F1 Motors - Business Plan

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2012

Startup Business Plan

F-1 Motors

F-1MOTORS,LLC


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1.1 Objectives

There are a few major objectives to this business plan for F1 Motors, LLC - a duly formed

limited liability company in the State of Texas - as well as a long term overall objective and strategy.

To fully outline and strategize the entire business model and operating model of F1 MotorsLLC.

To enumerate and establish operating guidelines, management structures, marketing andadvertising strategies.

To establish a sound and fundamental five-year financial projection governing the financialdirection of the company.

Finally, the plan's long term objective will focus on establishing methods of increasing andgaining market-share, as well as increasing overall competitiveness with similar business.

1.2 Mission

F1 Motors' mission is to provide quality used cars to the public, for affordable and competitive

prices. Customer satisfaction is our primary goal and focus at all times, and making a vehicle

purchase as light of a financial strain on our customers is our aim. Furthermore, we want to offer

comprehensive vehicle appraisal and valuation services, so that we can accommodate trade ins and

vehicle purchases from our customers as well.

1.3 Keys to Success

For the vehicle sales and purchase industry, there are a few generally accepted keys to success:

1. Identify the market and market dynamics.2. Identify competition and general market trends with regards to sales and purchases of used

vehicles.

3. Establishing a viable geographic location which provides cost effective operation.4. Establishing an aggressive marketing and advertising campaign to gain market share and

reputability.

Used vehicle sales are generally more common in South Texas and the Rio Grande Valley due

generally to lower average income than the remainder of the state. Our market and geographic

analysis will further expand on these points.


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2.0 Company Summary

F1 Motors, LLC is a multi-faceted motor vehicle retailer as well as mechanic and collision repair

specialist. The company will focus on the direct sales of used vehicles via their showroom location

as well as live auction sales to the general public.

Furthermore, the company will also focus on the acquisition of used vehicles, the refurbishing of

these vehicles, as well as collision and damage repair. This allows F1 Motors more flexibility and

adaptability with regards to the market dynamic. By functioning as a buyer, seller, and refurbisher

or used vehicles, F1 Motors will be able to deeply entrench their operation within the used vehicle

market.

2.1 Company Ownership

F1 Motors, LLC is a duly formed Texas limited liability company with three members. Themembers and their respective ownership interests are as follows:

Ferdinando Cantu - 50% Santiago O. Cantu Ocampo - 30% Santiago O Cantu Noyoa - 10% Elifaleth Cantu Noyoa10%

2.2 Startup Summary

F-1 Motors, LLC has already acquired a large stock of vehicle inventory, with roughly $327,938

in existing vehicles, parts, and locale. Furthermore, additional capital of roughly $10,000 will be

invested into the company account for the day to day operations of the company. A total investment of

approximately $337,938 will be attributed to the startup of F-1 Motors, LLCaccounting for any

additional startup costs which may include:

Capital machinery used for salvaging, repair and refurbishing. Rental contracts / Land acquisitions Office equipment, machinery and supplies Overhead salary costs Necessary operating permits and licenses Marketing and advertising costs


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3.0 Products and Services

Products

Sales

F1 Motors, LLC will specialize in the used car, automobile and vehicle market. The company focus

with regards to retail, showroom and auction sales will be to provide quality, dependable, used

vehicles at an affordable price. F1 Motors will focus not only on traditional cars, but all types of

vehicles, including but not limited to:

Sedans Compact and Sub-Compact Cars Efficiency Vehicles Hybrid Vehicles Sport Utility Vehicles (SUV) and SUV Crossovers Full and Mid-sized Vehicles Trucks Semi-truck vehicles Motorcycles Delivery, Transportation, and Miscellaneous Vehicles WatercraftProducts will be sold according to a multi-tract sales and operating strategy. Vehicles with high

value, in which net profits exceed a certain threshold, will be sold via direct sales to interested

consumers. This threshold is determined by fair market value of the vehicle in its current condition,

less initial cost, or any costs associated with refurbishing and repair.

Direct sales will be conducted in the Company showroom, and employed salesmen and floorpersons

will engage consumers directly at the point of sale. Salesmen / Floorpersons will be paid according

to a base salary schedule, and will be incentivized to conduct more sales with commissions received

according to each individual sale.

