Starting a Car Dealership Business - Term Paper Example

Business Plan for Car dealership A. Executive Summary: Cars play a major role in the lives of most Americans. They are the 2nd most sort out expensive purchase for any normal family. A car dealership is definitely a good business to invest in. The business that I would want to start is a car dealership and this business will be a sole proprietorship. I would be dealing with both buying and selling of new cars and old cars. The future of the automobile business is very attractive. The franchised car dealer revenue has grown at a 7.2% growth rate since 1992 in the United States. (8) There are only moderate risks that the car dealer faces. Despite major changes in the automobile industry, the car dealer’s return on investment is high. Profits in the automobile dealer is said to decline by 6% from 2008-2018. In 2008, the Car dealers alone have provided $1.2 million as wages. The working hours in this industry is very high when compared to other industries. In 2008, 83% of the automobile dealers worked full time. (7) 1. Introduction: Car Dealers are those who buy and sell cars used and new cars at a retail price. Car dealers also provide maintenance and services for cars sell spare parts and also process warranty claims. The car dealership is a tough area to redeem profit margins as the initial start up costs and investments are very high compared to other businesses. Car dealers play a very important role in the promotion and sale of cars as they help in building the reputation and to a great extent and contribute to the growth of the market share. The car dealers play an intermediary role of connecting the company and the customers for the cars. Car dealers are expected to promote the sale of the car by having different marketing strategies. The dealership often depends upon the availability of new car models and the location of the showroom. (2) Mission statement: The mission statement for my car dealership company is to make the buying and the selling process easy and delivering customer satisfaction by providing the best deals. Business Aim: The aim of the business is to offer a range of services, conditions and prices which are normally not available in many of the retail outlets. We would also attend to buyer queries and visit prospective buyers at any time suitable including the weekends. We will also provide a pre arranged mechanical inspection and an extended warranty to the cars that are being sold as the company’s aim is to provide the best services to its customers. We intend on expanding the business by extending the number of referrers and by word of mouth but not through any aggressive advertisements. My business philosophy is that if we provide our customers with the best service and assistance in giving them their money’s worth; they will be more than happy to pay the price. (9) Legal Status and Location: The legal status of the car dealer is an “S” corporation. The location is going to be in Colorado. 2. Products and Services The products of the cars to be sold will be quality cars at the market value. The services that will be provided to the customers will be the financing provided by various banks with approved credit. The other service provided to the customer is the extended warranty free of cost for new car sales. The services that my car dealership company will offer are: Multi Lingual 24/7 call support and information center Remote technical support Onsite field engineers Trained and certified engineers Full parts logistics services, parts refurbishment Buying and selling of new and old cars Extended warranty costs for new sale of cars. (5) Quality of services rendered would provide the company a competitive advantage. 3. Market and Sales Strategy: The sales and advertising strategy for the business will vary as it is dependent on many factors such as season changes, economic and financial conditions and market changes. The first form of advertisement will be in the daily newspaper journal. The highest selling newspaper will be chosen and the advertisement will be published on a daily basis. After 4 months of advertising, we will also start radio advertisements such as sponsoring weather reports and also continue with the daily newspaper ads. This helps in reaching out to the people better. We are also planning on sponsoring a local high school sports day and also continue with the newspaper advertisement. (6) The budge set aside for the advertisement is around 400$ and this also provides an opportunity to expose the company. 