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Car Dealer Business Plan Proposal Research Paper

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Updated: Jul 22nd, 2021

Executive Summary

This report is a business plan to set up a car dealership in Liverpool that will sell used electric and hybrid cars. The target group will be customers aged below 40 years, living in Liverpool or its environs, and college educated. Social media and word-of-mouth communication are the preferred modes of communication to reach this target demographic. The proposed business will have two product categories: hybrid and electric cars. No loans will be sought to start the business, as three partners will contribute equal amounts of money to start the business from their personal savings.

The partnership business model is selected for the proposed business because of its potential to generate an increased capital pool among the partners. Furthermore, it is easier to make decisions, in such a business framework as opposed to other forms of ownership, such as limited liability companies. The capital generated through the partnership agreement will be used as capital to buy stock, pay for the business location, and fund marketing expenses. These activities are expected to make the enterprise more profitable by securing a location that has high customer traffic and spreading the business’s brand across different market segments through marketing. It is expected that the proposed business will thrive on a growing awareness among car buyers to use environmentally friendly cars.

General Company Description

This sustainable car market is a subsection of the automotive industry with great potential for growth (Liu & Lai, 2020). Consequently, this paper is a business plan to start a car dealership (Next Car Importers – NCI) that sells hybrid and electric cars in Liverpool. The company’s mission statement is as described below:

  • Mission Statement: To promote environmental conservation using environmentally friendly cars.
  • Company Goals and Objectives: The company’s goal is to reduce the negative impact of manufacturing and driving cars. Alternatively, the objective of the business will be to reduce the total output of carbon emissions in Liverpool by at least 5% in 2050.
  • Business Philosophy: For a long time, the automotive industry has been criticized for increasing greenhouse gas emissions (Zhang, Ming, Liu, Zheng, & Qu, 2019). Industry players have reacted by developing cars that use alternative energy sources (Nieuwenhuis, 2018). Consequently, the overall business philosophy for NCI will be promoting environmental sustainability in the automotive industry.

The automotive industry is one of the most critical sectors of the global economy because of its relevance to transportation. According to Wagner (2019), the projected market sales for the industry is about 77 million units and about 70 million cars are produced annually. The passenger car segment is the largest in the industry accounting for about 70% of the market (Market Watch, 2019).

In terms of consumer activity, the Asia-Pacific region is the largest in the industry because it controls about 51% of the car market, buoyed by a high concentration of manufacturers in the region and an increase in disposable income among car buyers (Williams, 2015). The advent of electric and hybrid cars characterize the sector as a growth industry because of the increasing preference for environmentally friendly vehicles (Zhang et al., 2019).

NCI’s products will be marketed to young professionals because they are more aware of environmental conservation and efficiency than older generations of car buyers. In the short-term, there may be a decline in the sale of cars that use fossil fuels and in the long-term, there is likely to be an increased replacement of internal combustion engines for hybrid or electric powered machines (Stilgoe, 2018). NCI’s main strength is the sale of environmentally friendly and efficient cars.

Its key competence will be educating car buyers about available options for electric cars in the market. Excellent customer service will also be a key competitive strength because NCI will not only strive to provide an array of electric cars for its customers but also make sure that they have a good buying experience. Affordability will be the single-most actionable quality of the company’s products that will make the business succeed.

Innovation and people-centered negotiation skills are key personal traits that the business owner possesses that will improve the success of the business. Lastly, the proposed business will be a partnership because it is subject to relatively fewer government regulations compared to other types of legal entities, such as limited liability. The main motivation for choosing this type of business model is to expand the capital pool.

Products and Services

NCI will have two product categories: hybrid and electric cars. Hybrid cars are powered from two main sources: internal combustion engine and an electric motor (see appendix 1) (US Department of Energy, 2019). Popular car models that will be sold in this product category include the Toyota Prius, Chevrolet Silverado, and the BMW Concept 7 series (hybrid). Electric cars make up the second line of products that will be sold by NCI. Unlike hybrid cars, these types of vehicles are exclusively powered by electricity. Therefore, there is no room for the internal combustion engine. Some common electric car models that will be provided under this second category of products include Tesla and Nissan Leaf (among others).

