In order to learn how to become a car dealer, you must first understand that there are two specific types of car dealers that serve the auto industry in two different ways:
First, there are retail dealers, who are usually independently owned and licensed to sell vehicles to the general public.
Second, there are wholesale dealers, who usually buy cars from vehicle auctions, foreclosures, and liquidations, and are only allowed to sell cars to other wholesale dealers and retail dealers.
That said, a certain amount of business knowledge is necessary to be able to run a dealership, and although a higher level education business degree is not required, it could provide you with considerable operational advantage.
Each type of dealer has specific advantages and disadvantages. Here is a guide that will help you know the differences between them:
Each type of dealer must be licensed in order to sell legally, and they must sell at a specific place of business, not out of a home or non-commercial location.
Both types of dealer must receive a license through their state Department of Transportation (DOT) or Department of Motor Vehicles (DMV), so it is important to research the specific laws and requirements in your state to make sure you’re following all the provisions before you begin.
Whether you want to become a retail dealer or a wholesale dealer, follow the steps below to help you through the process and get selling.
Part 1 of 1: Becoming a licensed retail or wholesale car dealer
Step 1: Make sure you have funds. The most important thing to have before you start is a certain amount of funds built up so you can build your business.
Whether you have savings stashed away, you apply for a business loan, or both, you must make sure you have enough to start the type of dealership you want to start. In any case, you’re going to need a location from which to sell vehicles, as well as a stock of cars ready to be sold.
Depending on your location and the style of business you want to start, plan on having between $100,000 and $1,000,000 or more to get you going.
Step 2: Plan how you’re going to run your business. This will also help you decide how much money you need to start up.
You must figure out all the logistics of the business beforehand to minimize risk and to ensure a safe investment. Consider all the circumstances relevant to your decision:
- Are you going to sell new cars, used cars, or both?
- Are you going to hire employees, and if so what kind do you need?
- Will you have a finance department, marketing team, salesmen?
- Where is your location?
- How big does the lot need to be?
- Do you have certified repairmen who can repair the make, model, and volume of vehicles you plan to bring in?
Answering these questions will help you determine not only how much money you need to invest, but how much you need to make in return to keep your business running and make it profitable.
- Tip: Come up with a comprehensive business plan and share it with friends or family in the industry. You don’t want to leave any stones unturned before you start investing your money.
Step 3: Take the exam for retail dealers. If you’re trying to become a retail dealer, you will need to take an exam through the DOT or DMV that proves you understand the rules and regulations car dealers are required to follow.
Car dealers must be familiar with the Federal Used Car Rule as well, which outlines the information a car dealer must legally explain to a customer and what forms are to be filled out to be in compliance with federal laws.
Go to your state’s DOT or DMV website to learn more about the test and to register for it. When you go to the DOT or DMV to take the exam, you will be required to pay a fee.
If you do not pass the test, you will be able to retake it according to the DOT or DMV’s retaking guidelines. You will most likely have to pay the exam fee again upon retaking the test.
Step 4: Obtain a Fictitious Name or Doing Business As (DBA) certificate from your state. You must obtain this certificate if you plan on calling your business something other than your legal name.
State requirements regarding the application, costs, and filing vary from state to state, so you must consult your state or county clerk’s website for detailed information.
Usually, you have to fill out your personal information, fill out the name you want to use for your business (which can’t already exist in the database), and pay a small fee.
Step 5: Obtain a state business license. Apply for one on your state’s government website. Registering with your state’s government in this way legitimates your business in the eyes of customers and usually requires your personal information, your DBA name, and a fee.
Step 6: Pick a location. It’s time to find the location you planned for, if you don’t have it already.
Whether you’re trying to purchase the property or lease the land, it is up to you, and this should be factored in to your financial situation and your business plan.
If you’re trying to become a wholesale dealer, most states require you to obtain proof of the commercial property in an area zoned for vehicle sales before they issue you a wholesale dealer license.
- Tip: Visit your county clerk’s website for more information about commercial property zoned for vehicle sales.
Step 7: Purchase a surety bond for your business. In either case, whether your business is retail or wholesale, you are legally required to be bonded and insured. The surety bond protects you if you accidentally buy a lemon from another dealer, and it protects your customers if they accidentally buy one from you.
Additionally, you will also need to purchase lot insurance to protect your inventory for any misfortunate event such as accident, theft, or disaster. On top of that, you will need general liability insurance and comprehensive insurance.
Step 8: Apply for a vehicle wholesale license. If you’re trying to become a wholesale dealer, you need to apply for a vehicle wholesale license from your state.
The state department that issues these licenses can vary by state, but in most cases it’s the DMV, DOT, or the State Department.
The application generally requires pictures of your location of business, a copy of the lease or ownership of the property, a copy of your business license, a copy of your DBA, proof of your surety bond, and your personal information.
A request for release of your financial information might also be necessary. The application fee varies from state-to-state.
Step 9: Locate and purchase inventory. Once you’ve obtained all the legal licenses, bonds, and insurance, you can start locating and purchasing inventory for your lot. If you’re a wholesale dealer, you want to look at estate sales, private and public auctions, and liquidations. If you’re a retail dealer, you might want to look at all of the above and wholesalers.
After all of the logistics are taken care of and your lot has enough inventory to handle a few shopping customers, then you can begin selling cars as a certified auto dealer. Keep in mind that the real work comes with the long-term organization of paperwork for everything from running expenses to employee benefits.