Strengths
Used car dealers are in a unique position to operate in an industry that is able to generate revenue and profit in any economic climate. This is primarily due to the fact that during economic recessions, more consumers will acquire pre-owned vehicles rather than a new car as a result of their lower price. Over the past five years, the demand for pre-owned cars has steadily increased given issues that occurred that impacted the global supply chain. Additionally, in the coming months and years the demand will be further increased through changing global economic policy. Beyond the ability to generate revenue from the sale of vehicles, most used car dealers are also able to produce substantial contribution margins from vehicle repairs and specialized mechanical services.
The startup costs regarding the development of a new used car dealership can vary widely. Some businesses were able to start with as little as $250,000 which includes the development of a small lot as well as initial inventories. For well capitalized entrepreneurs, the startup costs for a new used car dealership can easily exceed $2,000,000 to $3,000,000 depending on the amount of inventory that they will initially carry. It should be noted that many financial institutions are willing to provide a revolving line of credit that allows for ongoing acquisitions of pre-owned vehicles. Additionally, there’s always the option to receive financing in order to develop a used car dealer lot as banks and financial institutions are always happy to provide capital when it involves a real estate purchase or development.
Weaknesses
For weaknesses, there are always a number of used car dealers with any city, town, or major metropolitan area. As such, used car dealers need to find ways to effectively differentiate themselves within the market. However, these risks are generally abated by the use of multiple online platforms to promote individual vehicles. The effective market radius for a used car dealer has drastically expanded over the past twenty years as many people can now use the internet to source the specific type of vehicle what they want. Additionally, the use of vehicle transportation services allows for transactions to occur on a national basis.
Another weakness regarding used car dealers is that they typically have moderately high operating costs as it relates to their facility expenses. Maintaining a large-scale lot that has a showroom is an expensive endeavor. As such, fiscally sound protocols need to be implemented in order to ensure that the used car dealer can remain profitable at all times.
Opportunities
There are numerous opportunities for a used car dealer to rapidly expand their operations. Most importantly, these businesses can use numerous online channels to promote the individual vehicles that they have in their inventory. Many used car dealers engage multiple forms of online advertising including highly targeted social media to effectively find customers for specific makes and models of vehicles. Furthermore, used vehicle dealers can expand their operations by establishing additional car lots especially if the business is located within a major metropolitan area.
One of the other ways that a used car dealer can expand their operations is through acquisition. There are tens of thousands of companies that are actively involved in the ongoing sale of pre-owned vehicles, and from time to time these businesses are put up for sale. As noted earlier, there is a substantial amount of capital support that a used car dealer entrepreneur can receive as it relates to purchasing existing operations that can be integrated into their respective ecosystems.
Threats
As it relates to threats, the primary issue that most used car dealers face is changes in the economy. Although economic recessions tend to benefit used car dealers, severe and prolonged economic climates that are very challenging can cause downward pressure on a used car dealer’s revenues. Additionally, one of the other major issues that these businesses face similar to their weaknesses is that there is a substantial amount of competition among companies that are looking to sell inventories of pre-owned cars. While the internet has made it much easier to market specific vehicles to the public, there are now a number of individuals that are engaged in this business as well.