How much $$ to start car dealership?

[TES]

Many of these dealers make a bulk of their profits off the sale of financing and extended warranties. The average consumer only cares about what their monthly payment is -- unfortunate yet true. Also, it's very common for a dealer to sell an extended warranty for $2500-$3000 where they only paid $1000-$1500.

I have a dealers license and run my "hobby" out of my house. (Yes, I have a full-time career in something completely different.) It's nice rotating through different vehicles every month or so -- making a little profit here and there and just reinvest it into the next vehicle. Unfortunately in Oregon many people are doing the same thing and auction prices are way too high out here. (by the way, I don't offer warranties and financing -- I should get into that:biggrin: )

 

[WeakestLink]

Tall guy, a couple of points to help clarify why this makes sense:

1) $1k a day is a lot....assuming you can do one a day. There are a lot of people in the business and I doubt most of them can broker a deal a day.

2) There is a range in how much they make based on the type of car and how unfamiliar a particular dealer is in dealing with that brand. For example, BMW dealers probably deal a lot with Porsche dealers (buyers are very similar) so they probably contact each other directly, bypassing the broker. Or they may play the broker against the dealer to try to get more $$. I'm sure some brokers only make $500 per deal if they are lower end cars.

Imagine a Ferrari 360 driving into a Ford dealership wanting to trade his 360 to buy a GT. The manager calls the closest Ferrari dealership and gets lowballed (maybe b/c that dealership has too many 360s at the time). The Ford guy isn't going to start calling every Ferrari dealership within 1000 miles, they'll usually call a broker who calls every Ferrari dealership within 1000 miles.

3) Keep in mind that the alternative is to take the car to auction. That costs money too. Auction fees, transportation, etc. If you can close your own sale, and offload the trade in quickly (maybe make a little money along the way), then it makes sense to do.

 

[Ko-nsx]

Many of these dealers make a bulk of their profits off the sale of financing and extended warranties. The average consumer only cares about what their monthly payment is -- unfortunate yet true. Also, it's very common for a dealer to sell an extended warranty for $2500-$3000 where they only paid $1000-$1500.

I have a dealers license and run my "hobby" out of my house. (Yes, I have a full-time career in something completely different.) It's nice rotating through different vehicles every month or so -- making a little profit here and there and just reinvest it into the next vehicle. Unfortunately in Oregon many people are doing the same thing and auction prices are way too high out here. (by the way, I don't offer warranties and financing -- I should get into that:biggrin: )

I agree. Prices are outrageous here in Missouri as well.

 

[rickysals]

This practice, in the case I witnessed it, was just in addition to normal car sales. A successful business only needs to break even to stay afloat. (Not saying you don't want to make profit - but at the very least staying in the black is always a plus ).

Like mentioned before - extended warranties, dealer options :-o which they make somewhere near 50% on - as opposed to factory options where they make ~10%(or so I read somewhere), flipping a car here and there... etc. It adds up... and I know it works for this guy, he just built a million dollar house in the area and I don't think he's 35 yet.

 

[timothyaw]

I used to hang out at a dealer similar to those (that shall remain nameless). They had anywhere from 20-30 cars in stock, and moved a few of them... but some were there 5-6months each. Dealt in mostly $40,000-$90,000 cars with 2-3 highend Ferraris or Lamborghinis.

One day he explained to me some of how he makes money, and let me hang out in the office to see it happen. Alot of his business is when lets say a Chevy dealer pays bottom dollar on a tradein of a Jaguar. Those dealers have trouble moving those, so they call the place I was at. He buys it for basically what they gave on trade-in. He then turns around and literally within an hour will find a Jag dealer who will give him a couple thousand more. I saw this happen three times that day. He owned a car for about 2 hours and made a couple thousand off of it.

If it's pristine he will keep it and sell for retail and make standard profit.

That plus he bought about 6 Gallardo's when they came out and sold all of them the week he got them for well above sticker, and of course, kept one :wink:

I would love my own small exotic dealership

In your example, why wouldn't that Ford dealer just go straight to the Jag dealer to get the car

 

[Shumdit]

In your example, why wouldn't that Ford dealer just go straight to the Jag dealer to get the car

They do not want to call 20 jag dealers to find the one that will pay that price.

 

[NsXMas]

They do not want to call 20 jag dealers to find the one that will pay that price.

exactly. the employee's bonus is not tied to finding the best price possible for the trade in, but rather on the sale of the new vehicles itself. Therefore the employee's incentive is to get rid of the trade-in as quick as possible, with the least amount of hassle, to seal the deal.

 

[johnny010]

...A tax free bond fund would yield the same (assuming a salary from a different source) and you could spend all day washing your NSX.

Can you explain this please?

 

[nsx2tall]

Can you explain this please?

Sorry, I left out one small detail-- $1M in capital to start the business. Tax free yield on the capital would run around 3.25-3.75% (assuming the least risky investment). If you were to compare this to even a moderately risky investment it would be far more return. I've also conveniently excluded the $100k salary which you'd have to make up somewhere else. It would have a net cash value of about $50k after taxes and fica.

Like I said, I'm not bashing the business. There are guys out there doing it, and I hope they're making money. I'm just interested in business models and am trying to hash out how they do it. Any example I've posted is way too generalized to draw any conclusions, but I hoped they would flush out the details that we don't know about.

 

[Hugh]

For example, BMW dealers probably deal a lot with Porsche dealers (buyers are very similar)

You can say that again.

 

[Hugh]

Sorry, I left out one small detail-- $1M in capital to start the business. Tax free yield on the capital would run around 3.25-3.75% (assuming the least risky investment).

Don't forget you always have to factor in your tax bracket before deciding if a Muni beats a taxable bond. Currently a AAA rated Muni revenue bond is yielding 4.09% and a 10 year Treasury is yielding 5.125%.

Let's assume a 28% tax bracket. The Muni is equivalent to a 5.68 taxable yield. (4.09%/(100%-28%). In this example the Muni clearly beats the Treasury.

Looking at it another way, the after-tax yield on the 10 year Treasury is 3.69%. (5.125%*72%). Less than than the already tax free 4.09% of the Muni