WordPress tells me that some people reach my blog while looking for information on how to start a car dealership and how to raise capital for it. So, I thought I’d try to be helpful and provide some information to help those people out. In the case of errors and omissions, I apologize, but feel free to let me know what I did wrong.
In order to sell more than five cars a year to the public, most states (maybe all) will require that the seller become a licensed dealer. Selling more than five cars a year is known as curbstoning and is definitely illegal.
Most requirements to start a dealership center around a few things: a retail location that has enough space to show at least five cars, a surety bond for around $25,000 and a lack of criminal record. The surety bond is basically just an insurance policy and can be purchased for a few hundred dollars, it’s also known as a motor vehicle dealer bond. Of course, all of these vary by state. The application can take a few weeks to process, cost a few hundred dollars and will require more information about corporate structure and balance sheet.
Once the application is approved its important to get up and running. This will likely mean obtaining liability insurance, signing up for a floorplan, and registering for auction. The company used for the surety bond should also be able to help out with the liability insurance. Floorplans are lines of credit that are used specifically to purchase inventory, a few companies to look at are: MAFS, AFC, Dealer Services Corporation, Auto Use.
Next, and it’s possible to do this while getting the insurance and floorplan, register for auction. Auctions will want information on the dealer’s license, surety bond, corporate structure, and balance sheet. Just call up the closest auction and ask for new dealer registrations. I’m always a big fan of online auctions, so check out OVE, ATCOpen, GMAC SmartAuctionOpen and Adesa.
Before selling cars make sure to have all of the necessary paperwork, this includes, and depends upon the type of dealership, the buyer’s order, buyer’s agreement, odometer disclosure, document to transfer titles, and several more depending on the dealership. It’s also important to order dealer tags: temporary tags and untitled vehicle tags.
Other things to think about are:
- Website: there are several good web solution providers, SEO experts and blog resources to help
- Lawyers and corporate structure
- Marketing plan
- Why you want to start a dealership in the first place
19 responses so far ↓
Mike Weisbrot // September 15, 2007 at 9:51 pm
Surety bonds are not insurance policies AND they are not a few hundred dollars for all applicants…they can be thousands at times.
See http://www.jwsuretybonds.com/blog for more.
Gerald James // September 16, 2007 at 10:22 am
I have been a dealer for 32 years. Starting a car dealership isn’t as easy as it may seem. Car Dealer must understand the value of every vehicle they purchase. While you are getting your ducks in a row. In order to help you get in tune with the market. I strongly suggest that you Put yourself in the customers shoes and Surf, Surf, Surf the Internet for Websites such as AutoTrader.Com and Cars.Com. Look at dealers in your area and study their inventory and prices. Keep in mind, dealers that finance have a much higher markup when compared to dealers that sell for cash. In other words, when studying the market keep in mind that some vehicles may have been priced for cash whereas some might be priced with Seller Financing. The main point is that you can use the Internet to enlighten you concerning the market. If a consumer is looking for let’s say, a 2003 Ford Mustan, they will probably search every vehicle within 200 miles and thus they will have a pretty good idea of the market on 2003 Ford Mustangs. So, why shouldn’ t you? Today’s consumers are very knowledgeable about the market. Today’s customer It’s just my personal opinion but I feel comfortable in saying that concerning Online Sales, don’t let the consumer have more knowlegde about the vehicle than you. Concerning Invetory: Once you have determined what models you intend to carry, if you can afford it, purchase three of each type of vehicle you carry. In this way, if a customer arrives at your lot and doesn’t like what he sees, by having three of each, ther’s a high probablity the consumer might purchase one of your other vehicles. Not all vehicles are street worthy. Before buying a vehicle, make certain you inspect it thoroughly and determine how much reconditioning will be needed. If you have a true picture of the amount and cost of reconditoning, you’d be better off not buying the vehicle. Over the years I have seen many good people bite the dust simply because they were over anxious and spent all of their capital on vehicles that either weren’t good merchandise or perhaps they had a good vehicles but they paid too much. The owner small produce stand can make almost as much as a large one if he has the type of produce that is in big demand and would rarely need to worry about spoilage. My point is this, know the market. If you are going to buy cars at the auction. Arrive at the auction early so you will have enough time to select and “INSPECT” a large number of vehicles. In this way, you will have a larger selection to choose from and won’t feel pressured to buy the ones that cost too much. Always remember, the duty of a used car dealer is to provide TRANSPORTATION. Most consumers can’t afford to pay for a vehicle that is broken down. If you are dealing with a Capital Company, they will certainly frown if your customers can’t repay their loan due to a non working automobile. If you are in the Houston Area, we have one of the best Automobile Dealer Associations in Town. My fellow dealers and I are always willing to lend a helping hand to fellow dealers. Every time a dealer goes under, the reputation of all dealers stands to be affected. If a dealer goes under and burns a bank or capital company, it can have a negative impact on all dealers. Although you can in fact make a lot of money in this industry, you will be taking a risk. As a general rule, the higher the risk, the higher the profit potential. Start slow and you’ll have less chance of losing money due to simple mistakes. Don’t expect to fill all of your parking spaces as soon as you go into business. I have always felt better to have money in the bank rather than to spend all of your money or floor plan simply because you wanted to have an overstocked looking lot. As a general rule, you can usually get a much larger down payment for an older luxury model when compared to a newer model but with less miles and less equipment. In other words, some vehicles will bring a big down payment. Some won’t. Make friends with the dealers in your area and pay attention to what they are doing. Most dealers won’t mind sharing their success and failure. If you can learn from the mistakes of others, you will have fewer failures. In the essence of time I will not elaborate more. In closing, I wish for you much success. Always remember, Today’s Obedience will bring Tomorrow’s Reward. Good Luck.