4. Management Team and Responsibility: We are yet to recruit the management and administration team. We would require one person to look after the accounts, bookkeeping, answering phone calls and emails as well as payrolls. The main responsibility of the team is to ensure that they are friendly and courteous to the customers. (9) 5. Objectives of the Management and administration Team The main objective to accomplish for the management team in the first quarter is to achieve sales of 100 cars. The other objective is also to make a gross profit of $1, 00,000 in the first year. The financial consideration is that the cars will also have net profits in the first year and we are also projecting a net worth of $35000 in the business. (9) II. Products and Services The inventory will be very minimal during the winter season and the focus will be on large trucks, family cars to satisfy the needs of the customers. Auctioning of cars will be one the best way to get a wide range of old vintage cars and car dealership can provide new cars. (9) III Industry Description 1.Industry Trends: The sales of new and old cars are the new trend in Colorado. During summer, the family cars and trucks are popular for vacations and outdoor activities. Sports cars are also in demand among young generations. During winter seasons, as the road conditions deteriorate, the customers prefer durable and light duty trucks and vans for easy mobility during snow. (9) 2. Number of same business in the same city: There are 5 new car dealerships in around Colorado which offer buying and selling of used cars and new cars. (9) 3. Major influence in the business: One of the major influences in this business is the economical condition. If the economy is doing good, the sale of new cars and sports cars are high and is at peak as there is more money in the market for investment. If the economy is not doing well, the sales for used cars will be more because of the price factor. This business also greatly dependent on the regulations laid by the government. The federal trade commission publishes the rules and regulations of operating the used cars. (9) III Market Study: 1.Target Group: There are no specific target customers in my business. At the end of the day, the vehicle performance, service rendered, brand names are the important factors for the customers and that helps the company in getting more business. There are 3 types of market groups available in the automobile industry and they are 1. Early adopters 2. The younger generation 3. Environmentalists 2. Buying decision determinants: After a certain point of time, most of the businesses does not grow, it stagnates. New business comes from word of mouth. The 2 biggest challenges for car dealers are attracting customers and facing the global recession of the current sluggish US economy. The business will not do well no matter how well the product, quality of the service is without good customer satisfaction. Customer satisfaction is the key to succeed in this business. Surveys and feedback provides an opportunity to continuously improve the quality of services. This makes the customer come back to buy, sell, service and maintain their vehicles. (a) I have also planned to promote “certified pre-owned” vehicles to the customers for those whose warranty is provided for their used cars. Although, this would increase the overheads, this would give the customer satisfaction makes thus leading to the increase of sale of used cars. (b) I’m also planning to host a website which will help in creating new market. According to the National Automobile association, 94% of the dealers in the United States have websites which is considered as the most dramatic change in the industry. This also helps the customer in easily accessing information like, pictures, rates, compare models, features and prices. (C) The shop will also allow the customers to buy insurance, finance, lease, car accessories and best warranty options for their cars. This helps the customer by offering a vast range of products and services without them spending much time. 4. Customer Awareness of product: Through the advertisement campaign the customer would know more about the products. We are also planning to have a thorough personal detailed explanation of our products and services to each and every customer. 5. 4. Market Size: the primary customer base will be the local people living in Colorado. The target group that the business will be looking at is the from the age group- 25-40 years. The total population of the targeted customer base is around 1,00,000 people in and around the city. (9) 5.Market Growth: Auto buying and selling is the largest industry in the world. The automobile industry is divided into different parts and groups and the services are usually bought by word of mouth and by recommendation and the services rendered. Car dealer business also aims at providing the best service to my customers. Incase in population in Colorado can also mean that there is more opportunity for sales as more people would require transport. (9) 6.Pricing Structure: the overhead for budget family cars are lower than sports cars. The best way for the company to make profits is to ensure that car service and reconditioning will be done by the in house team so that the profit can help the company to maintain business expenses and also help in expanding. (9) 7. Industry Earning: Table of hourly wages of the largest occupations in the automobile dealer. (7) The average earnings of a