Getting A Car Dealer Licence

BusinessGuy

Hi There,

I was wondering does anybody have any advice on setting up a car dealership. What I want to know specifically is how do I legally get a licence to buy and sell second hand cars. What I want to do is get a licence and buy one car and then sell it on for a profit, once i do that, then i will buy another and sell it. I will keep doing this for a while, and then i will analyse my results. If I think there is money to be made I will then invest money in a premises and stock etc. I own a business already so I know the costs involved in that side of things, I just wondering how do I go about getting set up to buy and sell cars legally. I know some people will say just do it privately, but I have already bought and sold some cars myself privately, now i want to do it as a dealer and offer people a warranty etc.

Any advice, criticism, abuse etc. will all be very welcome.

Thanks

Peterdalkey

No Licence needed. If you buy and sell cars as a business you are obliged to ensure they are safe and of merchantable quality, a warranty is legally implied, even if not offered specifically. (Consumer law does not apply if you sell to the trade!)

BusinessGuy

Thanks for the reply.

That is interesting.

When you say "you are obliged to ensure they are safe and of merchantable quality". Does this mean I have to get the cars certified somehow from a mechanic, does the mechanic have to be part of a certain body? Or is this a loose legal term that means I just can't sell anything if I know that it has a flaw which compromises the safety of the car.

Is there insurance that I should take out to cover myself in this regard. For example: If I do sell a car and it has a flaw in the braking system and then has a bad accident, can I then be sued for negligence or something along those lines?

Also, what is this SIMI thing that i hear about, do all dealers need to register with them?

Peterdalkey

To be honest, you are clearly not au fait with this industry and therefore you should either learn it or steer clear completely (pun intended). You would be an innocent abroad and exposed with all that this entails!

B00056718

You will have to obtain motor trade insurance.

I used Campion insurance broker in Modern plant building on Naas road.

Once you have the insurance number, you can then call the department of transport in Shannon and ask them to send out the application form for motor dealer code. (Garage code)

Once you have the code, you can purchase vehicle without adding yourself as an additional owner on the logbook. You collect the logbook with the car; fill in the RF105 with the seller and seller posts away the filled RF105 form.

If you're going to add the value to the cars yourself then all you need on your trade insurance is road liability. If you're hiring a mechanic, then you will need to cover the premises on your policy also.

BusinessGuy

Peterdalkey wrote: »

To be honest, you are clearly not au fait with this industry and therefore you should either learn it or steer clear completely (pun intended). You would be an innocent abroad and exposed with all that this entails!

Hi Peter,

Thank you for the response, you suggest that I should learn the industry. One way of learning an industry is by talking to people and asking questions, hence the post on the forum asking questions, which you didn't answer. And regarding making money, you don't necessarily have to have excellent knowledge in an industry to make money from it, you can have the basics, get yourself set up and then pay someone with knowledge to do the work for you, once you do all this efficiently you can make money with limited knowledge.

Thanks
Business Guy

BusinessGuy

B00056718 wrote: »

You will have to obtain motor trade insurance.

I used Campion insurance broker in Modern plant building on Naas road.

Once you have the insurance number, you can then call the department of transport in Shannon and ask them to send out the application form for motor dealer code. (Garage code)

Once you have the code, you can purchase vehicle without adding yourself as an additional owner on the logbook. You collect the logbook with the car; fill in the RF105 with the seller and seller posts away the filled RF105 form.

If you're going to add the value to the cars yourself then all you need on your trade insurance is road liability. If you're hiring a mechanic, then you will need to cover the premises on your policy also.

Hi B00056718,

Thank you for the information, that is extremely helpful. Regarding the motor trade insurance, do you have a rough idea on cost for this, lets just say a small operation with a couple of cars being sold out of my house to start with. Would we be talking hundreds, or thousands a year?

Regarding the application form for the dealer code, do you have to do anything specific, like in the states you need to pass an exam to get this. Do they give a code to anyone or are there certain conditions, or a certain number a year given out or anything like that?

