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6 Replies Latest reply: Aug 4, 2011 10:44 PM by ktrjones12 RSS

Opening used car lot / auto repair shop

okstatefan594 Newbie
Currently Being Moderated
A friend and I are planning to open a pre-owned auto lot/repair facility. We are in the planning stages currently and working on getting business licenses, dealer licens, salesman licenses, etc. We dont have a location yet but are looking at options.

Together we will have enough money to get a location, get all of the needed desks, computers, safes, file cabinets, lobby chairs, etc to set the office and reception area up. We already have a mechanic lined up ready to start with us.

We are wanting to offer quality pre-owned cars that we can buy for $4,000 and under and resale under $10,000. We already have our first lender lined up to help us obtain customer financing. They are a large lender specializing in subprime credit lending which will be a large part of our customer base. We are staying in this price range as it seems to be where the most shoppers are and can get a decent starting inventory in this range. We may expand the range later but we think we will be more succesful focusing on that range than having cars for sale with a $15-$20K price difference.

We will offer pre-owned cards for sale obviously and will market GAP insurance and warranties to our customers. We will also make sure we highlight the fact that we have our repair facility as well and will market our repair work to customers who purchase their vehicles from us for a significant discount off of retail labor prices so they can get the work done cheaper by coming back to us. This will be a win-win as the customer will save money and we will keep them coming back to see us and then when it comes time to buy another car we should be their first stop.

Like I said we have the funding to get the office set up and the mechanic we have is bringing his own tools. We may have to buy a few specialty tools here and there but your common tools are all being supplied by him initially. That leaves our only problem in funding our inventory. We dont have the funds for that. My credit is not great as when I first turned 18 I went and got loans and credit cards. I defualted on one card and one loan and they are keeping my score tanked. It is finally starting to come up as they age and I have added alot of new accounts in the last year to add a lot of positive payment history. By March all of my account will be 1 year old and I will have all of my credit cards paid down both which should give my credit score a boost. I have always rented I have never had a mortgage and dont own any real estate so I have no collateral.

I have been told I wouldnt qualify for a SBA loan due to my credit and I am afraid that once we get all of our licenses and everything we wont qualify for floorplanning. Does anyone know of any alternatives that I could look into if we cant get floorplanning when we apply? Like I said we wont have the cash and we dont have enough credit limits on credit cards to buy cars on them which I wouldnt want to do anyway. Are there any other alternatives that anyone knows of or has used?

Thanks for the help,
Matt
  • Re: Opening used car lot / auto repair shop
    abhyler Newbie
    Currently Being Moderated

    It will be very hard for you to get a financial institution to loan you money for inventory with a low credit score, no experience and not a growing industry....that being said...not impossible. Think of your partner, does he have better credit? Can he request loans? Also...think of the possibility of starting small....ask family members as well as friends to invest with you for a %...just use them as bankers. Also try talking to a bank in your community....I mean a community Bank...and start establishing a relationship with them.

    Something else....start by securing financing first and then go get the licenses.

     

    Good luck and keep us posted!
    • Re: Opening used car lot / auto repair shop
      okstatefan594 Newbie
      Currently Being Moderated
      Unfortunately his credit is worse than mine. He is in on this as a good friend, has some money to put up, and knows more about cars than I do as far as mechanics and repair. He is going to run the repair and maintenance side and I will run the sales and finance side. The business is a LLC in my name only.

      We dont have any family who can give us the money. My credit score isnt terrible. It has come along way and I expect it to be up to at least 700 by the time we get ready to apply for financing. My only concern with it is I have never had a large loan like a mortgage and own no real estate for collateral.

      Unfortunately with the auto business all of the floorplan inventory lenders require you to have a business and dealers license before applying - their reasoning is how can we loan someone money to buy cars with if they cant legally sell cars.

      So that is a catch 22 they can speculate by what I tell them but until we officially have the business and dealers license they wont take the app and try to approve it. I am hoping I am sweating over nothing and once we get all of the licenses we will be approved. We are only trying to get $30K-$50K inventory financing which is starting small. I do have some experience just not enough for most peoples satisfaction.

      We have everything working for us in that we have the knowledge, enough people willing to help, a mechanic lined up, we have a good paint and body guy, we have all the connections and have already got some lending institutions willing to start with us once I get the licenses so we have everything we need lined up and in the process except inventory. Again I hope the floorplan loans go through I am just looking for alternative resources to have in case they dont.
  • Re: Opening used car lot / auto repair shop
    Uncle Leon Apprentice
    Currently Being Moderated
    Since you are not a "Buy here-pay here" lot, you should have reasonable cash flow once you get started.

    Find someone with money to invest (Craigs List is a good possibility), and offer a share of the profit, putting each car purchased as collateral to assure payback to the investor. If you can get an investor's involvement for 25% of the net profit, it should work for you. Retain as much profit as you can so you can soon provide your own funds for purchases.

     


    The next expansion (when you have funds to do so) could be to provide "Buy here-pay here" financing on your own sales. (Be sure to utilize GPS tracking on those financed cars to allow for easy repossession when required.)
  • Re: Opening used car lot / auto repair shop
    tonyhawk Newbie
    Currently Being Moderated
    An auto repair shop service professionally cleans, washes and waxes the interior and exterior of cars, RVs and even trusck. There is no shortage of vehicles but detailing can ve labor-intensive, so make sure you enjoy cars before you start this type of automotive business.
  • Re: Opening used car lot / auto repair shop
    Uncle Leon Apprentice
    Currently Being Moderated
    The tip about finding investors on Craigs List is right on. If you're lucky, you can find one who will invest for a percentage. If not you may have to share profit on cars until you can self-finance. The third (and probably least desireable opton) is to take a "money man" as a third partner in the business.
    If I lived in your city, I would b delighted to provide funds.

    Having a third partner with money isn't all bad. It would provide funds for quick expansion.

    As an added (after)thought: Since you had some money to start with; you may have been better to start by selling two or three cars from your driveway (curbstoning) to build up funds, and "bootstrap" you way into the funds you needed.
  • Re: Opening used car lot / auto repair shop
    ktrjones12 Newbie
    Currently Being Moderated

    You need to look at all aspects of the business. How many employees, cost of insurance, workman's comp, taxes, rent utilities, tools, location, type of work you will be doing. Are you going to specialize or do general repairs and maintenance? Are you going to sell and buy car parts?  You really need ashop software to help with invoicing and record keeping. You also will at least need enough money to live on for about a year. These are just for starters. You will notice other things you need daily.

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