Gerald James
Michael Brairton // September 20, 2007 at 1:57 pm
Going beyond Gerald’s excellent recap of issues to be considered when pursuing a dealership start-up I would add the importance of thorough market research during the due diligence period. World class retailers pick their locations based on a need for their services, rather than based on proximity to where they live, where they already have commercial property available, or where they “think” a car dealership would be appropriate. Time spent planning before committing, saves endless heartache and financial loss down the road. Following site selection, know your likely competitors and their level of proficiency. If the best dealership in the area specializes in late model high end European imports, but there is no proficient local dealer specializing in commercial vehicles, then that is where the opportunity exists. Don’t decide you want to sell used BMW’s just because you happen to like BMW’s!
Rockhopper // September 23, 2007 at 4:58 pm
Wow. With all due respect to Gerald and Michael, their comments reflect the bias and perspective of a traditional car dealer. Great advice if you are interested in creating a traditional car dealership.
“The discovery of water was not made by a fish.”
– Gary Kissler, The Change Riders
As long as the incumbents struggle to get outside of their “fish bowl”, it will be easier for an outsider to create a 21st Century version of the dealership.
Charles James // October 21, 2007 at 12:23 pm
I am looking into the auto industry as in oppertunity to do something big for me and my family i sell cars for a living but would perfer to have my own and is looking for advice on the start-up cost and what to look for down the road i don’t want trail and error i need guidence so if any of you have a word good or bad let it fly my destiny has been ordered.
jason ray // October 29, 2007 at 1:46 pm
i am trying to start a small used car dealership in florida and the surety bond cost is 3700. i am not sure what to do, i budgeted 500 for it now it is 8 x more. is there any cheap surety bond companies out there.
B-Eazy // November 1, 2007 at 10:00 pm
As a young buck coming up through my high school years some people wanted to become doctors other wanted to become lawyers, i wanted to sell cars. The thought snow balled from then into wanting to owning the #1 dealership within a reigon. Now after working at 14 different dealerships (working at couple of them a couple different times.), in 3 different states in the last 4 years will change what anyone thinks of the automotive business. But like the passion of brett farve for the game of football i still love selling a $30,000 ride to someone who just drove into to town to purchase a ???? from wal-mart. With in the next couple months i plan on “starting my business” buying and selling vehicles on the side, marketing my business name, banking my profits, an take it run with it to the top. It’s funny because as i putz around see what other people are stating about trying the same, there seems to be 2 of the most important things most overlook, location an realy knowing how to sell a car. Lets keep it real, i could teach a 3 year old the old ten steps of selling a car, but it’s psychology of being like the customer, being 2 steps ahead, an controling the whole situation with them “thinking” there controling there purchase process. My advise toward the subject of conversation of starting your car dealership is to work at not few different dealerships but a bunch of them, i highly recommend selling cars for a couple of months in a market like florida or california if your use to kansas, or vise versa to go from florida an go sell cars in pennslyvania. Most also start by saying i been selling cars for 15 years which automaticly quailifys them to become a owner, but in reality it’s that same sells that sold 8 cars his first month, an 15 years later 8 cars sold last month. Become a great sellsmen with plan an the rest will follow. An like a few other mentioned, don’t open a pre-owned dearship in a town or city where there’s already a 100 others, ” think outside the box” , there’s more food to go around in a town where your the shark…
Chris Celi // November 27, 2007 at 5:01 am
hey guys. thanks for the help. although im opening my used car dealership in canada this information helps me alot. i appretiate all the advice and if you guys have any more impotaint advice that you guys can share with me can you please email me. thank you.
Montana // December 3, 2007 at 8:05 am
The differences are beginning to emerge after the average desk body and a very harmonious, in our view, a modern silhouette touring: fast, with notes sportivnosti and at the same time vmestitelnogo and cozy…
Mike Spano // December 13, 2007 at 8:11 am
I’ve worked for premium dealewrs as I got started and then graduated to Acura,Infiniti and Mercedes. Selling is like taking candy from a baby. I don’t have a million dollars to start a dealership but want to badly. How do you get capitol? Which manufacturers will help a startup?
Vince // April 18, 2008 at 2:42 pm
Starting up internet based car dealership. What do you guys think of this? Any pitfalls? Any
benefits compared to traditional?
Mike // July 31, 2008 at 1:44 am
I am to going to startup a new dealership. I have ten years experience in auction experience and looking to capitolizing on my experience (arbitrator) any suggestion on goin from wholesale to retail?