Thank you for the infor regarding the RF105 and the log book, I really wanted to know that.

Regarding the driving of the cars that I (my business) has in stock, does my business need some kind of open insurance to allow me drive these vehicles and to allow my potential customers take them for a drive. I personally have car insurance which allows me drive any car third party. Could I just use this to get by driving them myself, and then take out some other insurance to allow the cars to be taken for test drives?

Sorry for all the questions.

Thanks
Business Guy

Peterdalkey

Industry Knowledge:
The VAT rules are different for the trade to normal businesses.
You need to have very specific knowledge as to the values of individual cars, which can vary dramatically for the the same model of the same age and mileage. A Mercedes with manual transmission and cloth upholstery will be hard to sell unless it is very keenly priced indeed, for example. There are certain colours that are hard to shift too. The list goes on...
You need to be able to roughly estimate and mechanical or bady repairs that may be needed to make a car reay for sale.... As these costs will come out of your margin, the purchase price will need to reflect your projected costs and you will need to know a realistic selling price to establish whether the overall deal will make money.
Taking trade-ins is the same as buying in a car, so you need to know how much it is worth to sell on.
You need to reserve a sum out of your margin on every car you sell to cover potential warranty costs.

It is not a simple business and it is extremely easy to incur substantial losses quickly if you do not understand the detail of the business.
My comment about learning the business was quite sincere and was based on the level of understanding of the trade demonstrated in your own posts. It is not just new car dealerships that are struggling in the current economy, the used car trade is also having quite a number of failures.

B00056718

BusinessGuy wrote: »

Hi B00056718,

Thank you for the information, that is extremely helpful. Regarding the motor trade insurance, do you have a rough idea on cost for this, lets just say a small operation with a couple of cars being sold out of my house to start with. Would we be talking hundreds, or thousands a year?

Regarding the application form for the dealer code, do you have to do anything specific, like in the states you need to pass an exam to get this. Do they give a code to anyone or are there certain conditions, or a certain number a year given out or anything like that?

Thank you for the infor regarding the RF105 and the log book, I really wanted to know that.

Regarding the driving of the cars that I (my business) has in stock, does my business need some kind of open insurance to allow me drive these vehicles and to allow my potential customers take them for a drive. I personally have car insurance which allows me drive any car third party. Could I just use this to get by driving them myself, and then take out some other insurance to allow the cars to be taken for test drives?

Sorry for all the questions.

Thanks
Business Guy

Getting the dealer code is straight forward. All they need is your policy number and business name and the address.

Regarding your current motor insurance I assume you can drive third party cars as long as you don't own them. It will not cover the cars you own as a trader.

The price for me was 2200€ per year because I was in a job unrelated to the car trade as an employee. It would have been 1700€ otherwise. That was with my wife named on the policy which added 200€ I think. But she could drive anything I own as well.

But I agree with Peterdalkey: it is a very tough place to be. You have to keep yourself up to date with current market demands.

Also, if you're not mechanically minded you could by a money pit in a heartbeat.

I'm very familiar with cars and would be comfortable changing an engine for example in most of them but managed to buy financial write-offs couple of times.

Peterdalkey

Competition:

At the lower/budget end of the car business, there are many people active in the black economy, paying little or no tax/VAT on their activities, posing a private sellers they do not have to offer any warranties etc, and do not have the other regular overheads of a legitimate business.

BusinessGuy

Thanks both for your honest inputs, it is greatly appreciated.

Regarding the black economy at the lower end of the market. I can certainly understand that. The IT business is similar at the lower end, you have to competitively price your services against other business who are not charging VAT and not putting cash sales through the books, this all makes it very difficult, which is one of the reasons why I now focus on larger corporations for the IT services. I guess the same difficulties will be found with the car industry.

Some food for thought anyway, and will continue to discuss this more before doing any serious investing.