Auction sales will be conducted, tentatively once a month, and accordingly if auction inventory

grows. For vehicles that cannot exceed a certain threshold of net profits, or


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Services

F-1 Motors, LLC will also provide comprehensive salvage and vehicle purchasing services to the

general public, as well as additional companies, entities, organizations and individuals.

As mentioned in the previous section, F-1 Motors, LLC will specialize in offering pre ownedvehicles for sale. To acquire these vehicles from various entities, F-1 Motors, LLC will engage in

the active practice of appraisal and auction purchases as well as the purchase of salvage or slightly

damaged vehicles.

F-1 Motors, LLC will also be actively involved in refurbishing vehicles that are suitable for repair,

and reselling these vehicles to the public. Furthermore, salvaged or restored parts that cannot be

utilized in any vehicle will be sold as individual parts.

By utilizing all possible avenues of salvage, F-1 Motors, LLC maximizes its profit per vehicle

purchased, which ultimately will increase profit margins.

4.0 Market Analysis Summary

The target market of F-1 Motors, LLC will be comprised primarily of the Rio Grande Valley region in

the State of Texas. As depicted above, the Rio Grande Valley contains four counties, with Hidalgo and

Cameron counties being the most populated. This region of Texas directly borders Mexico, and is also a

great central hub with regards to business with Mexican national clients as well. Within a 200 mile

radius of Hidalgo County are the Mexican provinces of Coahuilla, Chihuahua, Nuevo Leon, and


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Tamaulipas. In addition, F-1 Motors, LLC will be located within a 150 mile radius from the busiest

border crossing points between the United States and Mexico. Brownsville, Texas in Cameron County

is a 50 mile drive, and the thriving border city of Laredo, Texas is less than 150 miles away. As such

the transportation community and industry in this targeted area will all become viable clients within the

scope of our attempted market share. Finally, the state of Texas has continued to show economic

growth, unemployment well below the national average, an extremely low cost of living in comparison

with the largest states in the nation, a conducive small business environment, and as a stateboasts

the 15th largest economy in terms of GDP on the face of the planet.

General Texas Overview

Job growth and sales tax collections both from business and consumer purchases as well as

automobile salessignal that the Texas economy has emerged from the recent recession.


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Another indicator that the state's economy has been comparatively healthy was the U.S. Bureau of

the Census report that Texas added more people (nearly 4.3 million) than any other state between the

census counts of 2000 and 2010.

Through October 2011, 94 percent of the total jobs shed by employers during Texas' shorter

recession have already been recovered as our economy has rebounded more quickly than the U.S. as

a whole. Nationally, only 28 percent of recession-hit jobs have been recovered through November

2011.

Texas and the nation returned to economic growth in 2010, with the nation increasing its real Gross

Domestic Product by 3.0 percent and Texas increasing its real Gross State Product a similar 2.8

percent, with Texas' economy not affected as severely by the recession as the nation as a whole.

Jobs

The U.S. gained 120,000 nonfarm jobs in November 2011 compared to October 2011. The U.S.unemployment rate dropped to 8.6 percent for November 2011, down from 9.0 percent in

October 2011.

Texas total nonfarm employment increased by 2,500 jobs from September to October. BetweenOctober 2010 and October 2011, Texas gained 231,600 jobs.

The Texas unemployment rate has been at or below the national rate for 58 consecutive months.Housing

Thus far, Texas has weathered the national real estate crunch without significant damage toproperty values.

A total of 4,763 building permits for single-family homes were issued in October 2011. In the 12months ending in October 2011, 61,367 permits were issued, 5 percent fewer than one year ago.

There were 3,267 multi-family building permits issued in October 2011. During the 12 monthsending in October 2011, 28,899 permits were issued, 65 percent more than one year ago.

In October 2011, sales of existing single-family homes fell by 10 percent from the previousmonth, to atotal of 15,640. October 2011 home sales were 8 percent higher than in October 2010.

In Texas, the median price for existing single-family homes increased by 2 percent from October2010 to October 2011.

In October 2011, the Texas foreclosure rate was one in every 988 mortgages.


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This was substantially better than Nevada's one in 180, California's one in 243, Arizona's one in259, and Utah's one in 506.

