In 2023, there were over 16,000 car dealerships in the US, which sold a total of 5 million cars. On top of that, 90% of American households own at least one car, and 55% of these cars were purchased at a dealership. If done properly, a car dealership business may be highly profitable, although there are some difficulties one must face and keep in consideration.
This article answers the question of how to start a car dealership business, and provides some useful information insights for each of the 4 steps of the process.
Setting up a business plan for car dealership
Just like any other business, if you want to start a car dealership, you require a well-prepared business plan, which will go in detail about the strengths, weaknesses, challenges and threats. It sets the foundation for every major decision, from inventory to staffing to financial expectations. Start with your inventory strategy.
Will you focus on new vehicles, used cars, or both? New cars bring manufacturer incentives but higher overhead. Used inventory offers better margins but demands tighter reconditioning processes and more price flexibility.
Market positioning comes next. Research local competitors, typical buyer demographics, and nearby economic trends. If your area skews toward budget-conscious drivers, a used-only dealership might outpace a high-end luxury focus. At this point, it’s worth mentioning that you should know the market in and out. You may want to open a car dealership just to make money, but without putting your heart and soul into it, you will be in a very rough position.
Staffing needs depend on your scale. A small lot might need only a few salespeople and a service tech, while a larger operation could require a finance manager, inventory buyer, and service advisors. Assuming you’re starting small, and only then expanding, you can worry about it later, and move to the second phase of starting a car dealership business.
Calculate Your Car Dealership Startup Costs
Once you have the business plan ready to start a car dealership, and know more or less what you want to achieve, you have to estimate the costs of it. The bigger the lot and the operation, the more of a financial investment will be needed. Also, keep in mind that before you start selling cars, you need to purchase them first. Filling in the inventory is one of the more tricky parts.
Each car that will be standing on your lot is a frozen money, and the value will be dropping. So you do not want your inventory to be too big, as you may end up with tied hands and stuck with unwanted cars. Here’s where the market knowledge comes in – you want to sell cars that are in demand, so you must know how the market is changing and what are the latest trends. You also need the expert knowledge to advice on all topics – from the engine types and interior configuration, to small stuff like the durability of wiper blades and capacity of the glovebox.
If you don’t have the money to kick things off, but you’re certain that you will succeed, you may consider taking a secured loan from KIS Finance or other provider, and using your assets as collateral.
Secure Licensing and Comply with Regulations
Start at the state level. Nearly every state requires a motor vehicle dealer license, and the process varies. Some states have separate licenses for new, used, and wholesale dealers. You’ll likely need to complete a pre-licensing course, submit fingerprints, and pass a background check. It’s tedious but non-negotiable.
Next, get a sales tax permit. Since dealerships calculate and collect sales tax on vehicle purchases, your business must be registered with your state’s department of revenue. You’ll also need a federal Employer Identification Number (EIN) and may be required to carry liability insurance.
Every step adds friction, but skipping one will stall your launch. Licensing requirements for car dealerships exist to protect buyers and maintain industry standards.
There is not much that can be added here, because it’s the one phase which you must follow step-by-step, and everyone who wants to start a car dealership has to go through the same process.
Open and Operate the dealership
With your licenses approved and lot secured, the real challenge starts. You need to build your brand and start earning trust. Knowing how to start a car dealership goes beyond paperwork. You need visibility, consistency, and tools that keep every lead from slipping through the cracks.
Start marketing well before launch. A strong online presence isn’t optional, it’s a must have. Create a responsive website with full inventory listings, sharp photos, and financing options. Invest in Google Ads, social media campaigns, and local SEO to capture nearby search traffic. Most buyers start online, not on your lot.
Behind the scenes, a CRM for car sales turns traffic into customers. It lets you track leads, segment follow-ups, schedule test drives, and automate messaging. Good CRMs even integrate with ad platforms and inventory management tools. Remember, your inventory is not just cars, but also tires and other stuff. Without it, your sales pipeline turns leaky fast.
Also, consider how your dealership will handle service operations. Clear scheduling, honest repair estimates, and fast turnaround times keep buyers coming back long after the sale. Pair that with post-sale check-ins managed through your CRM, and your customer lifecycle doesn’t end, but loops.
Quick summary
Learning how to start a car dealership begins with a clear business plan and a firm grasp of startup costs. Securing the right licenses and meeting regulatory requirements is mandatory before opening your doors. A strong marketing strategy and the right CRM for car sales help convert leads and manage operations efficiently. Anyone serious about starting a car dealership should focus on planning, compliance, and execution from the start.
Frequently asked questions
What are the steps to opening a car dealership?
You’ll need to set up a business plan for your car dealership, calculate your startup costs, secure all required licenses and regulatory approvals, and then focus on marketing, operations, and software tools like CRM for car sales.
How many car dealerships are in the US?
As of 2023, there are 16,835 franchised car dealerships operating across the United States.
How many cars do dealerships sell?
In 2023, U.S. dealerships sold approximately 5 million new vehicles.
How much money can a car dealership make?
The average new car dealership generated $71.7 million in total sales in 2023, though actual earnings vary based on location, inventory, and business model.
