Used Auto Sales Business Plan

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Market Analysis Summary

Almost everyone needs a car to get from point A to B. Many families have two or more cars. Due to the recent success of the new car market, there is a large inventory of used cars available for re-sale. New car sales have enjoyed the largest single month gain in October 2001, up 24%.

4.1 Market Segmentation

Our market segmentation will consist of four basic segments; students, retired, families, and singles.

Students will include high school and college age students who need a safe and economical car. This group is concerned with price, flashy looks, and being cool. These drivers tend to be less educated and will buy on impulse paying more for less car. They will also buy cars more often than others, on average every two to three years.

The retired group will focus on practicality. Cost may be less important than quality and features. This group wants comfortable, nicely equipped vehicles at a reasonable price. They will want a vehicle that will last for years.

Families will focus on safe, practical vehicles. Something that will last for years, can fetch groceries, carry the kids, and perform long trips. Many will be on a budget, and price may be a big factor. They will shop around and educate themselves on vehicles, shopping for a specific make or model.

The last group is the singles. They are similar to the students in that they want flashly cool cars, but may be a working professional who can afford to pay more for a higher-quality vehicle.

The Market Analysis pie chart shows an average increase of 10% in potential customers. Many of these groups will want to trade up for a newer or more expensive vehicle at a later date. This will create an ever increasing market for used car buyers.

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
Students 10% 45,000 49,500 54,450 59,895 65,885 10.00%
Retired 12% 60,000 67,200 75,264 84,296 94,412 12.00%
Families 10% 400,000 440,000 484,000 532,400 585,640 10.00%
Singles 10% 200,000 220,000 242,000 266,200 292,820 10.00%
Other 10% 20,000 22,000 24,200 26,620 29,282 10.00%
Total 10.17% 725,000 798,700 879,914 969,411 1,068,039 10.17%

4.2 Target Market Segment Strategy

We focus on providing for the average car buyer first. Our focus will be on those most likely to purchase low-end, low-cost vehicles (highest profit margin). The students, families, retired, and singles have very different needs and wants. We will focus on each group separately, and prioritize our efforts. We will look at every customer as a potential repeat customer, reference, or spokesperson for other car buyers.

4.2.1 Market Needs

There are two important underlying needs: quality vehicles at competitive prices, and a large supply of available vehicles.

  1. There is a real need for a highly professional used car dealer who can provide quality vehicles at competitive prices, in a pleasant purchasing environment.
  2. There is also a practical need for new car dealers to move a large used car inventory that takes up valuable space on their lots.

We have four major trends that help us:

  1. New car sales have boomed over the last five years. This has contributed to a large supply of quality used cars and a 14% growth in used car sales. October 2001 had a record sales increase of 24%. Consumers recognize the value of a good used car, and are willing to pay for it. Even those consumers who would be more prone to purchasing a new vehicle are now purchasing used.
  2. Lower interest rates, and a slow economy are creating an opportunity for buyers to purchase more car for the same price. Used car loans are currently as low as 6%. Typically many have paid as much as 10-12%. The consumers savings are in the thousands for a long-term loan.
  3. Specific vehicles, like SUVs and trucks are more popular and have sold better than passenger cars.
  4. Recreational vehicles are becoming more popular for travel after the terrorist attacks on the World Trade Center September 11. Travelers are choosing to travel shorter distances and enjoy local destinations. This includes increased use of RVs, ORVs, and boating.

4.2.3 Market Growth

According to available market information, used car sales have risen 14%. Spending on used cars continues to rise, despite a slowing economy. As population increases in the area, so will the need for vehicles. Another strength is the fact that people are keeping cars for a shorter period of time before trading or selling. The average driver buys a new (or used) vehicle every four years. Vehicles are also maintaining more value. The result is continued increases in sales and profit margins.

4.3 Industry Analysis

  • The used car sales industry is continuing to grow at or above population increases. Vehicles are the second largest purchase most consumers make, and more people are buying new and used vehicles than ever.
  • Relatively good margins have resulted in some success in the local used car industry.

4.3.1 Competition and Buying Patterns

Used car dealers are notorious for unethical sales practices. Customers are inherently cautious and untrusting as a result. The more we can provide a high-quality sales experience, the more successful we will be. Our salesmen will provide a friendly and personal experience for the buyer. We will follow up and ensure customer satisfaction. We will rely on these customers for an excellent reference to other car buyers. This company will build an excellent working relationship with our suppliers and customers.

4.3.2 Industry Participants

Used car sales in the area are still relatively average in size. Dealers have varying degrees of success based primarily on location, products, and the sales team assembled. Quality sales personnel are usually not adequately compensated for their services, and as a result they tend to move from one dealer to the next.

4.3.3 Main Competitors

Our closest, similar competitors are AA Auto Sales, Big Apple Car Sales, Frank's Auto Place, Guaranty, R & L Motors, and Sierra Truck, all on Hwy 99 between Eugene and Junction City.

  • The primary competitors will be those in and around Junction City. Guaranty is a large, well-established dealer, with approximately 75% of the local market share. Guaranty has a large operation with a well-trained sales staff. Our sales manager is a former Guaranty sales manager, who understands the competition's operations very well.
  • Frank's Auto Place offers a limited selection, and appears to be unorganized. Frank's does not offer any competitive marketing and primarily focuses on the $1-2,000 vehicle.