Start a Used Auto Parts Business

Starting a used auto parts business can be an excellent way to make money and prevent older car parts ending up in landfills. In addition to helping the environment, you can assist people who cannot afford brand-new car parts to keep their cars in working condition.

Steps

Planning for Your Used Auto Parts Business

  1. Know your market. Used auto parts businesses usually operate on a local level, with a few companies providing this service in the form of a regional or national chain. As such, do some Conduct-Market-Research to ensure that you are not wading into an overly-competitive market with many well-established used auto parts businesses.
    • Do an internet search, look in the local phone book, and pay close attention to advertisements on local television to identify similar businesses in your area.
    • Account for the size and population of your city and compare that to the geographic location of existing used auto parts businesses.
    • Used auto parts businesses are more likely to thrive in lower income areas, as wealthier segments of the society generally don't buy used auto parts as often.
  2. Develop a Write a Business Plan-for-a-Small-Business. Your business plan should list information about exactly how you are going to run the business, any specialty areas, how you will open and maintain your business, where you will get your car parts, and how you will price them to earn a profit. Your marketing plan should contain information about your target audience and local competition as well as how you intend to draw in your target audience.
    • Your specialty areas may be in imports, exports, motors, or bodywork. Do some research to determine what area can work for your business.
    • A used auto parts business can be particularly lucrative if you provide rare or hard to find parts for more obscure vehicles.[1]
    • In your business plan, be sure to account for all costs and expenditures related to the business, project realistic sales goals, design a plan to reach new customers, identify potential demographic segments of the community who will utilize your services, and plan for the growth potential of your business. Be sure outline where and how you expect to generate the necessary capital to get your business off the ground and to ensure that you can expand when needed.[2]
  3. Obtain the necessary paperwork. Make sure you acquire all the required licensing, permits, and insurance to run a used car parts business in your area. Pay attention to zoning regulations as well as state and federal guidelines.[3]
    • Most states require a license for businesses that buy, restore, recycle, and resell used car parts.
  4. Find a suitable location. Find a location for your used card parts business. As long as you have quality marketing and advertising strategies, you don't necessarily need a location that is easy for people to find. People may come looking for you because of the service you provide is so particular.[4]
    • You will need a location that is big enough to house and properly catalog a variety of used parts for all the makes and models of cars you cater to.[4]
    • Hire employees. If you are looking to open a used auto parts business, chances are that you have at least rudimentary knowledge about cars and how they work. However, you will likely need a licensed mechanic in your business to help refurbish old parts and identify parts that have potential resale value. Posting an add in local newspapers or on job search websites can help you find potential candidates for employment.
  5. Identify supply sources. The more you have on hand, the better. In the beginning, it may be hard to invest in the right parts. Start small, and seek parts you know people are looking for. You can also invest money in parts you know are necessary and are expensive when purchased brand-new. This way, people will more often seek out the used parts you have.
    • Identifying the parts you need and where to find them depends largely on your business plan. Your business may choose to focus on providing parts for rare vehicles not in production anymore, as these will be in high demand among a small segment of the population. Alternatively, you may choose to specialize in providing parts for very common vehicles in an effort to expand your potential sales base.
    • Try finding these parts in junkyards, from cars sold at salvage auctions, or contact insurance agencies to try to purchase "scrapped" cars from them at a discounted price.[5]
    • As a used auto parts business owner, you will need to educate yourself on the mechanics of how a car operates in order to find the right parts. Also, be prepared to test the parts you find to know if they are still operational or can be refurbished to become operational again.

Running Your Used Auto Parts Business

  1. Connect with existing businesses. Local businesses, such as tow truck companies, junkyards and insurance companies, can help you find used car parts.
    • Insurance companies may be willing to sell you parts of a vehicle to recoup some of their money, especially when selling the entire vehicle is not a practical option.[6]
  2. Buy “scrap” vehicles. When a car gets totaled, there may be many valuable working parts left on the vehicle. Sometimes it may be worth it to buy an entire scrap vehicle so you can get a breakdown of motor and body parts for a specific make and model.[5]
  3. Advertise your business to the public. Advertise online, on the radio, and in local newspapers. If you can afford it, consider placing a commercial on a local TV channel. Use flyers, business cards, and word-of-mouth advertising to inform people about your business. Run special promotions to celebrate your grand opening.
  4. Establish repeat business. One of the main goals of any business to establish a reliable customer base who will bring in repeat business. This can be particularly difficult with used auto parts businesses because the needs of customers are intermittent and specific. However, you could offer a repeat customer discount, a frequent-buyer card, or other special offers to entice customers to come back.
    • Offer to take the old parts from your customers who purchase their used parts from you. You may be able to salvage car parts, refurbish them for a low cost, and place them back on your shelf.
    • You could also consider offering a discount to customers who bring “trade-in” parts to your business.
    • Consider selling online. When you deal with very specific parts for specific vehicles, you may find that no one in your immediate area will need the parts you are offering. As a result, it is wise to consider listing your inventory online to reach a much wider customer base. If you do choose to sell parts online, you need to account for the cost of packaging, shipping and handling in your prices and business model.
  5. Manage and monitor your inventory. The success of your used auto parts business relies on managing your inventory. If customers don’t find what they need at your business, they will happily shop elsewhere. Staying profitable in the field of used auto parts requires you keep an extensive selection of parts for a wide variety of vehicles at all times.
  6. Control your cash flow. Monitor the flow of cash in and out of your business. Make sure you don’t spend more acquiring the parts than you make selling them. Make sure you account for the other costs your business incurs from day-to-day operations when pricing your products. Such costs include[7]:
    • Paying employees and staff (if necessary)[8]
    • Paying rent or mortgage on your business’ property[8]
    • Paying bills, like electric, water, and gas, that are necessary to your business’ operations[8]
    • Paying property taxes and insurance[8]
    • Advertising costs[9]

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Sources and Citations

  1. ↑ http://www.entrepreneur.com/businessideas/automotive-used-parts
  2. ↑ http://smallbusiness.findlaw.com/starting-business/starting-business-overview/starting-business-overview-tips.html
  3. ↑ https://www.tdlr.texas.gov/parts/aprfaq.htm#employee
  4. ↑ 4.0 4.1 http://www.entrepreneur.com/businessideas/automotive-used-parts
  5. ↑ 5.0 5.1 http://www.carsdirect.com/used-car-buying/where-to-go-to-purchase-repairable-salvage-vehicles
  6. ↑ http://www.carsdirect.com/used-car-buying/where-to-go-to-purchase-repairable-salvage-vehicles
  7. ↑ http://businesscasestudies.co.uk/cima/controlling-cash-flow-for-business-growth/the-importance-of-cash-flow.html#axzz3mhOk5zC8
  8. ↑ 8.0 8.1 8.2 8.3 http://www.bizfilings.com/toolkit/sbg/startup/financing/figuring-costs-of-running-new-business.aspx
  9. ↑ http://www.bizfilings.com/toolkit/sbg/startup/financing/figuring-costs-of-running-new-business.aspx
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