Research the market and identify your niche
A crucial stage before starting any business is to conduct thorough research to help you understand the current market conditions, the competition and the demand. In the case of starting a car dealership, you should research the types of cars that are in demand in your area, as well as the demographics of your target market. You also need to be aware of all the impending changes that may impact your sales…
The UK car industry is shifting towards electric vehicles (EVs) as the government aims to phase out petrol and diesel cars by 2030. Many car manufacturers are investing heavily in EV technology and developing new models to meet this demand. While the 2030 electric switchover may be a few years away, London’s Ultra Low Emission Zone (ULEZ) is already here. Clean air zones are also in operation in and around the UK’s major towns and cities, meaning gas guzzlers with high emission levels may not be the easiest cars to sell. You’ll need to take this into consideration when deciding on stock to accommodate this increasing demand for zero or low emission cars, as this trend is expected to continue as more people become environmentally conscious and look for more sustainable transport options.
This demand is being supported further by the government via a number of initiatives to ensure there are sufficient charging points available for electric vehicles. There has also been significant private sector investment in electric car charging infrastructure in the UK. Companies such as BP, Shell, and Tesco have all invested in charging networks, and there are now over 23,000 public charging points available across the country.
Supply chain disruption
The COVID-19 pandemic has disrupted the supply chain of the UK car industry, causing shortages of essential components and leading to production delays.
In fact, sales of used cars slipped by 8.5% in the UK in 2022, despite huge demand for second-hand motors, new figures show. The Society of Motor Manufacturers and Traders (SMMT) said just 6.9 million vehicles changed hands in 2022, down from 7.5million during the previous 12 months.
Restricted production of new vehicles caused by part supply issues in the hangover from the pandemic has seen record demand for used cars, which in turn has pushed prices to record levels. But the trade body said these same new car manufacturing constraints had a knock-on effect for used motor dealers who were unable to restock their showrooms and forecourts with vehicles.
The UK’s departure from the EU has had an impact on the car industry. Some car manufacturers have moved production out of the UK due to uncertainty surrounding trade agreements, while others have invested in new plants in the country to take advantage of its new trading status.
The industry is also undergoing digitisation, with new technologies such as self-driving cars and connected vehicles being developed and tested. This is expected to lead to new business models and opportunities for growth.
In terms of demographics, the average age of a new car buyer in the UK is 54. When it comes to the younger generation, a recent report by GoCompare found that the younger a driver is, the less likely they are to buy a new car due to high depreciation values and the impact of the cost of living crisis. In total, 75% of Generation Z drivers said they only buy used cars, while 54% of millennials and 60% of Gen X drivers also tend to opt for vehicles that have been pre-owned.
It’s also important to note that fewer and fewer young adults are learning to drive. In April 2021, The Guardian broke the story that the number of young adults with a full driving licence had fallen to a recent low. Just 2.97 million people aged 16-to-25 in Great Britain held a full licence, down from 3.32 million in March 2020. In fact, there are 18% fewer teenagers with a licence than there were ten years ago. This is partly a result of the prohibition of driving tests and lessons during the pandemic. Additional reasons include rising costs, environmental concerns, changes in lifestyle and work patterns, alternatives such as Uber, and even cheap supermarket delivery, giving young people a convenient way to use other vehicles without needing to own their own.
According to Auto Express motoring magazine, the bestselling new car models in the UK so far in 2023 are:
● Vauxhall Corsa
● Volkswagen T-Roc
● Nissan Qashqai
● MG HS
● Ford Puma
● Hyundai Tucson
● Kia Niro
● Kia Sportage
● Vauxhall Mokka
● Ford Fiesta
Many new car dealerships are starting to operate online due to the increase in online shopping and customer convenience.
While it is possible to start a car dealership online, it’s important to ensure that you comply with all the relevant legal regulations (see Section 3) and have the necessary infrastructure and processes in place to provide a high-quality service to your customers.
Other considerations more specific to an online dealership include a user and device-friendly website (quality photos are key!), secure payment processing, delivery logistics and customer service.
Keep a close eye on the industry
Changes are happening in the automotive industry all the time, so it’s important to keep a close eye on your market moving forward, not just at the planning stage. If you don’t monitor your market, you may find that your offering misses the mark, and that your customers shop elsewhere.
The UK car industry is changing rapidly in response to a range of internal and external factors, and is likely to continue evolving in the years ahead. All of these factors need to be considered when writing a business plan…
Get to grips with legal regulations
In the UK, there are several legal regulations that you must comply with when opening a car dealership. Examples include:
You will need to obtain a dealer’s licence from the Driver and Vehicle Licensing Agency (DVLA) before you can legally sell cars in the UK.
You must register your business with Companies House and HM Revenue & Customs (HMRC) and comply with all relevant tax and accounting regulations. (An accountant can help you navigate this to ensure compliance.)
You must have suitable premises for your dealership, which meets all relevant health and safety and planning regulations.
You must comply with all relevant consumer protection regulations, including the Consumer Rights Act 2015, which sets out the rights of consumers when buying goods and services.
