Your Guide to How to Become a Car Dealer

Written by
Rebecca Smith

Published
Oct 4, 2018

Oct 4, 2018 • by Rebecca Smith

Auto dealership sales exceeded 1 trillion in 2017. This tendency isn't expected to slow down anytime soon. You might be considering becoming an auto dealer but, don't know how to make it happen.

The process of opening a car dealership might seem daunting. But, only if you don't follow the process and develop the right plan. Not sure how to start your auto dealership?

We'll give you the best step by step guide on how to become a car dealer today.

How to Become a Car Dealer in 7 Simple Steps

Establishing any business isn't easy. A car dealership isn't an exemption but, only if you don't understand the process. The process may vary on a state by state basis.

To prevent any issues opening your business, it's important to follow all the regulatory requirements. Here are the steps you should follow to start your car dealership in no time.

1. Develop Your Car Dealership Business Plan

Your business plan will be essential to opening a successful car dealership. During this process, you will research regarding the business registration and licensing requirements. It's important to create a budget according to the business you want to run.

Are you going to sell used or new cars? What are the costs associated with registration and licensing? How much capital will you need?

These are some of the questions that can guide your research. Another important aspect of your research is scouting for the right location. To find the best location, you must consider your customer and the visibility of the location.

2. Register Your Company

After you finish your business plan, you must register your company. Your business registration will allow you to do business using your company name. Are you considering registering a Limited Liability Company (LLC)?

Do you have partners or investors in this business? You might consider registering your business as a partnership or limited partnership.

It's important to consult a lawyer and tax professional before registering your company. They can provide insight into the benefits and consequences of your business registration.

3. Consider Operating as a Franchise

When you decide to open a dealership, you have two options. Your business can operate as a franchise or an independent dealership. The main difference between them is that a franchised dealer has a contract with a car manufacturer to sell their products.

If you decide to operate as a franchise, you have to contact car manufacturers such as General Motors, Ford, among others. They will provide more information about the process and cost of becoming a franchised car dealership. Instead, if you decide to open an independent dealer, you may become a new or used car dealer.

You might be asking yourself how to become a used car dealer. Becoming a used auto dealer is as easy as obtaining your inventory from used car wholesalers.

Another option is importing your inventory. You should consult a customs broker to make sure you meet all the requirements.

4. Obtain the Capital You Need

How are you going to fund your startup costs? Are you going to use your savings? Maybe you have partners who will provide some of the funding.

If you plan on applying for financing, you should put a lot of effort into your business plan. The financial institution will ask for it during the application process.

Don't forget to include all the expected costs and expenses such as employee payroll, inventory, among other essentials. You should contact your financial institution to learn more about obtaining financing for your business.

5. Meet All Your State's Licensing Requirements

Car dealership licensing requirements will vary on a state by state basis. It's important to find out all your state requirements before applying. Some may require additional licenses such as a Basic Business License.

To operate a car dealership in Washington DC, you must obtain a Basic Business License, and a DC Registered DMV Registered Dealer Permit. Some of the documents you need to submit are your Certificate of Occupancy, Clean Hands Self Certification, Sales Person Designated Letter, among others. Before submitting your application, you should consult your local DMV to make sure you submit all the required documents.

6. Obtain Your Auto Dealership Bond

Most states require a surety bond to obtain your auto dealership license. The auto dealership bond requirements vary on a state by state basis. Washington, DC requires you to obtain a bond of 25,000 dollars.

The bond amount may vary between 10,000 to 20,000 dollars. The cost of your bond will depend on your credit score, type of bond, finances, among other factors. Your state may require different types of bonds depending on the license.

You should consider obtaining a surety bond even if your state doesn't require it. An auto dealership bond will give credibility and customer confidence to your business. A bond works as an assurance for your transactions.

7. Set up Your Car Dealership Location and Hire Your Team

After you have all the required registrations and bonds, you should set up your location. Start with buying your inventory including cars, parts, and accessories. Don't underestimate the potential profit from the last two.

Experts say that most car dealership profits come from income streams other than car sales. Also, you should develop a marketing plan to make your dealer stand out.

You may consider advertisements, radio spots, or even affixing emblems to your inventory. You must do your research to learn more about which emblems are your best option to promote your dealer.

A successful car dealer is as good as their team. You must hire a staff that has the right set of skills and fits your company vision.

Your repair and service center is essential to provide the best service to your customers. When hiring your mechanics, don't focus only on their education look for the auto repair must-have skills.

Bottom Line

The process of becoming an auto dealer may seem complicated. The first step is researching and learning all there is to know about the auto dealership industry. If you decide to operate a franchise dealership, the car manufacturer will ask you to submit an application.

There might be a high cost involved when you operate this type of dealership. But, your dealership is backed by the manufacturer's brand. Also, the auto manufacturer will guide you through the process.

Franchise dealership is a great option for new car dealers. Our how to become a car dealer guide provides the building blocks to establish your successful car dealership today.

Want more tips on how to build a successful business? Check out our blog for more interesting articles.