Ask Your Friendly Grassroots Car Dealer

The recent 'the cost of the hobby' and 'what $12-15k driver will hold its value' threads got me thinking about the difference in perspective between cars as a hobby and cars as a business. How would an enthusiast do both? Is there a way to buy, drive and sell fun cars at a profit?

So when M030 offered up a few of his insights as a car dealer, I mentioned that I probably wasn't alone in having a fist full of questions that I've always wanted to ask a dealer about the auto market and the used car business. He said he was up for it, so here are some of mine:

• In your opinion, is there more profit in fixing and flipping, or in just straight reselling auction cars?
• That said, have you found that there is more money in selling cheap basic transportation, or more expensive specialty cars?
• What sort of training and licensing did you have to complete or maintain to become a dealer?
• What's the hardest part of the job, or is the biggest hassle?
• What sort of overhead & fees are associated with each car kept on your lot? How bad are the taxes?
• Is it legal to regular cycle through inventory cars for personal transportation instead of titling cars in your own name?
• As a buyer, I've only ever approached a used car lot looking for a bargain and trying not to get shafted. When you're on the other side of the desk, is it even possible to be honest and ethical when trying to sell used cars for a profit?

There is more money to be made selling used cars than in new cars.

nderwater wrote: - What's the hardest part of the job, or is the biggest hassle?

Everyone, on both sides of the table, is lying.

What is the minimum requirement for getting a dealer tag in PA such that I can go to dealer auctions, stop titling cars I only plan to own for a little while and basically scam the system so it works for me but not actually work as a car dealer?

In reply to Giant Purple Snorklewacker: I think in this scenario a wholesale license is what would work best and have dealer to sell by consignment... Since you wouldn't be able to sell directly to consumer.

I've also heard talk of auto brokers who subcontract to dealers who do something like that - they have access to the auctions and split their profits with dealers who carry the lot-related overhead.

nderwater wrote: - - In your opinion, is there more profit in fixing and flipping, or in just straight reselling auction cars? - That said, have you found that there is more money in selling cheap basic transportation, or more expensive specialty cars? - What sort of training and licensing did you have to complete or maintain to become a dealer? - What's the hardest part of the job, or is the biggest hassle? - What sort of overhead & fees are associated with each car kept on your lot? How bad are the taxes? - Is it legal to regular cycle through inventory cars for personal transportation instead of titling cars in your own name? - As a buyer, I've only ever approached a used car lot looking for a bargain and trying not to get shafted. When you're on the other side of the desk, is it even possible to be honest and ethical when trying to sell used cars for a profit?

i am a car dealer in Nebraska. most of my inventory are cars under $7,000. fwiw.

1.) pretty much all cars need fixed, but I understand what you mean. buying a car that looks ready to sell is often a trick, and major problems can take awhile to discover. buying a car that has a major known problem is an exercise in estimation, with plenty of opportunity to get it wrong. I do well with cheap basic transportation cars. Everybody needs one at some point and time. The pool of people looking for expensive specialty cars is smaller, and typically stocked with know-it-all diy'ers who only buy if it's underpriced and meets some obscure criteria in their mind.

2.)i don't know about training. i've been a lifelong "car guy". We have to be bonded, insured, and approved by the dealer licensing board.

3.)nobody has any money. :P that and loyalty runs amazingly thin.

4.)rent, utilities, advertising, insurance, taxes, interest... i pay just under 500 per car in overhead.

5)it is here, yes

6)all cars are terrible. the best car is going to blow up next week. there's just no predicting it. additionally, pick ANY car, and i can tell the customer enough about it that they're scared to even drive it, much less own it. so the fact that i keep a lot to myself could be construed as not being ethical. it's a hard line to walk between being forthcoming, and not just scaring people off.

1. It depends. Lots of people can fix mainstream cars, but I do extremely well with the broken stuff that other dealers are afraid of, like VWs, Volvos, Porsches, etc. There's little cost advantage to fixing up Hyundais or Chevys, as nobody seems to be scared of the broken ones. All that being said, the most money is to be made in good timing. My dad bought a fleet of Grand Cherokees when gas hit $3/gallon the first time. When we all got used to $3 gas, he sold them all and made a bundle.

2. Again, it depends. Anything that runs will bring $700 privately, so all the scrap-priced stuff I can get is easy money. However, in general, the more a car costs, the higher the mark up. Sometimes it has to be that way, to cover potential warranty claims on higher-end cars.

3. I was trained by my dad. I started as a little kid. He started as a VW mechanic and he began flipping cars in the 1970s. He started teaching me the business from a very young age. He died suddenly in 2009, his wife inherited his business & I started over on my own.

