Car Dealership Business 101: Start and Run Your Own Car Dealership

Table of Contents

Share this article

Introduction

The India Brand Equity Foundation (IBEF) report indicates that the Indian Automotive Industry is expected to grow from INR 16 trillion to INR 18 trillion by 2026. More people are investing in four-wheelers including new and used cars. This is the perfect time to invest in the automotive industry and start a car dealership business.

In this article, we will look into the automobile dealership industry in India, its scope of it, how to create a business plan for a car dealership business, etc.

Automobile Dealership Opportunity In India

The automobile dealership industry has been going through a lot of changes, especially after the pandemic. Even though there has been a shortage of inventory in recent times, the industry shows promising opportunities based on customer preferences.

What is the Future of Car Dealerships?

The value of the car dealership industry is expected to increase owing to new digital platforms and changing customer preferences. This has led to the creation of opportunities for car dealers that were previously not considered possible. With these rapid changes, car dealers must be prepared to change their strategy and services to meet the needs of the customers and create a sustainable business.

Why Do Dealerships Only Sell One Brand?

Car manufacturers often do not sell their cars directly to customers. That’s where a car dealer comes in. To sell those cars, laws need to be followed. One such law is that cars can only be sold through licensed, bonded, and independent dealers. These dealers often have contracts with a certain car manufacturer and are approved by them as an official dealer. Hence most car dealers stick with one brand than have several brands in their showroom.

Types of Car Dealerships

The following are some of the different types of car dealerships:

  • Autonomous Garages: Sells cars for a cheap price
  • Used Car Dealerships: Resells cars that have already been bought and used by another customer
  • Brand Specific Dealership: Sells cars specific to a brand and may also provide other services related to the brand
  • Online Dealership: Their primary outlet is an online platform such as a website and not a showroom.

Creating a business plan for Car Dealership Business

A strong business plan offers insight into how a business should operate, what its goals are, and how the business plans to achieve them. The business plan is important to ensure that all parties involved in the business have a clear idea of what the business is about so that there is no confusion. It is also used to gain investment for the business.

The business plan is based on the business model. There are several business models out of which your business can choose the model which is effective in fulfilling the goals of your company. One such model is the KW car dealership, business model. In this section, we will look into the different sections of a business plan for a car dealership company.

Executive Summary

The executive summary is the first part of the business plan and hence needs to attract and hook the attention of its readers till the last page of the business plan. It gives an overview of what the business is about, what it aims to achieve, what are the steps it is going to take to achieve those goals, financial goals, etc. The following is an example of an executive summary for a car dealership business:

“Green Cars is a car dealership company that aims to provide customers with cars that are environmentally friendly and energy-efficient. We believe that to have a better life on Earth tomorrow, we need to make conscious decisions today. All our cars have been curated carefully to ensure that they are zero-emission vehicles. Our range of vehicles includes cars for every budget level because we want to make believe that saving the environment doesn’t have to hurt our budget.”

Legal Aspects

The car dealership company must be established as a legal entity to be operational. It is based on the type of ownership such as sole proprietorship, partnership, limited liability company (LLC), or corporation. Registering the business as an LLC or a corporation helps to protect yourself if the dealership is being sued. Registering the business under any of these titles established the business as a separate legal identity.

Obtain Necessary Permits And Licenses

Running a car dealership company requires you to gain certain licenses and bonds to be an established legal entity that has the right to sell calls. Some examples of the types of licenses include the following:

  • New car dealer license
  • Reconditioner licensing
  • Used car dealers (retailers)
  • Rebuilder licensing
  • Wholesaler licensing

Surety bonds are a kind of insurance that will help customers and the state protect themselves from fraudulent car dealers. Some of the types of bonds that may be required to run the business include the following:

  • DMV bonds
  • RV bonds
  • Wholesale car dealer bonds
  • Used car dealer bonds

Customer Analysis

Customer is the King because, at the end of the day, they are the ones who give you profits. All customers are not made in the same way, and all people cannot be customers of your business. It is essential to identify the target audience for your dealership. The target audience will depend on the types of products and services that your business provides.

