING INVENTORY IN 21 DAYS.
Thanks for the advice, stories and kind words. After speaking with my current landlord it appears I'll be staying where I'm at for now. It doesn't appear his plan for the property is going to work out for him. Oh well. After talking more with the owner of the prospective location I was kind of weary, just struck me as the kind of guy that I can't trust. I just pictured coming into work Monday morning to see all my cars gone and the office empty. Back to the drawing board, I talked to an unemployed friend of mine, he's interested in sitting at the lot on the days I'm at auctions, I'll see how well that works for now.
Phillip, thanks. It's kind of a strange deal how I got into used cars, I loosely thought of it through most of my teens but made no effort to pursue it, I guess I still had some growing up to do. I actually was a fiberglass winder but I was laid off every other month so I started selling cars part time just to supplement my income, it was hard because after getting the license I only had about $500 left to buy cars. After about 6 months of working full time and selling cars I realized I was making a lot more selling cars and actually enjoyed it. That was a few years back, I never thought I would have made it this far, funny how life works sometimes.