How to Start Your Own Auto Dealership - Part 2

This Hub is a continuation from the original Hub,

How to Start your Own Auto Dealership

Click back to find the start of this Hub.

As mentioned in my introduction, before you get started in the auto dealer business, you will need to work a lot with the DMV, the city officials where you plan to do business in, and your landlord. This Hub is based on my experience living and working in California. Each state and city will have different sets of regulation, and this Hub should provide you with a basic guideline on what you should expect when starting your auto dealer business.

Dealing with the DMV

First thing is first. Even as an auto dealer, you need to learn the basics. So the DMV will make you attend a class. In the class, they will teach you the rules and regulations of the auto dealer business. Since the DMV paperwork involved in selling and registering a car is semi complex, and strict, the dealer school will teach some of the fundamentals of this. They will also go over the laws of the auto dealer business in terms of advertising, lot maintenance, and selling practices to ensure that you won’t become another rip off dealer out for a quick buck. The list of schools approved by the DMV can be found on their website.

Dealer Schools

After you finish your class with the dealer school, now you are eligible to take the test to become a dealer. The test is pretty easy. I think it was 20 questions, and you need 75% to pass. The dealer school will go over this stuff with you, so don’t sweat it now. You should be able to pass if you study just a little bit.

Once you pass, you meet the first requirement to get licensed. But wait… there’s actually a lot more that you need to go through before the DMV will give you your dealer license.

Dealing with the Landlord

Dealing with the landlord maybe easy or difficult, depending where you intend to setup shop. Why? Because the landlord has to personally approve you that you will be selling cars at the office or lot that they are leasing to you. Now, this will likely be a pretty easy thing if you go out and buy out another dealership or find a location where there used to be another dealership. But if you’ve found a new piece of land or location where you want to setup shop, there’s probably going to be a lot of negotiations that you will need to go through.

The landlord will usually give you a hard time if you are setting up shop at a new location. Why you ask? Well, who really wants a lot filled with cars, where customers will come in, there will be repairs, and toxic chemicals readily available? If you are a landlord in the right mind with other tenants nearby, they will surely reject your proposal to start up a dealership at the new location that you’ve found.

The easiest thing to do is to go out and find a location where there already exists an auto dealer doing business one way or another. By going this route, you are somewhat relieved that the landlord will accept your proposal to sell cars on their property, and sign the form you need to become an auto dealer with the DMV.

But again wait, before you get too excited, check out the requirements you need with the city.

Dealing with the City

Dealing with the city means you need to deal with the Zoning and Planning division of the city. This is because the city will restrict you on where you can and cannot sell cars retail to your customers. As the city planner, they don’t want auto dealers popping up randomly around the city because there are all kinds of negative consequences that can bring to a given area. This can be in terms of environmental, traffic, neighborhood, crime, and aesthetic.

If you decided to go out and find a location that has never been an auto dealer in the area, be sure to go check with the city first to see if they will allow you to operate an auto dealer business in the given area. From my experiences, depending on the city, the people in the zoning department are extremely strict, so it’s best to keep a good relationship with them and ask them questions before you make any decisions on a location.

Once you do find a location where the zoning rules allow you to operate the auto dealer business, you will then need to pay a pretty hefty fee to get that business plan approved with the city. The fees for zoning will usually run between $2000-4000, and it may have even gone up more recently due to the California’s budget crisis. I paid close to $3,000 to get mine approved. Pretty expensive, but it is a necessary fee that you will need to include on your business plan.

So finally after you work things out with the city and the landlord, you can go back to the DMV to get you approved as a dealer. The DMV will also have some rules that you will need to follow to get officially licensed as an auto dealer. These rules should be covered in your dealer school.

Working with the city, DMV, and landlord can be a big headache if you don't have it planned ahead of time.  Be sure you don't sign your lease agreement with your landlord before you get approved by them, or it may end up costing you a lot of $$$.

Continued on to How to Start Your Own Auto Dealership - Part 3. 

We'll cover the auto auction in the next section.