Table of Contents
- Read on to learn the steps to open a car dealership
- How to Start a Car Dealership That Thrives
Used car prices jumped by 37% this year because of the pandemic. New car sales declined because of supply chain shortages.
There’s a lot of demand out there for both new and used cars that will carry into 2022. People are just waiting for the industry to return to normal. Are you going to take advantage of the opportunity?
Selling cars is a great business opportunity if you want to get into the industry. Of course, starting a business that’s a success is a challenge.
You have to know how to start a car dealership to avoid starting a business that fails in the first few years.
Don’t open your car dealership only to realize you made a lot of expensive mistakes.
Read on to learn the steps to open a car dealership
1. Type of Dealership
What kind of dealership do you want to have? Do you want a used car dealership? New car dealership? Do you want to be an independent dealer or have a franchise?
You probably have a few ideas as to the type of dealership you want to have. Now you have to validate those initial ideas.
Market research will tell you if you’re on the right track or not. You want to research the population and the general car market within a 30-mile radius of your location.
In the current market, people are traveling further to look for the perfect car. It’s recommended that used car shoppers turn it into a day trip.
Gather general demographic information about your target market. That will tell you a lot about the type of car they’ll drive.
An affluent area is likely to buy luxury cars. An area with young families needs SUVs to get everyone to soccer matches and football practices.
2. Licensing and Legal Requirements
There are a lot of bureaucratic hurdles to jump through to get your dealership up and running. You’ll need to get a surety bond, which is a type of consumer fraud protection bond.
Then you’ll need to get a dealer’s license. The type of license and the application process varies from state to state.
Check with your state’s DMV to learn about the licensing requirements in your state. Your city or municipality may have additional regulations for car dealerships.
3. Write the Business Plan
The business plan is the foundation of your business. It’s where you think through every aspect of the business. You’ll look at your management team, the operations plan, and the financial plan of the business.
You’ll take your market research and demonstrate why your car dealership will be successful. For instance, you might be in a competitive area, but you learned that there’s a need not being met.
You can show how your car dealership meets that need and gives you a competitive advantage.
4. Finance the Car Dealership
The business plan informed you how much it’s going to cost to start selling cars. You might not have that amount of cash available to you, but you can obtain financing for the dealership.
Look for local new business grants. Some cities are trying to provide economic incentives to new businesses to open in their area.
Traditional loans are another option. You can also try a real estate loan to purchase property instead of taking out a commercial lease.
If you have bad credit and have trouble getting financing through traditional means, don’t despair. Peer-to-peer lending sites like Prosper can help you get the financing you need.
5. Find a Suitable Location
The location of your dealership could very well determine your success. Think about the option of buying commercial real estate instead of renting.
If you purchase the property, you still have a valuable business asset if the car business fails. Renting space isn’t a bad option either, but you have to pay rent with nothing to show for it.
As you look at the location, think about how you’d display inventory. Determine which cars will be in the showroom and map out the sales and service areas.
The location has to be convenient to get to and give you options to expand your business later on.
6. Get Licenses and Business Insurance
Once the location is locked down, you’ll have to get business licenses. You know what’s required, it’s time to get the items marked off of your list.
The other important thing to get is business insurance. Car dealerships have different needs than other types of businesses.
Car dealerships need liability insurance, property insurance, dealer’s plate insurance, worker’s compensation insurance, and more.
Contact several insurance companies to go over your needs and get a car dealer insurance quote.
7. Obtain Auto Inventory
How in the world will you get cars to sell? It depends on your business model.
Create a franchise and the franchise provides you with an initial inventory. Used car dealers attend auctions to find quality cars to purchase and sell for a sizable profit.
New car dealers have to understand the market and anticipate the needs of customers. Then they’ll order the cars they think will sell.
8. Market the Dealership
Getting customers on a consistent basis is your biggest challenge. Start with your website. Car shoppers want to know what’s available before they visit the dealership.
Spend your marketing budget on several different marketing strategies, but keep your target market in mind. Use the channels that they use.
How to Start a Car Dealership That Thrives
What does it take to build the best car dealership from the ground up? It takes market research, a plan, and a great location.
Now that you know how to start a car dealership, you’ll need more marketing tips to get leads and sales. Check out the Business section for tips to help you grow your dealership.