September 4, 2019
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What are the rules and laws for starting in the motor industry?
Starting out in any industry is a bold move, and one that can reap huge rewards both for your finances and your own personal job satisfaction. If you’ve got a passion for cars and the skills to sell, mend, drive or otherwise spend your days dedicated to automotives, launching a business in the motor industry could be extremely lucrative and rewarding for you.
 
Of course, as with any industry, there’s a lot that you need to be aware of before you start building a business within the motor industry. In this guide, we’ll go through a few of the most commonly asked questions from those just starting out, including who regulates the auto industry? What certifications or licences will I need? And what is motor trade insurance?
 

What businesses could I consider starting within the motor industry?

There are lots of businesses that you could consider starting within this industry, depending on the level of resource (essentially, money plus time) that you can put into developing your business, and of course on your own specific skill-set.
 
Some businesses that you could consider include:
 
  • A mechanics company
  • A car valeting company
  • A hire car company
  • A delivery company
  • A car dealership or showroom
  • A car import business
 

How do I start my own car sales business?

This article helpfully points out the most important considerations that you need to make before you start up a car sales business.
 
The first thing you will need to think about is the location. What are the local demographics like? How should you position your new business amongst them? Will the cars that you want to sell come in at the right price point? Are there other dealerships around, that could either encourage customers to come into yours or discourage through stiff competition?
 
In a practical sense, do you want to buy premises for your car dealership, or just rent for now? Is there enough space to display all the cars that you want to? What about office space?
 
Clearly, there are a lot of questions to start with. But it’s essential that you answer them all as much as possible before the next step.
 
Next, be clear on what kind of car you want to sell. Is this a used car dealership, or an importer of luxury or vintage vehicles? Obviously, these are very different products and very different markets, and the area in which you’re setting up shop might dictate which angle your business needs to pursue.
 
The third thing you need to think about is your stock. Where is it coming from? Can you verify the safety, history, mileage and provenance of all the vehicles that you’re going to have available to sell? It’s important to make sure you can, as a priority.
 
Next, you need to look into motor trade insurance. This is a big and important step, with lots of variables, so we’ll look into it in more depth later in this article.
 
Once you’ve got the answers to all of the above, you’re ready to start putting your plans in place.
 A car salesman handing over the keys to a customers new car

Who regulates the auto industry?

The question of who regulates the auto industry in the UK is actually not as straightforward as it might first appear. There are a few different organisations working to keep the industry in check, but they all perform slightly different roles.
 

The Motor Ombudsman

The Motor Ombudsman (previously Motor Codes) is the government-backed organisation that steps in to deal with complaints or issues about businesses operating within the automotive market. Obviously this process requires individuals to report issues; without this the ombudsman would have nothing to investigate. The processes by which complaints are handled are set out by Codes of Practice that are approved by the Chartered Trading Standards Institute (CTSI).
 
The Motor Ombudsman also operates the New Car Code, the Vehicle Warranty Products Code, and the Service and Repair Code, all of which are underpinned by the CTSI, and all of which you need to follow if you’re trading in motor vehicles in the UK.  
 

Institute of the Motor Industry (IMI)

Like most industries, the automotive industry in the UK has a professional body that offers membership, resources, professional training, research, events, support and a professional register for those working within the industry. It’s not compulsory to be a member of the IMI, but it will increase the professional reputation and trustworthiness of your business if you are, so it’s a good idea to prioritise it.
 
The IMI believes that “the development and facilitation of professional registration is critical to personal and business success” and is working to try to make professional registration standard, which suggests that it might become compulsory in the motor industry in the future.
 
The IMI isn’t the only trade body for those working in the motor industry in the UK, though. Also check out:
 
  • Retail Motor Industry - Existing for over 100 years, the RMI is a trade body that represents “franchised car and commercial vehicle dealers, independent garages, bodyshops, motorcycle dealers, petrol retailers, auction houses and dealers of cherished number plates, who provide sales and services to motorists and businesses across the UK”.
 
  • Scottish Motor Trade Association - As its name suggests, this 1,300-member strong body represents the interests of those working within the motor trade industry in Scotland.
 

The Consumer Rights Act

Of course, the sale of all motor vehicles in the UK also has to abide by the general law. In this case that law is the Consumer Rights Act, which provides various protections for the buyer, including the ability to return a car within 30 days for a full refund, amongst many other things. It’s very important to get to grips with the Consumer Rights Act before you start selling, so do your research and make sure you know what the rights of the buyer are.
 

