Starting up as a motor trader - advice/conscience required

[gary22G]

So, I have an itch I need to scratch. I'm heavily into my cars and have always wanted to sell a few cars here and there from home. I stress this would be a much-needed source of extra income and I do have a day job.

Since the pandemic, the industry seems to have become very closed and hush hush, with auction houses not publishing their fees or allowing public sales anymore, and trade sites requiring proof of trade insurance.

The main costs I'm accounting for:
- cost of vehicle (aiming around £3,000)
- auction/trade site admin costs (10% of sale value)
- self-insure warranty/repairs (5% of purchase price on each vehicle added to float fund)
- delivery costs (£100 per vehicle)
- trade insurance costs (£125 per vehicle)
- Valet (£5 materials - done by myself)
- advertising costs (£50 per vehicle)
- 'negotiating a deal' (5% of marketing price per vehicle)

The main barrier to entry for me is going to be the trader insurance, which seems to be highly fixed and it doesn't matter if I sell 1 car a year or 50 a year, seems to be about the same kind of price - £1,600 was the cheapest quote I got (through A Plan). I'd probably aim to start with about 1 car a month (I have ample off street parking so, this won't be an issue). If I can get up to 2 a month, I can halve the insurance costs on each vehicle.

This brings me to the next point around auction houses and trade sites. My closest auction house is BCA Blackbushe (i live in Southampton). I've been to the site before - it's so colossal there's not much point even walking around because you physically can't see the cars you're interested in before sales start. I'd probably keep to buying main dealer trade-ins or buying through trade sites, like Sytner. Having been to auctions as a kid and speaking to a few people in the motor trade, these seem the most risk averse approaches in exchange for a lower profit. The industry is now so hush hush, I have no idea or means of finding out what the auction fees are for buying. Can anyone give me a matrix or idea? All I can assume for now is around 10% of sale value through an auction (as above).

Electrical and mechanical repairs I can do most myself and have most garage tools.

From all i can recall (again because i can't actually access an auction to observe and learn before diving in), rough markup is around 35% per vehicle.

Using my assumptions, an illustrated example for a vehicle purchase price of £3,000 would have a marketing price of around £4,200:

Vehicle cost £3,000
Auction fees £300
Delivery £100
Insurance £125
Advertising £50
Self-insure warranty £150
Valet £5
Total costs: £3,730

'Negotiating a deal' £200. Sale price £4,000

Net Profit: £270


Can I check this is a fair assumption? I.e buying and selling 12 vehicles a year, I could expect to to make about an 8-10% net profit i.e. £3,000 a year net profit.

Please no crushing opinions because if you're not already in the trade, there's very little information available and it's difficult to get in.

 

[Mark T Jones]

Have you looked at the VAT situation? There are strange rules, but I can't tell you what they are

I'm sure you know that there are many nuances around the right vehicles to sell at any given time or location- way beyond genre or style

 

[bodgitt&scarperLTD]

Why the heck would you bother for £270 profit per vehicle?

Don’t take this the wrong way (ok, you probably will) but a particular bugbear of mine is barrow boy ‘dealers’ on Facebook etc.

That said, you seem to have your head screwed on somewhat. You might be able to make a semi respectable business of it, but I’d question whether it’s worth your time at those margins.

 

[gary22G]

Have you looked at the VAT situation? There are strange rules, but I can't tell you what they are

I'm sure you know that there are many nuances around the right vehicles to sell at any given time or location- way beyond genre or style

I had checked this. The VAT margin scheme applies at the normal VAT threshold of £85,000 and above. As my sales would be c.£40-50k a year, this wouldn't apply, although income tax still would if I act as a sole trader.

...not that any second hand car dealer you've used before complies with any of this!

 

[gary22G]

Why the heck would you bother for £270 profit per vehicle?

Don’t take this the wrong way (ok, you probably will) but a particular bugbear of mine is barrow boy ‘dealers’ on Facebook etc.

That said, you seem to have your head screwed on somewhat. You might be able to make a semi respectable business of it, but I’d question whether it’s worth your time at those margins.

