How to Start a Used Car Business

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Photo by Pantagrapher (Flickr)

The difference between a private auto dealer and a used car dealer is the number of vehicles sold each year. Every state has a limit on the automobiles that can be sold by an individual before they require a car dealer's license. This legal distinction is only one aspect of running a used car business that can elude new entrepreneurs. Used car dealers need to find property, sales assistance and a good mechanic to make any money in this business.

Scout out locations in your area before deciding to start a used car dealership. Find a commercially zoned lot that is relatively flat to make paving and construction of your dealership easier. Keep copies of all documents acquired during the purchase and closing process to help you acquire a license.

Obtain a dealer's license from your state Department of Motor Vehicles before starting your dealership. Most states require passage of a written test, a completed application and an application fee before a dealer's license can be handed out. You may also need to have the deed to your proposed lot as some states limit dealer's licenses to legitimate business owners.

Acquire a surety bond with at least $25,000 of coverage to meet state requirements and protect your customers from shady auto deals. Surety bonds protect buyers from lemons and used cars with hidden problems at the expense of a used car dealer. Your state may also require surety bonds to expire and renew at certain points during the year for administrative purposes.

Attend wholesale car auctions to bolster your inventory from the start. These auctions allow you to collect cars, trucks and SUVs from various automakers for greater selection on your lot. Look at police auctions, estate sales and private auctions in your community to purchase additional vehicles for sale.

Determine if your used car dealership will buy and trade used cars from community members. While you will be able to keep your inventory steady with trades and buybacks, the condition of these vehicles may not meet your standards. Purchase a copy of the Kelley Blue Book and decide if you can meet a portion of the listed price on vehicles in your collection. If you cannot offer substantial amounts on newer vehicles, you may want to bypass purchases in the early days.

Contact a local bank to establish a relationship as a primary auto lender for your dealership. Ensure that the same loan representative will work on all of your purchases to speed up the transaction for customers. Keep loan applications and bank information on hand in case potential buyers have questions.

Hire a part-time mechanic and a salesman for your dealership to take the load off your shoulders. Your mechanic should inspect each car for sale regularly to ensure running condition as customers pass through the lot. Offer your salesman night and weekend hours to start to handle business during peak hours.


  • Scale down your used car advertisements to attract your target audience. Use colorful streamers, sidewalk signs and an interesting logo to catch the eye of local drivers. If you feel the need to expand outside of your neighborhood, submit small ads for alternative newspapers and weekday editions of daily papers to keep your costs low.


  • Hand off your sales figures, expenses and tax information to an accountant to avoid penalties for late tax payments. Your used car business will need to pay property tax, business taxes and other fees that accumulate quickly. Work with an accountant familiar with the auto industry to avoid confusion over purchase documents and invoices.