Consumer Confidence Index

The U.S. consumer confidence index increased by 37 percent from October 2011 to November2011, rising from 40.9 to 56.0. The confidence index now stands 3 percent lower than one year

ago.

The Texas region's consumer confidence index increased 85 percent from October 2011 toNovember 2011, rising from 50.4 to 93.2 and is now up 14 percent from its level one year ago.

Oil and Natural Gas

Oil and natural gas production tax collections in the first three months of fiscal 2012 were 66percent higher than during the same period in 2011.

After reaching a 2008 summer high closing price of $145.29 and falling to a low of $33.98during February 2009, crude oil futures reached a settle price of $100.49 on December 7, 2011.

Natural gas futures prices have followed a similar path reaching a summer 2008 high of$13.58 and then falling to a low of $2.51. The price closed at $3.42 on December 7, 2011.

Taxes

Texas sales tax receipts for October 2011 were 15.9 percent higher than for October 2010. Fiscal 2011 state sales tax receipts were up 9.4 percent from fiscal 2010, after posting declines of

6.6 percent in 2010 and 2.7 percent in 2009.

Sales tax collections have increased for 19 consecutive months, boosted by strong businessspending in the oil/natural gas and manufacturing sectors, and to a lesser extent by retail sales

activity.

Texas motor vehicle sales tax collections for October 2011 were 13.3 percent higher thanthose for October 2010.

For the first 15 days of November 2011, total national auto sales were 616,193 units, up 7.5percent compared to first 15 days of November 2010.

Nationally, leases accounted for 27.2 percent of all new vehicle sales for the first 15 days ofNovember 2011, a decline of 2.2 percent from November 2010.


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Stimulus Package

In Texas, an estimated $18 billion in federal stimulus money is flowing to state and localgovernments. The Comptroller's office is tracking the $14.3 billion that comes through the state

Treasury. The Comptroller's analysis is ongoing.

Regional Overview: South Texas; Rio Grande Valley

The population of South Texas is growing at a faster rate than the rest of the state, largely due to

the considerable growth that has been occurring in its metropolitan areas. From 2002 to 2007, the

South Texas region's population increased by 2.1% annually, faster than the state average of 1.9%.

More specifically, the population growth in the McAllen-Edinburg-Mission MSA (which consists

entirely of Hidalgo County) outpaced both the region and the state, growing at an annual rate of

3.3%. Although educational attainment and personal income levels are below state average, they

have been increasing at a strong rate in recent years. Population growth as well as high rates of

employment have always been a factors that have produced success within the dining industry.

Age

South Texas is relatively young compared to the state as a whole, with 44% of the population being

under the age of 25, compared to 38% for the state at large in 2007.


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Ethnicity

As of 2007, approximately 81% of the South Texas population was of Hispanic ethnicity, which is

significantly higher than the state average of 36%. Some counties had even higher rates of Hispanic

residents such as Laredo with 95%, McAllen with 89% and Brownsville with 86%. Overall, the

concentration of Hispanics in South Texas is more than twice as high as the state of Texas and more

than five times as high as the United States. The high concentration of Hispanic ethnicity is due

partly to the fact that the geographic location of the MSA is approximately 20 miles from the border

of Mexico. In addition to the permanent population of the MSA, the transient population also

accounts for a large share of the target market.

Education

Educational attainment rates in South Texas are below both the state and national averages. In 2007

39% of the region's population over the age of 25 had less than a high school diploma compared to arate of 21% for the state as a whole and 14% for the country. Additionally, an estimated 16% of

South Texas residents aged 25 or older had a bachelor's degree or higher, compared to 25% for the

state and 28% for the country. Although South Texas has a relatively high percentage of adults

without a high school diploma, the region is making progress in closing this education gap, as

college attendance rates in South Texas are growing much faster than the Texas average.

Income

The median household income for South Texas is lower than the state average of $42,139. The

region's average household income peaked in Nueces County, which contains the city of Corpus

Christi, at $38,740 with a low in Starr County of $17,843. Hidalgo County, which contains the cities

of Pharr, Edinburg, McAllen and Mission, had a median household income of $24,808.

Although median household income in South Texas is lower than the state average, such measures

do not take cost of living into consideration. A cost-of-living adjustment can facilitate a more

accurate comparison of the buying power of money in different areas. For example, it costs 14%

more to live in the Houston area than Corpus Christi, 28% more to live in Austin and 24% more to

live in Dallas.