The above-mentioned product categories will offer a strong competitive advantage over existing rivals because they will be sold to customers as used vehicles. Therefore, they will be affordable to a large section of the market. This key competency will be safeguarded by high cost of buying new electric and hybrid vehicles. Electric cars will be sold expensively compared to hybrid vehicles as outlined in figure 1 below.

Pricing Structure
Figure 1. Pricing Structure (Source: Developed by Author).

Marketing Plan

According to Morgan, Feng, and Whitler (2018), some of the most successful start-ups thrive on an effective marketing plan. This section of the business plan uncovers data that would be relevant to the proposed business. It contains information relating to the business economics, products, customers, and competition plans. Lastly, a summary of the sales forecast will be provided.

Economics

The automotive industry is one of the most consequential economic sectors of the global economy. Particularly, electric and hybrid car segments have captured the sector’s growth potential because they are deemed cars of the future (Kalverkamp & Raabe, 2018). There is immense potential for growth in these market segments because electric and hybrid cars only account for less than 1% of the total number of vehicles on the roads (Kalverkamp & Raabe, 2018).

Supported by a renewed optimism about “green” cars, the sustainable car industry segment of the automotive market is poised to take off. This trend has heralded a new period of product development characterized by car manufacturers producing vehicles that have a long battery life or a diminished dependency on fossil fuel (Nguyen, Hoang, Hoang, Bui, & Nguyen, 2019). Based on the sheer size of the market, the proposed business will have less than 5% market share of automobile sales in Liverpool.

The current demand of electric car vehicles in Liverpool is less than 2% of the total car sales in the world (Kalverkamp & Raabe, 2018). In the short-term, there will be no significant demand for electric car sales. However, in the long-term, this market share is expected to increase to about 5% and beyond. The projected increase should be supported by an increased preference for cars that use little of no fossil fuel. In part, this change in consumer taste and preference is linked to a wider global trend towards adopting sustainable means of transportation. Therefore, the proposed business will exploit it to increase car sales.

Like many other types of start-ups, there are immense barriers to entry that could affect the car dealership business. One of them is the high cost of capital associated with starting the business. To overcome it, a partnership business model will be adopted to attract funding from multiple investors. Stated differently, three partners will form the business and contribute an equal sum of money form their personal savings to set up the business.

Consequently, no loan will be sought. Based on the proposed partnership framework, each partner will have an equal stake in the business. Another barrier to entry that could affect the business is the lack of adequate charging stations around Liverpool for electric vehicles. In the short-term, this problem is expected to negatively affect sales, but in the long-term, it should be solved by increased government investments in the sector (Ghosh, 2018).

Several environmental factors could affect the business. One of them is a change in technology. Particularly, the advancement of new technology could increase the mile range for electric cars and potentially have a positive impact on vehicle sales because it would increase customers’ confidence in electric and hybrid cars. Changes in government regulation could also significantly affect the business. For example, the exemption of electric cars from taxation could potentially lower the cost of owning such cars (Pavlínek, 2016). A change in the economy would similarly have an impact on the business by affecting consumer purchasing power. Lastly, industry changes could affect the proposed business by influencing competitive behaviors. Such factors could indirectly impact sales.

Products

Customers who buy electric and hybrid cars from NCI would benefit from the advantages outlined below:

Features and Benefits: Table 1 below highlights the major product categories for the proposed business and their benefit to customers.

Table 1. Features and Benefits of Products (Source: Developed by Author).

Product Category Features
Hybrid Cars Environmentally Friendliness: Customers who buy electric and hybrid cars will benefit from their positive environmental record because these cars have a long gas mileage and run cleaner than cars that use fossil fuels.
Regenerative Braking: Hybrid vehicles have a regenerative braking system that transforms kinetic into electric energy (CEF, 2019). Therefore, in the course of using them, customers who buy hybrid vehicles will be recharging their batteries and improving their mileage.
Electric cars Use of Batteries: Unlike mainstream vehicles, electric cars use a battery with stored electric energy to power the engine and not fossil fuel.
Higher Resale Values: Customers who buy electric cars will benefit from higher resale values because of a high demand for such types of vehicles. Therefore, as the price of fossil fuels increase, customers who wish to sell their electric cars would have a ready market with high resale value.

