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How to Start a Car Dealership: Your Complete Guide

How much does a car salesman make? Most make about $40,261 per year, not including commission and bonuses. 

But if you’re looking to make more money and take on more of a leadership role, you may want to consider learning how to start a car dealership. Their median salary is $97,790 but some pull in as much as $495,413 per year. 

To own a dealership you’ll need to learn how to become a car salesman first. And how to start a business. 

If you’re interested in being your own boss and making a good income, keep reading. We’re sharing with you everything you need to know to start a car dealership.

How to Start a Car Dealership

Before you open your doors, you need to do some research. There are some steps you need to take and some decisions to make first. 

Creating a plan to move forward will help you avoid making costly mistakes. 

Determine What Type of Dealership You Want to Own

You have tons of options when it comes to the type of dealership you want to own such as:

  • New 
  • Franchised
  • Used
  • Combination of new and used
  • Electric vehicles
  • Luxury vehicles
  • Foreign vehicles

You may want to sell a specific brand of vehicles like at the Caledon Chrysler dealership where they sell used and new Chryslers. 

Consider Add-On Services

Some dealerships also offer additional services such as doing maintenance and repair work. You may also want to think about selling vehicle parts as an additional source of income. 

What type of vehicles you sell will also make a difference in what type of financing you’ll need and how much you can expect to yield in profits. 

Location, Location, Location

Once you know what type of vehicles you want to sell and whether you want to offer other services, it’s time to figure out where to open your dealership. You may not get a lot of business selling convertibles in Alaska. 

Owning a dealership in a small town will mean fewer profits than if you open a dealership in a large city. And if there’s already too much competition where you live, you may end up struggling financially. 

A good source to check out is the National Automobile Dealers Association (NADA). They have midyear and annual reports that can help you make an informed choice of where to open your new car dealership business. 

Identify Your Target Market 

Every business needs to identify who their customer base is. You figure this out by finding out what most of them have in common.

This will help you to design your business to meet their needs. It will also help you figure out where and how to place your marketing dollars to reach your target audience. 

Do research on the type of person you think is most likely to buy a car from you. Determine the following information about them:

  • Age
  • Gender
  • Occupation
  • Income level
  • Hobbies
  • Interests
  • Pain points

The more information you have about the type of person most likely to give you their business, the easier it is to build a business specifically tailored to their needs. 

Figure Out How Much Money You’ll Need 

Starting a business takes money. Starting a car dealership where the inventory costs tens of thousands of dollars takes a lot of money. 

And it’s not easy to become a car dealer. You’ll need to obtain proper licensing, get a surety bond, and learn how to thrive in a hugely competitive industry. 

You can’t get an auto dealer license until you file a surety bond which protects consumers and the state from fraud. Once you have your license you can sell vehicles in your state. 


You may need to obtain a few other types of bonds such as:

  • DMV bond
  • Motorcycle dealer bond
  • RV bond
  • Used car dear bond
  • Wholesale car dealer bond

How much these bonds cost you depends on a few factors such as:

  • Credit score
  • If you need to finance the premium
  • Financial credentials
  • The amount of the bond you need

Those with good credit will pay less money to receive a bond. If you have a lower credit score, take steps to improve your score before you get bonding. 

Dealership Licenses

There are also different types of dealer licenses available such as:

  • Wholesale 
  • New cars
  • Used cars
  • Rebuilder
  • Reconditioner

If you want to be able to sell cars at your place of business you’ll also have to get a sales license to do so. 

Other Licensing Requirements

You’ll also need to figure out if you want to lease or own the property where your dealership stands. Work with a real estate agent to help you determine costs and figure out which situation is best for you. 

Be aware that there are specific location requirements that your office and showroom need to comply with.

Fill Out the Following Applications

You’ll also have to fill out an application form and pass either a criminal background check or a personal history questionnaire requirements.  

Contact the IRS to get an Employee Identification Number (EIN). You’ll also need to contact your local tax department to get a state tax number. 

Get Insured 

You’ll need to take out an insurance policy, including liability and property insurance to ensure that if something happens on your property, you’re covered. If you’re selling new cars, you’ll need a copy of the franchise agreement. 

Once you have your property, you’ll need to adhere to your state’s laws on signs. You’ll also have to pass a state-mandated dealer training course and then get your dealer’s tags from the local county courthouse. 

The last step is to pay all your application, licensing, and dealer plate fees. 

Obtain Financing

It’s a good idea to create business and marketing plans since you’ll need financing to start the business. This way, lenders will know you’re serious and have done your research well. 

Designing and building a dealership is usually very expensive. Remember that the cars on your lot will act as collateral. But you may need to provide other forms of collateral such as personal assets to get a loan. 

You’ll need enough money to build a dealership, buy the cars, pay all licensing and bonding fees, and hire employees. A business plan will help you figure out how to generate a profit so you can repay your bank loan. 

You’ll Need the Right Forms

Even knowing how to start a car dealership isn’t enough. It’s a good idea to continue learning best business practices throughout your career.

You’ll also need access to the right business forms. Business forms can help you keep your car dealership well organized. Check out our site to find what you need.