A car dealership business sells cars and they may fall in any of the following niche areas; brick and mortar dealership, online dealership, luxury car dealership, and multi-brand and multi-maker car dealerships. As of January 1, 2021, there were some 18,260 light vehicle dealerships in the United States. The industry lost 51 dealerships, compared with one year earlier.
The industry witnessed its most significant slump in the aftermath of the 2008-09 financial crisis. According to Statista, roughly 4.7 million passenger cars were sold in the US in 2019. In terms of cars and light trucks, reports indicate 17 million in sales.
Steps to Start a Car Dealership Business in 2022
Table of Content
1. Conduct Market Research
The first step in the market research process for your car dealership is to develop market-based research questions in line with your overall business goal and objective. In this regard, you should source for information that will help you maximize your business, information that will help you know what your potential market will be looking for from a car dealership shop, and also help you operate your car dealership with less stress and of course, build the business to profitability.
a. Who is the Target Market for Car Dealerships?
If you are thinking of opening a car dealership then you should make target demographics all-encompassing. It should include corporate executives, socialites, students, entrepreneurs, celebrities, and every adult in the neighborhood where your car dealership will be located.
b. Is Car dealership a Profitable Business?
Yes, a car dealership business is profitable and statistics show that the industry generates an average of $2,109 monthly sales with a monthly gross profit of $728 on a gross profit margin of 34.5 percent.
c. Are There Existing Niches in the Industry?
Yes, there are existing niches when it comes to car dealerships, and here are some of the niche ideas;
- Bricks and mortar car dealerships
- Online car dealerships
- Luxury car dealership business
- Multi-brand and multi-maker car dealers
- Used car dealership
d. Who are the Major Competitors?
- CarMax Inc.
- AutoNation Inc.
- Penske Automotive Group Inc.
- Sonic Automotive Inc.
- Berkshire Hathaway Automotive (Van Tuyl Group)
- Group 1 Automotive Inc.
- Asbury Automotive Group
- Hendrick Automotive Group
- Lithia Motors Inc.
- Larry H. Miller Group of Cos.
- Longo Toyota
- Cherry Hill
- Streetside Classics
- Texas Direct Auto
- West Herr Chevrolet of Williamsville
- Central Avenue Nissan
- Fletcher Jones Mercedes-Benz
- Pat Lobb Toyota
e. Are There County or State Regulations or Zoning Laws for Car Dealership?
Yes, there are county or state regulations and zoning laws for car dealership business, and players in this industry are expected to work with the existing regulations governing such business in the county or state where their business is domiciled.
In addition to that, it is important to state that in the United States, government agencies and departments routinely grant variances to rules and regulations. Often, you only have to fill out a short form. In other cases, your request may have to be publicly heard before your city council, zoning board, or other body. Please check with your zoning or planning department to find out what options are available to you.
f. Is There a Franchise for Car Dealership Business?
Yes, there are franchise opportunities for a car dealership, and here are some of them;
- Dealer Specialties Int’l. Inc.
- Car Talker
- The big five auto manufacturers offering franchises in the U.S. include (General Motors, Ford, Honda, Hyundai, and Toyota).
g. What Do You Need to Start a Car Dealership Business?
- A Feasibility Report
- Dealer License and Surety Bonds
- Dealer Plates
- Business and Marketing Plans
- Business Licenses and Permits
- A Good Shop Facility
- EIN (Employer Identification Number)/Federal Tax ID Number.
- A Corporate Bank Account
- Suppliers of cars
- Startup and Working Capital
Memorable Business Name ideas for Car Dealership
- R Drake® Car Dealership Shop, Inc.
- Blueberry® Car Dealership Shop, Inc.
- Car Nation® Car Dealership Shop, Inc.
- Ted Capstone™ Electric Cars Dealership, Inc.
- Green Line® Car Dealership Shop, Inc.
- Sleek GAP® Car Dealership Shop, Inc.
- Auto Mike® Online Car Dealership Company
- Macron Martins® Car Dealership Shop, LLC
- High End® Luxury Car Dealership Shop, Inc.
- Road Master® Car Dealership Shop, Inc.
- Vitus Lewis® Car Dealership Shop, Inc.
- Bourn Mort® Car Dealership Shop, LLC
- Classique Car® Online Car Dealership Shop, Inc.