Lastly, customers who buy cars from NCI will benefit from after-sale services that will be offered within the first year of ownership. Services will include oil changing, spark-plug replacement, and towing. They outline some of the basic car maintenance services associated with hybrid cars.

Customers

As highlighted in this report, the target market will be car buyers who are below 40 years. A young demographic is chosen because this target customer group is deemed more environmentally conscious than older generations (Swar, 2018). There is no specific gender bias regarding the kind of customers who will buy the company’s vehicles. However, efforts would be made to market the products to the working class population of Liverpool, which earns more than $30,000. Table 2 below summarizes the demographic characteristics of the target population.

Table 2. Customer Profile and Characteristics (Source: Developed by Author).

Profile Characteristics
Age Less than 40 years
Gender Male or Female
Education College educated
Location Liverpool
Income Level More than $30,000 annually
Social Class and Occupation Working Class
Other Environmentally-conscious

Competition

Competition refers to the ability of market players to provide substitute products or services. Based on this definition, three major competitors will affect the proposed business: BMW and Nissan. Although there are other players in the market that sell electric or hybrid vehicles, the above-mentioned car manufacturers have the biggest market impact in Liverpool and are consequently likely to pose the biggest competition.

The rivals will primarily compete with the proposed business on the sale of hybrid and electric cars. Alternatively, its “mainstream” cars offer indirect competition. NCI’s products and services compare to the competition as being more affordable. Table 3 below provides a summary of the main competitors, their importance to customers and their impact on the proposed business.

Table 3. Competitive Analysis (Source: Developed by Author).

Factor Me Strength Weakness Competitor A (BMW)
Address: Great Howard St, Liverpool L3 7HT, United Kingdom
Competitor B (Nissan)
Address: Sefton St, Liverpool L8 6PZ, United Kingdom
Importance to Customer
Products Hybrid and Electric cars Sustainable Lack of adequate charging centers Hybrid and Electric cars Hybrid and Electric cars 1
Price Wide range High resale value Few customers can afford Low range Low range 2
Quality High Reliable Used Car High High 1
Product Selection Sustainable Environmentally friendly Expensive Sustainable Sustainable 2
Service Products need minimal servicing After-sale service Service available for only one year Products need minimal servicing Products need minimal servicing 1
Reliability Low High returns on investments Used car High High
Stability Strong Can travel long distances Few charging stations Strong Strong 2
Expertise Needs high expertise Available expertise Expensive Needs high expertise Needs high expertise 3
Company Reputation Low Opportunity to innovate No prior market presence Existing market presence Existing market presence 4
Location Liverpool Availability of charging stations Few charging stations Liverpool Liverpool 1
Appearance Stylish Sustainable demand Few design changes Stylish Stylish 4
Sales Method Social Media and word-of-mouth Wide coverage Limited to urban customers Traditional and New Media Traditional and New Media 5
Credit Policies Tax credits offered on products Affordability Applicable to cities only Low tax credits Low tax credits 5
Advertising Low cost (social media) Inexpensive Low coverage Television Television 5
Image No Image 5

Based on the table above, the main strengths associated with the proposed business is the affordability of its products. Comparatively, the products will have a low level of reliability compared to competitors who are selling new cars.

Niche

Based on the characteristics of the products identified in this report, the proposed business will appeal to a market niche characterized by environmentally conscious customers.

Strategy

Based on the characteristics of the niche market identified above, the business will be marketed online and through word-of-mouth. This strategy will improve the probability that information relating to the company reaches the target audience.

Promotion

NIC’s products will be marketed through social media and word-of-mouth marketing as the main media platforms for communication. Advertisements will be placed twice a month on the social media platform and word-of-mouth communication is expected to be a continuous process. These two promotion strategies are selected for use because the target demographic is comprised of young people (below 40 years).

