5 Steps to Becoming an Auto Dealer

Chevy Tahoe two-mode

Scott Gable

There are few businesses that are as unique as automotive dealerships in this country, and for some people, the challenge of being at the helm—or at the top of a region chain, with many stores under the umbrella—seems like an irresistible challenge. If you’re one of those people, and you’re wondering what to do to get started, here's some steps to get you there.

Getting Started

Because the vast majority of dealerships are independently owned, the path to ownership is a bit unusual. But just like any industry, there are certain steps that need to be taken in order to get started.

The first thing to do is to get certified. Each state offers a certification class, which you will need to take before taking the certification exam (there is usually a fee for taking the exam). Once you’ve passed the exam, it’s time to move on to the next step.

Location, Location, Location

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.

Fill Out the Required Paperwork

Once you’ve chosen a location, secured a franchise agreement if necessary, and decided what type of cars to sell, you’ll need to work with your local government to get the usual building permits and zoning approval. You’ll also need to design a Website to help attract business.

After receiving approval from your local government, you’ll need a surety bond, which you can secure based on your credit history (you may need additional collateral if your history is shaky). A surety bond is an agreement that says you, the dealer, will honor all the fees that are associated with the store, and the amount will be no less than $10,000. You will also need a business license.

Obtaining Capital

If you aren’t moving into an existing structure, then you’ll obviously need to obtain capital, which can be obtained through a bank loan, and build a facility. Once the building is finished, you’ll need to stock it with the usual items: furniture, computers, telephone lines, fax machines, printers, filing cabinets, cubicles, plants, signage, decorations, and most importantly, cars and trucks.

Final Steps

The final step is to pass a Department of Motor Vehicles inspection. Once that’s done, you’ll be granted dealer license plates and other state-issued forms.

Of course, those are just the basic bureaucratic hoops. But there’s more to it than that. You’ll need to learn the business first, perhaps 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.

You’ll also need to obtain the capital to start, which can be difficult if you can't get approval for a bank loan. And you’ll need to choose locations carefully should you choose to become a franchisee for an original equipment manufacturer (OEM)—automakers don’t like it when their dealerships are too close together.

Other Considerations

Another aspect that must be considered is the service aspect—most dealerships also offer car repairs along with auto parts sales, and franchise stores that perform repairs will need to honor manufacturer’s warranties. The parts and service side of the business—referred to as “fixed operations”—can be very profitable if managed correctly, so it’s wise not to overlook this part of the business.

Most importantly, you’ll need the ability to work hard. Running a business is a labor of love, and since customer service and retail sales are the lifeblood of car dealerships, that means that maintaining a good reputation with the public is a must. The best way to keep customers coming in the door—thus maximizing profits—is to work hard. Otherwise, all the above steps will go for naught.

If you follow the appropriate procedures, make good business decisions, and work hard, you too can become an auto dealer.

Source: eHow