How to become a car trader
Learn how to make money from buying and selling cars
With new car registrations falling to their lowest level since 2013, now could be the ideal time to get your car trading business venture on the road.
The great news is, to become a successful car trader, you don’t need to be a petrolhead.
You just need to know how to strike a deal, recognise a bargain when you see one, and understand exactly what your target market is after. Get that right, and you could see profits of £200 to £2,000+ per sale – and all for a couple of hours’ work.
With a decent profit margin potential, minimal outlay (if you’re selling from home), and flexible working hours, becoming a car trader is one of the most accessible and rewarding business ideas to set up and run. There are just a few legalities and practicalities you’ve got to sort out first.
In this article, you can learn all about the eleven steps you need to take to jumpstart your new career. We’ll cover things like Motor Trade Insurance, how to apply for trade plates, and how to register as a sole trader. We also talk to successful car traders to discover how they’ve turned their garage side hustle into a polished showroom business.
Ready to go? Then start your engines…
Research the market
The first question you need to ask is simple – what type of car are your buyers after?
Just as an example, sales of diesel cars fell by about 50% in 2017 and 2018, and have continued to decline – a strong indication that diesel cars could be hard to shift.
You should also keep an eye on what’s going on closer to home. For example, Clean Air Zones are being introduced in and around the UK’s major towns and cities, which means a gas guzzler with high emission levels may not be the easiest car to sell.
An excellent source of automotive stats is the Society of Motor Manufacturers and Traders (SMMT). As well as representing the interests of the industry, it provides a wealth of car data and research valuable to someone new to the market, including:
So what cars are selling?
Keeping up to date with buying trends is the first step to knowing which cars are the best to buy and sell.
The latest data from SMMT states that Ford Fiestas and Vauxhall Corsas were the most popular second hand cars in late 2019, while sales of ultra-low and zero emission cars have recently increased by a massive 28.6%!
How should I price my cars?
There are lots of factors that could affect the value of a car. These include:
- Overall condition
- Modcons (e.g. aircon, Bluetooth, hands-free, heated seats)
- Type of engine
To find out how the above factors could affect the value of the car you’re selling, local market research is key.
Hop onto sites like Autotrader to gauge the guide prices for cars of a similar spec. You’ll then be able to offer a fair price while keeping profit margins in mind.
The other thing to think about is the time of year.
For example, convertibles tend to sell for more in the warmer months, meaning purchasing one in late winter and selling it in mid-spring could be an easy way to see a profit.
Or consider the fact that a lot of students learn to drive in the summer holidays, which means there could be a higher demand for cheap runarounds in the summer – and we all know that when supply outweighs demand, prices increase.
How long does it take to sell a car?
While data collected by Autotrader suggests it takes on average 25-45 days to sell a car, if you judge demand right, you could see it rev off your drive in less than a week.
Just make sure you factor in the time it takes to sell a car into your business plan. This is so you can assess the viability of your new venture. If you constantly have money tied up in an undesirable vehicle, you may experience cashflow issues, and end up losing money in the long run.
Write a business plan
This may seem like a premature step when you haven’t even bought your first car, but having a roadmap is essential to visualising the direction in which you want your business to go.
And a business plan doesn’t have to be complicated, especially when it comes to setting up a car trader business. In fact, Andy King, founder of original car buying comparison service JamJar, says:
To start, you’ll need to carry out projected calculations for each car you sell. This will help prevent you from carrying out any work which may breach the ceiling price of the car.
You should factor the following into your car trader business plan:
- Any repair issues the cars may have
- Any aesthetic improvements you might want to make
- Legal regulations and marketing considerations you will want to be aware of
Once you’ve worked out your costs, you’ll know how much you can afford to pay for a car, and can assess if you need to raise any finance.
You’ll also be able to work out how much you can afford to sell the car for, and estimate any profit. This can then help you set financial goals for the rest of the quarter/year.
It might be that you aim to have enough cash to start selling two cars at the same time. Eventually, you may even be able to plan ahead so you have enough cash to purchase or lease a premises, and turn your side hustle into a full-on business.
Get accreditation from the Motor Ombudsman
The Motor Ombudsman is an impartial dispute handling service. By becoming accredited, you’re telling your customers that you’re dedicated to providing an honest, high level service.
And if a buyer does raise a complaint, the Motor Ombudsman will guide you through the dispute resolution process so the complaint can be resolved fairly.