Dan // March 9, 2009 at 7:24 pm
I think you hit the nail on the head
Frank // March 12, 2009 at 6:50 pm
Hey guys, some interesting reading here. I am from an IT background and I was playing around with the idea of starting an online car dealership (www.kenyacarbazaar.com), now I am inundated with requests both locally and internationally for people looking to buy and people selling cars.
This project is not over yet, in fact I am planning on taking it a step further by adding other sources of income.
When planning to start an online dealership, try and get a good developer who can quickly make modifications to your system without having problems. I have come to realise that user satisfaction is key and the more people find it easy to use a system and get information, then the more they will come back and refer the service to their colleagues and friends.
The other thing that you need to look into is search engine optimization. You need to make sure that your website is Search Engine friendly and that it is listed on many online directories (i.e. Yahoo, MSN, Alta Vista, etc). The more your site is visible online, the more people come to your shop. Try searching for car dealerships in Kenya and see the results……
I also agree with most of the above comments that it is important to know a lot about cars before you get into it. I find myself making mistakes here and there not being very current with the automotive lingo, but not for long. You need to be a master of the product that you are selling.
I am still trying to understand the local market demands and build up on my offline marketing strategy. So for me, it is a constant learning curve.
Frank // March 12, 2009 at 6:58 pm
Sorry for the double post guys, but just to add I would say the first most crucial thing to start with is a BUSINESS PLAN.
Make sure that you start out with a business plan first, even if it is a simple one. You can always improve on it as you go along. I failed to start with a business plan myself but I developed one some time back which I have been updating every time and again.
Very helpful tool!!!
Rick // March 22, 2009 at 4:35 pm
Hey guys, do you think its a smart idea to start a dealership with the economy the way it is? I have a few ideas that Im sure could put a “twist” on the idea of a car dealership, but not sure if I should begin research and get serious about this.Im sure many others are thinking this also…
Car Dealer // June 14, 2009 at 11:37 pm
Starting up a car dealership now could be a smart idea. A lot of poorly run dealerships have been weeded out by the economy. If you’re willing to work a lot of hours and be honest with customers, I believe it could work out.
You don’t a million dollars to start out. All a million dollars would do is attract the vultures. Learn how to buy cars and sell them for a profit first.
Have a business plan like Frank suggested. And stick to it. A lot of dealers selling cars in the 5k to 7k range make the mistake of buying more expensive cars because some lender has given them money.
Speaking of lending, stay away from flooring lenders. One of the largest flooring lenders, Dealer Services Corporation (DSC), has filed hundreds of lawsuits against small dealerships. Your car lot may be in Alabama, but they sue you in their hometown in Indiana. They also accuse you of fraud based on an Indiana statute, and claim triple damages. So you borrow $50,000 and they can grab every car on your lot 6 months later. Then they sue you!
If you just give yourself some time to grow, you’ll probably be successful. You’re return customers will be what makes you successful, so treat all customers with respect.
Also, make sure that your bank or finance company treats your customers well. Some of them, like Lobel Financial, have been chastized by state attorney generals for their outrageous collection tactics. Every thing is a reflection on your business, so don’t let your customers be abused.
Car Dealer // June 14, 2009 at 11:38 pm
Starting up a car dealership now could be a smart idea. A lot of poorly run dealerships have been weeded out by the economy. If you’re willing to work a lot of hours and be honest with customers, I believe it could work out.
You don’t need a million dollars to start out. All a million dollars would do is attract the vultures. Learn how to buy cars and sell them for a profit first.
Have a business plan like Frank suggested. And stick to it. A lot of dealers selling cars in the 5k to 7k range make the mistake of buying more expensive cars because some lender has given them money.
Speaking of lending, stay away from flooring lenders. One of the largest flooring lenders, Dealer Services Corporation (DSC), has filed hundreds of lawsuits against small dealerships. Your car lot may be in Alabama, but they sue you in their hometown in Indiana. They also accuse you of fraud based on an Indiana statute, and claim triple damages. So you borrow $50,000 and they can grab every car on your lot 6 months later. Then they sue you!
If you just give yourself some time to grow, you’ll probably be successful. You’re return customers will be what makes you successful, so treat all customers with respect.
Also, make sure that your bank or finance company treats your customers well. Some of them, like Lobel Financial, have been chastized by state attorney generals for their outrageous collection tactics. Every thing is a reflection on your business, so don’t let your customers be abused.
seth // September 25, 2009 at 8:56 pm
I have been a dealer since 1996.in the beginning i started selling cars in 1991,,,worked sales for 2 years,,,did finance for a year ,,and was used car manager for 2 years,,,,5 years learning curve,,,,opened my own dealership in 1996….with 6 used cars,,,in 1998 it became a 75 cars ,,med size used car lot,,in 2000,,,got nissan dealership,,,,with 200 used cars and 75 new cars,,,worked hard made money,,,,aquired honda store in 2002 ,,,toyota in 2004,,, in 2006 bought a mercedes store,,,,and in 2008,,,bought ford store,,,,now i own five dealerships,,,and approx $500 employees work for me,,,,who works the hardest …me,,,,,,so the password is hardwork