Be Your Own Boss: 7 Tips for Starting Your Own Car Dealership

If you've always dreamed of owning your own business and you have a passion for automobiles, then starting your own car dealership might just be a match made in entrepreneurial heaven. Considering consumers are always in need of quality new and used cars, owning a car dealership offers an impressive job outlook and plenty of career growth. In order to help you shift gears and become your own boss, here are seven tips for starting your very own car dealership. 

1. New or Used – That is the Question 

cars on car lot

Image via Flickr by Emilio Labrador 

Before you begin lining up cars on the lot, you have to decide whether you want to deal primarily in used or new car sales. The new or used route will set the framework for the rest of your dealership endeavors. If you choose to start a new car dealership, it's important to keep in mind that the initial investment is substantially higher than a used car dealership. This means you'll likely need an investor or financial backing from a bank. 

Starting a used car dealership, on the other hand, doesn't require such a large initial investment, but the earning potential is lower. The profit margin for most used cars is around $1,000, and price fluctuations are common. With that said, you'll save money on leasing the dealership property because you'll likely have less used inventory. 

2. Put Your Business Plan in Gear 

Once you decide between selling new or used cars, you'll need to formulate a suitable business plan for your future dealership. This is especially the case if you need to acquire financing. A solid dealership should begin with the vehicles themselves; are you going to sell one brand or multiples? If selling both new and used cars is a possibility, it's also important to include this in the business plan. 

Other business plan stipulations include determining business equipment costs, researching manufacturer car costs versus used car prices, calculating employee salaries, lease and sales agreement costs, and planning your advertising budget. All of these factors will help you create a business plan that's anchored in reality. 

3. Licensing, Bonding, and Insurance 

There are a number of hurdles you have to jump before you can begin selling cars, and one of them is obtaining your dealer's license. If you want a full-fledged dealership, then you need a dealer's license that permits you to sell an unlimited number of vehicles a year. A dealer's license is also necessary if you want your sales activities to fall within the Consumer Rights and Safety laws. 

As for bonding, you'll want a surety bond for your dealership, which protects you from contract defaults with vendors, vehicle suppliers, and wholesalers. Surety bonds are an effective way to safeguard transactions that take place between your dealership and any outside party you do business with. 

All car dealerships require comprehensive insurance coverage whether they deal with used cars, new cars, or both. Typical car dealership insurance coverage includes general liability, lot coverage, and comprehensive plans that cover everything from property damage to inventory loss. 

4. Learning the Salesman Trade 

Just because you have a love for cars doesn't necessarily mean you're an ideal salesman. Retail is a tough nut to crack, and if you don't want to come off as a sleazy car salesman, then you need to hone your sales skills. It doesn't matter if you're selling used or new cars, your number one goal as a car salesman is upfront honesty. 

From the condition of the vehicle to following through specific promises during the selling process, letting your customers know exactly what they're getting is the key to success. Other salesman traits include not being too pushy during a sale, knowing how to handle the negotiation stage properly, and knowing when to give potential buyers some breathing room. 

5. Choose the Right Location 

There are a couple factors that come into play when choosing a location for your car dealership. For starters, you'll want to make sure the location you choose can support your business. The larger the population, the more sales you'll make. Then there's the location's visibility to take into consideration. If your lot is on an obscure road or set back from the roadside, you'll likely draw fewer customers. 

A corner lot at a major intersection is ideal, but a roadside location on a high-traffic road is also a smart dealership location. There's also the competition to keep in mind. Dealerships that are right next to one another appeal to shoppers because it gives them the opportunity to walk away and quickly find another lot and another deal. This could be a good or bad thing for your business depending on which end of this scenario you're on. 

6. Handle Your Inventory Properly 

As a car dealership owner, the last situation you want to find yourself in is not having plenty of options for your customers. Making a sale is great, but a dwindling inventory is not. Because of this, you'll have to play inventory chess regularly and predict when you'll need to restock and what you'll need to restock with. 

You can track your car sales and get a good idea of which makes and models seem to have the quickest turn around. This is easier with new cars, but it's still possible with used cars. By breaking your sales down into make and model popularity, you can predict if you should restock with more SUVs and trucks or stick with fuel-efficient compact sedans.


7. Keep Inline With Lemon Laws 

Last, but certainly not least, is making sure your new dealership abides by the Federal Used Car Rule, as well as the Consumer Rights and Safety laws, and used car dealership lemon laws. These include stipulations concerning full disclosure on all known mechanical issues with the cars your dealership sells. In addition, dealership laws also include requirements your dealership must follow when offering full and limited warranties. 

By following the car selling tips above, you'll find yourself on the road to dealership success in no time.

Contributed to by Kim Evans

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