South Texas's per capita personal income was at an average of nearly $20,000 in 2006, amounting to

only 57.6% of the state average of $35,200. However, the region is also closing this gap, as income


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is growing faster in South Texas than in the state as a whole, rising 25.6% between 2001 and 2006

while statewide per capita personal income rose by only 21.1% in the same period.

McAllen-Edinburg-Mission M etropolitan Statistical Area (MSA)

The McAllen-Edinburg-Mission Metropolitan Statistical Area consists of one county, Hidalgo

which is where the business is to be located. As of 2010, the population of the MSA was 774,769and was the 8th fastest growing MSA by percentage of population in the state of Texas.

Major employers in the MSA include La Joya Independent School District, Texas Regional

Bancshares Inc., Convergys Corp., University of Texas-Pan American, South Texas College,

McAllen Medical Center, Doctors Hospital at Renaissance, Knapp Medical Center, Rio Grande

Regional Hospital, H-E-B Foods, Wal-Mart Supercenter, Edinburg Regional Medical Center

Mission Hospital, Travis Middle School, Remedy Intelligent Staffing, Charles Clark Chevrolet Co

and VIP Providers.

This MSA is also home to several educational institutions such as the University of Texas - Pan

American with 18,377 students enrolled and the South Texas Community College with 27,000

students enrolled.


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An extensive transportation network also exists within the MSA, comprised of highways and

expressways, McAllen Miller International Airport which includes cargo, freight and passenger

flights from multiple carriers as well as rail and bus service from both local and national providers.

The quality of life in the McAllen-Edinburg Mission MSA is enhanced by the fact that it is a

gateway to Mexico and contains historic sites such as Quinta Mazathlan and Old Hidalgo

Pumphouse. Further attractions, activities and amenities include beaches, bird watching, shipping

hiking, biking, walking trails, parks, museums and golfing.

Further notable mentions:

McAllen MSA was ranked the "Least Toxic" City in America by Forbes (2011) McAllen MSA created 2,000 new jobs from February 2011 to March 2011 McAllen MSA ranked #4 for "Best Mid-Sized Cities for Jobs" by Forbes (2011) McAllen MSA ranked one of the top 100 leading locations for doing business in 2011 by area

development magazine

McAllen top metro in US for job growth, 2009-2010 (Brookings Institute, 2010) McAllen ranked one of the top 10 mid-markets of the past decade by Southern Business &

Development (2010)

McAllen ranked as one of the least expensive cities to live and work McAllen MSA ranked Top 10 Most Affordable Cities for 2010 by Relocate America (2010)Pharr

The city of Pharr, located in Hidalgo County, has a total population of 70,400 as of the beginning of

2011. Pharr's population, like much of South Texas, contains a relatively high proportion of young

people, with 33.6% of its population under the age of 18. Within the city, there are 12,798

households with a median income of $24,863 and the median cost of a home in Pharr is $81,480.

However, it should be noted that the cost of living in Pharr is 25.30% lower than the national

average. The largest employer in the city is the Pharr-San Juan-Alamo Independent School Distric

(PSJA) which employs 4,200 people.

The city is an ideal location for salvage vehicle repairs, as well as sales and refurbishing. As the

above market figures indicate. Our market analysis has also show that areas of average salary below


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the national average of $41,678 (as reported by the Social Security Administration National Job

Index).

Pharr operates under a commission/manager form of government and has been dedicated to creating

new business opportunities with a commitment to investing in the community and local businesses

and offering competitive tax rates and incentive programs. The city has both abundant and

affordable land, which is ideally suited to the development of a retail corridor and increased

industrial growth. In addition, the city of Pharr plans to bolster its development plans, by planning

to spend over $500 million in infrastructure improvements over the next ten years. Pharr is located

just six miles from the United States-Mexico border, which makes it an ideal hub for transportation

in the region and a major gateway for NAFTA-oriented businesses.

Edinburg

Located in Hidalgo County to the North of Pharr, Edinburg has a total population of 52,765 as of

2002 with a median age of 27.6. The size of the population has grown 77% between 1992 and 2002.

The median household income in Edinburg was $28,938.