For example, the target audience for a luxury car may be someone with higher disposable income, who desires comfort over cost and often spends more on furnishing the looks of the car. Someone who is on the lookout for a budget-friendly car on the other hand will prefer cost over comfort, and look for fuel-efficient vehicles and sometimes even free services that will help make their experience better.

These two customers are not the same. Hence the business must first identify the target audience, ensure that the business provides products and services to satisfy them, create a user persona, and target marketing activities to attract such customers.

Product and Service Offerings

The product and service that the business provides to its customers are crucial for gaining profits for the company. They must be something the customers need and also something unique from other car dealers out there in the market.

For example, your dealership may only provide zero-emission and environment-friendly vehicles. Individuals who are concerned about the environment may trust your business and hence prefer your business over others. If not in products, the business has a unique service that will help the customers.

For example, your dealership may have a special offer or provide no paper insurance service. These. USPS to help gain a competitive edge over other car dealerships in the market.

Location and Storage Space

The location of any business is key to its success. The location can be offline or online. The location must be somewhere the target audience is most likely to notice. Car dealers who deal with luxurious cars must opt to put up a showroom in the city or place where people who are likely to buy those cars would often visit.

The storage space should also be such that it is enough to display all the cars, have a leisurely place for people to move around, and also have a good ambiance so that more people are likely to visit the showroom. Keep in mind that the location and storage space will depend on the amount of investment available for the business.

Marketing Strategy

Marketing strategy enlists all the marketing activities that the business will perform to achieve the marketing goals of the business. Marketing is a very expensive activity and hence needs to be planned and performed properly. Market research must be done to figure out the current trends in car dealing like what brands are popular, what model is favored by the public etc.

Market research must also be performed to figure out the customer persona. The target audience of the car dealership business must be identified. For example, the customers who want to buy high-end luxury cars generally have a higher income level than those opting for budget-friendly cars.

The needs, personalities, demographics, and psychographics of the target audience will help to find out the type of marketing channel and strategy to be used to fulfill goals such as increasing sales, creating brand awareness, etc.

Competitor Analysis

Competitor analysis is a very important part of the business plan that helps in gaining a competitive edge in the industry and is a very crucial part of establishing the business. Analyzing all the different types of competitors in the industry helps to improve the business and become better than the competitors. The following are some of the pros and cons of performing competitive analysis:

Pros

  • It helps to provide fast and detailed organic research
  • It helps to create a unique selling proposition (USP)
  • It helps to learn from the strategies that worked and didn’t work for the competitors and help create better ones for the business

Cons

  • It is a rather time-consuming process
  • It can be expensive
  • The data collected may be biased or unreliable

Investments and Profits

The investment required for starting a car dealership business is based on several factors. These investments include the showroom rental space, the cost of inventory, operational cost for running the showroom, personnel cost (hiring, payroll, etc), marketing and sales cost, etc x Some other important costs include applying for auto dealership licenses and purchasing surety bonds. The cost and type of auto dealership license will depend on the state in which the business is operating.

All these factors must be considered while fixing the amount of money that is going to be invested in the car dealership business. The Federation of Automobile Dealers Association has a fixed dealer margin of up to 7 percent of the selling price of the vehicle. This can vary based on the state and the type of vehicle that is being sold. Some brands have a fixed contractor percentage above which the profit cannot be increased. Some dealers may also have deals with insurance companies where they get a fixed percentage of the premium for every insurance that has been applied through the dealership.