- All Nation Car Towing and Car Accessories Store
- Mark Fernando® Car Dealership Shop, Inc.
- Tripod Car® Online Car Dealership Shop, Inc.
- The Kings® Car Dealership Shop, Inc.
- George Paulson® Car Dealership Shop, LLC
- Ken Garland® Car Dealership Shop, Inc.
- Gaggling Jamel© Car Dealership Shop, Inc.
Register Your Business
a. What Type of Business Structure is Best for Car Dealership Shop?
Even though there are several options when it comes to the business structure of a car dealership shop, the one that most players in this line of business consider is an LLC. It is common to consider an LLC because providers want to protect themselves from lawsuits.
Please note that an LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed below. Most new single-member LLCs classified as disregarded entities will need to obtain an EIN.
b. Steps to Form an LLC
- Choose a Name for Your LLC.
- File Articles of Organization.
- Choose a registered agent.
- Decide on member vs. manager management.
- Create an LLC operating agreement.
- Comply with other tax and regulatory requirements.
- File annual reports.
c. What Type of License is Needed to Open a Car Dealership Shop?
- General Business License
- Seller’s Permit
- Fire and Safety Permit (Fire certificates)
- Federal Export Licenses
- Zonal Permits
- Signage Permit
- State Occupational Licenses
- Operational State Facility Inspections (Building Permits)
d. What Type of Certification is Needed to Open a Car Dealership Shop?
You don’t need any certifications to open a car dealership.
e. What Documents are Needed to Open a Car Dealership Shop?
These are some of the basic legal documents you are expected to have in place if you want to legally run a car dealership shop in the United States of America;
- Business and liability insurance
- Federal Tax Payer’s ID
- Dealer License and Surety Bonds
- State Permit and Building Approval
- Federal Export Licenses
- Certificate of Incorporation
- Business License
- Business Plan
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Contract Document
- Company Bylaws
- Memorandum of Understanding (MoU)
f. Do You Need a Trademark, Copyright, or Patent?
If you are considering starting a car dealership, usually you may not have any need to file for intellectual property protection or trademark. This is because the nature of the business makes it possible for you to successfully run it without having any cause to challenge anybody in court for illegally making use of your company’s intellectual properties.
Cost Analysis and Budgeting
a. How Much Does It Cost to Start a Car Dealership Shop?
When it comes to starting a car dealership business, the startup costs vary and it could range from $150,000 to over $1.5 million.
b. What are the Cost Involved in Starting a Car Dealership Shop
- The total fee for registering the business in the United States of America – $750.
- Legal expenses for obtaining licenses and permits (dealer license and surety bonds) totaling – $3,500.
- Marketing promotion expenses – $3,500
- The cost for hiring a business consultant (writing of business plans inclusive) – $2,500.
- Insurance (general liability, workers’ compensation, and property-casualty) coverage at a total premium – $5,400.
- The cost of accounting software, CRM software, and Payroll Software – $1,500
- The cost for payment of property for displaying vehicles, including space for a garage and business office – $35,600.
- The cost for shop/facility remodeling – $25,000.
- Other start-up expenses including stationery – $1,500
- Phone and utility deposits will cost – ($2,500)
- Operational cost for the first 3 months (salaries of employees, payments of bills et al) – $30,000
- The cost for start-up inventory – $150,000
- The cost for store equipment (cash register, security, ventilation, signage) – $3,150
- The cost for the purchase of office furniture and gadgets (Computers, Printers, Telephone, TVs, Sound System, tables and chairs et al) – $8,000.
- The cost of launching an official website – $600
- The cost for our grand opening party – $3,000
- Miscellaneous – $2,500
c. What Factors Determine the Cost of Opening a Car Dealership Shop?
- The size of a car dealership
- The choice of location
- The required licenses and permits
- The type of car dealership business (online or brick and mortar)
- The brands of cars (luxury, used, or new) retailed in the shop and additional service offerings (securing license and car documents for customers)
- The cost of hiring and paying a business consultant and attorney
- The cost for branding, promotion, and marketing of the car dealership business
- The cost for furnishing and equipping the facility
- The cost for insurance policy covers
- The cost for registering the business
- Ongoing expenses
- Cost of recruiting and training your staff
- The cost for the purchase and customizing of uniforms, shoes, and caps for your employees
- The cost for the grand opening of the car dealership shop
d. Do You Need to Build a Facility? If YES, How Much Will It Cost?