I'll take you to my final sentence:
Please no crushing opinions because if you're not already in the trade, there's very little information available and it's difficult to get in.

Just bear in mind all my numbers are hypothetical at the moment and I'd appreciate some input from some people with independent trader experience before I spend a penny.

There are awful second hand dealers (we've all experienced them) who are true wheeler dealers and then there's the lesser sort, the honest businessman. They don't make as much money but have a clear conscience. An extra £300 odd a month is a lot of money to me and selling 2 a month and making an extra £500-600 is significant.

 

[Mark T Jones]

[QUOTE="gary22G, post: 3161422, member:

...not that any second hand car dealer you've used before complies with any of this!
[/QUOTE]

Valid point.

But I do know a couple who have been done for it, which is how I know about it

 

[HFE Signs]

I quite like your plan and from what I see you have covered everything. You could potentially save a bit on advertising if you if you sell the odd one through facebook, you might be able to save a bit on auction fees and delivery if you do two or three purchases at a time.

My main concern would be if you buy a car and then discover it needs expensive repairs, with a relatively low mark up you could easily wipe out a years profit with one dud purchase.

Sounds like you have potential for a good sideline if you buy carefully.

Good luck and please update us as thing develop.

 

[IanSuth]

I would have thought that your best bet was more likely local private sales of easy doer uppers than trade auctions.

Blackbushe is massive as you say (I live in Reading) and is frequented by lots of other dealers, if you are all chasing the same stock then those with insider knowledge will be the likely winners with newbies getting steered into purchasing the lemons. (i grew up going to farm sales and watched new players get run up bidding on rubbish by the old hands for sport).

I would get known as the local who will buy, do up and sell on decently prepared cars.

 

[DazRave]

If you're only selling 1 or 2 a month I'd certainly consider targeting car clubs on Facebook, rather than the Facebook marketplace itself. As someone else said, would save you on marketing costs.

A friend of mine does something similar, although he does it completely for the love and desire of owning different cars. He buys privately sold for as cheap as he can, touches up paintwork and gives them a fresh MOT and service (and sometimes some small repairs). He then sometimes gets the wheels refurbished which goes a super long way to making a car look better for a low cost. Considering he does this purely for love (he never intends to sell them and just always gets bored after he's done all the work) he ends up making small amounts of profit which he just puts towards the next car. All via Facebook (selling), eBay (to sometimes buy) and some other car enthusiast forums online.

Either way, good luck on your journey.

Why the heck would you bother for £270 profit per vehicle?

Don’t take this the wrong way (ok, you probably will) but a particular bugbear of mine is barrow boy ‘dealers’ on Facebook etc.

That said, you seem to have your head screwed on somewhat. You might be able to make a semi respectable business of it, but I’d question whether it’s worth your time at those margins.

Worst reply of the week this one. @gary22G had even mentioned this was a side-line business to bring in a tad more and was also based on his passion for cars.

 

[Paul Norman]

The biggest gap in your costings is the cost of refurbishing the cars.

I have been in and around car sales for most of my life, and I can promise you that you need to allow an average of £400 per vehicle, at least, for this. People simply do not part exchange their cars, nor send them to the auctions, in tip top condition.

I am basing that average spend on much younger cars than you appear to be proposing. Every now and then you will get one that really hits you in the nadgers with a big repair cost.

You can, of course, turn them around with no work and just a valet. For a bit, until your reputation catches up with you.

I would allow at least £1000 per unit starting profit for each vehicle. Out of that you will take VAT of around £200 on the margin scheme, typical refurb costs of £400, and that leaves you just £400 haggle room.

You also need to allow for the fact that used cars are a depreciating stock item. Each month they become potentially worth less than when you bought them, although recently less so due to stock shortages.

You can make good money on used cars. The trick is:

1. Sourcing good ones
2. Fast stock turn
3. Don't sell dodgy cars
4. Try to sell finance too, if you can get FCA approved to do so.

