Whether you dream of selling used or new cars, the process of becoming a dealer is a costly one. It can take up to $100,000 in just initial costs that do not include the purchase of any cars to sell and from which to make a profit. As with any business, you likely will not see a profit right away, so be sure you not only have the funds to start a dealership but also to cover your living expenses for a year or more. Here are the steps it takes to become a used or new car dealer.
How to get a license to sell used cars
Step 1: Go online to your state Department of Motor Vehicles or Department of Licensing website. The department that handles car dealer’s licenses varies, but either of those departments should be able to give you what you need or point you in the right direction.
Find out where you need to go and what you need to do. The whole process may be spelled out right there on their website.
Step 2: Pick up the dealer’s license forms and guide. Your DMV or DOL might mail them to you but most likely you will have to go pick them up. They probably have a whole packet of forms and information for you.
Step 3: Complete an online course. Even if it isn’t a requirement in your state, it is still a good idea. There are many options from which to choose when taking an online auto dealer’s course.
Your state may recommend one. The State of California, for example, has a lengthy list of qualified course providers. If not, do a bit of research to determine which one is best for you.
- Tip: Get bonded through a qualified bond agency. You may be required to get a car dealer surety bond as part of the licensing procedure. If not, you should do it anyway.
Step 4: Complete and sign the forms. Fill out the forms carefully. Go over them with a fine-toothed comb and take your time. Missing or erroneous information will only cause lengthy delays.
You will probably need to sign the forms in front of a Notary Public. Check the instructions before you sign. Take a little cash with you when you go to the Notary Public. They often charge a small fee for their time.
- Tip: Some states require that you already have a place of business, including a building, office, and inventory, before you even get your used car dealer’s license.
Step 5: Gather the required paperwork. As you are going through the process, it will be easier for you if you keep everything in a file. That way, you will have all of the required documents and certificates handy when it comes time to turn them in.
Make a checklist of required documents, if one isn’t provided for you. You want to be certain you supply all the required documentation
- Tip: Expect the DMV or DOL to do a background check on you and get your fingerprint.
Step 6: Mail everything in or drop it off at the DMV or DOL office. Make copies of everything before you hand it over. Include payment in full for all of the required fees.
The fees are commonly $250 to $300, but this varies from state to state. Find out ahead of time if they will accept a personal check or if you must pay with a certified check. Don’t assume they will accept a personal check.
Step 7: Decide on a location for your dealership. Check the zoning requirements for your state to make sure a potential location is a viable one. Bear in mind that your location may be an out of the ordinary one, such as a dedicated website or your yard.
Step 8: Get a surety bond. Compare rates between surety bond providers and choose the one that fits your needs and budget best.
This bond shows the public that your dealership is legit and will abide by local and federal regulations.
The penalty for not abiding by such regulations is the loss of the bond’s value. It is essentially insurance, for which you pay a small percentage of the total coverage.
Step 9: Get your business license and register the business name. You will either do this at your local Department of Motor Vehicles (DMV) or at the County Clerk’s Office. Check your state’s specific requirements.
Step 10: Build your inventory. Used car dealerships often obtain their cars from wholesale auctions, although you may also build inventory by purchasing from individuals and accepting trade-ins.
How to get a license to sell new cars
Step 1: Follow steps 1 through 3 of Method 1. Much of the process of becoming a new car dealer is the same as that to become a used car dealer.
Step 2: Apply for a franchise agreement. Each manufacturer has its own guidelines for establishing franchises, and you must contact the manufacturer directly to initiate this process.
Step 3: Get your business license and register the business name. This is similar to step 4 of Method 1. The difference is that your business name will reflect the parent company of which yours is a franchise.
Step 4: Build your inventory. As a retail car dealership, you represent a particular brand of car and must build your inventory through that manufacturer.
This does not usually require payment upfront and instead pay a flat fee to the manufacturer upon each car’s sale.
While it is expensive to break into the car dealership business, it can pay off well in the end. Be sure to establish a solid foundation for your business by following the proper steps to prevent later issues. Check the DMV’s website for the specific requirements for your state here.