How to Become a New Car Dealer

8 basic steps to opening your own dealership

New Car Dealership. © Photo courtesy of PR Newswire/DCH Auto Group

From a career perspective, we all fit into one of two categories: owner or employee. Most of the folks classified as the latter are willing and eager to put in the time and effort to advance, and genuinely enjoy their role within the so-called team environment.

What they may lack, however, is an entrepreneurial spirit that embraces the concept of “Play Big to Win Big.” This mentality is often reserved for those who choose to create and build businesses, such as a new car dealership.

As described below, the path to ownership is an expensive and time-consuming route. 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.

Plant a Money Tree

Starting any business requires capital, though not necessarily the kind of dough needed to build a new car dealership. Costs can be staggering, climbing well into the millions before the first shiny, factory-fresh sedan rolls off of your smoothly paved lot. Purchasing an existing dealership is another option, though not one that will be any kinder to your bank account. Simply put, plan on spending big bucks.

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

Selecting a suitable location for your dealership is crucial.

In addition to price, consider your site’s proximity to other dealerships (and how that may benefit your business), access from the street (difficult 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).

Also keep in mind that, as a new car dealer, the automaker you choose to work with (or, more accurately, allows you to sell its vehicles) will require you to sign a franchise agreement, which may stipulate the minimum distance your business must be from the nearest existing franchise.

Obtain Proper Permits and Zoning Approval

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.

Be Sure to Get a Surety Bond

In an effort to protect car buyers from losses due to fraud or misrepresentation, states require dealers have what’s called a surety bond, which varies in value. 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.

Build a Dealership and Stock It With Inventory

At this point, you’ll have all of the pieces in place to break ground and start construction. Again, prepare to dole out some serious cash for a building that will measure tens of thousands of square feet, a fully equipped service department, a stocked parts department, and a parking lot decorated with lots of new vehicles that, by the way, will need to be covered by a liability insurance policy. You'll also need computers and network systems, furniture, and signs. And, lastly, be forewarned that many automakers require dealerships to conform to a specific design, sometimes going so far as to mandate certain shades of grout.

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 fancy 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.

With that in mind, you might want to be especially polite the next time you get your driver’s license renewed.