 

[Mark T Jones]

4. Try to sell finance too, if you can get FCA approved to do so.

In the OP's case I suspect this will be a big bureaucratic hurdle for the numbers involved.

But generally it's useful for both sales & credibility

 

[IanSuth]

If you're only selling 1 or 2 a month I'd certainly consider targeting car clubs on Facebook, rather than the Facebook marketplace itself. As someone else said, would save you on marketing costs.

A friend of mine does something similar, although he does it completely for the love and desire of owning different cars. He buys privately sold for as cheap as he can, touches up paintwork and gives them a fresh MOT and service (and sometimes some small repairs). He then sometimes gets the wheels refurbished which goes a super long way to making a car look better for a low cost. Considering he does this purely for love (he never intends to sell them and just always gets bored after he's done all the work) he ends up making small amounts of profit which he just puts towards the next car. All via Facebook (selling), eBay (to sometimes buy) and some other car enthusiast forums online.

Either way, good luck on your journey.



Worst reply of the week this one. @gary22G had even mentioned this was a side-line business to bring in a tad more and was also based on his passion for cars.

I have a mate who does the same with motorbikes. Once you get to know a bike/range of bikes (air cooled Z's in his case) you know what a bike is worth and what it will cost to make it worth more.

Particularly knowing the source for some parts (or alternatives) or how to do certain things (like recover a seat) can make a huge difference to profitability

 

[gary22G]

I have a mate who does the same with motorbikes. Once you get to know a bike/range of bikes (air cooled Z's in his case) you know what a bike is worth and what it will cost to make it worth more.

Particularly knowing the source for some parts (or alternatives) or how to do certain things (like recover a seat) can make a huge difference to profitability

This is exactly what was on my mind. There's certain vehicles and engine combinations I want to target because I know their mechanicals like the back of my hand, should anything need repairing.

 

[gary22G]

The biggest gap in your costings is the cost of refurbishing the cars.

I have been in and around car sales for most of my life, and I can promise you that you need to allow an average of £400 per vehicle, at least, for this. People simply do not part exchange their cars, nor send them to the auctions, in tip top condition.

I am basing that average spend on much younger cars than you appear to be proposing. Every now and then you will get one that really hits you in the nadgers with a big repair cost.

You can, of course, turn them around with no work and just a valet. For a bit, until your reputation catches up with you.

I would allow at least £1000 per unit starting profit for each vehicle. Out of that you will take VAT of around £200 on the margin scheme, typical refurb costs of £400, and that leaves you just £400 haggle room.

You also need to allow for the fact that used cars are a depreciating stock item. Each month they become potentially worth less than when you bought them, although recently less so due to stock shortages.

You can make good money on used cars. The trick is:

1. Sourcing good ones
2. Fast stock turn
3. Don't sell dodgy cars
4. Try to sell finance too, if you can get FCA approved to do so.

Useful to know but I guess my big question still is what kind of markup is there (as a bit of an average / rule of thumb)? I already know that there needs to be a minimum of 30% on a £3,000 car to even break-even.

Need to know what I'm working with instead of just costs. And I have no way of knowing because the auctions aren't accessible without trader insurance, which I'd have to fork out £1,500 on just to find out the answer to my question (to my very original point) and am therefore asking the question of someone experienced as a motor trader so I don't have to make this un-wise move.

Also, everyone has to start somewhere or you'll never achieve anything. It annoys me each time someone tries to infer 'leave it to those experienced'. A very short-sighted approach - builders are notorious for this and it's because they're hiding how easy their job actually is and how much they're ripping you off! The first time you try and build a wall will not be a great success, not even the second time, but after having the opportunity to try, experience and learn, you get to a pretty good standard. Here I am building offices, garages, extensions and other outbuildings. If you just pay a brickie, you'd never learn. Same applies for selling cars, making beer or whatever in life! Sorry, but a massive bug bear.

 

[Paul Norman]

Useful to know but I guess my big question still is what kind of markup is there (as a bit of an average / rule of thumb)? I already know that there needs to be a minimum of 30% on a £3,000 car to even break-even.