But that’s not the only reason why you should get accreditation from the Motor Ombudsman.
Here’s a list of benefits:
- Get unlimited access to its information line and adjudication service
- Use of the Motor Ombudsman logo
- Collect valuable feedback from your customers
- Set up a customisable profile page to promote your business
- Get access to Alternative Dispute Resolution and Consumer Rights training
- Benefit from increased exposure and potential buyers!
How do I do it?
You’ll need to head over to its Register Online page. From there, you’ll be asked to call them, or fill in the online form. Either way, you’ll need to dedicate some time to chat over your application with a member of its business services team – we reckon it’ll be worth it!
Get Motor Trade Insurance
Once you’ve been given the go ahead by the council, you need to get yourself some Motor Trade Insurance, which covers all cars in your possession so they don’t have to be insured individually.
Motor Trade Insurance is a great option as, unlike private insurance, it allows you to add and remove as many cars as you like without having to pay additional costs.
There are four types of Motor Trade Insurance:
- Road risk – the minimum cover necessary to satisfy the legal requirements of the motor trade. Only covers vehicles registered on the Motor Insurance Database (MID)
- Third-party – covers you in the case of an accident that damages another vehicle
- Third party, fire, and theft – covers everything above, as well as in the event of theft or fire damage
- Comprehensive – covers all scenarios mentioned above for any vehicle you own, and allows you to claim for personal injury
Apply for trade plates
Next, you need to apply for trade licence plates. These are mobile tax discs that save you having to tax and register every car that is temporarily in your possession.
Apply to the Driver and Vehicle Licensing Agency (DVLA) for a trade licence to be able to use trade plates.
These plates last for between six and 12 months, and expire on 30 June or 31 December. First time applicants can apply for seven to 11-month licences.
Buy a car to sell
There are a few different avenues you can go down when purchasing a used car. These are:
- Auction and listing websites (such as eBay)
- Car selling sites (such as Autotrader)
- Auction houses
Just bear in mind that auction houses, while being the best place to get a bargain, come with the highest purchase risk. This is because you have less legal protection at an auction house, and you don’t always know what you’re getting.
Make sure you thoroughly check the terms and conditions and background of the vehicle, otherwise you could end up purchasing a can of worms.
Our tip – if you’re not an auction aficionado, make sure you visit a few times before making a purchase.
Some tips on buying used cars
No matter where you decide to source your cars from, make sure you do the following:
- Check the condition of the car you’re buying – use the government website to check out the car’s previous MOT history
- Ask for the service history – the car could be worth up to 26% less without its log book
- Make sure there are no outstanding hire purchase or conditional sale agreements – otherwise the car is unsaleable
- Take the car for a test drive to see how it feels and functions. Test the brakes, examine the lights, ensure the gearbox transitions smoothly
- Make sure the vehicle has a V5C registration document, which is used as proof of ownership – without it, it could be the case that the car is stolen
- Ensure the purchase is in line with your business plan. Will it give you the profit margin you need?
Start selling cars!
Here’s what you need to do to get your vehicle ready for resale, and what to do when there’s interest.
Getting the car out there
- Make sure the car has passed its MOT – otherwise, you’ll find it hard to sell on. It may also be worth sorting out any advisories.
- It’s always a good idea to get the car valeted to give it more appeal
- It doesn’t cost much to touch up any scratches. It may even be worth getting the car resprayed
- Once you’ve carried out any work, get the car listed on websites such as eBay and Autotrader. You could even investigate local newspapers or car dealer magazines
- Make sure you take some clear photos of the car – inside and out – and list all the relevant information
What does this mean?
The vehicle must be of satisfactory quality. Simply put, the condition of the vehicle should be what any reasonable person expects.
The vehicle must be fit for purpose. In other words, the buyer should be able to use the car for the purposes any reasonable person would expect, including purposes advertised (e.g. towing).
The vehicle must appear as described. This ensures that you are not liable for any damages that have been pointed out, nor any breakdowns that may occur through normal use after purchase.
