Starting a car dealership is a costly venture that requires a significant amount of funding. More than $11 million is needed to launch the average new car dealership, according to a study released by the National Automobile Dealers Association. If you want to start a car dealership, you need to account for the costs that accrue from buying or leasing land, building facilities, stocking inventory and registering your business.
How Much Does It Cost To Buy A Car Dealership
Even after your dealership launches, there are ongoing costs. Average dealership annual operating costs run upward of $4 million. The cost of running the dealership over the course of a year includes paying land leases, paying personnel and staff, buying advertising space and ensuring the business is in compliance with various regulations. Here are a few costs that add to the price of starting a car dealership.
One reason that opening a car dealership is costly is due in part to the land you need for your business. These costs vary because some states require that you have a physical office to start selling, while others do not. You can choose to either purchase property or find a suitable piece of land for you to lease.
Registering the business adds to the startup costs, which vary widely from one state to the next, so it is best to check with local agencies to determine how much you have to pay to register your business. A limited partnership pays $70 in California, for example, while the same partnership pays $750 in Texas. These costs change depending on the nature of the company and how it is structured legally. For example, limited liability companies pay different amounts to register in a state than limited partnerships pay.
The cost of establishing a location and facilities combined with the costs of registration, bonding, licensing and insuring all add up. However, these are only a part of the amount you need if you want to start your own car dealership. In many cases, dealers accrue even further costs from hiring accountants and lawyers. One of the most significant costs to starting up a dealership is the actual cost of inventory, which takes up a big chunk of the millions you need to launch your business.
There are two types of car dealership options from which to choose. New car dealership franchises are typically more costly to set up, and they operate on a larger scale. Used car dealerships are run on a smaller scale and often work well as a small business, because they require less capital and lower operating costs.
The initial investment costs for starting a dealership franchise is rather hefty. Among the big five auto manufacturers offering franchises in the U.S. (General Motors, Ford, Honda, Hyundai and Toyota), the initial franchise fee can range from $30,000 (Ford) to $500,000 (Hyundai and Toyota). However, Ford's low-end cost does not include capital for a building, purchasing inventory or equipment. Adding in those expenses could bring the total initial costs up to $150,000.
Independent business owners must also plan for all their startup expenses. These will vary widely by not only state, but areas within each state. For example, a dealer setting up shop in a rural area can expect to pay less per square foot for a property and building, whereas a dealer in a metropolitan location will pay much higher rates. Some expected startup costs include:
A car dealership is one of the costliest business ventures to start. It is a business that requires a substantial volume of capital, with a high-risk level. But, if you are deeply passionate about automobiles, then, it is an ideal business for you to venture into. Typically, the cost of starting a car dealership is between 1 million dollars to 10 million dollars. This cost varies based on the type of car dealership, the size of the dealership (the number of cars you intend to start with), your location, specific bonds, and insurance cost. This cost covers the car purchasing cost, physical amenities, business registration, property, and inventory. This article (and video) explains in detail what you need to start a car dealership and how much to budget specifically for when starting a car dealership. This is because it is safer to properly plan and budget before setting out to start a car dealership to prevent unnecessary last-minute surprises.
Once a car is yours, it needs to be registered with your local government. Dealerships handle much of the process on your behalf, and rules vary by state. The basic fees are tax, title and license (TT&L) fees, but additional fees may apply depending on your state of residence. California offers a calculator to estimate the cost of registering a vehicle there.
In order to successfully open a car dealership you must plan for a variety of costs. Proper planning and consultation with specialists can help you launch your dealership without unnecessary difficulties and last-minute surprises.
The total cost of opening a car dealership is generally considered to be upward of $100,000 to as much as $200,000. The reason for the range in the cost is due to the difference in expenses depending on the state you are opening your dealership in, and the type of dealership you will be opening.
For example, registering an LP in Colorado is $50, $70 in California, $125 in Pennsylvania, and as much as $750 in Texas. Registering a corporation also varies greatly among states, with Massachusetts and Texas having the highest fees ($295 and $310, respectively). On average, registering an LLC costs about $110 in the U.S. though this, too, varies.
The next expense you will have is renting or buying your dealership location. Prices in this category may vary greatly depending on the type of property you are considering, its location, and the state you are in. Monthly costs for a lease can vary between $8,000 and $20,000 with one source citing about $53,000 in annual fees for renting a shop/garage for selling used cars.
Your inventory is the single largest cost you will have when opening your dealership. How much your inventory will cost you depends on the type of vehicles you will be selling (new or used) as well as the amount and models of vehicles you intend to offer. Needless to say, starting out small and gradually building up is easier and will cost you less.
As you can see, the cost to start a car dealership can vary greatly depending on your location and the type of business you want to start. Do you have experience with managing a dealership? Are there are any important costs which could be added to the list above? Let us know in the comments, we would appreciate your feedback!
While it's not a hidden fee at the time of purchase, there's one more thing you should think about when shopping for a used car: research how much maintenance fees and repairs typically cost and how often they're needed. Some cars have higher reliability scores compared to others, and a lot of maintenance fees could add up over time. Ask your dealer about the typical service costs for the car you want so you can have a good idea when reviewing your expected expenses.
If you were looking for a specific model, color or features in a car, you might have to pay to have the car shipped to your local dealership. Or, you could try to negotiate and have the dealer cover the cost.
Review the chart below to see how your state handles doc fees. If your state does not limit doc fees, find out early in the buying process what the dealership charges. Most dealerships will not negotiate the doc fee itself, but there may be a workaround. If the doc fee is substantially higher than your state's median, which is listed in the chart, negotiate the car's price more aggressively to offset the fee. And keep in mind that dealers also charge sales tax on the doc fee.
Market adjustment. In the current vehicle shortage we're in, you're very likely to find an "addendum" sticker, somewhere on a new car. This is the dealership essentially saying that the vehicle in question is in short supply, and it's raising its price to make some extra profit. This can range from $1,000 to upward of $50,000 on some highly anticipated vehicles. Note that you don't have to pay this fee, but at the same time, the dealer doesn't have to sell a vehicle to you at MSRP. This fee can be negotiated down in some cases, but it will differ based on the dealership. Similarly, there are a number of dealerships that do not believe in marking up a vehicle. Ask if a vehicle has been "marked up" before visiting it and be willing to expand your search if need be. For more information, read: "Should You Pay More Than MSRP for a Car?"
The documentation fee covers the cost of preparing and filing the sales contract and other relevant paperwork. Some states place limits on how much these fees can cost. Other states have no limits on how high these fees can go. The difference between documentation fees in states that do and do not limit them can be significant. While some states limit fees to just less than $100, the median documentation fee in some states without such limits can exceed $600.
The three costs listed above are standard mostly everywhere across the country. However, you can challenge or negotiate down some fees when buying a new car. Some dealerships add on fees to increase their profit. The state doesn't legally require these fees, so many dealerships will drop them if you threaten to walk away from the purchase. There are some unique fees when buying a new car that may be negotiated, including:
Please note: The above is meant as general information to help you understand the different aspects of insurance. Read our editorial standards for Answers content. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.
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