Quick answer: To start a used car dealership in South Africa you need a business plan, a registered company and tax registration, a business bank account, insurance, a suitable location and enough capital to buy stock. If you will move unregistered vehicles on public roads, you also need a motor trade number from your local registering authority.
Stock is usually the biggest cost, and it is where most new dealers hit cash-flow problems. Floor plan finance, arranged through a broker like New Heights Finance, is one way to fund stock while you grow. Approval is decided by the lender.
Is a used car dealership right for you?
Successful dealers tend to combine product knowledge, an eye for a good deal, strong customer service, sales and marketing skills and the discipline to manage stock and cash carefully. Industry experience helps but is not essential.
How does a used car dealership make money?
Most dealers buy vehicles at a good price and sell at a margin. Many add income from finance and insurance referrals, accessories, parts and servicing. A typical day covers dealing with customers, inspecting and appraising vehicles, handling paperwork, marketing, managing stock and finances, and keeping the lot presentable.
Step-by-step: how to start
| Step | What to do | Notes |
|---|---|---|
| 1. Business plan | Research your market, competitors, target buyers and budget | Decide your niche, such as budget cars, bakkies or a particular brand |
| 2. Register | Register a company and register for tax with SARS | Speak to an accountant about structure and VAT |
| 3. Motor trade number | Apply through your local registering authority if you will drive unregistered vehicles on public roads | See the official gov.za guide for requirements |
| 4. Bank account | Open a business account using your registration documents | Keep business and personal money separate |
| 5. Accounting | Set up software or a spreadsheet to track income, expenses and stock | Affordable cloud tools are available |
| 6. Insurance | Cover stock, premises and customers on your lot | Events such as the 2021 unrest and 2022 KZN floods showed how exposed uninsured stock is |
| 7. Location | Find a lot with room for stock and an office, easy for buyers to reach | Check zoning and lease terms |
| 8. Fund stock | Use your own capital, and consider floor plan finance as you scale | See below |
Also make sure you understand your obligations under consumer protection rules when selling to the public, and seek professional advice on any licensing that applies to your business.
What does it cost to open a used car dealership?
Costs depend on your size and location, but typically include the following. Stock is normally the largest item.
| Cost | Comment |
|---|---|
| Vehicle stock | Largest expense and the one that ties up cash |
| Premises purchase or lease | You can start from home if local rules allow, but a lot builds trust |
| Renovation and signage | Basic branding and a clean presentable lot |
| Insurance | Stock, premises and public liability |
| Marketing and listings | Online listings are usually essential |
| Salaries | Often later, as you expand |
Funding your stock: own capital vs floor plan finance
New dealers often start with their own capital, then find that demand outgrows what they can afford to hold. Floor plan finance funds vehicle stock, with the stock itself as security, so you can hold more vehicles without draining working capital. New Heights Finance is a broker, not a lender, and introduces dealers to specialist lenders. Terms, limits and approval are set by the lender.
| Own capital | Floor plan finance | |
|---|---|---|
| Control | Full control, no lender | Lender is involved, stock is the security |
| Stock levels | Limited by cash | Can hold more stock |
| Cash flow | Cash tied up in stock | Cash freed up for other costs |
| Cost | No finance charges | Finance charges apply |
Read more in our post on why used car dealers should consider floor plan financing.
FAQs
How much money do I need to start a used car dealership in South Africa?
It varies widely. You can start small with a few vehicles, but stock, premises, insurance and marketing all need funding. Build your figure from a business plan.
Do I need a motor trade number?
You need one if your business operates unregistered vehicles on public roads, for example when selling, repairing or delivering vehicles. Apply through your local registering authority.
What is floor plan finance?
It is finance used to buy vehicle stock, where the stock is the security. It helps dealers hold more inventory without using all their own cash.
Does New Heights Finance fund dealers directly?
No. We are a finance broker that introduces dealers to specialist lenders. Approval is decided by the lender and is never guaranteed.
Ready to fund your stock?
Find out how dealers use floor plan finance to grow, or explore wider business finance options.