Opening a car dealership can be a lucrative business venture, but it can also be expensive. There are many different types of dealerships to choose from, and knowing the cost of opening each one will help you on your way to success.
If you are thinking about opening up a car dealership, you should first ask what condition of cars you will be selling. New or used?
It will cost you an average of $75,000 to set up a used car dealership. Starting a used car dealership can be as low as $20,000 and go all the way up to $500,000 for a fully stocked lot with a prime location.
If you decide to start a used car dealership, this will probably be the easiest and lowest cost option. You will need to find a location, buy or lease the building and property, and set up your inventory. This can all be done relatively cheaply, but you will need to have some knowledge about cars to be successful.
If you decide you want to sell new cars, you will have to pay a franchise fee to one of the big automakers. This fee can range from $40,000 to $500,000 for the franchise fee alone.
Adding inventory, building with a showroom, and everything you need to run a new car dealership successfully will cost you between $650,000 and 4.5 million dollars.
Some franchises require dealerships to carry a certain amount of inventory which can make your cost go up as a result. Many automakers give dealers cars on credit, which can lower upfront costs. This can also be harmful if dealers don’t move inventory because they are charged interest each month a vehicle is not sold.
In this article, we will explore the cost of different types of car dealerships and the services they offer, as well as some best practices for making your dealership profitable.
Cost to Start a Car Dealership
New Car Dealerships
New car dealerships are the most common type of dealership. They sell new cars and trucks, usually to retail customers, and can be a single-point operation or a multi-point operation.
A single-point operation is a dealership that sells new cars and trucks from a single location. A multi-point operation is a dealership that sells new cars and trucks from more than one location.
New car dealerships can be franchised or independent dealerships. A franchise is a dealership that a manufacturer or an authorized dealer owns.
There are three types of new car dealerships:
- Franchise dealer
- Independent dealer
- Manufacturer’s representative
Franchise Dealer
A franchise dealer is a dealership that a manufacturer or an authorized dealer owns. A franchise dealer sells new cars and trucks from the manufacturer’s franchised lineup and must follow guidelines and meet the manufacturer’s requirements. This dealership can cost anywhere from $75,000 to $650,000 to open.
Independent Dealer
An independent dealer is a privately owned dealership that a manufacturer or an authorized dealer does not own. An independent dealer sells new cars and trucks from the manufacturer’s un-franchised lineup. The independent dealer does not have to follow the manufacturer’s guidelines or meet the manufacturer’s requirements.
This type of dealership can cost anywhere from $100,000 to $1.2 million to open.
Manufacturer’s Representative
A manufacturer’s representative is a dealership that sells new cars and trucks from the manufacturer’s un-franchised lineup. A manufacturer or an authorized dealer does not own a manufacturer’s representative. The manufacturer’s representative does not have to follow the manufacturer’s guidelines or meet the manufacturer’s requirements. This dealership can cost anywhere from $100,000 to $1,000,000 to open.
Used Car Dealerships
Used car dealerships are the second most common type of dealership. They sell used cars and trucks, usually to retail customers, and can also be a single-point operation or a multi-point operation.
Used car dealerships can be either franchised or owned independently.
There are three types of used car dealerships:
- Franchise dealer
- Independent dealer
- Wholesale auction
Franchise Dealer
A used franchise dealer sells used cars and trucks from the manufacturer’s franchised lineup. This type of dealership can cost anywhere from $250,000 to $950,000 to open.
Independent Dealer
An independent used car dealership can cost anywhere from $50,000 to $1 million to open.
Wholesale Auction
A wholesale auction is a dealership that sells used cars and trucks to other dealers. This dealership can cost anywhere from $50,000 to $750,000 to open.
Whatever type of car dealership you choose to open, it is essential to research which services you will offer and the competition in your area. It is also necessary to have a business plan and be prepared for the expenses of starting a car dealership.
Expenses When Opening Up a Car Dealership
Some of the expenses that you will incur when starting a car dealership include:
- Initial franchise or licensing fees
- Real estate costs
- Signage and marketing costs
- Facility build-out or renovation costs
- Inventory costs
- Personnel costs
- Utilities and other operating expenses
- Insurance
Opening a car dealership can be a profitable business, but it takes hard work and planning. By doing your research and understanding the different types of dealerships and the expenses involved, you can ensure your car dealership is a success. Having the money saved up to cover these costs will make it easier for you to open your business and be successful.
Initial Franchise Fee
When you open a car dealership, you will need to pay an initial franchise fee. This fee is paid to the manufacturer or the authorized dealer and is used to help cover the costs of setting up the dealership. The fee amount varies depending on the type of dealership you open. A franchise with Ford can be as low as $40,000, while the franchise fee for Toyota can go up to $550,000.
