7 Steps to Opening Your Own Car Dealership Franchise

It's not easy, but the payoffs can be rewarding

New Car Dealership
PR Newswire/DCH Auto Group

There are few businesses as unique as running a car dealership, whether you sell used cars or buy a new car franchise. For some people, the challenge of being at the helm—or at the top of a region chain, with many stores under the umbrella—is irresistible.

As described below, the path to building a dealership from the ground up is expensive and time-consuming. Requirements and fees vary from state to state, and in all instances, challenges will be plentiful and financial risk significant. But, if done successfully, the rewards can be even greater.

Learn the Business

Before opening your own dealership, you should become familiar with the industry by selling cars, managing a dealership, or working for an auto manufacturer. There are even colleges that have curriculums that teach students how to own and manage a dealership.

Obtain Financing

Whether you are starting a dealership from scratch or buying an existing one, start up costs are usually in the millions. The first place to begin is with your local bank or credit union for a loan to cover expenses for six to 12 month's of operation. And that's not just for a building, the vehicles, and the service department. You'll also need furniture, computers, telephone lines, fax machines, printers, filing cabinets, cubicles, plants, signage, and decorations.

Develop a Business Plan

Once you’ve come to terms with investing every greenback you can get your hands on, it would be wise to flesh out a solid business plan. This will be beneficial if you need to apply for any type of financing, and will prove to be a helpful, guiding tool as you move forward.

Become Certified

Next, attend a state-mandated dealer certification course, either online or in a classroom setting. Plan on dedicating about six to eight hours for lectures, which are followed by an exam. With a passing grade, you’re certified.

Find a Spot to Set Up Shop

Cars and trucks are a physical product, and you will need an office, showroom, and lot. The first task will be to find a suitable location. You’ll also need to decide on a name for the store. After that is done, you will need to determine if you are going to sell used or new cars. Should you choose to sell new cars, you’ll need to enter into a franchise agreement with a manufacturer—this usually has to be bought. Automakers will likely have their own requirements that they expect their dealers to meet, such as having a certain exterior design and minimum distance from the nearest existing franchise.

In addition to price, consider your site’s proximity to other dealerships (and how that may benefit your business), access from the street (problematic intersections or one-ways might make it difficult for customers to pull into your lot), and the appearance and condition of surrounding storefronts and neighborhoods (car shoppers’ first choice won’t be a dealership in a rough part of town).

Obtain the Proper Paperwork

After selecting what you and the car company believe to be a suitable location for your dealership, contact local officials to get zoning approval and to obtain all of the proper permits.

In an effort to protect car buyers from losses due to fraud or misrepresentation, states also require dealers to have what’s called a surety bond, which varies in value from state-to-state. For example, Texas set the minimum at $25,000, whereas Virginia comes in at $50,000. Obtaining a surety bond is largely dependent upon the applicant’s personal credit history, net worth, and collateral.

Get the A-OK From the DMV

Though the Department of Motor Vehicles (DMV) causes some people to see red, that much-maligned state authority is all that stands between customers and your new dealership. The DMV will do a walk-through inspection to make sure everything is up to spec, and will then give you the go-ahead to let business commence.

And, of course, it goes without saying that once you're up and running, your ability to work hard and provide exemplary customer service will go a long way toward making your venture a success.