The majority of employment in Edinburg comes from government, education and health services

sectors. One of the largest employers in the city is the University of Texas-Pan American which

currently has over 18,377 student enrolled. A sizable portion of the population is also employed in

the trade, transportation and utilities industries. Edinburg has several industrial/business sites withinits borders including Renaissance Industrial Park, North Industrial Park, Owassa Lake Business Park

and Edinburg International Airport Industrial Park.

In 2003, Edinburg committed to conservation by opening the World Birding Center which contained

scenic wetland trails and a bird park located on forty acres of wetlands adjacent to the ninety acre

Edinburg Municipal Park. Edinburg has also been designated an All American City in 1968, 1995

and 2000 and is only the 18th city in history to earn this designation three separate times.

Mission

The city of Mission, located in Hidalgo County, had a total population of 70,801 in 2010, having

grown 44.6% from 1990-2000. The population of South Texas is expected to grow rapidly in the

future and Mission is no exception, since their population is projected to grow another 27.1% by the

year 2015 to approximately 90,000 residents. The median age in Mission is 31.1 and the median


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household income in $37,384 as of 2010. The current unemployment rate in Mission is at 8.4%.

Roughly 27% of the Mission population has at least a high school education while an additional 30%

have attained a college certification or bachelor's degree.

MSA Statistics

Job growth has continued to increase steadily throughout the previous decade in the target MSA, and

as such can only serve to foster a deep and thriving labor pool. Cost of living, total MSA export

activity and revenue, steady and rapid population growth, and an ever increasing gross domestic

product will all contribute to projected success. Close proximity to Laredo and the Brownsville-

Harlingen MSA will also serve to benefit F-1 Motors, LLC.

Job growth has grown steadily over the past decade, especially with regards to the majority of

businesses in the area small businesses with employees of less than 100 persons (source

youreconomy.org)


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Real Gross Domestic Product has also increased since the early 2000s, which indicates a

burgeoning economy, as well as job creation and employment sustainability.

The McAllen-Edinburg-Mission MSA has also thrived with respects to MSA exports (source US

Department of Commerce). F-1 Motors, LLC will be directly contributing to the export capacity of the

McAllen-Edinburg-Mission MSA, as location within the MSA in Pharr, TX will only serve to increase

revenues and exports of the city. Used car sales has traditionally been extremely


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Cost of living continues to be the lowest with regards to the annual average in Texas. Aside

from the Brownsville-Harlingen MSA, the McAllen MSA boasts the lowest cost of living composite

index in the state of Texas (sourceACCRA [C2ER]).

Population growth has also always been positively correlated with vehicle and home sales this

statistic, coupled with rapid non-farm employment change increases, indicates that as the population of

the MSA grows, the employment opportunities continue to accompany that growth. Population growth

and employment opportunities not only indicate a thriving labor force, but most importantly, a general

population with the capacity to make consumer purchases. Furthermore, the average wages of the

targeted MSAs and markets are all below that of the state average. These are all extremely beneficia

and advantageous factors to be considered when analyzing the viability of the target market.


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As shown in the chart above from the Texas State Data Center, all of the target markets of F-1

Motors, LLC are included in the top 5 ranks of the fastest growing cities in the entire state of Texas.

Within a 150 mile radius, the MSAs of Laredo, McAllen-Edinburg-Mission as well as Brownsville-

Harlingen are all easily targeted by the company.

The above chart references the various MSAs throughout Texas, and the general non -farm

employment change. This chart indicates the percentage of employment that has shifted from

agrarian or farm employment, to nonfarm employment. Clearly, the two fastest growing areas are

both contained directly in our target marketthe Laredo MSA, and the McAllen-Edinburg-Mission

MSA.

The chart below indicates the 2009 average hourly wages by MSA throughout the state of Texas.

This latest data from the Bureau of Labor Statistics illustrates the earlier contention that low wages,

coupled with a growing population is usually a positive indicator for used vehicle sales as opposed to


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new vehicle sales. In the below chart, the targeted markets of F-1 Motors, LLC are the three lowest

hourly wage MSAs in the state.

4.1 Market Segmentation

F-1 Motors, LLC, as previously mentioned, will target clients in the Texas Rio Grande Valley region as

well as the thriving Mexican market, and hope to expand to the rest of the State once business operations

are sustainable.