It is not compulsory to build a new facility for your car dealership shop, but, if you have the required finance, it will pay you to build your facility. The truth is that building or reconstructing a facility for your car dealership will help you come up with a facility that will perfectly fit into your overall business goals and vision.
e. What are the Ongoing Expenses of a Car dealership?
- Rent and lease
- Bonds and insurance premiums
- Supplies (office supplies, car wash, and car polish, et al)
- Utility bills (internet subscriptions, phone bills, signage and software renewal fees et al)
- Salaries of employees
f. What is the Average Salary of your Staff?
- Shop Manager (Owner) – $45,000 Per Year
- Merchandise Manager – $29,630,000 Per Year
- Marketers – $26,100 Per Year
- Security Guard -$24,000 Per Year
g. How Do You Get Funding to Start a Car Dealership Shop
- Raise money from personal savings and sale of personal stocks and properties
- Raise money from investors and business partners
- Sell shares to interested investors
- Apply for a loan from your bank/banks
- Pitch your business idea and apply for business grants and seed funding from the government, donor organizations, and angel investors
- Source for soft loans from your family members and your friends.
Write a Business Plan
a. Executive Summary
Our business is a standard and registered car dealership shop that will be located in one of the busiest streets in Spruce, Chestnut, and Walnut Streets – Philadelphia. We have been able to lease a facility that is big enough (a 5 thousand square foot facility) to fit into the kind of standard car dealership shop that we intend launching and the facility is located in a corner piece along a major road close to the city center.
We will sell cars from different manufacturers (brands) from the United States and abroad. We are set to service a wide range of clientele in and around Spruce, Chestnut, and Walnut Streets – Philadelphia.
b. Products and Service
- Sell of cars
- Export cars
- Arranging car loans, selling add-ons, and trade-in
c. Mission Statement
Our mission is to establish a world-class car dealership business that will make available a wide range of cars from top manufacturing brands at affordable prices to residents of Spruce – Philadelphia and other key cities in the United States of America and abroad where we intend opening of chains of cars dealership shops and franchise.
Our vision is to establish a standard car dealership business that will be among the top 5 car dealership shops in the United States of America.
d. Goals and Objectives
The goals and objectives of a car dealership are to provide a retail outlet where people can go to buy their preferred cars and also make inquiries about cars.
e. Organizational Structure
- Shop Manager (Owner)
- Merchandise Manager
- Sales Boys and Sales Girls
- Security Guard
a. SWOT Analysis
Our location, the business model we will be operating on both (physical garage and online store), varieties of payment options, a wide range of new and used cars from different manufacturing brands and models, and our excellent customer service culture will definitely count as a strong strength for us. Our team of highly qualified staff members is also a plus for us.
A major weakness that may count against us is the fact that we are a new used car dealership garage and we don’t have the financial capacity to compete with multi-million dollar car garages when it comes to retailing at rock bottom prices.
The fact that we are going to be operating our car garage in a corner piece property along a major road close to one of the largest residential estates provides us with unlimited opportunities to sell our cars to a large number of individuals and corporate organizations.
We have been able to conduct thorough feasibility studies and market surveys and we know what our potential clients will be looking for when they visit our car dealership garage; we are well-positioned to take on the opportunities that will come our way.
Just like any other business, one of the major threats that we are likely going to face is an economic downturn. It is a fact that economic downturn affects purchasing/spending power. Another threat that may likely confront us is the arrival of a new car dealership outlet in the same location where ours is located. Unfavorable government policies may also pose a threat to our business.
b. How Do Car Dealerships Make Money?
Car dealerships make money by selling new and used cars, arranging car loans, selling add-ons, and making money on trade-ins.
c. Payment Options
- Payment via bank transfer
- Payment via credit cards
- Payment via online bank transfer
- Payment via check
- Payment via mobile money transfer
- Payment via bank draft
d. Sales & Advertising Strategies
- Introduce your car dealership by sending introductory letters alongside your brochure to corporate organizations, car owners, taxi companies, transport companies, households, sports organizations, gyms, schools, socialites, celebrities, and other key stakeholders throughout the city where your car dealership shop is located.