Vehicle history checks
You must carry out vehicle history checks on all cars you sell, to ensure they are not stolen, written off, or have outstanding finance.
You must comply with advertising regulations, including the Advertising Standards Authority’s rules on advertising of cars.
You must comply with data protection regulations, including the General Data Protection Regulation (GDPR), when handling personal information of customers.
It’s important to seek legal advice and guidance to ensure that you comply with all relevant laws and regulations.
Decide on your car dealership services
Will your new business offer a range of different services alongside car sales? Depending on the facilities you have, you might want to consider additional business activities that could generate extra income. Here are some common examples:
Car servicing and maintenance
Many dealerships have their own service and repair facilities, allowing them to offer customers regular servicing, maintenance, and repairs for their vehicles.
Car dealerships can provide financing options to customers who wish to purchase a car on credit. This may include hire purchase agreements, personal contract purchases, or personal loans.
Some dealerships may offer car insurance to customers, either directly or through partnerships with insurance providers.
Dealerships can offer extended warranties to customers, providing additional coverage beyond the manufacturer’s warranty for a certain period of time.
Some dealerships offer rental services, allowing customers to rent a car for a short period of time, such as for a weekend or while their own car is being serviced.
Dealerships may offer trade-in services, allowing customers to exchange their old car for a new one or receive credit towards the purchase of a new car.
Parts and accessories
Many dealerships sell car parts and accessories, allowing customers to purchase genuine replacement parts or personalise their vehicles with aftermarket accessories.
Customer loyalty programs
Some dealerships may offer loyalty programs that reward customers for their continued business, such as discounts on future purchases or free servicing appointments.
Some dealerships may offer delivery services, allowing customers to have their new car delivered directly to their home or office.
Making your dealership a one-stop-shop for all of your customers’ automotive needs is a smart way to increase your business’s revenue streams and prevent customers from considering your competitors.
Plan your pricing
There are lots of factors that could affect the value of a car, such as:
- Brand and model
- Features and options
- Supply and demand
- Market conditions
Sites such as Autotrader are a great place to gauge guide prices for cars of a similar spec. Once you have a ballpark figure, you can offer your customers a fair price, while keeping your profit margins. Having a good understanding of your local market is also crucial, so you know how much potential customers are willing – and able – to pay.
Another area to factor into your purchasing and pricing plan is the weather! Convertibles tend to sell for less in the winter – if you’re looking to make a profit, think about purchasing cars at a time when they’re good value, to make a profit in the summer months (and vice versa). Cheap runarounds are also popular in the summer, as more students learn to drive in the summer holidays. When supply outweighs demand, prices increase – keep this in mind when considering how to price products.
Your pricing structure can vary depending on a number of factors, such as your business model, the type of cars being sold, and market demand. Here are some common pricing strategies:
Manufacturer's Recommended Retail Price (RRP)
Many car dealerships will sell cars at the manufacturer’s recommended retail price (RRP), which is the price suggested by the car manufacturer. This price is often non-negotiable, and customers will need to pay the full amount unless there are promotions or incentives available.
Some car dealerships allow customers to negotiate the price of the car. This may involve haggling over the price, discussing the value of a part exchange, or negotiating financing terms. If this is going to be the case, you may wish to invest in some negotiation training for you and your staff.
Car dealerships may offer discounts on certain models, particularly those that are not selling as well or are being phased out. These discounts may be seasonal, promotional, or offered for specific demographics (such as military personnel, students, or first-time car buyers).
Dealerships may bundle the cost of additional services or accessories into the price of the car. For example, a dealership may offer a “package deal” that includes servicing, a warranty, and a set of floor mats for a slightly higher price than the base model.
Some dealerships may acquire used cars through auctions and sell them at a higher price to customers. The dealership will factor in the cost of acquiring the car, the cost of refurbishing or repairing it, and any additional services before setting the selling price.
Part exchange pricing
While trade price guides offer useful information when deciding how much you will offer customers who want to part exchange their old vehicle, also consider what the overall ‘price to change’ is for the customer, taking into account both the part exchange allowance and the retail price of the new car. How much money will you be able to sell the part exchange vehicle for? Do you think the vehicle would be an easy sell? Does it need much work before it can be sold? Can you sell it yourself, or will you sell it on to another trader or through an auction? Ensure your position is well informed before discussing figures with your customers – while some might be open to haggling, others might simply walk away if your offer is too low. Financial admin can get murky when part exchanging, so seek advice from a financial advisor to ensure you’re being compliant in areas such as cash flow and VAT record keeping.
Your Pricing Policy
Decide on a general pricing policy and stick to it as closely as possible. This will help you plan the financial side of your business better e.g. your target markup, whether you’ll stick to book prices or aim to undercut these. Or does the quality of your service and the location of your sales site justify prices that are higher than book prices?
Decide on your policy for trade sales of part exchanged vehicles to other dealers. Will you add a small percentage, or agree to pass them on at cost? Also have a think about pricing your other services such as repairs and valet. Work out the cost of providing each service, and the amount of profit you need to earn to make it worthwhile.
An accountant can help with your financial strategy.