How to Start a Used Car Dealership

A used-car dealership requires a monetary investment, but you may be able to recoup it fairly quickly.

For every person who buys a new car, there's at least one other person who prefers to buy a used car. By starting a used-car dealership, you can get in on a market that's unlikely to shrink. While you will need to make a monetary investment, you may be able to recoup it fairly quickly.

Instructions

Meet Your State's Legal Requirements

1. Get a dealer's license. Requirements and fees vary, so contact your state's Department of Transportation or Department of Motor Vehicles (DMV). In some states, you'll have to meet credit-score requirements and pass a background check.

2. Pay a surety bond. This is an expensive but usually mandatory part of becoming a used-car dealer. This bond is intended to ensure that consumers can recoup losses if you commit fraud or employ unethical business practices that cause them to lose money.

3. Secure liability insurance as well as insurance for the cars you'll sell. This provides protection in case someone is hurt on your used-car lot or in the event of an accident in one of your cars before you are able to sell it.

Start Your Used-Car Business

1. Find a lot on which to park and sell your used cars, making sure it has proper zoning for use as a used-car lot. Also, make sure you'll be able to meet any applicable signage regulations. This can be one of the most expensive parts of starting a used-car dealership.

2. Buy used cars from other dealers, through online and in-person auctions and from private sellers you find through newspaper ads and for-sale signs. After making sure they're in acceptable condition, you may be able to sell them for a 50 percent profit or more.

3. Hire salespeople to assist you. Keep in mind that they may need licenses in some states.

Tips & Warnings

• Research your state's "lemon" laws as you work toward starting your used-car dealership. Doing so can help you stay on the right side of the law and establish good business practices.

• Consult with an attorney and certified public accountant before starting your dealership to be certain that you are in compliance with all legal and financial requirements.

• Don't piggyback on someone else's used-car dealership license or general business license. Doing so is illegal and could cost you money and your business. You might even find yourself subject to criminal prosecution.

• Don't skip the process of applying for your dealer's license and setting your business up legally. In most places, buying and selling used cars without a license is a misdemeanor. While you can sell cars as a private seller, states put annual limits on how many you can sell in this manner.

Resources

• Read this Article in Spanish
• DMV.: The Unofficial DMV Guide
• Auto Dealer Academy