normal worker is $609. Earning in this business varies according to the experience and the kind of work that is performed. Dealers also pay bonuses to encourage the sales and the marketing team in boosting their marketing sales quotas. (7) 8. Employment: Employment is expected to decline in the automobile industry because of working hours and better opportunities. Formal training programs are very essential for the technicians and workers. (9) IV Marketing Plan: The family budget cars and trucks will be the focus and there will be financial plans and options for new first time buyers, families and low income people. The focus will also be for youngsters who will like to experiment on new SUV’s and sports cars. To capture the market, more local advertisement should be made so that it is marketed well. Another strategy is also to have a good sales team which will help us to market the product and persuade the consumers easily. The amount spent on marketing and advertising will be average of $300 per unit and this includes the expenses incurred on the repairs and reconditioning. (9) V. Operations: 1. Space and location: Obtaining a car dealership license requires meeting many requirements and one such requirement is the location. The location that I have chosen for the car dealership is a commercial location in the heart of the city with a very reasonable rent. Car dealerships cannot be opened everywhere since a large space is required for both the showroom and servicing. The average showroom space that is required for any car dealership showroom and building is approximately 15000 to 18000 square feet which will help in servicing and maintenance of the cars. I will provide the details of potential space available in around Denver which will help in showing the business plan feasibility. (1) 2.License requirements: All the vehicles are to be licensed in order to conduct business in the United States. License is not required for boat or any other off-road vehicle dealers. The dealer needs to submit a financial statement, fill in the application form and pass an examination. The Colorado dealer’s license requirements also insist on providing a detailed approved business location. Criminal background investigation will also be conducted. The licenses are renewed on an annual basis and a fee of $ 30000 must be submitted on the application of licenses. (1) VI. Company Structure: The car dealer business will be under “S” corporation. We will also have a business accountant, Insurance agent and a business consultant who will be part of the business advisors. The business will also have a team of people in charge of day to day activities such as sales, marketing and book keeping. (9) VII. Financial Plan: The start up costs is more than $31000 and this cost is derived from his personal savings and loan that has been taken from the bank. The source of funds will be derived from personal funds, $ 25000 10 year old loan and $1,00,000 floor plan to operate the business on a daily basis. The start up expenses includes the following: Location Rent: 10,000 Dealer Insurance: 3,000 Employee Payroll: 5,000 Mechanic Equipment: 1,000 Legal 500 Stationary 50 Brochures 500 Consultants and Insurance Purchase 2,000 Website Creation 1,000 Office Equipment 1,000 Advertising 5,000 Royalties 2,000 Total 31,050 Financial Projections: The businesses financial future will usually consists of cash flow projection, balance sheet projection, break even and the price of the services rendered. The budget car does not have any cash flow projection issues. The company expects a gross profit of $50,000 per year. (9) The normal monthly costs include payroll, marketing, overhead costs. (8) Conclusion: The aim of the business is to ensure we maximize effectiveness, productivity by interacting with people, independence and flexibility given to each activity. I would also ensure I would be able to provide stable work environment for my staffs and also assure continuity of relations with the co-workers. Works Cited 1. “Dealer License requirements for all 50 States” 11th April 2010, http://www.cars4profit.com/LicenseRequirements.htm#COLORADO 2.”Car Dealers” Automobile India, 11th April 2010 http://www.automobileindia.com/cars/dealers/ 3.”Investing in Car Dealership: How to do it right” Future Stocks, 11th April 2010 http://www.futurestocks.in/52227.php 5. “IBM Managed support Services- Introducing Technical Support Out tasking” IBM Global Technology Services, 11th April 2010, http://www-935.ibm.com/services/uk/igs/pdf/tso_whitepaper_102006.pdf 6. Ransom, Kevin; “How car dealers are run” 29 Feb 2008, 11th April 2010 http://autos.aol.com/article/how-a-car-dealer-is-run/ 7. United States, Bureau of Labor Statistics”Career Guide to Industries: Automobile dealers” 8.”Enviornmental Car Dealership Business Plan” 11th April 2010, http://www.bplans.co.uk/environmental_car_dealership_business_plan/financial_plan_fc.cfm 9. “Used Car Business plan” 11th April 2010 http://www.answers.com/topic/used-car-business-business-plan Read More