Furthermore, they are low-cost methods of advertisements, thereby providing the highest returns on investments. Word-of mouth is the only form of non-paid advertising. The first clients who will be sourced from social media will stimulate it (Dash & Sharma, 2019). Overall, this advertising strategy will be designed to create the image of a responsible company that is environmentally conscious. The goal will be to make the customers perceive it as such. A graphic image (logo) of the company will contain the name of the company and its initials. Lastly, a system containing information about repeat customers will be developed to seek new business. The data will be obtained from a catalogue of customers eligible for after-sale services.

Promotional Budget

The items listed above will cost $10,000. This number relates to the start-up budget. However, in the course of the business, it will incrementally be increased by 15% to account for new and unforeseen expenses. Therefore, the operating plan budget will reflect this increase every year.

Pricing

Pricing is an important consideration for automotive buyers because of the wide range of products available in the market. NCI’s pricing strategy will be set at 15% of the total cost of purchase. This mark-up is informed by the information presented in the competitive analysis, which showed that customers deemed the cost of buying cars as a “fairly important” decision-making factor. Therefore, the margin set is slightly lower than the industry average. The above-mentioned pricing structure is different from that adopted by the competitors because they are selling new vehicles, which are more expensive. Lastly, every customer will receive one loyalty point per purchase, thereby making them eligible for discounts on future purchases.

Proposed Location

Location is an important factor affecting the decisions of customers to patron a business because it affects their purchasing experience. The proposed business will be set up along major highways in Liverpool. This location will be convenient for customers to drive in. The dealerships will be outdoors and a parking space will be provided for customers. The outdoorsy nature of the location aligns with the company’s image of “sustainability.” This is what customers expect. The dealership will also be near other car dealers, which are also located along major highways. Therefore, distance will not be a key differentiating factor.

Distribution Channel

The proposed business will act as a retail location for used hybrid and electric cars.

Sales Forecast

Tables 4 and 5 below highlight the best and worst-case scenarios for the business.

Best Guess
Table 4. Best Guess (Source: Developed by Author).
Worst Case
Table 5. Worst Case (Source: Developed by Author).

References

CEF. (2019). Web.

Dash, M., & Sharma, K. (2019). . Journal of Creative Communications, 14(3), 254-270. Web.

Ghosh, S. (2018). . The Journal of Applied Economic Research, 12(1), 1-18. Web.

Kalverkamp, M., & Raabe, T. (2018). . Journal of Macromarketing, 38(1), 112-130. Web.

Liu, Y., & Lai, I. K. W. (2020). . SAGE Open, 10(1), 1-10. Web.

Market Watch. (2019). Automotive industry market size growth analysis, outlook by 2019 – Trends, opportunities and forecast to 2024. Web.

Morgan, N. A., Feng, H., & Whitler, K. A. (2018). . Journal of International Marketing, 26(1), 61-95. Web.

Nguyen, D. C., Hoang, H. D., Hoang, H. T., Bui, Q. T., & Nguyen, L. P. (2019). . SAGE Open, 9(2), 1-10. Web.

Nieuwenhuis, P. (2018). The International Journal of Entrepreneurship and Innovation, 19(1), 33-45. Web.

Pavlínek, P. (2016). . European Urban and Regional Studies, 23(4), 571-593. Web.

Stilgoe, J. (2018). . Social Studies of Science, 48(1), 25-56. Web.

Swar, B. N. (2018). . Global Business Review, 19(1), 175-186. Web.

US Department of Energy. (2019). Web.

Wagner, I. (2019). . Web.

Williams, G. (2015). . SAGE Open, 5(3), 1-10. Web.

Zhang, X., Ming, X., Liu, Z., Zheng, M., & Qu, Y. (2019). . Advances in Mechanical Engineering, 11(3), 1-10. Web.

Appendix

Hybrid cars.
Appendix 1: Hybrid cars.

Refining the Plan

Appendix 1. Hybrid vehicles (Source: US Department of Energy, 2019).

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