Buying and selling cars can be a lucrative business but it has some challenges and pitfalls to look out for.
The buying and selling of cars is a simple retail model buy > add markup > resell, it has more profit potential than most other small retail, buying and selling or 2nd hand businesses but it also comes with its own set of potential problems: the 2nd hand car business can be full of surprises.
The first thing to look at is business model:
Basic buying and selling
This involves trawling classified sites (Gumtree, Facebook groups) and look for cars that you think has a higher potential resale value. This could be because the seller is desperate and has knocked a few thousand rand off its price in order for it to sell quickly.
Buying from auction
This is one of the cheapest places where you can pick up cars, not always if there are lots of motivated bidders but you can get some real gems here. Only problem is that you often buy the car as is off the floor, you don’t get to test drive it etc. There are two types of vehicle auctions in SA: dealer network and repossessions. Dealer network are private auctions where dealers buy and sell cars. Usually a dealer will get a car as a trade in but it doesn’t meet the standards to be sold in their showroom, so they have auctions where other dealers who specialise in cheaper cars can bid in it. Repossessions are when people who has vehicle finance, stopped paying their monthly installments and the bank took it back and is reselling it. This does not necessarily mean the car is going to be in a good condition so look out.
Buying from one province and selling in another
Provincial arbitrage. Cars in the Western Cape sell on average for ten to twenty thousand rand more than cars in other provinces. This involves buying a car in other provinces and transporting it down to the Western Cape usually to be sold in Cape Town. This can be lucrative but transport adds to the cost. Ideally this business requires someone knowledgeable close to the car being sold, to go and look at it and inspect it. It is not ideal to fly to inspect a car only to see it has a lot of problems that have not been mentioned in the ad.
Buy, fix and sell
This model has some of the highest profits but also carries a lot of risk. This involves buying non-running cars, fixing it up and reselling it. I don’t necessarily mean buying crap cars that have been standing for years, you can get some real bargains in this business from people who’s cars are out of motorplan and their engines have given in, only for the agents to give them some ridiculous quote for a new engine (new engines are very expensive), so they cut their losses, sell the car to get rid of it and buy a new one. What I just mentioned is the mechanical side of fixing and reselling. Then you get the cosmetic side of buying cars that have been in accidents, panel beating them and reselling.
But this is a risky business model if you are not a mechanic, even if you are a mechanic it can be risky because you can’t always see everything that is wrong or it takes you longer to source parts, or parts is way more expensive than you estimated. Meaning the car can stand long while you wait on parts or wait for secondhand parts to be available – quick turnaround is imperative, you can’t have tens of thousands of rands standing for weeks or months. Or time spent driving scrap yard to scrap yard looking for an identical model to get parts off of.
With the majority of people poor and struggling in South Africa they will never get to own a new car, or even a certified used car. That is why there is a massive market at the bottom end of the market for cheap used cars, these cars usually require some work and have high mileage and you’ll often have to travel to a dodgy area to buy these types of cars. But there is a large market for it, people that won’t even get vehicle finance will take out a loan or use stokvel money to purchase a cheapie.
Paperwork and legal
Now if you’ve looked at doing this before you might have seen people selling cars without papers, this is for some reason especially popular in Facebook groups. This is very risky, yes the paperwork could have been legitimately lost, but it could also have been stolen – not necessarily by the person selling it and not even the person before them, but it might have been stolen somewhere down the line. Some people will go to the effort to pull the papers but this can take time or the car has been scrapped and needs to be re-registered or the vehicles license is years behind (popular on Facebook also). This can add a few thousand rand to the cost so beware.
This can be a lot of hassle, and if you deal in cheapies you will see this a lot, it is very common in the townships, people just stop renewing the car’s license or they bought a car and never took it for roadworthy, those cars are usually very rough as they have not been properly maintained. Which brings me to my next point: in order for a car to be transferred to a new owner, a valid roadworthy certificate must be produced. The car will be inspected and put on a machine to test various things and if it fails a certificate will not be issued and you will forfeit the test fee, which is a few hundred rand.
Ideally you would look to find a sweet spot in this market, both from a sourcing perspective and a market perspective. For a small business this can be the R20 000 – R30 000 cheap roadworthy cars market, which requires little capital and can produce weekly profits of R5000 to R10 000.
• Once you have the capital, you have to start looking for cars – Classifieds, social media, auctions wherever
• A lot of people who privately buy cars for reselling do not put it in their names, they simply transfer it from the person who sold it to them to the new buyers name.
• To sell the car, you can list it in classifieds, but you can also take it to some dealers on consignment, where they will put the car on the floor and when it sells they take a cut. This is OK if you doing it as a sideline business with little time to spend. If you doing it full time, then you can list it yourself and give people test drives etc.
Factor in all the money you spent on the car and then add your desired profit, add a thousand or two as most people want to negotiate.