This article provides a clear, step-by-step guide to building a 3-year financial plan for a car dealership. The plan includes projected sales, pricing strategies, inventory management, operating expenses, and more, tailored for entrepreneurs starting this type of business.
If you're thinking of starting a car dealership, having a detailed financial plan for the next three years is crucial. This article will break down the essential aspects, such as sales projections, expenses, and cash flow. By the end, you will have a clear roadmap to guide you as you start and grow your business.
This is one of the strategies explained in our car dealership business plan.
This article explores the key components of a car dealership's 3-year financial plan. It covers projected sales, pricing trends, expenses, and risks, offering clear insights and actionable steps for new entrepreneurs.
| Aspect | Details | Yearly Breakdown |
|---|---|---|
| Sales Projections | Breakdown of new vs used vehicle sales for the next three years | New Vehicles: 16.3M (2025) to 16.8M (2027), Used Vehicles: 20.1M (2025) to 20.6M (2027) |
| Average Selling Price (ASP) | Expected price trends for new and used vehicles | New Vehicles: $43,500 (2025), declining 1% annually; Used Vehicles: $25,500 (2025), increasing by 1-2% annually |
| Gross Margins | Expected profit margins from new and used vehicle sales | New Vehicles: $3,284 per unit, improving slightly; Used Vehicles: Mid-high teens percentage margin |
| Inventory and Carrying Costs | Inventory levels, financing, and storage costs | Higher inventory levels, floorplan loan rates 5-7%, insurance/storage costs 1-2% of inventory |
| Operating Expenses | Costs for staffing, marketing, rent, utilities, and insurance | Staffing (50-60% of expenses), marketing increase by 5% annually, rent/utilities/insurance increase by 2-3% |
What is the projected number of vehicles to be sold each year over the next three years, broken down by new and used categories?
The number of vehicles projected for sale each year is expected to grow gradually over the next three years. For new vehicles, the sales will increase by about 2-3% annually, while used vehicle sales will experience a more moderate growth of 1-1.2% annually.
For new vehicles, sales in 2025 are forecasted at 16.3 million, reaching 16.8 million by 2027. For used vehicles, sales are expected to rise from 20.1 million in 2025 to 20.6 million by 2027.
What average selling price is expected for new and used vehicles, and how is that projected to change year by year?
The average selling price (ASP) for new vehicles is expected to decline slightly, while used vehicles will see a modest increase.
In 2025, the ASP for new vehicles is estimated at $43,500, with a projected 3-5% decrease. For used vehicles, the ASP will be around $25,500, with a slight increase of 1-2% per year, reaching $26,000 by 2027.
What are the anticipated gross margins on both new and used vehicle sales, and what assumptions support these margins?
The gross margin for new vehicles has rebounded in 2025, with expected profitability per unit around $3,284.
New vehicle margins are expected to improve slightly due to balanced supply and demand. Used vehicles are expected to have gross margins in the mid-high teens, supported by demand for late-model used cars.
What level of inventory will be maintained each year, and what carrying costs or financing costs are expected for this inventory?
Dealers are likely to maintain higher inventory levels than pre-pandemic norms to meet demand. Financing and storage costs will add significant expenses.
Floorplan loan rates will range from 5-7%, and additional costs, such as insurance and storage, are expected to account for 1-2% of inventory value annually.
What additional revenue streams, such as service, parts, financing, or warranties, are projected, and what contribution will each make to overall income?
Service, parts, and financing will play key roles in the dealership's revenue streams. These streams are expected to contribute 35-50% of total gross profit.
Service and parts will generate 25-30% of gross profits, while financing and warranties will contribute an additional 10-20%. Leasing will also be a significant contributor as incentives increase.
What operating expenses—including staffing, marketing, rent, utilities, and insurance—are estimated annually, and how are these expected to evolve?
Operating expenses, especially staffing and marketing, are significant in this business. Staffing expenses will account for 50-60% of operating costs.
Marketing budgets are expected to grow by 5% per year, while rent, utilities, and insurance costs will increase by 2-3% annually due to inflation and expansion.
What capital expenditures, such as facility upgrades, equipment, or technology investments, are planned within the three-year period?
Capital expenditures will focus on upgrading facilities, technology investments, and retooling for EV servicing. These investments are expected to grow 2-5% annually.
Expect significant technology investments in the first year, followed by facility upgrades spread across the next three years.
What financing structure, including loans, credit lines, or investor capital, is required, and what repayment or interest obligations will it create?
Financing for inventory and working capital will include floorplan financing and external loans or investor capital for upgrades.
Interest costs on loans are expected to range from 5-8%, with repayments aligned with inventory turnover and cash flow cycles.
What is the projected cash flow each year, and are there months where liquidity could become a challenge?
Cash flow will vary depending on sales seasons, with spring and summer seeing spikes. January and February may present liquidity challenges.
To mitigate this, dealerships should maintain a rolling cash forecast and buffer for off-season periods to ensure smooth operations.
What are the tax obligations projected for each year, and how are these integrated into the plan?
Dealerships will face a variety of taxes, including income, sales, property, and employment taxes. These will be integrated into the financial plan to ensure proper budgeting.
Effective tax rates are expected to range from 23-32% depending on jurisdiction, impacting the final net profit each year.
What key risks—such as market downturns, supply shortages, or regulatory changes—have been factored in, and what contingency strategies are in place?
Risks include economic downturns, supply chain disruptions, and changing regulations (such as EV mandates). Dealers must have contingency strategies to mitigate these risks.
Strategies include diversifying inventory, strong supplier relationships, and cyber defense investments to protect against market and operational disruptions.
What specific performance metrics will be tracked each quarter to ensure the plan stays on course, and what thresholds will trigger corrective action?
Key performance indicators (KPIs) will include sales units, gross margin per unit, inventory turnover, and F&I income.
Corrective actions will be triggered if margins fall below target by 2 percentage points or if cash flow dips below a 3-month buffer.
Conclusion
This article is for informational purposes only and should not be considered financial advice. Readers are encouraged to consult with a qualified professional before making any investment decisions. We accept no liability for any actions taken based on the information provided.
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