4. The hardest part of the job is always being looked at like a lying scumbag, no matter how honest we are or how fair the deals we make are. Oh, and when I was single, uttering the words, "used car dealer" made women run away.

5. Overhead is kind of high to do it right. There's the building, insurance, plates and, for more expensive cars, floorplan fees. This is why the mom & pop places often have better deals than the big dealerships. It costs about $5-10k/mo to keep a 30-car lot open. A big Toyota dealership can be $50k+ per month. And they do pass that savings on to you, the consumer. The legality of keeping cars & running them on dealer plates varies from state to state, Here in MA, I have to keep a personally registered /& insured car, but if I were to move south to CT or north to VT, it would be legal, as the business owner, to run my personal car on my dealer tag

Great info, thanks! What are the most memorable cars you've had on your lot?

Like most of us here on GRM, I have 'car attention defecit disorder' - I often find myself bored with the cars I have and daydreaming about the next one. I also interested in experiencing way more cars than I have the budget to own. I like to daydream that my ideal solution would be to have a small business that I could manage entirely myself where I could buy cars I aspire to experience, drive them a little, then sell them on for a profit when I'm ready to try something new. But then reality sets in:

• I have no background in sales nor in running my own business. What sort of work would you recommend I cut my teeth on first?
• For someone in my position, would you recommend that I try curbstoning first, get hired by an existing lot, become a broker for an existing dealer, or jump right in with small business loan and get started on my own?
• Owner a small business like this means wearing a lot of hats (salesman, marketer, mechanic, detailer, accountant, etc). What do you do to keep these things in balance? Do you find that it makes most sense to farm any of these functions out?

It is very possible to be honest and ethical in this business. In fact, if I accidentally hire a sleazy salesman. I quickly fire him/her. The difficulty in remaining honest happens on the other end of the business, specifically on the purchasing end. Often times, a person will take their car to Meineke or something and come home with a three page list of bullE36 M3 that the car doesn't really need. They then offer the car to us for scrap value. It's challenging to choose between easy money and telling the person, "your mechanic is trying to rip you off! There's nothing wrong with your car" An example: a 2003 Maxima with 83k for $300 because the Nissan dealer scared the lady. We took it to auction, got $1800 for it and split the profit with the lady who brought it in to us. She was happy because she got way more than she expected and we were happy because we got to keep the lights on for another month.

nderwater wrote: I've also heard talk of auto brokers who subcontract to dealers who do something like that - they have access to the auctions and split their profits with dealers who carry the lot-related overhead.

This happens & it's the easiest way into a wholesale auction for a non-dealer

In reply to nderwater:

Most memoable cars were: 1984 Carrera, 1968 Mustang fastback (terrible to drive but it was a big time chick magnet), 1985 Jetta (left front wheel fell off on the highway), 2004 Mustang GT ( I was driving it the night I met my wife), 2000 Porsche Boxster S (my favorite car I've ever driven), 1974 VW Super Beetle (I brought it here from California. Like the 68 Mustang, terrible to drive but a big time chick magnet), 1984 BMW 318i that my dad won in a bet, 2005 Chrysler 300 we bought from Enterprise that was riddled with bullet holes. (It seems that nobody cuts off a car with real bullet holes!)

In reply to nderwater:

If you want to get in the car business, first get your head examined. This is a tough way to make a living. But, provided you get a clean bill of health and you still want to proceed, I'd start as a mechanic somewhere, as that will give you direct access to more fixer-upper cars than the general public has.

It's also tough to love cars and need to sell them to eat. I want to keep all the cheap 944s I find, and most of the cars I liked as a kid cost around $100-1500 now, so the hardest and most costly lesson I've had to learn is to buy with my head, not my heart. It's tough not to want to keep all the 16V VWs, AE86 Corollas, Porsche 944s, etc. But you have to treat the business like a living thing. To keep all the cool cars would be to starve the business.

nderwater wrote: - Owner a small business like this means wearing a lot of hats (salesman, marketer, mechanic, detailer, accountant, etc). What do you do to keep these things in balance? Do you find that it makes most sense to farm any of these functions out?

I farm out the accounting and some of the salesmanship. Otherwise, the more hats I wear, the fewer people I have to pay. I buy the cars, drive the tow truck, market the cars, do most of my own mechanical work and I handle all the paperwork. I'm no math wiz, but that seems like four fewer people I have to pay

A word about being a good salesman:

In my experience, a good salesman tells the truth, knows more about the cars than the consumer does and can accurately gauge what the consumer needs/wants based on the limited information provided to him. A good salesman matches the customer's needs (stated or perceived)to the most appropriate car, while educating the consumer about the product and being careful not to offend said consumer.

