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Fuel prices have been steadily increasing for several years now, and the recent economic crisis and the strong Australian dollar have many Australians tightening their belts. It comes as little surprise that demand for large, expensive, petrol guzzling cars has reduced, with demand for second-hand and more economically viable, small and mid-sized cars correspondingly increasing.
Despite Australia's difficult economy over the past decade, the car yard industry has managed to succeed in otherwise tough financial times. In fact, the industry experienced 5% growth in revenue in the five years from 2011, becoming a $64 billion industry by 2016.
If you've ever dreamt of running your own car yard, don't let Australia's difficult economic climate hold you back. Now is the time to take advantage of Australia's increasing demand for second-hand and economy vehicles.
Location is important in almost any business industry, but has particular significance when it comes to car yards and dealerships. Consider the following:
Note that purchasing a vacant block with the intention of constructing a car yard is an entirely different endeavour to purchasing an existing car yard outright. The purchase of vacant premises or an empty lot would be considered the purchase of standard commercial property, which is property that can be used for a number of different purposes and is considered of a lower risk to a potential lender.
A loan to fund the development of a car yard is considered a commercial development loan. In order to be successful in your loan application, you would need to provide development application approval, construction plans and construction forecasts in addition to your business plan. Construction loans are different to business loans, which is what you would be applying for if you seek to purchase an existing car yard.
One of the first decisions you will need to make when purchasing a car yard is whether you intend to purchase the freehold property on which the car yard is situated, in addition to the car yard business itself. Your decision will not only affect the total purchase price, but will also affect the way lenders view your loan application.
If purchasing a leasehold car yard, the amount of the loan will typically be restricted to around 50% of the value of the business. For this reason, you will need your own cash savings or an existing residential property to offer as security for the loan to increase the loan amount.
If purchasing the freehold property in addition to the car yard business, lenders will typically offer a higher percentage of the value of the property and business combined, because they will use the freehold property itself as security for the loan. However, note that car yards are purpose-built and are considered specialised commercial property. Specialised commercial properties pose a higher risk to lenders because they cannot easily be converted to other uses and can be harder to sell.
In order to sell motor vehicles, you will need a licence or permit. The licensing requirements vary in each Australian jurisdiction, with some states and territories also requiring the completion of a training course before a licence or permit is issued.
Additionally, some Australian jurisdictions require a separate licence for a yard manager, who supervises or manages a car yard business without engaging in the sales process itself.
Consider the following sample licensing forms and requirements from various Australian jurisdictions, and enquire with the relevant government department in your state or territory to ensure that you fully understand the licences and permits applicable to your area.
Australian Capital Territory
New South Wales
Northern Territory
Queensland
South Australia
Tasmania
Victoria
Western Australia
Honesty and trust is important in any industry, but perhaps more so in the motor vehicle industry simply because car salespeople – and used car salespeople in particular – have become the butt of many jokes and generally have a poor (albeit undeserved) reputation. For this reason, salespeople in the motor vehicle industry are in the unfortunate position of having to build up a reputation of honesty and trustworthiness.
Consider the following to portray an image of trustworthiness to your customers:
It goes without saying that car yards make money from selling new and used cars for profit. However, a deeper look into the financial records of a car dealership will show that car sales account for a surprisingly small proportion of a car yard's revenue.
Car yards earn additional revenue from offering one or more of the following additional products and services:
Since car yards are considered specialised commercial property, car yard commercial loan applications will be looked at by lenders on a case by case basis. As with any type of business loan, it is always a good idea to compare your options to ensure you are applying for the best product to suit the business you intend to purchase and your own financial circumstances.
As a guide, the following loan terms may apply for a car yard commercial loan:
To increase your chances of having your finance application approved, consider the following:
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