How to Start a New Car Dealership

by Andra Picincu - Updated July 16, 2018
New car dealerships are a lot of work and require a big investment.

In 2017, more than 6.3 million cars were in the United States alone, and car sales exceeded 79.8 million worldwide. The automobile industry keeps growing. Now is the best time for starting a car dealership. Even though this business requires a large investment, the rewards are well worth the effort.

Assess Your Options

Before starting a car dealership, decide whether you want to sell new or used vehicles. Depending on your budget, you can also mix the two. In the first quarter of 2018, 10.6 million used vehicles were sold in the U.S., with an average transaction price of $19,700. During the first three months of the same year, customers purchased 4,093,100 million new vehicles.

Research the industry and market trends. Determine how much you are willing to spend and estimate the return on investment. Look for car dealership franchise opportunities to get a better understanding of this business model.

In case you find a car dealership franchise for sale, assess the costs involved. Franchise fees depend on the brand exclusivity, availability, business model and other factors. Search online for "franchise dealership near me" and other similar phrases to find opportunities in your area.

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A Honda franchise, for instance, can exceed $250,000. Those who are planning to start a car dealership representing Ford can expect to pay an initial fee of at least $30,000 which doesn’t include the building space, inventory and other equipment costs. All told, it will cost over $150,000 for a franchise. Toyota charges more than $500,000, depending on the size of the dealership.

Business Plan for Starting a Car Dealership

Your next step should be developing a business plan. Consider your budget as well as the company's location, size, product offering and business structure. Here's where you'll include your mission statement.

Come up with a unique selling proposition. Try to determine what makes your business unique. The competition is tight in this industry, so you must find a way to stand out from the competition. Do you have a car model or brand that other dealerships are not offering? Could you secure better deals than your competitors? Are you going to provide an extended warranty?

Create a clear business structure for your car dealership. Decide how many employees you will need and what their responsibilities will be. For example, you may need to hire a marketing manager, an HR manager, a garage manager, sales agents and customer service representatives. If you're planning to start small, you can employ people who will accomplish multiple roles.

Consider your expenses such as rent, accounting, utilities, maintenance and salaries. Figure out how you are going to transport the vehicles to your facility. Your business plan should also include a sales forecast and a marketing strategy. Also, determine what payment options will be available to customers. Are they going to pay cash or via bank transfer, credit card or checks?

Comply with the Law

Starting a car dealership comes with its challenges. If you decide to take this step, it's necessary to obtain a license, file a surety bond and sign a franchise agreement (if applicable). The requirements for becoming a car dealer vary from one state to another.

In Ohio, for example, used car dealers must have a verifiable net worth of $75,000 to get a license. Additionally, they need to comply with the BMV's requirements for establishing and maintaining used car lots. If you're already offering new cars and planning to sell used vehicles as well, you will not need a separate license. However, you still need to follow BMV’s requirements for new car dealerships.

To apply for a license, fill out the form BMV 4322 for a new motor vehicle dealership or BMV 4320 for a used car dealership. Take clear photos of your office, business sign and car lot. Pay the applicable fees and then send the documents by mail.

You might also need to submit a certificate of completion for a used car dealer training course, which must be obtained within six months prior to mailing your application. In case you have more than one dealership within the same county, you are required to fill out the form BMV 4335. Also, be prepared to undergo a thorough background check.

Be aware that car dealer licenses must be renewed every two years. Furthermore, your facility has to meet specific requirements and comply with all local zoning laws.

As far as bonds are concerned, you may need wholesale car dealer bonds, used car dealer bonds or DMW bonds depending on the type of dealership you want to run. Their cost depends on your credit score, premiums, financial credentials and the amount of coverage needed.

Promote Your Business

Once your business is up and running, you must focus on promoting your brand. Come up with a marketing strategy and hire skilled sales agents. Consider setting up a website and social media pages.

Since you're targeting the local market, advertise your car dealership in newspapers. Billboards, banners, flyers and radio ads are all a good choice. The stronger your brand, the more profitable your business will be.

Starting a car dealership is just the first step. Marketing can make or break your business, so put in the time and effort needed to develop trust and grow your brand.

About the Author

Andra Picincu is a digital marketing consultant with over nine years of experience. She works closely with small businesses and large organizations alike to help them grow and increase brand awareness.

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