Buying & Selling

4 Things to Consider Before Opening Your Own Car Dealership


Starting any business, including a car dealership, involves proper planning and foresight. Successful companies tend to have a well written business plan that accounts for growth, capital and financing, strategic vision, and market analysis. These organizations understand entry barriers and develop a way to deal with possible impediments. All businesses will present challenges not only to open, but to remain open. For individuals looking to start their car dealership, these will include having a strategic idea and plan, understanding the market, following the laws and regulations, and choosing the right location, among others.

  1.     Think about Your Business Plan and Strategy

A business plan will guide an organization by creating a roadmap on how to run the business. Furthermore, it is the document that can help a company obtain funding as it contains fundamental information on how the business plans to grow. The plan’s sections will include an executive summary, a company description, an analysis of the market conditions, information on the organization and its management, a description of the product line, marketing and sales data, and financial projections. These sections help the reader understand the intent of the company and how it expects to prosper. Although a business may not directly fail by not having a business plan, creating the document does help companies keep focus and direction. Furthermore, most organization will fail because of a lack of planning and a lack of capital. A business plan can help avoid these problems.  

To write a good business plan, the text should be short, clear, and concise. Not many people will sit and read a 50-page document on how you plan to build and run your car dealership. Furthermore, write specifically for your audience. If you are developing the plan for financing through an institution that specializes in dealerships, make sure that you incorporate the language used in said industry. Do not write the plan as a mandatory task. Instead, use the opportunity to explain your idea to investors. Why should a financial institution believe in you? How are you different? Do not be intimidating in your approach. Instead, guide your readers in your idea and show them how you plan to solve a problem. Demonstrate your knowledge while also being passionate about what you are doing.

  1.     Consider the Marketplace

Will you be selling new or used cars? This consideration is key because it will change the way that the business obtains inventory and the way that the business operates. Used car dealerships generate about 370 billion dollars annually and the figures grow by about 2.4 percent per year. Furthermore, the market is less dominating in the used car industry where the top companies account for less than 20% of the market share. As consumers become more aware of the need to save money on unnecessary items, used cars become a more popular solution. However, entrepreneurs looking to enter the industry need to be aware that competition is difficult, especially for the physical brick and mortar dealerships. With the advent of the internet, consumers not only use the technology to compare prices, they are also comfortable executing such purchases from online environments. Regardless of which route you choose, these aspects need consideration, and a business needs to think about how they will compete.

For new car dealerships, the type of opportunity and the competition differs. In these cases, entrepreneurs may look toward purchasing a franchise as an entry point to the industry. These franchises can cost anywhere from 250,000 to 500,000 dollars.  For example, a Ford franchise can cost thirty thousand dollars in startup fees. This will not include car inventory or buildout costs for the building. Therefore, financing a new car dealership will be more involved than a used car dealership. However, the market for new automobiles is big, generating over 4 million sales in the first quarter of 2018. For those interested in dealerships, assessing their access to capital is important and will be a primary factor in determining if the project is feasible.

  1.     The Laws and Regulations in the Automotive Sales Industry

As with many industries, the specific laws for running the operation will vary from state to state. However, most dealerships will require a license and a bond. Specifically, these types of organizations will need a surety bond that protects companies from defaulting contracts and can safeguard financial transactions. Obtaining these may be more difficult depending on the state. Some locations will require a net worth of a certain amount to obtain a license, thus proving to the state that the company has enough capital to finance operations. Regardless, all businesses that sell cars, like a used car dealership in Rockaway, NJ, will need to comply with the Consumer Rights and Safety Laws. Furthermore, these types of organizations will need insurance coverage. There are all types of insurance policies. From covering tractor trailer accident negligence to insurance that protects individuals from simple hit and runs. However, for dealerships, the type of insurance required will need to cover general liability, coverage for the lot, property damage, and inventory protection.

If the business involves selling used cars, the company must comply with additional regulations. The Federal Trade Commission provides dealerships with the Dealer’s Guide to the Used Car Rule which sets forth compliance standards to ensure that all businesses meet requirements. These standards include disclosing information to buyers regarding the types of mechanical issues that the dealership has encountered with the cars and information regarding limited or full warranties on the products. This includes providing guidelines on any Chrysler, Dodge, or Jeep powertrain warranty details, among others. Entrepreneurs also need to keep in mind that states will require companies to renew licenses periodically.

  1.     Selecting a Location

As with any retail location, traffic and visibility are important for the business. The higher the number of people that pass by the location, the more traffic that the business will attract. However, this should not be the only consideration for selecting a location. A business owner must consider the market that the dealership will target, and this will influence the place selected to operate the business. For example, if the dealership caters to a high-end crowd interested in luxury automobiles, selecting a location in a low-income area will not be appropriate. Therefore, consider who your customer is and specifically customize the dealership’s message so that your audience base feels identified.

Look for locations with high visibility from multiple locations. Do not focus on the exact layout of the lot or that the place is not yet perfect. If the location is full of grass, a Ready Mix Concrete Supplier in Flushing, NY can provide the concrete to make the site ideal. Instead, ask yourself, is this place visible enough to attract the attention of passing drivers? These drivers are prospective customers and are important. People who pass by should know that the dealership is there even if these individuals are not currently in the market for a car.

It would be even more ideal to extend your reach and create a visible online presence so that prospective clients can find high-value content regarding the products you offer.

Joe Lee
Hi, My name is Joe Lee and I am the founder of My purpose of creating this blog is to spread the knowledge of auto with others.

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