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How to start a car dealership
Take your business ambition to the next level by launching a car dealership.
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Fancy a future of cutting profitable deals, providing stellar customer service and stocking the very best cars for your showroom? Running your own car dealership can be more than just a dream.
Read on for a step-by-step guide that'll take you through how to make your car business a profitable reality.
What skills or knowledge do I need to start a car dealership?
Like many retail businesses, a car dealership requires stock, a physical space – such as a showroom or car yard to display your vehicles – and a savvy salesperson or two to sell them.
To thrive in this fast-paced industry, you'll also need fantastic business acumen, stellar customer service skills and a high amount of capital to buy into the market.
Courses and qualifications to consider
To start a car dealership, you'll first need to apply for a motor dealer licence in your state. While the majority of states In Australia don't require any educational prerequisites, in Queensland (QLD) and Western Australia (WA) there's a legal requirement to pass specific courses through a recognised trainer.
These courses are:
- Automotive Retail, Service and Repair Training Package (QLD). This course typically costs between $875 and $1,175 and it can take from a day to six weeks, depending on the provider.
- Dealer/Yard Manager Licence Requirements Course Certificate (WA). This course usually costs $415 to $475 and it can take anything from a day to a week, again, depending on the provider.
Additionally, you could hone your sales skills and gain credibility by completing one of the following optional courses:
- Certificate III in Automotive Sales
- Certificate IV in Automotive Management.
These courses typically cost from $5,000 to $8,870. However, the Certificate III in Automotive Sales is subsidised, so it's free for eligible students. Course durations are between six months to three years to complete as full-time courses and these may include the option of studying online.
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Which business structures are suitable for a car dealership?
There are three main business structures applicable to a car dealership. These are:
- Sole Trader. You can apply for a motor dealer licence as a sole trader, but if you do, all of the financial and legal responsibilities will be solely yours. You'll need to apply for an Australian Business Number (ABN) before applying to become a sole trader.
- Partnership. A partnership shares the financial and practical responsibilities between two or more people. The distribution of financial profits and losses does not need to be equal. Partnerships also require an ABN.
- Company. A company structure is more complicated to set up and it requires more up-front capital and frequent reporting. A company is its own legal entity, meaning you and the other directors (partners) are not personally liable for business debts if things go wrong. A company structure also allows for shareholders.
It can be difficult to choose the right structure when starting a new business, but you are able to change the structure as your car dealership business grows.
Do I need any legal documents drafted before I start operating? Can I do this online?
You'll need to line up the right licences for your business. By law, you will require a state-issued motor dealer licence, which you can apply for after registering your business and completing any prerequisites required by your state.
The links for each state's online application forms are:
You may also wish to consider some of the below legal documents, which can usually be obtained online from reliable sites such as LegalVision, Lawpath or Sprintlaw.
- An employment agreement if you intend to employ staff.
- A tax invoice to give to your customers when you make a sale.
- A loan agreement if you'll be providing finance to your customers.
Find more legal templates online
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The equipment and software you may need
The primary equipment you will need to establish a car dealership is, of course, the cars you'll be selling. You can choose to source these in a few ways. These include as follows:
- Purchasing new or second-hand cars outright from a wholesaler or the public (including at auctions, etc.)
- Purchasing cars using finance or via investors
- Sourcing cars via dealership franchising.
Purchasing cars outright requires a lot of capital, sometimes in the millions of dollars, so most people seek financial backing through a business loan or by finding investors.
Franchising through a manufacturer may be an option for some. However, it can be a challenge to secure a franchise with a reputable dealer in Australia. If you choose to attempt this route, ensure you have a sturdy business plan to back up your application.
It's likely you'll need some additional equipment and software, including as follows:
- Mobile phones
- Computers/laptops or tablets
- A good business website
- Accounting and banking software
- Word processing programs
- Mobile payment software
- Printer/scanner
- Dealer management system.
Decide what to charge your customers
Factors that influence how you price your stock include whether you're a new or second-hand dealer and whether you are under a manufacturer franchise. A franchise would usually have set recommended retail prices, as would wholesale-purchased vehicles.
For second-hand dealerships, you will have to take into account the condition of the cars, market availability and popularity, extra features, trade-in prices and warranties you'll offer. You can use RedBook as a guide to help you to evaluate your stock.
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How much money will I need to set up a car dealership?
Unfortunately, the initial capital required to set up a car dealership is quite high. Second-hand car dealerships would be the cheapest to set up. Generally speaking, you may expect these to start in the low $200,000 range for a very small dealership.
New car dealerships are priced in the high hundred-thousands to millions. Even franchising manufacturers require you to have enough capital to last a couple of years of slow sales. Having said that, there are anecdotal stories online of people starting with just a couple of cheap second-hand cars and growing their business from there. For everyone else, a good business loan may be the most workable option.
Is a car dealership profitable?
People are constantly buying and selling new and used cars, so a car dealership is always a profitable business. Just how profitable depends on the type of dealership, with used-car dealerships making more of a margin, but brand name dealerships profiting from brand recognition, manufacturer support and ongoing after-sales mechanical care.
How should I advertise to customers?
Franchise dealerships will always have support from their manufacturer and brand recognition to advertise, but other dealers should build a strong online presence. You can do this by advertising on social media, along with car sales websites and other online marketplaces. Adding your used cars to auction sales, online and off, allows the auction company to do the advertising for you.
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