Auto Dealership Business Plan: Start and Fund Your Dealership Today

If you love cars and have a desire to be your own boss, then you may have considered opening an auto dealership business.

With an abundance of cars in the US, from used cars to vehicles used for specific purposes, like vans and trucks, the possibilities are endless when it comes to creating a business.

The tricky part is turning those ideas into a reality. That’s why we put together this guide.

Below, you can read up on everything you need to know about making an auto dealership plan. You can even download a free business plan template.

We look at the key considerations behind vehicle dealerships, the licensing requirements that you may have to comply with, and how to market and grow your company.

Let’s start with the basics.

What Is an Auto Dealership Business Plan?

An auto dealership plan is a document that sets out how your business will run and make money. It’s composed of different elements, such as your business model (like selling used cars or new ones), your inventory strategy (obtaining cars to sell), financial projections, and how you plan to market and grow your company.

The purpose of covering all of these points is so that you can answer these three key questions easily:

• What vehicles will you sell, and to whom?
• How will you acquire cars to sell and generate sales?
• How will you make consistent profit in a competitive market?

Once you can answer these questions, you’ll have a framework to follow to set up your auto dealership business. Think of it like a path to success.

A solid business plan can also be used to sell your company to potential investors or funders. Let’s take a look at how to put a car dealership business plan together.

Auto Dealership Business Plan Template (Free Download)

To help you on your way to creating a successful uto dealership business, we’ve put together a free template that you can download here (PDF). Just click the button below to get your copy: here

How to Write an Auto Dealership Business Plan (Step-by-Step)

Let’s take you through the process of creating an auto-dealership business plan. This way, we can explain any unfamiliar terms and why different aspects of the plan are important.

Step 1: Defining Your Auto Dealership

So far in this guide, we’ve mentioned several different types of auto-dealership businesses. Before you set out on your journey, it’s vital to spend some time working out what it is you’re going to sell.

Here are some ideas and options for you to consider:

• • Will you be an independent car dealer? Such dealers tend to sell a wider range of vehicles, with a mix of new and used cars on offer.
  • Will you opt for a franchise model? This could involve selling cars on behalf of popular brands like Chevrolet, Ford and Mercedes.
  • Will you be a speciality dealer? For example, you could sell classic cars, electric vehicles, trucks, or luxury or high-end vehicles.

The more you can define your type of organization, the easier you will find the rest of the business plan.

Step 2: Market Research and Competitor Analysis

Once you have an idea of what you want to do, the next step is to look at people who are already doing it well.

Competitor analysis, as it’s known, can give you a vital head start. You can look at clear examples of what’s already working. The process can also reveal what’s not working well enough, giving you gaps that you can exploit.

As well as assessing your potential competitors, it’s important to research your current target audience. What demographics will you target? For example, if you’re selling Bugattis, there’s little point in marketing to college students. You’d be better placed to sponsor events that showcase your dealership to high-net-worth individuals.

Try to learn as much as you can about your target audience. Find where they congregate, what they respond to, and what they value.

You can ask them poll questions to obtain valuable insights. Incentivising the poll with a giveaway can generate more responses. It’s important then to distil your feedback and act upon it, always striving to make the business and the experience offered by it the best it can possibly be.

Step 3: Dealership Business Model and Structure

With all of your preparation and research done, you can start to look at how your business will operate and how it will generate money. Selling cars is the obvious method, but nowadays, there are lots of ways to generate income as an auto dealership. Here are some ideas:

• • Selling vehicles
  • Offering financial products, allowing people to purchase cars with monthly payments, giving you the chance to charge them interest
  • By selling extended warranties
  • Offering car services and repairs. Some dealerships offer basic mechanical work, whereas some have repair shops integrated into the business.

Revenue streams may differ depending on what approach you take. For example, a franchise dealership may be restrictive on what else you can sell. Independents, on the other hand, have much greater freedom but can lack any type of brand awareness.

Step 4: Inventory Planning and Vehicle Sourcing

One of the most important considerations, and arguably the most expensive and risky, is where you’re going to get your vehicles from.

