How to Start Used Car Dealership Business In India

Souvik Dey Souvik Dey Atish Ranjan Das Atish Ranjan Das
Dec 18, 2020 7 min read
How to Start Used Car Dealership Business In India

A used car dealership business in India means that selling used cars to customers who are looking to own a vehicle but their savings money does not allow them to buy from ex-showroom price and earn profits. The COVID-19 (Coronavirus Disease) pandemic has placed the automotive industry at great disruption. Starting a user car dealership business in India will be profitable, where cars have to be brought from their owners at a lower price than you will sell later. IBISWorld reports the used car dealership industry has had a net decline over the past five years, due to coronavirus, at an average annual rate of -1.6%. In the upcoming years, this industry's 129,553 businesses are forecast to see $ 99.1 billion in collective revenue. Nowadays people need more cars due to their daily transportation. The globally used car market size was valued at USD 1,332.2 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 5.5% from 2020 to 2027.

As there is the rise in the cost of new cars in the market also the increasing rate of interest on car loans has resulted in a shift in consumer preferences from purchasing brand new cars to buying used cars. In this article, we will discuss in brief how you will begin this car dealership business.

Used Car Market Size, by Vehicle Type
Used Car Market Size, by Vehicle Type

Key Segments of Used Car Dealership Industry

  • The inability of customers to buy new cars became one of the reasons for the growing sales of used car volume.
  • These dealership networks helped market participants to brand and make used car options.
  • The added quality and reliability of used cars changed the consumer attitude and increased the sales of the used passenger cars.
  • Investing in used car management has become one of the market’s requirements characterized by slimming margin, relentless competition, and demanding consumers.
  • High disposable income
  • Rising demand for luxury cars
  • The shorter period of car ownership
  • Increasing preference of the owner of a two-wheeler to upgrade to a compact car

External Factors Affect the Used Car Dealership Industry

Several factors affect the performance of the used car dealership industry:

  • Per capita disposable income – When customers have more money to spend, they become more willing to spend on expensive discretionary items, such as used cars.
  • Price of new cars – Buying a used car is a more affordable alternative to purchasing a new car.
  • Aggressive age of vehicle fleet – As the average age of vehicle fleets increases, it represents greater demand for vehicles.
  • World price of crude oil – High gasoline prices tend to decrease new and used vehicle sales.

Used Car Dealership Business Plan

A business plan is a blueprint that is necessary for running any business successfully. When you have a well-defined business plan the scope for trial and error in the actual business scenario. The primary objective of a used car dealership business is 100% customer satisfaction. After that, the business will aim to achieve and exceed the average profit margin within the first two years of business. The main mission must be to provide a hassle-free car buying experience with the main focus on customer satisfaction. After you select your location where you intend to start your business then you have to do work with the facts, indices, and other figures in the industry.

The dealership also provides job satisfaction to its employees by rewarding their efforts with bonuses and incentives. One important thing is to fulfill the buyer’s need for safe and quality transportation by providing them used cars that match or exceed their expectations.

After doing all the necessary objectives you need to bring together a proactive team of professionals who have some experience in the field. The network of suppliers that can help in buying and selling cars of optimum quality at attractive prices.

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Used Car Dealership Business Start-Up Cost

The start-up costs of a used car dealership will be financed through short-term loans, owners' investment, and long term loans. The costs depend upon the following factors:

  • Stationary and office supplies
  • Accounting consultation fees
  • Office or plot rent
  • Legal fees for a business establishment such as ownership and no sell agreement
  • Office or plot rent
  • Marketing or advertisement fees
  • Web presence and online advertising expenses
  • Equipment such as desks, computers, telephone, fax/copier, and office furniture
  • Licensing
  • Surety bond
Global used car market share, by sales channel 2019(%)
Global used car market share, by sales channel 2019(%)

Economic Analysis of Used Car Dealership

This new wave of digital retailing represents more than technology alone because it focuses on the importance of the customer experience in the used-car buying process.

Highlights of used car dealership business:

  • Complete end to end purchasing capabilities( 59% of buyers)
  • Extensive vehicle data and photos along with effective search tools ( 64% of buyers)
  • Unique delivery options( 28% of online buyers)
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Your business goal will decide the legal entity, you must choose for your used car dealership business. When you are starting with a moderate amount of capital, you can choose to be the sole proprietor of your entity.

Some of the legal documents you will need to run a used car dealership business are :

  • Business and liability insurance
  • Certificate of incorporation
  • Tax Payer’s ID
  • Fire certificate
  • Used Car Dealership License
  • Business Plan
  • Non-disclosure Agreement
  • Employee’s Handbook(optional)
  • Facility permit/ license
  • Franchise or Trademark License
  • Insurance Policy

Choosing Location for Used Car Dealership

A car dealership requires a parking lot where you can park the cars and display them, as well as an indoor office space where all the administration is done. Before you search for a location you will consider the following points:

  • Demographics
  • Number of existing used car dealerships in the location
  • Accessibility
  • Local laws of the region or state
  • Security, safety, parking space
  • The purchasing power of the people residing there

Awareness of Used Car Dealership Business

None of the business is running without promotion and the same goes with the used car dealership business. Uniform promotion efforts are important to get noticed. The way you show yourself people perceive you in that way. Nowadays social media has emerged as the greatest platform for brand promotion and is very effective.

Some ways of brand promotion are as follows:

  • Sponsor community programs that are relevant to you
  • Give advertisements in newspaper, magazines, radio, and TV stations
  • Place hoardings in a target location that will get your business noticed
  • Distribute pamphlets
  • Some introductory letters in your location introducing people to know about your business
  • Take reviews from your initial customers and promote them because this way you will make trust

Looking for Distribution Network for Used Car Dealership Business

Being a member of a good network of used car dealers, you will be able to establish ready links with people who are looking to sell used cars. The Internet is a fantastic platform for advertisement and you must put your best foot forward in gaining leverage from it.

Key Companies & Market Share Insights
Key Companies & Market Share Insights

The impact of GST on Used Car Dealership Business

GST or Goods and Services Tax is usually charged on the transaction value of goods. Indian Automobile industry mostly benefited after the implementation of the new tax regime. As per the Goods and Services (GST) Act, a registered dealer buying from an unregistered dealer will be entitled to pay tax under RCM, which simply means the registered dealer would subtract all taxes from the payment made to be the provider.

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GST Impact on Buying a Used Car

If you are dealing in the market for a used car and are sifting through used car dealerships, you must have observed that the tax increased to 28 % from 5 % after the implementation of the Goods and Services Tax Regime. Previously, the used car dealers had to pay only 5 % tax value-added tax on the vehicles which are resold. Dealers generally keep their margin in the range of 10% to 20 %. It depends on the several factors of cars such as car type, age, and demand.

GST Impact on Selling a Used Car

If you are thinking to sell a used car, try searching for an organized car dealer nearby you who is offering second-hand vehicles at lower prices as compared to what you would expect for it. Generally, the dealers try to eliminate the tax burden either through the buyer and seller side or both.

Conclusion

The organized sectors and semi-organized sectors which cover approximately 21% of the market account are going to be benefited from the reforms and expected to grow by 36% and 12 % respectively against 17% unorganized sectors. Like dining, shopping, and entertainment, the car buying experience that people prefer is changing. The future of car dealerships is changing. The global used car market is expected to grow at a compound annual growth rate of 5.5% from 2020 to 2027 to reach USD 2,150.6 billion by 2027. The Asia Pacific dominated the used car market with a share of 35.6% in 2019, in terms of shipment. This is attributable to emerging economies, including India, which is dominated by unorganized players.

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