My "problem" is that I always wind up with salespersons who THINK they know more about the car they are selling....but don't. Only once did I have a salesperson sell me a car and act like they weren't an automotive know-it-all.

As far as "loyalty": I'll go back to the same "store" as long as they don't shaft me. I bought 3 cars from the guys who do the "big" jobs on my Hondas (and whatever other brand they have on their lot) but they lost me when a car advertised in an AutoTrader as "no dealer fees" had $400 in dealer fees written into the sales paperwork. To make matters worse, the same car was in the next weeks issue of the AT with a lower price. Had I bought it, I would have paid $1,000 more than they eventually sold it for. (And we are talking about a $4000 car reduced to $3000.) And it's hard to be loyal when the salesperson turnover is 50% per year. I bought a truck from a former co-worker who went into car sales, the next time I needed a car he had moved over to a competing brand, one that didn't offer a product I wanted at the time.

it is remarkable how many guys have been dealers their whole lives, and know virtually nothing about cars.

Sticky question, and I'll understand if you dealer guys don't want to post it, but what kind of money can a guy with his own little car lot likely make in a year selling mid-level, affordable transportation type cars? I realize that success depends on a lot of factors, but if you've been in business for a few years and are moving iron, what should one expect? I think this may illuminate to some (like me) what the reality is of this life.

belteshazzar wrote: it is remarkable how many guys have been dealers their whole lives, and know virtually nothing about cars.

That is because they don't actually have to know the product. They have a system to sell X and they stick to that.

There is nothing worse then a salesman that knows the product and manages to talk a buyer out of something by saying something stupid.

as a business owner it can be hard to put a finger on what exactly i'm making, as the take-home numbers can be deceiving. i would describe it as a $50k a year lifestyle. how about that. good years are better. worse years are worse.

I owned a medium sized used car lot for about 10 years. When we started we carried about 30 cars at a time, when I got out of it in 2009 we averaged about 70.

It was a great business and we had a good run. I started the dealership in 2000 after I graduated college. My college roommate and I were driving around when we spotted a nice M3 at a gas station with some cool wheels. We ended up talking to the guy and he told us he was selling cars on ebay and making a killing. After we left, my roommate and I started talking and figured if he could do it so could we. My roommate, another buddy and I each put it a little money and started the process of getting our dealer license.

It took about 3 months to wade through the paperwork but eventually we rented a 6000 square foot warehouse and bought our first car, a 1989 Mustang 5.0 LX. Two years later we got a a 20,000 square foot warehouse. Five years after that we rented an acre and a half at a major intersection. Then the housing bubble burst and we got stuck with a large overhead right as people's home equity lines dried up. :(

nderwater wrote: - In your opinion, is there more profit in fixing and flipping, or in just straight reselling auction cars?

Reselling, though I resell to other dealers and avoid the overhead, drama, and stress of dealing with customers.

nderwater wrote: - That said, have you found that there is more money in selling cheap basic transportation, or more expensive specialty cars?

Basic transportation, all day.

nderwater wrote: - What sort of training and licensing did you have to complete or maintain to become a dealer?

Incorporate, file for your EID number, get your state dealers license. That's about it. Though without training and business saavy you'll be broke in no time.

nderwater wrote: - What's the hardest part of the job, or is the biggest hassle?

Retail customers are terrible, by and large. They have no incentive to tell the truth, so often they don't. Poor dealership experiences in the past have probably shaped them to behave this way.

nderwater wrote: - What sort of overhead & fees are associated with each car kept on your lot? How bad are the taxes?

Too dependant on the type of business you're running, clientelle you're catering to, etc. If you're retailing, figure you'll have all the overhead associated with a retail building, plus buy fee's attached to each car you bought from auction, plus reconditioning costs.

nderwater wrote: - Is it legal to regular cycle through inventory cars for personal transportation instead of titling cars in your own name?

Depends on the state. It's legal in TX.

nderwater wrote: - As a buyer, I've only ever approached a used car lot looking for a bargain and trying not to get shafted. When you're on the other side of the desk, is it even possible to be honest and ethical when trying to sell used cars for a profit?

Possible? Yes Profitable? not really. The real money is in providing in-house financing at 29% interest to people with terrible credit, then repo'ing the car 5 months later and selling it again. Which, coincidentally, is exactly the business model that a particular large auto company employs (rhymes with Chivetime)

If I were to offer advise to anyone considering opening a car lot it would be pick a niche and stick to it. About half the cars we sold were inexpensive first cars for peoples kids. Sentras, Civics, etc... Not very exciting but there is always a market and you get lots of return customers when the new drivers wreck the cars and need a replacement. We sold a lot of "weird" or unusual vehicles as well. That came from me and my partners interest in cars and our start selling mainly on ebay. For example I would buy every 5-speed Volvo I could get. Most other dealers didn't want them and I could get them at a discount for that reason at the auction.

