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9 Steps How To Start A Car Dealership

( How to Open a Car Dealership - Almost everyone uses a car for business or pleasure. When you use a car, you also need repairs and maintenance on your vehicle. As a result, consumers have to go to auto dealerships to buy cars and have them serviced. However, the cost of opening and running a dealership can require millions of dollars. Before you open a car dealership, think carefully about the whole process.

How to Open a Car Dealership

  • Assessment of customer needs

How to Open a Car Dealership: 9 Steps (with Pictures)

1. Conduct market research. The first step in any business venture is to determine if there is a demand for your product or service. Once you've identified demand, you need to consider how your business could attract some of that customer demand.

Determine the number of cars sold in your area. Suppose the typical car buyer is willing to visit a dealership within 10 miles (16.1 km) of their home. Try to count the number of cars that have been sold within a 10 mile radius of your proposed dealership. Suppose 50,000 cars are sold in this area every year.

Once you know the total number of cars, research those purchases by category. For example, how many cars are bought compared to trucks? What percentage of the cars sold are new and how many are used? You may even be able to count the number of cars by model (Honda, Ford, etc.)

Evaluate the existing car dealers in the market. For example, let's say 3,000 new Hondas are sold in your area each year. You are considering a Honda dealership. How many existing Honda dealers are in your area? How many of the Hondas sold were bought by consumers who went online and bought a new car from an out-of-town dealership?

This analysis will help you determine if there is a need for a new dealership in your market.

How to Open a Car Dealership: 9 Steps (with Pictures)

2. Identify your ideal customer. Every business needs to identify its ideal customer. Your ideal customer is a summary of the traits that your best customers have in common. Once you have identified the ideal customer, you can design your business to meet their needs.

Look at the age, gender, occupation and income of the customers you want to target. Suppose you want to open a Honda dealership. Do your research to determine the type of people who buy a Honda.

You may find that the ideal Honda customer is a male between the ages of 27 and 50. This customer is an employee with an above-average income. The Honda customer has previously owned a Honda or has a family member who owns a Honda.

Many car dealerships build relationships with customers by selling cars and offering a service department. Some customers go back to the dealership to get service on their vehicle.

Find out where the ideal Honda customer has their car serviced. Do they go to your dealer or your local workshop? This information can help you build a service department that attracts customers.

How to Open a Car Dealership: 9 Steps (with Pictures)

3. Calculate the size of your market. The goal of your dealer market research is to determine if there is sufficient demand for your product. Ultimately, you need to know the dollar sales of your product and how much of that customer demand you can attract.

Let's say 3,000 new Hondas are sold in your area each year. They are also considering selling used Hondas, which generate 2,000 sales each year. The size of your market is 5,000 Hondas.

Based on your research on existing dealerships and customer demand, you believe your new dealership can attract 20% of the existing Honda car market. This 20% number would mean (5,000 new and used car sales multiplied by 20% = 1,000 car sales).

Let's say the average profit per car (both new and used) is $500. If your dealership sold 1,000 cars, the company would make (1,000 cars x $500 = $500,000 profit). In addition, you estimate that your service department would generate $300,000 in profit. The total profit for your dealership would be $800,000.

  • Decide what type of dealership to open

How to Open a Car Dealership: 9 Steps (with Pictures)

4. Consider opening a franchise for your business. Almost all major car dealerships are franchises. In this arrangement, you are the franchisee who pays a fee to the franchisor. You also enter into a franchise agreement to operate your business.

To open your Honda dealership, you have to go through a long process of becoming a franchisee. Honda would ask you to provide extensive financial information to determine if you have the financial means to open and operate a Honda dealership.

The franchisor (Honda) grants you the right to use the Honda logo and other marketing tools to operate a franchise. You participate in local advertising and promotion of Honda vehicles. The franchisor also arranges a process for supplying Honda vehicles to your dealership.

Signing a deal with a well-known car brand gives your dealership credibility in the market. This credibility can help you generate sales. However, the franchise agreement has many restrictions on how you can advertise and sell your cars. In order to comply with the franchise agreement, you must follow the requirements.

How to Open a Car Dealership: 9 Steps (with Pictures)

5. Decide to sell new cars, used cars or both. If you sell both new and used cars, you have the opportunity to serve two types of consumers. However, selling in both markets requires a larger investment of time and money.

When you sell used cars, you attract customers who want to spend less money on a vehicle. For example, instead of buying a $25,000 new car, they buy a $15,000 used car.

Used cars usually require more service and maintenance. As you sell more used cars, you may be able to grow your service business.

More and more customers are buying cars online. When a customer walks into your dealership, they may have checked 4 or 5 dealerships to determine the price of a particular car. There can be strong competition, especially when selling new cars. To drive the overall car sale, you may need a used car sales department.

How to Open a Car Dealership: 9 Steps (with Pictures)

6. Assess the need for a service department. At some point everyone has to bring their car in for a service. Running a service department is a great way to build a relationship with a car owner.

You can build relationships with customers who bought their vehicle elsewhere. If you do a good job on their car, they might buy their next car from you.

Maintaining your car can be stressful. It is inconvenient to be without a car during repairs. Your great customer service can help reduce that anxiety.

After servicing someone's car, keep in touch with the customer. Promote your car sales and service through emails and mailers. Your efforts increase your chances of selling the customer a car in the future.

  • How to planning your finances

How to Open a Car Dealership: 9 Steps (with Pictures)

7. Add up the expenses required to start your car dealership. A typical auto dealership can cost millions of dollars to open and operate. Your biggest expense will be your fleet.

Floorplan refers to the cost of the vehicles you have in your parking lot. In addition to the cost of your floor plan, you will need to buy or rent a property. You construct or renovate buildings on the property for your showroom and possibly for a repair department.

When you operate a franchise, you pay the car company an initial franchise fee. Once up and running, you pay annual fees for your franchise agreement.

Dealerships also need to constantly train their employees on new car features so they can explain those features to customers. You incur high training costs.

How to Open a Car Dealership: 9 Steps (with Pictures)

8. Decide how you will finance the costs of your car dealership. Financing your dealership is a huge commitment. You need to think carefully about how to raise the money to open your dealership.

Most car dealerships finance their system through a bank. The cars on the property serve as collateral for the floor plan loan. A dealership can also incur huge costs to design and build its showroom and repair center.

In addition to the vehicle inventory, you may need to hire dozens of employees. You need cash every month to pay the paycheck.

When you borrow money, you must provide adequate collateral for your loan. You may need to pledge personal assets as collateral to receive your loan. The bank also needs to see detailed financial forecasts. These projections explain how your business will make profits and repay the bank loan.

How to Open a Car Dealership: 9 Steps (with Pictures)

9. Consider the regulatory requirements to incorporate and operate your dealership. Your state, county or city will have requirements to run your dealership. Many of these regulations are designed to protect consumers who invest heavily in buying a car.

Your state requires you to obtain a license to sell cars as your primary business. While private individuals can sell cars to each other, a car dealer who sells many cars a year needs an operating license.

In order to build your dealership, you will need a building permit from your city or county.

Your state requires you to have multiple forms of insurance to operate your dealership. One type of insurance required is a surety bond. This deposit is set up to protect the car buyer from fraud related to a car purchase.

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