Need to know what I'm working with instead of just costs. And I have no way of knowing because the auctions aren't accessible without trader insurance, which I'd have to fork out £1,500 on just to find out the answer to my question (to my very original point) and am therefore asking the question of someone experienced as a motor trader so I don't have to make this un-wise move.

Also, everyone has to start somewhere or you'll never achieve anything. It annoys me each time someone tries to infer 'leave it to those experienced'. A very short-sighted approach - builders are notorious for this and it's because they're hiding how easy their job actually is and how much they're ripping you off! The first time you try and build a wall will not be a great success, not even the second time, but after having the opportunity to try, experience and learn, you get to a pretty good standard. Here I am building offices, garages, extensions and other outbuildings. If you just pay a brickie, you'd never learn. Same applies for selling cars, making beer or whatever in life! Sorry, but a massive bug bear.

With 30% on a £3k car you are very close - my own figure would be £1k minimum.

Of course, you will develop an eye for cars that are in good nick - you mention above about specialising in models you know, which is sound, at least to start with.


My response to the 'leave it to the experts' view is this.

There is no reason why you cannot break into this world. Of course, risks go up with lack of experience, but you know that, and gathering information reduces that risk.

If this is effectively a side hustle to start with you can go more slowly, too. You are not under pressure to turn around 10 cars a month, or even any, if you can't find the right stock.

 

[forevergroup]

I'm not particularly familiar with this area, so I can't advise much on the core business proposition, but what I have heard in the past is that in some cases dealers make more money on the PCP finance than they do on the car. So while it may be difficult (or never applicable) for you to sell the applicable finance yourself, it may be worth seeing if you can partner with a third-party on a referral basis. This may be a useful way to improve your overall margin on some of those car sales.

 

[Paul Carmen]

It's tight at that end of the market, BCA fees are quite high. It's a long time since I was involved & you used to be able to blag silver or gold accounts from the BCA reps, but from what I hear not any more. You start on Blue & need trade insurance; the fees for that level are here: https://www.bca.co.uk/dam/jcr:cfb03...Blue_Standard_Rate_Buyers_Fees_April_2022.pdf

You'd be far better picking up cars privately and reselling them, the lower end auction stuff is often a bit unloved & tatty. A private car you can test drive it, check for faults, damage, knock them down etc & not pay the fees.

 

[Mark T Jones]

It's tight at that end of the market, BCA fees are quite high. It's a long time since I was involved & you used to be able to blag silver or gold accounts from the BCA reps, but from what I hear not any more. You start on Blue & need trade insurance; the fees for that level are here: https://www.bca.co.uk/dam/jcr:cfb03...Blue_Standard_Rate_Buyers_Fees_April_2022.pdf

You'd be far better picking up cars privately and reselling them, the lower end auction stuff is often a bit unloved & tatty. A private car you can test drive it, check for faults, damage, knock them down etc & not pay the fees.

I did a bit of casual work, collection & delivery for BCA, mostly Motability - It was horrifying how badly some 3-year old cars had been treated (kind of took me back to early repping days when damaging company cars was seen as fun)

Back then there was a lively industry of people who would buy a car at BCA Manchester, drive to Blackbushe and make a few hundred quid. I suspect it's not so easy now.

 

[AndreasC]

You can use the margin scheme for VAT which my clients used

VAT margin schemes

How to use VAT margin schemes - records you need to keep, invoicing and VAT return reporting

www.gov.uk

If any cars you sell are over €10,000 you need to register as a high value trader
https://www.gov.uk/guidance/money-laundering-regulations-high-value-dealer-registration

The 2nd hand car market has been buoyant in the last two years though as supplier chain issue ease and recession looms prices are likely to readjust

You also need to register for self assessment (personal tax) if not already

Most dealers make money through volume but if you find some 'bargains' you may be ok. The margins are small and if you can't shift a vehicle you will be left with all your money tied up and potentially have to sell at a loss to just get rid of it

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