In the UK motor trade, dealers come in all shapes and sizes. From large franchised and used dealer groups to the one man band flipping cars on social media. These groups or individuals focus on retailing cars to the general public. But there is another often overlooked way of dealing in cars which can work especially well as a side hustle. You can become a “Trader”.
What is a car trader?
The term ”trader” in the context of the UK motor trade denotes an individual who sources and buys used cars at below trade value and then sells (trades) them to a dealer or garage instead of retailing the car to the general public. This form of selling is known as a trade sale.
Most successful used dealers and garages are always struggling to find quality cars for stock, so are more than happy to buy cars from traders. Making it easy to build a relationship as a trader and set up a good little side hustle with very little capital or overheads.
Trading cars can be profitable and has some advantages over actually dealing in cars. Trading, should not be confused with the practice of franchised garages picking stock from another franchise to fill a customers order, that is known as a dealer trade.
How do car trader work?
Car traders act as a middleman focusing almost all their time on finding cars. Once found a car can either be bought there and then or a trader will try and sell the car before they even buy it. More experienced and confident traders will always buy a cheap car knowing that a buyer will easily be found.
The car is then offered around to dealers and sold to the highest bidder. If a trader is less experienced or a cars desirability is in doubt a trade buyer is normally found before the deal is agreed with the seller.
Some traders do carry out repairs on cars before they trade them on. It is also common for traders to valet cars before offering them to a dealer or garage. Most of the time a valeted and mechanically sound car in forecourt ready condition will sell for a premium.
But equally some traders just sell the cars on in the same condition as they buy them. Both strategy’s work well and often depend on the relationship between the traders and dealer.
What do you need to become a car trader?
Lots of car traders are retired or ex car salesman. So some experience in the motor trade is preferable, but it’s not essential. As all the information you need on car valuations is available from services such as Glasses guide and Cap. These services offer car valuations apps on a subscription service and are the most common way of valuing a car in the motor trade.
In addition to the valuation services the only other things required are insurance and some working capital. As you aren’t going to be selling to the general public and don’t have a premises of stock to insure the cost of insurance shouldn’t be high.
But it is essential you are covered at the very least for road risk on any vehicle and your insurers are aware you are using it for motor trade business. But a good insurance adviser can talk you through whats required.
The amount of working capital you will need will obviously depend on the car you buy. But unlike being a car dealers who need have large sums of money tied up in stock, a car trader is normally only siting on a few car at most. So you can start a trading business with very little money.
It’s not something I would advise but you could even put a car on a credit card if you already have it sold or are confident of being able to sell it in the nest few days or weeks.
The only other items you will need are some confidence and a mobile phone. If you end up buying cars that need improving before you trade them all of this can be outsourced. Car trading doesn’t require any form of premises, licence or any other expensive overhead. Even if you operate from home no actual business will be occurring at that location so no additional permissions are required. Making it an idea side hustle.
Where do traders find cars?
Most traders scour local classified adverts both on and offline, Gumtree, eBay and Facebook groups are popular places to find undervalued cars as well local newspapers.
Some traders also find cars at franchised dealers. Most used dealers will already have relationships with franchised dealerships, but you can still find opportunities. Dealer part-exchanges are normally found around the back of the premises. These cars maybe high mileage or be to old for an ‘approved used’ program. So can be bought cheaply and traded.
Developing a good relationship with sales staff and managers at larger dealers can be key to making big profits when trading cars. These relationships can take time to develop but can be worth the effort.
Trade cars can also be bought at auction. It is much harder to buy auction cars at trade money these days. But cars sold at smaller local auctions are sometimes missed by the masses and can be bought cheaply.
If you are serious about trading cars advertising for cars is great option. A simple cars wanted for cash adverts placed online and in local papers and publications can be a great source of stock.
Which cars should you buy?
In theory you can trade in any car regardless of age or type. But the focus here needs to be on what you can sell and what your dealer base are looking to buy. In an idea world you will have a buyer lined up for a car or have a good idea of who you can sell the car too.
Where do traders sell their cars?
Most traders target medium sized used car dealers. The reason being is that these size businesses are reliable buyers and are always looking for stock. Normally this size operation is run with a manager/owner and one or more salesman. The owner/manager is normally the decision maker and its easy to build a relationship with him or her and the staff.
These operations also aren’t big enough to employ a buyer or buying team. So you can be a useful and important part of their buying strategy and in some cases they will actively chase you for cars. If you develop several relationships with dealers in your local area it can turn into a very good business opportunity.
Another option is to trade specialist cars. These can require a more specialist knowledge and are harder to fine. But the opportunity for a larger profit margin can be tempting. There are lots of specialist dealers all over the UK that you can trade cars to and most will pay a premium for the right car.
Specialist dealers often have an in-house buyer who will give you a firm offer subject to inspection and will often be willing to travel and arrange collection.
Franchised dealers shouldn’t be overlooked. While some aren’t interested in buying cars for cash even at trade money, some operate used lots and are keen to buy own brand cars. The are also often interested in buying cars that have waiting lists that are selling for a premium. So even if you are offered a nearly new car it might be a trading opportunity.
How much profit do car traders make
Profit margins can vary massively and are largely dependent on how good you are at buying cars. But on a normal family car or hatchback a trader can normally expect to make between £500 and a £1,000 on average as a net pre tax profit. If you are trading higher end cars the margins can be much larger, the same is true of classic cars.
Ideally you would be supplying a good mix of cars to a large network of buyers, giving yourself a good consistent income. But it may take years to build a network and gain the buying experience needed. But if you can do this and if you have a good reputation you can make a lot of money trading cars.
Pros and cons of car trading
Pros
- You don’t have to hold a large number of cars in stock.
- Not holding stock means you avoid depreciation and ongoing repairs.
- You can often get the car sold before you have agreed to buy it.
- You don’t have to deal with the general public.
- You don’t have to warranty a car.
- Low startup costs.
- Quick turnover of money and cars.
- Low funding costs.
Cons
- Lack of stock can mean inconsistent profits.
- Smaller profit margins than when you retail a car.
- You are reliant to a certain extent on the success of the dealers you trade too.
- Building a trading network can take time.
- The low cost on entry can mean lots of competition for cars.
Car trading tips
- Only buy cars you are sure you can trade.
- NEVER reveal where you buy cars from.
- Remember when trading cars relationships are often more valuable than profits.
- Never misdescribe a car, always give an honest appraisal.
- Always do your homework and inspect a car before agreeing to buy it.
- Don’t buy or bid on cars without first seeing it.
- Always HPI a car or insist on the supplying dealer supplying an up to date certificate.
- Never overpay for a car.
- Buying cars in job lots can result in greater margins.
- Remember in car trading often the first deal is the best deal.
Conclusion
Done correctly car trading can be highly profitable. Done on either full-time basis or as a side hustle. It can take a while to build up relationships and to fully understand the market. But once you have built up these relationships it can be a highly profitable business. Trading can also be a good sideline if your a car dealer or flipper, allowing you to shift stock you can’t sell or make a small profit on a car you otherwise wouldn’t buy.
However you approach car trading you cant go to far wrong if you follow the tips above and take a practical common-sense approach.
