What is the difference between a car dealership and a car warehouse?

August, 2020

Used car dealership? Used car warehouse? What's the difference?

Theoretically, not a whole lot: both sell cars; both are required to be licenced in the state in which they operate; and both require a physical premises. But practically it is more than just the type of premises that differentiates the two.

Carz4u operates out of a large industrial warehouse in the Perth suburb of Welshpool. This allows us to operate differently to a traditional used car dealership in a number of ways:

1. More cars on site

Housing cars takes up a lot of space. Most used car dealerships have limited space to store their cars. Even larger used car dealerships typically hold less than 100 cars at any one time. If you are travelling to a dealership to see a particular used car you have viewed online then this may not be a problem. However, if this car turns out to be unsuitable, it leaves you with limited options within the dealership. At used car warehouses there will generally be hundreds of cars, including many similar vehicles which gives you more options to physically inspect once you are at the warehouse. Before visiting, make sure the warehouse is happy to let you take test drives (some don't believe it or not!).

2. Lower overheads = lower prices

52% of gross profit generated by dealers goes directly to overheads1. By keeping costs down, warehouses can keep their prices down:

  • Not spending a lot on advertising. Generally, most advertising is online only which is much cheaper.
  • Reducing car cleaning costs. Cars housed inside stay a lot cleaner than those outside.
  • Less showroom bling. Used car yards attached to franchised dealers generally have to comply with higher premises standards (such as tiled floors, lots of flags and fancy lighting). All these extras come at a cost - and you'll pay for it in the price of your car.
  • Volume. Similar to the Bunnings model, a used car warehouse would rather sell 20 cars making $500 profit on each of them, than sell five cars making $2,000 on each. Customers pay less and the business still makes money.

3. Located in industrial areas

You generally won't find used car warehouses in expensive postcodes. As well as being another way to keep costs down through lower rent, customers also benefit from these locations. Taking test drives through industrial areas means you get much more of a chance to get a feel for the car when compared to navigating inner-city traffic. Most warehouses will be near both main roads with higher speed limits, as well as quiet industrial streets without much traffic.

You'll also benefit from being able to easily find an on-site park. Try doing that at an inner-city dealership!

4. Independent from a franchised brand

Used dealerships which operate next to, or out of a new car franchise are limited in a number of ways compared to warehouses. Preference is nearly always given to the new car operation, with the used car yard a way to attract customers before trying to switch them into new cars.

There are often other conditions which come with purchasing from one of these yards. Warranties can stipulate that you must service your car at the franchised service centre - which is nearly always more expensive than an independent centre.

Independent warehouses are free from distractions like this. The focus is on keeping costs down and keeping car prices down.

5. Higher trade-in prices

The high-volume, low-margin model of most car warehouses allows for a higher trade-in price to be paid. With the volume of cars which go through reconditioning, warehouses can negotiate much better rates with panel beaters, paint shops, mechanics and detailers. Without needing to make a large profit on traded cars, most warehouses will offer you what your car is actually worth.

While used car warehouses are different to dealerships (and different again to wholesalers), not all warehouses are the same. Before committing to a warehouse make sure you research things such as:

  • Whether the warehouse will let you take test drives before signing a contract.
  • Who owns the warehouse and are they reputable (Google reviews are a good indication).
  • Which finance options are available. Are there multiple lenders available?
  • Where do they source their cars (ex-mining, ex-rentals etc).

Carz4u is a used car warehouse committed to standing out from the competition. Our goal is to provide quality, mechanically inspected used cars at the very best prices in Perth.

1Deloitte Motor Industry Services Benchmark Australia 2019