In order to legally operate a car dealership in the U.S., you will need a car dealership license. Every state has its own application process, dealership license types, and rules and regulations surrounding the profession.
However, there are some things that you can expect across the board, such as the need for an auto dealer bond and insurance.
Whether you're considering opening a new car dealership or want to know if you can legally sell cars from your home using an auto dealer license, this guide kicks it into high gear detailing everything you need to know.
How Can I Open a New Car Dealership?
You've explored the info at National Association of Automobile Dealers (NADA), done your market research, and decided to open a new car dealership. Now what? You will need these two things to get your car business up and running:
Franchise Agreement: If you want to sell new cars, you must become a franchisee—obtain a franchise agreement with a car manufacturer. A benefit of this route is they take care of a lot of business logistics for you. They will determine everything from where your business is located to how you advertise to whether you also sell used cars.
Money for Startup Costs: You will need cash on hand and a line of credit to cover startup costs (purchasing cars, licensing, building the facility, employment fees, etc.). Franchise fees are hundreds of thousands of dollars, and yearly operational costs often hover around a minimum of $5 million. In addition, your franchise agreement will have liquidity terms outlined within it.
Can I Sell Cars Without a Lot?
Yes, in many states you can sell cars without a lot. You can sell or broker used cars from a home office with some car dealer license types.
The benefit of this type of business is that it can significantly cut startup and operational costs. However, you will still need to go through the application process for a dealership license. Additionally, any space you use for business will have its own set of requirements to legally operate. In most states, this includes a separate entrance from any residence it is connected to, a separate phone line, and specific rules regarding car dealership signage.
Can I have a home office for a car dealership in any state? No, some states like Florida disallow offices in residences. Always check your local rules and regulations.
How Much Money Do I Need to Open a Car Dealership?
Generally, you will need a minimum of $100,000 to open a car dealership. However, some new car dealerships can cost upwards of $10 million. Expenses that you need to consider include:
- Auto Dealer License: ($100 - $700) Needed to legally operate.
- Business Registration Fees: ($70 - $1,000) Heavily varies depending on your business structure and state.
- Franchise Fees: ($100,000+) For new car dealers only.
- Location & Building: ($100,000 to $1,000,000+) This includes land leases and any structures you need to build.
- Starting Inventory: ($30,000 - $150,000) Vehicles you initially buy to make up your inventory. Varies depending on the make and model of vehicles, as well as the amount you purchase.
- Dealer Plates: ($50+ each). License plates are required for each vehicle.
- Auto Dealer Bond: ($250 - $750+) Required to secure a car dealership license.
- Unexpected Expense Fund: ($1,000 – $10,000) Used when unexpected business costs arise.
- Advertising: ($500 - $2,000 monthly) Your budget should account for both digital and print media.
Other expenses include employee salaries and utility bills—both of which will significantly vary depending on the size of your business and property.
Looking to open an inexpensive car dealership? You can cut costs by operating a sole-proprietorship dealership out of a home office. This eliminates bills related to location, utilities, employee salaries, etc. Something else to consider is that opening a used motor vehicle dealership is less of a money commitment than a new car dealership.
How to Apply for a Car Dealer License
Step 1: Find Which License You Need
While some states have car licenses that cover selling new cars, used cars, and brokering, others have a separate type of license for each. Common license classes you may come across include:
- New Auto Dealer License: Allows you to sell vehicles to the public. These retail dealers may also be approved to sell to licensed motor vehicle dealers and at auction in some states.
- Used Auto Dealer License: This license permits you to sell used cars and trucks to the public. May also include selling to licensed vehicle dealers.
- Auction Dealer License / Wholesale Dealers: Allows licensees to buy, sell and deal in motor vehicles exclusively wholesale or with motor vehicle auctions.
- Auto Broker License: This is an addition to a new, used, or wholesale license. It allows you to provide the service of arranging, negotiating, and otherwise assisting in the purchase of a new vehicle or used vehicle for an individual in exchange for compensation.
- Service Facility/Auto Repair License: Allows licensed franchise dealers to service the makes of vehicle that they sell.