If you’re part of a franchise model, then you’ll have a steady stream of stock to sell, making this a lot less of a worry.

For independent auto dealership businesses, a plan is needed to obtain good working vehicles. You could employ someone to seek out deals and appraise vehicles. You could also offer and advertise purchase or trade-in options. You could go to dealer auctions too.

It’s also important to work out whether you’ll recondition and upgrade any second-hand vehicles, and how much of a budget you’re prepared to assign. This may require hiring mechanics or skilled staff to conduct repairs, which will be an added expense.

The trick is understanding the market well enough to know the best price to buy so you get the best markup and return. Employing the wrong people in this area could see you lose a lot of money.

Step 5: Marketing Plan for an Auto Dealership

The success of any business comes down to how well it can market itself. The same goes for auto dealerships. And these organizations have tried all types of methods to get attention. You may recall the infamous tube men, often positioned outside of car dealerships, waving and dancing at passersby in their random ways.

While methods like this still hold merit, there are a lot more options available to new dealerships. Social media, for example, is a free tool that can help you advertise and showcase your car stock.

If you’re not having much luck with sales, it’s important to look around at competitors. Check what they’re doing, the prices they’re charging, and if they’re offering anything else, like extended warranties. You may find you’re pricing cars too high, so shifting more in line with everyone else can fix the issue.

Step 6: Location and Facility Plan

Tied to marketing your business is thinking about the location. Being a visible presence in busy areas will mean you’re spotted by more people and remembered, so when the time comes for them to buy a new car, they think of you.

Some key things to think about when choosing a location:

• • Does the location have high traffic passing it?
  • Is the location visible from main roads?
  • Can you add display and advertising to the location?
  • Does the area suit your target audience? For example, if you sell luxury cars, placing it in an area with expensive homes makes sense.
  • Are there any limits or restrictions on the location?
  • Does the location have space to sell cars as well as offer other services, like repairs? You may need to create a workshop, for instance.
  • Rent. How much is your location, can you work out a deal and what will the rent increases look like in the future? You need this information to properly forecast.

It’s important to consider how you’ll obtain a location. Will you purchase it outright, giving you more flexibility to make changes? Or will you need to lease somewhere?

Legal Requirements and Licensing (U.S.)

There are certain state and federal regulations that auto dealerships must comply with. These include:

• • State dealer license
  • Surety bond
  • Sales tax permit
  • Zoning approval
  • Dealer plates
  • Garage liability insurance
  • Compliance with FTC Used Car Rule

Each state has its own Motor Vehicle Dealer Board or regulatory authority. You must verify:

• • Minimum lot size requirements
  • Office specifications
  • Signage regulations
  • Record-keeping rules

If you fail to comply with the rules and regulations, you could receive a fine or lose your license. Legal compliance must therefore be budgeted and planned. You must follow the right policy.

Startup Costs for an Auto Dealership

Starting an auto dealership business isn’t for the tight-pursed. Depending on what type of operation you want, the costs can vary, but below, you can find a rough estimate of the key elements:

• • Licensing and bonding: $5,000–$25,000
  • Lease deposit: $10,000–$50,000
  • Initial inventory (20–40 vehicles): $250,000–$600,000
  • Insurance: $8,000–$20,000 annually
  • Office setup and signage: $10,000–$40,000
  • Working capital reserve: $50,000+

A modest independent dealership may require $350,000–$750,000 to launch properly. Finding the money to do this can be tough.

If you have a good bit of capital behind you, then you can opt to use this, but it runs the risk of you losing it if things don’t work out.

It’s possible to obtain loans from the Small Business Administration (SBA) too, as well as from banks. With any loan, it’s important to be aware of the interest rate charged and whether or not this can be changed.

If you’ve built a solid business plan, you could try pitching to investors. You may have to give up some equity in the business, or agree to a form of profit share, but it’s a good way to get the capital you need to get started.

An auto dealership can be a fantastic business if you get all of the above right. Cars and transportation are a fact of life. However, due to the large startup cost there are a few pitfalls to be wary of when pursing business in the auto niche.

If you enjoyed our article on formulating an auto business plan, you’ll like our other plans and insights on the business route website.