Many thanks for your help.

BusinessGuy

I have one more question for you guys if you wouldn't mind. Another one that you will regard as a stupid question, but here it is. Where do I buy cars for my dealership. Maybe find good deals privately, go to trade shows, buy off higher end dealers that won't the poorer cars that they get on trade ins? If that sounds about right then maybe some information on how I would go about that, as in if you say trade shows, where do I find these, if you say high end dealers, how do deals like that normally work, just generally some info on this would be helpful.

Thanks
Business Guy

Peterdalkey

Most main dealers have pre-sold the trade ins that they do not intend to retail themselves to "traders" who essentially wholesale the cars to used car dealers or in some cases the trader may retail them themselves. There is an online underwriting facility ( to which you subscribe) that is being used within the trade whereby these traders bid competitively online to buy cars that may or may not become available. Bids are secret, so you cannot see what anyone else has offered. If you do not have sufficient funding readily available, you could suddenly win say 10 cars that you do not have the funds to buy, if that happens you are "dead meat".
You can try going around the bigger dealerships to buy used cars but many of these have established relationships with their preferred traders and you only likely to be offered the duds! You can also buy privately from adverts. Most used car retailers actually buy at least some of their stock from the wholesale traders. The car auctions are the other option with all the attendant risks. There are no Trade Shows.
As I said before, this is not as simple a business as it may appear to on the surface, especially to the uninitiated and things like contacts within the trade are as vital as the other items outlined in the posts above.
There is a regular poster ( Dubtony I think) on this forum who has a very valid mantra and it holds true for many businesses. that goes " If you have no experience of retail DO NOT GO INTO RETAIL!" . You can of course learn most businesses but you need to learn it on the job.
Ask yourself: Why are so many long established and vastly experienced motor dealers struggling to make ends meet? Do I know how to do it better?

ironclaw

Going to be honest Business Guy, I'd stay away from the motor trade. Its not a cash cow and certainly not for the faint hearted. You need to know your cars, inside and out. You need to be mechanically minded and clued in to every niggle of every make and model. Its not as simple as buying low and selling high. As a dealer, even working out of your house, you have to provide a certain level of warranty. If a gear box goes in a car, do you know how much that could cost? Could be quite literally €1000's in parts and labour, and your liable. And one car could destroy your profit for the month.

This is the complete opposite to a private sale where its 'buyer beware' and thats the end of it. If your trading, your liable for basic consumer rights and the warranties that come with that.

Lastly, the car industry is in major decline. Yes there are people buying but they are all in the high end of the market in the 131 and 132's, making an investment for their future. Nearly everyone else is buying on the second hand cut throat market in the 2008 / 2009 range or older. Everything else is in dealerships and the premium that attracts. You'll never ever be able to compete with the private market or the rogue traders.

I cannot urge you enough to reconsider this venture as I really don't think you understand the market or practise at all.

BusinessGuy

Peterdalkey, ironclaw,

Thanks very much for your comments and very valuable information, it is much appreciated. It certainly does seem that there is more to the motor industry than what meets the untrained eye. But I do still think like many businesses if you have enough money to back you you can make these things profitable by benefiting from economies of scale. Regarding buying the duds, if you have enough money to trade in a high volume of cars you can reduce the risk of buying a dud. I am assuming if someone comes back to you with a car that has a problem that will costs more to fix than the price of the car that you can just give them back their money and scrap the car, if this is the case then you know exactly what your maximum losses could be on a car and can budget accordingly.

Regarding the market being in decline, in nearly every industry they nearly always turn around at some stage, so maybe worth while getting in now and building up the reputation for a few years and get ready for some more "good times" as people call it.

Regarding the line " If you have no experience of retail DO NOT GO INTO RETAIL!", I might be wrong, but I doubt highly successful entrepreneurs would agree with that. I would think they might say something like "If you have no experience of retail, make sure you bring someone with you who has plenty of experience in retail."