Note that these may have different names in different states, and not all states have all the above classes (some combine multiple). Check with your local Department of Motor Vehicles (DMV) to see which types of auto dealer licenses are available to you.
Step 2: Attend a Pre-Licensing Seminar or Course
Many states require car dealer license applicants to complete an online or in-person seminar from approved training schools or education providers. These seminars or courses generally last 4-12 hours, covering the laws and information pertaining to your licensure. Depending on your state, you will need:
- A certificate of completion from this seminar to continue with a motor vehicle dealer license application.
- OR to pass an exam. For example, California auto dealer licenses require all attendees to complete and pass an in-person exam at a local DMV.
Step 3: Secure a Permanent Location
Each state has a checklist of items they require a car dealership location to have. Your established place of business may be inspected for:
- Office requirements (in a permanent structure, not in a residential building or separate entrance in a residential building, etc.)
- Certain square footage of floor space for offices, display areas, and showrooms.
- Signage rules regarding size and display.
- Zoning and property use verification.
- Phones (listed number, landline, etc.)
- Filing cabinets or other specified setup for record storage.
You may need to take photos for your application and/or set up an appointment with a DMV inspector to verify compliance.
Step 4: Get Licenses and Permits
You may need to apply for any combination of:
- City and/or County Business License
- Fictitious Name License when operating under a name other than the actual name of the owner
- Sales Tax Number from your state's Department of Revenue
- Federal Employer Identification Number (EIN)
- Resale Permit
- Trader's License
Some states also require fingerprinting, which will have to be done with an approved service of their choice.
Step 5: Obtain Proof of Insurance Coverage
Liability insurance coverage is required. You may also need an additional insurance policy or coverage in some states. For example, you need $10,000 in personal injury protection to get a Florida Car Dealership License.
Step 6: Get an Auto Dealer Bond
Note that there are a few different types of auto dealer bonds. The one you need depends on which state you'd like to conduct business in and the type of vehicles you want to sell. Some of the most common bond types include:
- New auto dealer bond
- Used auto dealer bond
- Mobile home dealer bond
- Wholesale dealer bond
Why do I need an auto dealer surety bond? Auto dealer bonds (also known as car dealer bonds) are required to protect your customers. These legally binding contracts ensure that if you fail to follow the auto dealing regulations in place—for example, selling misrepresented vehicles—your clients can make claims against your bond.
How much does a bond for an auto dealership cost? An auto dealer bond costs you a small percentage of the bond amount required. For example, in the State of Georgia, a dealer bond must be $35,000, meaning the cost starts as low as $350. A surety company will determine your rate based on various factors, including your personal credit score, the bond amount, and your state.
Step 7: Prepare Your Application
Fill out the application forms for your auto dealer license. Be sure to fill out all pages and attach any required documents. This varies from state to state but may include:
- Copy of permits and licenses
- Photographs of business location
- Background check and financial history
- Proof of surety bond and insurance
- Original Dealer Education Certificate of Completion
- Application for Original Occupational License
- Authorization to Release Financial Information
- Statement of Information filed with the Secretary of State
- Personal History Questionnaire
- Certificate of Proposed Franchise
Step 8: Submit Car Dealership Application & Fees
Send in your completed application and any licensing fees. Some states still take auto dealer license applications by mail and fees by cheque. In contrast, others have moved their application process online. Always carefully read the instructions to submit your application packet properly and avoid delay.
If your application is successful, you will have your license in 4 – 8 weeks and be ready to start your new dealership!
How to Renew a Car Dealer License
Most DMVs have online portals set up for car dealer license renewals. You will need to login and submit your renewal request and any required application fees. Note that items like your car dealer bond will need to be up-to-date for a successful renewal and to avoid any late renewal fees.
How to Modify a Car Dealer License
Whether your dealership is changing its owners, business name, or business hours, you must submit a request for these changes through your local DMV. Visit online or call for specific instructions.
Note that changes like business hours must be received a certain number of days before the change in many states. For example, to change your business hours in Arizona, you must submit them ten days before the change.
For state-specific car dealership license requirements: download our free Auto Dealer License Guide, contact your state board, or visit your local DMV website.