Primary Market

As F-1 Motors, LLC is located in the city of Pharr, TX inside the McAllen-Edinburg-Mission MSA,

naturally this MSA will be the primary targeted market. Rapidly increasing population growth

increased labor and job opportunities, as well as a below average hourly wage will all contribute to the

viability and sustainability of F-1 Motors, LLC. Over time, F-1 Motors, LLC plans on establishing a


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reputation as one of most comprehensive and service-oriented used car and vehicle salvage companies in

the entire region.

Secondary Market

Due to the central location and proximity to these areas, the secondary market consists of the entire Rio

Grande Valley, Laredo MSA, as well as the bordering Mexican states. Mexican nationals with various

visas are known for travelling into the United States to make vehicle purchases. Quality, safety

certification and unparalleled service will continue to attract Mexican nationals to F-1 Motors, LLC

once operations have commenced. Furthermore, as noted in the previous sections, the MSA of

Brownsville-Harlingen is 50 miles away, and the Laredo MSA is less than a two hour drive. Residents

and businesses of these markets will all be included in the secondary market.

Tertiary Market

The tertiary market will certainly cover the entire state of Texas. As previously mentioned, Texas is an

extremely robust state economically, and the advantages and economic indicators show nothing but an

improved and conducive business environment for small businesses, and most notably for F-1 Motors,

LLC.

5.0 Strategy and Implementation Summary

5.1 SWOT Analysis

5.1.1 Strengths

Close proximity and location to the border of Mexico, as well as three of the largestimport/export points between the two countries.

Favorable economic factors, variables and conditions that promote used vehicle sales. Established, non-loan initial investment that provides instant liquidity, as well as

capital costs and initial inventory of vehicles already born by a parent company.

5.1.2 Weaknesses

Must establish reputation and operating history within the industry. Market dynamics need to be learned and adapted to.


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5.1.3 Opportunities

Location in a thriving international zone that has continually grown over the pastdecade.

Strong labor pool and rapid small business growth in the target market, coupled withpopulation growth and low stagnant wages.

Increasing opportunity to garner market share from surrounding Mexican states assafety concerns continue to arise.

5.2 Competitive Edge

F-1 Motors, LLC boasts an extremely unique and distinguishable competitive edge with regards to many

other vehicle vendors or car dealerships. Overhead costs will be extremely low as the operation will not

be a purely commercial business. In fact, the salvage, repair, and parting out of vehicles for individual

sales will not only create additional sales opportunities for a more unique group of clients, but also

additional streams of revenue that traditional vehicle dealers typically do not possess.

In addition to showroom sales as mentioned in the services section of this business plan, wide ranging

auction sales as well as corporate and direct sales to companies will also be a large function of F-1

Motors, LLC. The company will be much less dependent on traditional methods of transacting sales

such as personal selling on a showroom floor but will be able to extract revenues and profits from

sales, auctions, salvaging, repairs, as well as individual part sales.

Multiple avenues of revenue only serve to mitigate uncertainty and increase opportunities to generate

profits.

5.3 Marketing Strategy

F-1 Motors, LLC will engage in the following active marketing strategies.

Website Television Radio Newspaper / Print


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General market trends have shown in the South Texas Rio Grande Valley region that traditional forms of

advertising and marketing continue to show expected results with respects to vehicle sales. As such, the

company will not deviate from any of the four forms of traditional advertising, and will continue to run

advertisements concerning public sales, auctions, parts sales, and vehicle purchases. Furthermore, we

believe that our reputation will eventually serve as its own form of marketing. In due time, the type of

full service that our customers have come to expect in Mexico will be realized by our American market.

5.4 Milestones

3 Months: Initiate marketing, sales operations, and the inventory processing of vehicles. Engage in

active acquisitions of salvage and used vehicles.

6 Months: Continue to build inventory as well as salvage stock and parts stock. Hire up to threeadditional salespersons, continue marketing strategy and operations.

9 Months: As business begins to solidify and the F-1 Motors becomes viable, market determinations

and targets will be further solidified and sales avenues will be analyzed further to maximize profitability

12 Months: F-1 Motors, LLC hopes to become a fully self-sustaining company offering used vehicle

services to our primary and secondary target markets.

Documents

F1 Motors - Business Plan