That said, I am not going to rush into anything and will strongly take on board your comments as well as others that I am talking to. There is one possibility of a dealer that I know who is doing relatively well for himself and may be interested in opening up a second dealership, so maybe I would open the second in a different part of the country and share some of the staff, resources, contacts, risk profit etc. So that might be a safer option, but I will continue to do my investigation.


Many Thanks
BG

DubTony

BusinessGuy wrote: »

Peterdalkey, ironclaw,


Regarding the line " If you have no experience of retail DO NOT GO INTO RETAIL!", I might be wrong, but I doubt highly successful entrepreneurs would agree with that. I would think they might say something like "If you have no experience of retail, make sure you bring someone trustworthy with you who has plenty of experience in retail."

FYP

Agreed. However, we're on a business management forum populated a lot by students and people who have little experience of running any type of business. The majority of the business people who contribute to the forum recognise that, and usually only discourage others when the idea is off the wall, the opening poster shows his lack of experience in the business he proposes to go into, or the enquired about industry is on its knees.

In fairness, most people who ask a question on here, aren't in a position to "bring someone along" with them, so the advice given is generally appropriate.

BusinessGuy

I had to google what FYP was there. I agree 100% with your correction, thanks.

Regarding your comments on the advice being appropriate for the audience that this forum usually brings, that is a fair point and I will take it on board. Maybe I need to find a different medium to find people in a similar situation to me (with money and has a history in running small businesses).

Many thanks for the comments.

Peterdalkey

The problem with the notion of finding the calibre of person with the required experience is twofold, such a person is most likely to already be in the business on their own account as it has low barriers to entry and secondly such a startup is very unlikely to be able to afford such a high calibre employee.
The theory may be fine but the reality suggests niaivity!

golf247

Hi Business guy,

I have been pondering on the same venture as yourself and am just curious as to whether you have made the plunge into buying & selling cars yet?? any feedback would be greatly appreciated.

BusinessGuy

Hi Golf247,

I haven't done anything on this yet but just keeping an eye on things, I know a few people buying new cars and selling their own cars so I'm just getting involved in it with them at the moment. One of them is importing from the UK so I will work through the process with them. I'm basically just getting an idea on what its all about and what kind of mark up can be made, I've no intention on rushing into this, and there are other ideas that I am working on as well. Most of the possible projects on my plate at the moment will go no where, not sure whether this one will pan out or not, but to answer your question, so far I haven't done much on this, but haven't ruled it out yet.

Cheers
BG

L-M

The hardest thing at the moment is actually getting decent cars. The market is flooded with crap at the moment and anything decent is "flying off the shelves". Do a bit of market research for yourself, put an add on donedeal for a good selling car cheaper than the rest, that will show you the competition you're up against in sourcing stock.

Have you much of a capacity for holding cars? Buying one and selling one at a time isn't really the way to do it, you need to have a couple of cars. There'll always be one that you'll be stuck with.

The other side of it is, where the money really is to be made is buying cars with fault, repairing them and selling them. Trade insurance is fine if every car you buy is in perfect mechanical order, tax'd and nct'd which in reality it won't be, so there's only so much you can do without access to a recovery truck.

Have you got a local panel beater/Motor factors/Valetors/Mechanics that you could use? Because unless you're willing to get down and dirty, you're going to need to valet, service and repair something on nearly all the stock you're going to hold.

As for warranty, you could always just outsource that with something like a Mapfre warranty.

The reality of it is, if you buy simple cars (Which is what you should do for the time being) you won't come across many problems. If you start buying more modern diesels etc. you really need to be more careful, clocking etc is very common place these days. There are so many tell tale signs that you need to be aware of when looking at a car. What you should do is only hold cheap stock, having 10 cars worth between 1500-2500 is better than having one car worth 20 grand. You will make a lot more money on the cheaper stuff, and they're more than likely not going to cause much fault.

It's a game where no matter who you are, you learn something new everyday.