Licensing Fee
Another fee that you will need to pay when starting a car dealership is a licensing fee. This fee is paid to the state and is used to help cover the costs of regulating the dealership. The licensing fee varies from state to state but is usually a few thousand dollars. Expect to pay anywhere from $950 to $10,000 for licensing fees.
Auto Dealer Bond
To get a license to sell cars in most states, you will need to purchase an auto dealer bond. This bond is used to protect the consumers from dishonest dealers. The cost of the bond varies depending on the amount of coverage you want. Most bonds cost between $4,500 and $110,000.
Real Estate Costs
When opening a car dealership, you will need to find a location for your business. The cost of real estate will depend on the size of the building, location, and condition of the building. The cost to buy a building can be as low as $100,000 or as high as $2 million. If you decide to lease a building, the cost will be between $3,000 and $25,000 per month.
Signage and Marketing Costs
Signage and marketing costs can vary depending on the type of dealership you open. If you are opening a franchise dealership, you will need to follow the manufacturer’s guidelines for signage.
If you are an independent dealership, you will need to create your signage. The cost for signage can range from $500 to $100,000. Marketing costs can also vary depending on the type of advertising you want to do. Some typical marketing expenses include:
- Website design and development
- Online advertising
- Newspaper, magazine, and radio advertising
- Television advertising
- Signage
- Vehicle wraps
The cost for marketing can range from $1,000 to $1,000,000 per year. Some manufacturers charge dealerships a fee since they run national ad campaigns that can help sell cars.
Facility Build-Out or Renovation Costs
When you open a car dealership, if you buy an existing building, you may need to make some renovations. Your other option would be to build out a new facility. These costs will depend on the size of the building and the type of renovations needed. The cost of building a facility or renovating an existing one can range from $5,000 to $500,000.
Inventory Costs
When you open a car dealership, you will need to purchase inventory. The cost for inventory can vary depending on the type of cars you are selling. The cost can range from $2,000 to $100,000 per car.
Used cars can be cheaper to purchase than new cars, but you have to make sure you’re not buying cars that are too old or will need a bunch of repairs. You also need to make sure you have enough inventory to meet your customers’ needs.
Personnel Costs
Personnel costs can vary depending on the type of dealership you open. If you are opening a franchise dealership, you will need to follow the manufacturer’s guidelines for hiring personnel. If you are an independent dealership, you will need to create your own. The cost for personnel can range from $10 to $200 per hour. Some of the positions you will need to fill are:
- Salespeople – $30,000 to $210,000 per year
- Service technicians – $45,000 to $95,000 per year
- Parts specialists – $35,000 to $65,000 per year
- Accounting and administrative staff – $30,000 to $55,000 per year
- Finance Manager – $50,000 to $100,000 per year
The cost for personnel can be a significant expense for a car dealership.
Utilities and Other Operating Expenses
Utilities and other operating expenses can vary depending on the dealership you open. Some everyday expenses include:
- Electricity
- Water
- Telephone
- Internet
- Supplies
The monthly cost for utilities and other operating expenses can range from $1,000 to $15,000, depending on the size and layout of your facility.
Insurance
There are a couple of different types of insurance you will need to purchase when opening a car dealership.
The first is property insurance. This insurance will protect your building and inventory from damage or theft. The cost of property insurance will depend on your inventory and building value. Expect to pay $4,500 to $25,000 per year.
The second type of insurance is liability insurance. This insurance will protect you from any lawsuits that may arise from injuries or accidents at your dealership. The cost of liability insurance will depend on the size and location of your dealership. Liability insurance can cost $1,000 to $10,000 per year.
It’s also a good idea to have employee compensation insurance. This insurance will protect you if an employee is injured on the job. The cost for employee comp insurance will depend on the size and location of your dealership. Expect to pay $3,000 to $7,500 per year.
Making Your Dealership Profitable
There are a few things you can do to make your dealership profitable. One of the most popular ways is by adding a service and parts department. This will allow you to generate additional revenue from repairs and parts sales.
You can also increase your profits by selling used cars. Buying cars at a lower price and selling them for a profit can help improve your bottom line. Offering financing and leasing options can also be profitable.
Adding a building or space for service or parts will increase your start-up costs by $15,000 to $65,000. This can be a very worthwhile investment, as it will help you to generate more revenue and be more profitable.
Final Thoughts
Opening a car dealership can be a lucrative business venture, but it does come with some significant start-up costs. The cost to open a car dealership can range from $20,000 to $4,500,000. The type of dealership you open and the services you offer will play a role in determining the cost.
You can do a few things to make your dealership profitable, such as adding a service and parts department, selling used cars, and offering financing and leasing options. By following these tips, you can be on your way to owning a successful car dealership.
