Just a few years ago, there were only a handful of car importers around and they would be found on the back pages of newspapers. Currently, every corner of social media has a car being advertised and new car sale yards keep sprouting up in every neighbourhood.
Right now, it is easier than ever to get into the business of buying and selling cars. The demand for foreign used cars in Kenya has been growing steadily over the last decade.
Key Takeaways
- A car broker helps customers save time and money.
- They work with several car dealers to help them sell more cars.
- The only important skills are great communication and negotiation.
- Knowledge of car models, financing options, and sale agreements is important.
- No legal requirements are there for car brokers.
- There is a high-profit potential – 2.5% of a car’s price as commission per car sold.
But before we look into why the demand is so high and how you can make money from this industry, you need to understand how car dealers and car brokers operate in Kenya.
Car Broker – How to Get Started
When getting into the business of buying and selling cars, you can choose to either be a dealer or a broker.
A car dealer is a licenced business that is allowed to import and sell cars in Kenya.
The car dealership follows the rules and regulations set by KRA (Kenya Revenue Authority), NTSA (National Transportation and Safety Authority), and other government authorities in buying and selling motor vehicles whether such cars are new or used.
To start a car dealership, some of the mandatory legal requirements include:
- A Business Registration or Incorporation Certificate
- A Dealer General Licence – issued by Kenya Revenue Authority (KRA)
- PIN Certificate – issued by KRA
- Trade License – issued by County Governments
- Business Insurance Certificate
Once the requirements have been met, it is up to the dealer to find an effective way to operate in the market. Most car dealers in Kenya choose to import used cars from Japan, Singapore, and the U.K. and resell them locally at a profit.
Most people however choose not to be dealers because of the huge upfront costs associated with the licensing and setting up of operations. For example, setting up a car yard in Nairobi can attract monthly rental fees of up to Kshs. 950,000.
The easier way to get started is therefore being a broker.
A car broker is a person that helps buyers find the cars they are looking for and gets paid a commission by the dealer.
In Kenya, car brokers often hang around used car yards, wait for prospective buyers, and help them look around. They help buyers save time and money because they understand the dealers’ stock of cars. Also, they operate under the umbrella of several dealers thus offering a wide variety of options to the buyer.
On the other hand, dealers love working with brokers since the broker does all the work of looking for potential customers, showing them the different options, and convincing them to purchase.
A key advantage to being a car broker in Kenya is that there are no legal requirements. A person simply needs to have excellent communication and negotiation skills. Other skills and qualities needed for a car broker include:
- A presentable appearance – neat and tidy
- Knowledge of car marketing tactics
- Knowledge of different car models and features
- Ability to drive a car well
- Knowledge of car financing options in Kenya
- Ability to read and write car purchase agreements
Being an auto broker is a very profitable way to make money because in Mombasa, for instance, brokers get paid approximately 2.5% of the value of the car. So, for example, a broker gets Kshs. 125,000 if they bring in a customer that buys a car worth Kshs. 5,000,000.
High Demand for Used Cars – Good for Car Brokers
As mentioned earlier, there is a growing demand for local and foreign used cars.
The main reason for this demand is that consumers have more access to bank loans and information.
For a better understanding, you need to know the two ways that the car sales business model has been shifting.
First, cars used to be sold mostly on a cash basis.
A buyer would find the car they want, simply write a check to the seller and voila! they get the keys and logbook right there and then. Few people could afford to get cars in cash and this meant fewer prospective buyers for brokers to chase. Now, more financing options are available and so brokers have more people to sell to.
Second, there was not much information about cars back then including on the internet and so new car buyers, whether cash or finance, could not tell exactly how much a specific car cost. They also would not compare the prices across dealers as easily as they do now.
So, brokers are thriving now more than ever because they can also use the available information to help buyers find cars and negotiate for better prices faster.
Also, more dealerships are entering the market and due to competition, they tend to lower their profit margins. This has also been good for car brokers because they can negotiate for better commissions with each new dealership or car yard that enters the market.
More Buyers using the Bank Finance Option
Since there are more financing options, both dealerships and car brokers are benefiting from commissions offered by banks and other financial institutions.
Banks often send their salespeople to scout for new car dealers and explain to them the available financing options. The goal for banks is to get car dealers to convince buyers of the bank as the better financier.
If a dealer is moving a lot of cars, they then renegotiate with the bank for a commission above what the car costs.
Here is an example:
| Mazda Verissa | ||
| Cost Under Cash Purchase | Cost Under Financing Option | |
| Kshs. 800,000 | Deposit | Kshs. 170,000 |
| Instalments (Kshs. 18,000 for 4 years) | Kshs. 864,000 | |
| Total Kshs. 800,000 | Total = Kshs. 1,034,000 |
In such a case as above, the bank will give the dealer some amount (commission) above the Kshs. 800,000 that they would have gotten if they sold the car in cash. The dealer could be given Kshs. 820,000 and the car broker Kshs. 10,000. The broker thus earns more on top of the original commission offered by the dealer for finding a buyer.
Simple evidence of this model is the numerous Facebook adverts of sellers detailing how you can get a car by paying as low as Kshs.65,000 as long as you are employed or in business.
Same Car Sold by Multiple Car Brokers
Another advantage to being a car broker is that you do not need to advertise your stock of cars as a dealer would. A broker can, for example, post cars from 10 different dealerships and just wait for potential buyers to show up.
Remember, the work of a broker is saving clients time and money by simplifying the car-buying process and ensuring they get the best possible deal.
It is therefore not a problem if the broker posts inventory that is not their own as long as they can leverage their knowledge and expertise in cars to guide the buyer.
Again, some of the typical duties of a car broker include:
- Understanding the needs and requirements of customers and recommending the best car options.
- Finding the best-value vehicles from dealerships, private sellers, and auctions.
- Negotiating the purchase price and terms of sale on behalf of the customer.
- Organizing test drives and vehicle inspections.
- Offering guidance and advice on financing options, including hire purchase and loan terms.
- Making sure all necessary paperwork is completed and filed correctly.
- Delivering the vehicle to the client once the sale is finalized.
So, if you fit the description simply go ahead and start your car brokering business today. There is a high potential for making money from simple skills. Also, don’t worry about a business plan – READ THIS ARTICLE to see why a business plan can be useless.