I tired to keep most of my cars in the $3000.00 to $6000.00 range. Inexpensive enough to buy for most people but not so crappy that they blow up or have major isuues. Also cars in that range give you enough room to make a little money. Over 10 years I avereaged $800.00 a car. Sometimes you make more, some times you lose money but thats the figure I always ended up with. More expensive cars have a higher profit margin, but cost more and depreciate quicker. I didn't finance which also made it harder to sell more expensive stuff.

nderwater wrote: - In your opinion, is there more profit in fixing and flipping, or in just straight reselling auction cars?

If you are have access to the auction you have easy access to lots of cars, unfortunatly you are competing with everyone else for them. Sometimes you get better deals on craigslist but you have to stay on top of it. Without a dealer license flipping cars is your only option. I know several people that buy and sell cars with out a license and make an OK living.

nderwater wrote: - That said, have you found that there is more money in selling cheap basic transportation, or more expensive specialty cars?

It depends, I make more money per car on the weird stuff. It is hard to buy a Camry or a Civic and make money. Lots of exporters and an glut of dealers trying to buy them makes for a slim profit margin.

nderwater wrote: - What sort of training and licensing did you have to complete or maintain to become a dealer?

I was into cars and learned on the job so to speak. The State had a new dealer class that covered the basics and at least outlined what paperwork was required. Also talking to other dealers at the auction was a great way to pick up little tips and tricks etc..

nderwater wrote: - What's the hardest part of the job, or is the biggest hassle?

It has gotten hard to market the cars lately. Craigslist has so much crap and cheesy adds that people are using it less then they used to. Auto trader kind of sucks now and is expensive. Ebay is great sometimes and a big hassle other times.

Also as mentioned earlier shady mechanics make your life difficult. There is a chain here in Jacksonville that I refused to take the cars to. In ten years of selling 350 plus cars a year I never had one pass there. " I would like to take the twelve year old honda to ____. Sorry you can take it to the dealer but not there...

nderwater wrote: - What sort of overhead & fees are associated with each car kept on your lot? How bad are the taxes?

I never kept track of it that way. At the end, I had four employees, health insurance, car insurance, rent, floor plan fees, advertising etc.. for a total of about 22k a month. When we had less cars our overhead was about half that much. When we had 70 cars on the lot we were selling 35 to 40 a month. We turned about half our inventory each month, which I think is about average.

nderwater wrote: - Is it legal to regular cycle through inventory cars for personal transportation instead of titling cars in your own name?

In Florida I didn't have a car in my name for eight years. I always drove a lot car. Sometimes that car would be mine, as in I bought it with my own money but it was titled through the dealership.

nderwater wrote: - As a buyer, I've only ever approached a used car lot looking for a bargain and trying not to get shafted. When you're on the other side of the desk, is it even possible to be honest and ethical when trying to sell used cars for a profit?

I always tried to be honest. I had a lot of repeat customers and was proud of the fact that we never really screwed anyone. Yes cars break but I always tried to treat people how I would like to be treated. The cars didn't have warranties but if something catastrophic happened we would try to work with people.

I never financed people, because I never found it to be worth the hassle and I felt that charging someone 29% intereest was kind of unethical. (On the other hand 29% doesn't even cover the repo percentage....) Our business model was more focused on selling the cars cheaper then everyone else. Thats probably why we had a lower profit margin then some of the other places.

ddavidv wrote: Sticky question, and I'll understand if you dealer guys don't want to post it, but what kind of money can a guy with his own little car lot likely make in a year selling mid-level, affordable transportation type cars? I realize that success depends on a lot of factors, but if you've been in business for a few years and are moving iron, what should one expect? I think this may illuminate to some (like me) what the reality is of this life.

I made about 50k a year when I had the dealership. I have a real job now (Police Officer) and I flip cars on the side using a buddy's dealer license. I pay him a flat fee per car to process the paperwork, and to let me buy the cars at the auction. I have about 5 cars at any one time on his lot. I made approximatly 20K extra last year doing this. This year I have already made 27k. I have a pretty good arrangement and don't have alot of risk. If I don't sell anything I don't have a set over head eating my profit. My buddy's lot benefits from having extra cars on the lot for free and I pay him to work on some of the cars. I give him some extra if he sells a vehicle for me, or if his salesman sells one.