How to Start a Car Dealership Business? [A Complete Guide]

. 6 min read
How to Start a Car Dealership Business? [A Complete Guide]

In a time frame where there are a vast number of automobile industries in the country, there is no end to their demand. Cars are one of the hottest topics around youngsters and enthusiasts alike. Considering the industry that is around $118 Billion and is expected to attain the mark of $300 Billion by 2026, it is easily one of the brightest sectors to look for a future into.

Considering such promising figures and the arrival of prominent foreign brands in India, many individuals look at car dealerships as an opportunity to earn out of the situation. Yes, this topic is one of the least talked about, but here we are to help you out with the same.

Let’s have a look at how can we start a car dealership in a country like India:

Let’s say that you have come across the perfect business opportunity with a car manufacturer and are ready to hop into the next step. Interestingly, you should know that there is more to a business than just starting over with a simple registration within the state. Discussed further are some of the basic steps that will help you get started with your car dealership venture.

Step 1 is to form a sound plan:

The first and foremost step once you have decided to get into this field, creating a sound plan. A proper plan needs to be separated into several topics where you need to lay equal focus on every one of them to achieve maximum success in your business.

You could consider asking yourself these questions in the process of forming a sound plan:

  • What are the initial startup and ongoing costs?
  • Whom should I target with my car dealership business?
  • What would be the right charge for customers?
  • Name of my car dealership business?

Now, let’s begin with the first question itself.

What are the initial startup and ongoing costs?

There are many such states where becoming a car dealer isn’t easy, thanks to the number of clauses and conditions in such countries. While the documentation procedure is endless, you will have to get access to some essential documents like a surety bond, business experience, and proper licensing to set up your base in this industry.

The initial process towards establishing your operations as an auto dealer is the filing of a surety bond with the resident state’s DMV. Following this, the dealer is entitled to apply for an auto dealer license. This specific license will be their key to sell vehicles in that state.

The second step to follow after securing a license is the purchasing of bonds. A surety bond is often referred to as insurance to protect the customers and state from fraud by such dealers.

Listed below are some types of bonds which you need to have an idea and access to. These bonds play a crucial role in running your business operations smoothly. Some general bonds include:

  • DMV bonds.
  • RV bonds.
  • Wholesale car dealer bonds.
  • Used car dealer bonds.
  • Motorcycle dealer bonds.

Steps to follow after you have access to bonds that you need:

Securing a premium plan on your bond depends entirely on your banking abilities, making it difficult for dealers to figure out the exact costs to start a dealership. In general, surety bonds are often based on:

  • The amount of the bond needed.
  • Your financial securities and credentials.
  • Additional costs if you decide to finance the premium.
  • Your credit score.

Besides securing a bond, dealers need to get their licensing. The types of license which you might need depends on the state and locality where you are planning for your business.

The category of license, as described by most states, are listed below:

  • New car dealer
  • Reconditioner licensing
  • Used car dealer (retailers)
  • Rebuilder licensing
  • Wholesaler licensing

The standard procedure of getting into the car dealership business:

  1. Filling out the application form.
  2. Securing a surety bond (the number of security bonds that you might need, depending on your line of business).
  3. Buy liability insurance for your vehicles.
  4. Apply for a GST tax number.
  5. Develop your business location.
  6. Regulate your dealership’s photographs and business sign with the location and ensure that they comply with the state-specific photo and signage rules.
  7. Pay the mandated fees.
  8. Receive your dealer’s tag from the courthouse.
  9. Get your sales license to sell vehicles.

Whom should I target with my car dealership business?

One of the best ways to attract customers to your car dealership is relying on both physical and online advertisements. While advertisements do a significant share of your business, referrals also work a great deal for the successful run of your car dealership business.

As far as targeting people with your dealership is concerned, you can start with hitting on customers with good credit at the early stages. Since your business is related to cars, you should know that most of them would require a healthy financing option and they need to have a good credit score for the same. While most of the dealers have a hard time finding people with a good credit score, some dealerships specialise in financing the people who suffer from low credit loans.

What would be the right charge for customers?

To understand this, you need to understand the profit model of a car dealership business. A  dealership generates its revenue and profits by selling vehicles at a higher price than what is listed in the dealer’s invoice price. The other source of earning profit is by servicing the cars that they sell.

As far as charging the right amount is concerned, dealers are usually entitled to sell their inventory at the manufacturer’s suggested retail price (MSRP). However, they are also entitled to offer various discounts to their customers. If the dealer wishes to sell their vehicles at a discount, they can do the same from the dealer invoice price.

What are the ongoing expenses for a car dealership?

The cost of running a dealership is directly proportional to the bond and insurance you own as you will be able to offer discounts to attract customers on the same. While you could get started with your dealership at minimal costs of 10 lakhs for securing a contract besides the GSTIN registration, you should have at least Rs.50 lakhs in securing inventory for the same. Also, individual car manufacturers charge different price amounts for their dealership.

Besides all the steps listed above, there are some minimal documentation procedures that you need to follow to start your car dealership business. You need to register your business for taxes and also open a current bank account and secure credit cards for the same.

Last but not least, you also need to have a strong team of up to 50 members that comprises a salesperson, marketing team and mechanics, to run a successful car dealership.

Also read:

1) What type of permissions are required before starting any business?
2) Business Insurance: Why is it important in the modern era?
3) GST for Every Business

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Q. What is the estimated amount needed to open a car dealership?

A. While the estimates depend on many internal factors, to open a car dealership in India, you should have access to some 60L-1cr. You should also add the prices of Goods and Service Tax while calculating the same.

Q. Is it a reliable business?

A. Yes, cars are going to stay as long as humanity. It is without a doubt that the dealership business is here to stay.