- Be transparent – tell your buyers everything you know about the car, or else there could be legal consequences
- Remember that the buyer is entitled to a repair, replacement, or refund unless you can prove a fault wasn’t there at the time of purchase
- Take the buyer for a test drive – this is a good opportunity to tell them about the car
- If the buyer agrees to purchase the car, make sure you both fill out the relevant parts of the V5C and send it to the DVLA – don’t let buyers take photographs of the documents (to avoid fraud)
- You can choose to set your own warranty, or not have one if you wish. Just remember to provide the buyer with a receipt if you do include a warranty
Register as a sole trader
Once you’ve sold your first car, you should register as a sole trader (read more in our guide on how to register as a sole trader). It is important that you inform HMRC once you start trading so that you are registered for self assessment tax. You could be fined if you don’t do this!
As you start buying and selling more cars, you may decide to form a company rather than operate as a sole trader (read more in our guide on sole trader vs limited company differences). Even if you don’t set up a company, you may want to set up a separate bank account for your car trading activities to be able to track them more clearly.
Soft skills you need to be an excellent car trader
While you don’t quite need the selling charisma of Del Boy to become a car trader, you do need to have a certain air of confidence, and the natural ability to negotiate and overcome objections. We’ve summarised the key skills you’ll likely need below:
- Ability to give great customer service
- Likeability – customers need to be able to warm to you
- Strong negotiation and objection handling
- The ability to set and meet sales goals (remember that all important business plan!)
- Honesty, and the ability to see from the customers’ perspective
- Maths skills
Creating a company and career progressions
So you’re making lots of money, you know you’ve made the right career choice, and now you want to expand your car trading business beyond the driveway. To create a proper company, you’ll need to create a succinct plan featuring KPIs (key performance indicators) to keep you in line.
First things first – you don’t need to go at this alone. Michael Austen, CEO of Big Van World, successfully grew his business from a small van trading startup to a thriving enterprise with an £18m turnover. He says:
It’s also about employing people that share your vision. Austin says: “For a plan to succeed, you have to have good people around you – a good team.” So if you’re looking to expand your business, make sure you do it alongside people who are going to help you make the next chapter a success.
So how do you go about turning your side hustle into a fully fledged business? Well, there are two clear options.
Having a recognisable name attached to your business always helps to get customers through the door. If you manage to get your hands on a franchise agreement, you’ll be able to partner with car manufacturers who’ll let you use their branding and their marketing material.
Becoming a recognised dealer isn’t easy, though. You’ll need to have all the figures which prove to the car manufacturers that you’re the real deal – that you can sell a car, or two, or three, and make a decent profit.
2. Consider financing
If you want to expand, but don’t have the capital to do so, you can ask the bank for a business loan.
Again, this won’t be easy. You’ll have to present them with clear projections and a well-drafted business plan for the bank to even think about handing over its wad of cash. And bear in mind that you'll need to be prepared to forfeit your cars and any other assets as collateral.
Taking credit card payments
An increasingly high percentage of car purchases are made using credit cards. Such cards present a range of advantages to the customer, including:
- Avoiding paying interest
- Protection by Consumer Credit Act 1974
- Various reward schemes
Not taking card payments could be a major disadvantage for your business. Think of all those high-value sales you could lose!
Here’s what you need to take card payments for cars:
A merchant account
A merchant account is simply a type of bank account that allows you to accept credit or debit card payments.
It automatically authorises card payments made to your business for a small fee, and then deposits the earnings from the sale in your bank account.
Merchant accounts can also protect against card fraud.
Check out our comparison of the UK’s best merchant service providers
Card machines for small businesses
You’ll also need a card machine to take credit card payments.
Card readers are becoming increasingly compact and powerful, and there are many providers to choose from.
Most have similar functionality, so you’re likely to base your decision on:
- The price
- The transaction fee (usually between 1-2% of the value of the payment)
Not sure which card machine is right for your car trading business?
Not to worry – we’ve compared the 6 best card machines for small business so you don’t have to.
Becoming a car trader: main takeaways
So there you have it – your guide to becoming a car trader.
It’s a lot to take in, so we’ve summarised the article into three clear points.
- It’s not hard to start a car trading business – at least not if you’re looking to buy and sell cars off your driveway. Just be clever with the cars you acquire, and make sure any work you do to them increases the value without breaching the ceiling price of how much you can actually sell the car for.
- Make sure you cover your own back. That means you should conduct business ethically, and sign up to the Motor Ombudsman just in case you need a third party to resolve a dispute fairly.
- Make sure you have a business plan, especially if you want to expand your business in the future. A potential franchising partner, or bank manager, will want to see proof that you’re the real deal before signing over any money.