How do I check where a used car lot gets its vehicles?
Ask the owner to tag a recent stretch of sold vehicles by source: trade-in, auction, wholesaler, other dealer or private purchase. Then find out which sources rest on the owner’s own relationships and accounts, and whether they would carry over to you. Ask what supply would stop if the owner left.
A used car lot is only as steady as its supply of vehicles it can resell. Two lots with similar sales can source in very different ways. One leans on trade-ins from loyal customers. Another gets first call from a wholesaler who likes the owner. As a buyer, you want to see the mix, and you want to learn which parts of it belong to the business and which belong to the person running it.
Ask for a source on every vehicle
Ask for the last several months of units sold, each tagged with how the lot acquired it: trade-in, auction purchase, wholesaler, another dealer or a private purchase. Many dealer management systems can produce this list. Compare it with how the owner describes the lot. If the owner says most cars are trade-ins, the data should show it. Where tags are missing, bills of sale and purchase invoices tell the same story, only more slowly.
Find out whose relationships they are
A source is only an asset if it survives the handover. Ask whose account holds the auction access, and how much depends on the owner’s eye for what to bid on. Wholesalers and other dealers may offer cars first because of a personal friendship. Ask which suppliers the owner would phone this week, and whether each would take your call too. Ask for introductions during the transition.
Look for concentration
Watch for dependence on one channel. A lot that gets most of its cars from a single wholesaler or a single auction has a thin spot if that supplier changes its terms. A spread across several sources is steadier. Ask how the lot would cope if its best channel went quiet for a season. Could it buy more elsewhere, or does it lack the cash or floor-plan financing room to do so?
Know who answers the licensing questions
Whether you need your own dealer registration, and whether the lot’s auction access carries over to a new owner, depend on the law and on each auction’s own membership terms. Your lawyer can tell you what applies before you sign, and each auction can tell you what it needs from you. Build that step into your timeline so supply does not stop on your first day as owner.
Related reading
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Financing
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 02Business Development Bank of CanadaGovernmentWhat is inventory
- 03Business Development Bank of CanadaGovernmentInventory financing: What it is and how it works
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