5 Most Important Things to Know When Starting a Car Dealership

5 Most Important Things to Know When Starting a Car Dealership

Opening a car dealership means you have to plan properly and meticulously. When you wish to start a dealership in a particular state and location, there are numerous aspects to consider. You have to think about local market, type of dealership, startup expenses, developing a solid business plan, legal requirements, and so on. 

Here are the 5 most crucial things to know when starting a car dealership:

1. Location, location, location

The location of your dealership has a significant impact on the sales and profits you turn in a year.  For example, some states are more profitable, and offer a better business climate as compared to the other. Average yearly sales, costs associated with opening, population, average payroll costs, and weekly employee salaries in the area, are important factors to remember. 

best location for car dealership

However, you need to be aware of the downsides too. For instance, despite a great demand in several states, business conditions might not be optimal or convenient. You have to consider GDP growth, annual payroll expenses, and crime rate, among other aspects. If you do open a dealership in a business-friendly locale, there will be lots of competition to contend with. 

Another point you need to keep in mind is visibility of the area. If you open on an obscure road, the facility will likely fail to attract more customers. A roadside area on high traffic street is, no doubt, a better dealership option. Here too, you have to consider the competition. Dealerships located directly beside each other appeal to customer as it offers multiple options. The risk is that if you fail to please a customer, your competition is right next door!

2. Type of dealership

Make up your mind on the type of dealership you want to operate – new, used, or both. You could also choose to offer electric vehicles, luxury vehicles, or primarily foreign vehicles, exclusively. It depends on the location of your facility and of course, the target audience. For instance, in some places people might prefer SUVs, while other areas could have customers coming in for off-road vehicles.

Do think about including a service department that offers regular maintenance and repair services. It could mean more investment initially, but it can be a source of extra income for your dealership.

car dealership problems

3. Drawing up a business plan

The dealership is bound to be a disaster in the absence of a concrete business and financial plan. The type of dealership you wish to open influences the final plan. Based on your final choice, start developing plans for how you wish to operate the business. Don’t forget to factor in finances, and how you will secure funds to get the facility up and running. Here are a few pointers to get started with:

  • Well-defined strategy to operate the business.
  • Budget plan to finance the dealership.
  • Flexible business structure to change as per requirements.
  • Product range to be offered.
  • Market and SWOT analysis.
  • Marketing plans for promoting the dealership.
  • Hiring of employees and associated expenses.
  • Overall vision for the business.

If you are new to this and haven’t developed a business plan before, talk to a professional. They can help you structure and come up with a solid plan. 

4. Get licensed

A dealer’s license is a must before you start selling cars. Licensing requirements vary depending upon the country and/or state. Some common requirements are:

  • Being in compliance with certain location requirements for the office and showroom.
  • Lease or own a property for your facility.
  • Get an Employee Identification Number from the IRS.
  • Get a clean chit when it comes to criminal background checks.
  • Pass personal history questionnaire requirements.
  • Furnish copies of insurance police and auto dealer surety bond agreement.
  • Get a state tax number from your local tax department.
  • The inspection of your dealership premises shouldn’t turn up any issues.
  • Provide a copy of a franchise agreement (applicable only if you sell new cars).
  • Successfully complete a state-mandated dealer training course.
  • Fill out and submit the dealer application form, and other necessary documents.
  • Pay all application, licensing, and dealer plate fees.

5. Take care of legalities

Yet another hurdle you must cross is to comply with state and federal laws. It includes specific dealer licensing laws. As mentioned above, they apply based on the state you are in and the Federal Trade Commission’s Used Car Rule. The state’s used car lemon law comes into effect too (if it exists).

proper car dealership software

Most states’ dealer licensing laws have a common requirement of obtaining a surety bond. These are financial agreements that guarantee as a dealer, you will comply with state laws related to sale of cars. This bond is a type of protection for consumers and the state government. If the situation arises, they can be used to demand compensation in cases where dealers violate laws, and cause losses or damages.  The FTC Used Car Rule states that dealers need to create a Buyer’s Guide for every vehicle being sold. Information like vehicle, your dealership, warranty, etc, have to be provided too. Inadequate information can result in severe penalties. New vehicle lemon laws are applicable only for manufacturers of vehicles that are defective. But used car lemon laws can apply to dealers, if they are located in states that have instituted them. 

Conduct thorough research before you start a car dealership, as there are several factors at play. If required, seek professional help so you don’t run into any trouble later on. 

Now when you are ready to start your own car dealership, don´t forget about dealership software. Modera offers wide variaty of products that help you boost your dealership sales by digitalizing all the processes. For your new dealership website take look at Modera Webfront and for CRM request a trial for Modera Salesfront.

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© 2023 Modera Ltd. All rights reserved.

© 2023 Modera Ltd. All rights reserved.