- Advertise on the internet on blogs and forums, and also on social media like Twitter, Facebook, LinkedIn to get your message across
- Create a basic website for your business so as to give your business an online presence
- Directly market your cars
- Join local car dealership associations for industry trends and tips
- Provide discount days for your customers
- Advertise your business in community-based newspapers, local TV and radio stations
- List your business on yellow pages ads (local directories) and online directories
- Encourage the use of word-of-mouth marketing (referrals)
a. How Much Should You Charge for your Product/Service?
Generally, the price of cars depends on the model, brand, and other factors. But available data shows that in September 2021, the average new car cost $45,031 – the first time this figure crossed over the $45,000 in history, according to the latest data from Kelley Blue Book and Cox Automotive. That’s up from $40,000 at the end of 2020, and up from $42,000 this past June.
b. How Much Profit Do Car Dealership Shop Owners Make a Year?
It depends, but the available report shows that the salaries of Car Dealership Owners in the US range from $18,902 to $495,413, with a median salary of $90,593. The middle 57 percent of Car Dealership Owners makes between $90,596 and $225,300, with the top 86 percent making $495,413.
c. What Factors Determine the Amount of Profit to Be Made?
- The capacity of the car dealership
- The types of cars (old, new or luxury cars) retailed in the shop
- The location the car dealership is covering (online or strictly brick and mortar)
- The management style of the car dealership
- The business approach of the car dealership
- The advertising and marketing strategies adopted by the car dealership.
- The number of years the car dealership is in business
d. What is the Profit Margin of a Car Dealership?
The profit margin of a car dealership is not fixed; it usually depends on factors that are unique to your location. For example, new cars tend to have a profit margin between the invoice price and what the dealership actually pays for the vehicle, which can be between 8 and 13 percent. There may be some higher and lower margins, but the overwhelming majority fall somewhere in between those figures.
e. What is the Sales Forecast?
Below is the sales forecast for a car dealership. It is based on the location of the business and other factors as it relates to such startups in the United States;
First Fiscal Year: $1.2 million
Second Fiscal Year: $3.8 million
Third Fiscal Year: $7.5 million
Set Up your Shop
a. How Do You Choose a Perfect Location for a Car Dealership Shop?
- The demography of the location especially as it relates to people that own cars
- The demand for cars in the location
- The purchasing power of businesses and residents of the location
- Accessibility of the location
- The number of car dealerships in the location
- The local laws and regulations in the community/state
- Traffic, parking and security et al
b. What State and City are Best to Open a Car Dealership Shop?
- Las Vegas, Nevada
- Los Angeles, California
- Brattleboro, Vermont
- Tucson, Arizona
- Silver Spring, Maryland
- Rowland Heights, California
- Portland, Oregon
- New York City, New York
- Atlanta, Georgia
- Dallas, Texas
c. What Equipment is Needed to Operate a Car dealership?
You should be prepared to purchase car lifts and display stands, car scanning machines, and related software apps. You will also need computers or laptops, internet facility, telephone, fax machine, and office furniture (chairs, tables, and shelves) amongst others and all these can be gotten as fairly used.
When it comes to hiring employees for a standard car dealership, you should make plans to hire a competent shop manager (owner), merchandize manager, marketers, and security guard.
Launch the Business Proper
In recent times, no car dealership opens its door for business without first organizing an opening party to officially launch the business. You can choose to do a soft opening if you are operating on a low budget or you can go for a grand opening party.
The bottom line is that with a proper launching of the car dealership, you will be able to officially inform people in your city that your car dealership is open for business.
a. What Makes a Car Dealership Business Successful?
- Choose a good location and shop facility to launch the business
- Make sure your shop is stocked with different brands and models of cars
- Throw an open house grand party before officially opening the car dealership
- Be deliberate with your marketing sales approach
- Encourage the use of word of mouth to promote your car dealership business
- Leverage on all available online and offline platforms to promote your car dealership
b. What Happens During a Typical Day at a Car Dealership Shop?
- The shop is open for the day’s work
- Cars are washed and cleaned and strategically showcased or displayed as requested
- Walk-in customers are attended to
- Deliveries of orders are made
- Stocks are taken and reports are written and submitted to superior officers
- The business is closed for the day.
c. What Skills and Experience Do You Need to Build a Car Dealership Shop?
- Customer services skills
- Interpersonal skill
- Accounting and bookkeeping skills
- Business management skills
- Bargaining and bidding skill
- Work experience in a car dealership environment
- Experience in managing people
- Experience in business administration
- Experience in handling different models and brands of cars.