Management

A business requires manpower to perform different duties to function properly. The business plan of a car dealership must contain details on the number of personnel required for the business and the roles and responsibilities for each title. The following are some of the personnel that may be required in a car dealership business based on the size of the business, the type of services provided, etc:

  • Executive staff
  • Sales staff
  • Marketing manager
  • Mechanics
  • Maintenance staff

An example of a management summary of a business plan may be as follows,

“Rohit Raj, a graduate of mechanical engineering, and Mohan Rishi, a graduate of automobile engineering are equal partners of the firm. Rohit Raj will be in charge of procuring and maintaining the cars for sale and Mohan Rishi will be in charge of sales and marketing. The dealership will also require two administrative staff and one marketing manager. Five sales staff will be employed to perform sales duties within the showroom. A digital marketer will be responsible for all sales and inquiries done through the business website. A mechanic will be employed to check the condition of the new cars and make any repairs to used cars. Maintenance staff and security will be hired to take care of the maintenance and security of the premises.”

Create Your Business Website

Digitalization is on the rise today with more and more people opting to make inquiries and purchases online. A car dealership business is no different than any other business in this aspect. Customers want to know more about the dealers before they make a purchase. They need to gain the trust of the dealer first.

As a car dealer, creating a business website has many uses, and gaining customers’ trust is just one of them. A website is a visual representation of your business and the landing page is the most important part of it. When customers come to your landing page, they must understand what the business is about and what kind of service the business can provide for them.

You need to make it as attractive as possible with images and catchy phrases, but it must be truthful to what the business is about to gain customers’ trust. The website must also contain information on how the customers can contact the business, and if there are any special services that the business can offer the customers like applying for a car loan, car insurance, etc.

A website is also a marketing tool to attract customers from competitors. So make sure to design it in a way that customers can easily navigate through the pages and find all the necessary details that they need to know about purchasing a car and making a deal with your business. A well-designed website is one way to increase conversion rate and make actual purchases.

Financial Plan

The financial plan is a very important aspect of any business and in turn the business plan. Running a business involves money and as a business owner, you need to know where your money is going and how much of it is spent to run the business successfully. A car dealership business requires a large investment since it involves purchasing cars wholesale and selling them as retail units.

The financial plan must include details on how much money is needed as capital for starting and operating the car dealership business. The financial plan must also include details on where the money is going to be sourced such as money from self, friends, family or relatives, bank loans, institutions, etc. If the business is going to be funded by more than one source, the percentage of money from each source must also be mentioned.

How do car dealers calculate tax?

The sales tax that buyers have to purchase for buying a car varies from state to state. Car dealers have to calculate the sales tax based on the GST rate for the state. The taxable total for a car can be calculated in two ways:

Certain states will reduce the value of the trade-in from the original purchase price of the car. This reduces the taxable total. In this case, the price of the trade-in is first subtracted from the original purchase price of the car to find the taxable total. The sales tax percentage is then multiplied by the taxable total to find the sales tax.

For example, a car that costs Rs. 20,00,000, has a trade in value of Rs. 70,000 and has a GST percentage of 6%, the sales tax will be calculated as follows,

20,00,000 – 70,000 = 19,30,000 x 6/100 = Rs. 1,15,800

Other states may consider the value of the trade-in as a down payment. In such cases, the taxable total is not affected. In this case, the sales tax is calculated by multiplying the sales tax percentage directly with the total price of the car.

Using the same example from above without deducting the trade-in value, the sales tax will be calculated as follows,

20,00,000 x 6/100 = Rs. 1,20,000

Some states even have specific policies that vary for different trade-ins and their value. So car dealers must read all the policies related to the kind of car that they are selling in the specific state of the jurisdiction to calculate the sales tax correctly.

Conclusion

Starting a car dealership requires a large monetary fund and a good plan to execute it properly. A well-built business plan is a good start to building a business that lasts long. This article helps you to figure out all the essential details you need to create a business plan for your car dealership business and start working on the plan to make it a reality.

By the way, Did you know! This is not the only option. There are a variety of car business ideas for you to choose from. So makesureyou check out everything before starting off. Having a variety of options doesn’t hurt,does it?

This post is also available in: English

Share:

Leave a comment

Your email address will not be published.

Subscribe to Newsletter

Start a business and design the life you want – all in one place

Copyright © 2022 Zocket