General rules of trading in the motor industry, and how to stick to them

The Trading Standards Institute offers some advice for consumers, which anyone working as a seller within the UK motor industry must stick to. The advice as it pertains to those working within the automotive industry includes:
 
  • You must have the legal right to sell the vehicle
  • The vehicle must be of “satisfactory quality”, and you must be able to prove this through the vehicle’s documentation and paperwork
  • If the buyer requests that the vehicle needs to be fit for a particular purpose and you agree to it, even if it is an unusual request, it’s up to you to ensure that it is
  • You need to make sure the vehicle description is completely accurate
  • If you show a buyer a sample or part of the vehicle, this must also reflect the rest of the vehicle too
  • Any vehicles that are advertised (e.g. online or in a showroom) must be exactly the same as the one that you are attempting to sell

Generally sticking to these rules should be easy enough, but it does require you to have due diligence at all times. You need to make sure all the paperwork is in hand and accurate when you first acquire the vehicle or vehicles so that you can pass it all on, for example. You also need to be very clear in your wording and make sure any photographs you take are clear depictions of the vehicle, otherwise you could end up misleading the buyer.
 A mechanic handing over a customers keys

What certificates, qualifications, insurance or licences will I need?

If you’re planning to sell used cars in Scotland, you’ll need to apply for a Second Hand Dealer’s License via your local council, or risk being fined £2,500. You don’t need to do this if you’re selling used cars in England.
 
You will also need to register as a sole trader or set up as a limited company wherever you are, so that you can inform HMRC that you’ll be paying your own tax. You might get fined if you don’t do this. Find out more here.
 
You will also need to contact the DVLA to get trade licence plates, which will stop you having to tax every car that comes into your possession.
 
You don’t need any formal qualifications to start your own business selling cars.
 

Do car traders have to give a warranty?

Used car traders do not have to provide warranty on cars they sell, but it is worth remembering that the car may still be within its new car warranty period, especially if it is only a couple of years old. In this case, the warranty is still valid.
 
You should also remember that warranty or no warranty doesn’t trump the Consumer Rights Act, so you will still need to stick to all the rules that the law lays out whenever you’re selling a used car. Whether the car is under warranty or not, all the rules that work on behalf of the consumer still apply.
 
Of course, if you’re only selling new cars they will still be under warranty so you don’t have anything to worry about.
 

Are headrests a legal requirement?

Headrests are not a legal requirement in cars in the UK, but it’s strongly advised that you make sure they are present in any vehicle that yourself or your staff members are likely to be driving or travelling in. Even minor collisions without a headrest can cause severe whiplash. The Royal Society for the Prevention of Accidents (ROSPA) has a guide to ensuring that head restraints are positioned correctly here.
 

Insurance requirements in the motor trade industry

 A mechanic writing on a clipboard during an MOT test

Firstly, what is motor trade insurance?

Obviously, this is a fairly important question. Motor trade insurance is simply the insurance that covers both yourself and anyone else who drives or works on vehicles on behalf of your company. So this could be those that work in the garage if you’re a mechanic, for example, or those that handle hire cars if that is the business that you’re involved in.
 
Insurance Choice suggests that you take out motor trade insurance if you’re not a registered company, but still handle or work on vehicles on behalf of others, in order to cover yourself in the event of any accidents or damages.
 
Those who might need to be included on a motor trade insurance policy include mechanics, valeters, delivery drivers, and any staff member who works on a casual or part-time basis.
 
Because there are so many different types of businesses that require motor trade insurance, the flexibility of policies is key.
 

What does motor trade insurance cover?

The right motor trade insurance policy can cover everything essential that you can think of that might go wrong, including repairs, repossessions, road incidents or damages, or the damage or loss of contents, tools or stock. It can also provide coverage for those minding vehicles (e.g. valets).
 
Policies can also cover circumstances such as guardianship of prestige vehicles, employers and public liability and interruptions to business, as well as the usual insurance terms of third party, fire and theft.
 

What else will I need to be aware of before taking out motor trade insurance?

You’ll need to make sure you have the following information to hand when you take out a motor trade insurance policy:
 
  • The value of vehicles to be insured (note that this might not be the same price that you bought it at)
  • Whether you need additional cover, for example in the case of damages or losses to vehicles occurring whilst they’re parked outside your home rather than on business premises. This might be important if you haven’t yet secured the premises at which you’re going to register your business, and you’re parking the cars near your home whilst you do that
  • If you’ll need to use the vehicle/vehicles for any other purposes outside of the business in question, for example for personal transport 
  • Any exclusions (such as the above) that might be included in your potential policy. Make sure you’re fully covered!
 
Ready to look into your options for motor trade insurance? Get a quick quote today.