If you are really passionate about automobiles, then you might consider starting a business in that line. You can start a car dealership. It is a very lucrative business and one that comes with a lot of authority and respect. However, a car dealership is one of the most expensive businesses you can ever find out there. It is not only costly to start and run but also comes with a lot of risks. Well, you can mitigate the risks by doing thorough research about the business before you kick-off.
So how much does it cost to start a car dealership? Well, this actually depends on a variety of factors, including the type of car dealership it is and where you plan to set up. But typically, you will need between $700k to a couple of million to start a car dealership.
Now, let’s see how these costs break down. In this post, we will show you how much you need to start a car dealership and where the money will likely be going.
How Much Does It Cost To Start A Car Dealership?
Again, this depends on factors like your chosen location, the type of car dealership you intend to start – new car dealership or used car dealership, etc. The cost will also depend on how big you intend to start. You may not spend as much if you want to start out from your garage or a small lot.
However, you would likely need to have about $700 to $10 million to start a car dealership, depending on the factors mentioned above.
There Are Two Types of Car Dealerships
Yes, there are two types of car dealerships, and the amount you will need to start the business will most times depend on which type you want to go with.
The first is the used cars dealership. This is usually not very expensive because you will be dealing with used cars, and you can actually set up the business on a smaller scale. You simply source for used cars and buy them at a good price, then resell to make some profits.
The second is a new car dealership. This is usually more expensive to set up, and you can’t run this on a small scale. You will be dealing with new cars here. This type of car dealership is also usually referred to as franchised dealership. Starting a franchise dealership means that you would likely be selling just one brand of car – it could be Honda, Toyota, Tesla, Ford, etc. That’s because most automobile manufacturers don’t permit you to sell other brands of cars with theirs when they offer you a franchise opportunity.
Startup Cost for a Car Dealership
The cost of starting a car dealership would usually vary from one country to another. But when you are starting this type of business, you will need to properly budget for your startup expenses. These are usually one-time expenses, and you may never need to repeat them once you do.
1. Business registration fees
This is a one-time fee you will need to pay to get your business registered in your state or area. It also usually includes the cost for forming a business entity such as a partnership, corporation, or LLC. The cost of getting all these done is usually around $750.
2. Initial inventory
This is usually a cost that eats up the largest part of your investment. Although it largely depends on the brand of cars you intend to stock in your lot, you will need about $30,000 to $100,000 for this.
3. Dealer’s license fees
A dealer’s license is one of the necessities for starting a car dealership – whether a new or used car dealership. It is what gives you the authority to sell a particular type of vehicle in your state. That means you will need to know what type of vehicles you will be selling in your lot – be it cars, trucks, or recreational vehicles. Most dealers’ license is usually between $100 and $200. But it could sometimes be higher than that in some states. For instance, to obtain a dealer’s license in Texas, you will need to have around $700 for it.
4. Business insurance
This is another area that requires a lot of money, but you definitely need to get the necessary insurance to protect the business. Howbeit, insurance also varies from state to state – each state has its own licensing peculiarities and pricing. That means to appropriately pen down the correct figure for this, you will need to find out what the cost of licensing looks like in your state. However, it is usually between $50,000 and $150,000.
5. Office materials
This is the cost of getting some office equipment and materials like computers, furniture, phones, paper, stapling machine, fax machines, and printers. You can budget about $4,000 for these.
6. Auto dealer bond
Surety bonds are also very important when looking to start a car dealership. It is used to protect the interest of your customers when they do business with your dealership. Most insurance companies require dealerships to have a surety bond of $25,000.
Running Cost for a Car Dealership
Operational or running costs are the costs you will have to keep taking care of from time to time – this could be monthly or annually.
7. Location and rental fees
When you finally decide to start a car dealership, you will need a space to display your vehicles for prospective customers to see and buy. While it is not necessary that you have a very big lot, not all manufacturers will agree that you operate your car dealership business from home. The cost of renting a space is usually more, depending on your state. But you could budget between $8,000 and $20,000 every month for rental fees.
8. Payroll and bills
This business is not one you can run alone. You will need to employ a couple of people to help. At the same time, there will be a couple of bills to settle at the end of the month. Typically, you will need to hire a mechanic, accountant, bookkeeper, salesperson, etc. You can just budget about $60,000 to take care of payroll and bills for the first three months of starting out.
9. Advertisement
To make good success with the business, you will need to create enough awareness to draw your target customers in. there are various options available to you about this. You can use social media, newspapers, billboards, websites, prints, etc. $1000 should be able to take care of these every month.
