How to start a car dealership

Starting a car dealership can be an incredibly rewarding and profitable business venture – as long as you’re well prepared. Regardless of whether you’re working as a sole trader from your home garage or as a large trader on a forecourt, you’ll still need to ensure you’ve covered all bases before hanging up that open sign. That’s why we’ve created this guide for starting a new or used car dealership, to help you set up your garage for thriving success.

Steps to starting a car dealership

You may have dreamed of opening a car dealership your entire life. Or you might only know a thing or two about motor trade. Either way, the steps are the same. Sure, automotive knowledge helps you on your way, but undeniably what’s important is to be smart with your business strategy.

Research and target market analysis

Firstly, you need to think about who you want to sell cars to. It’s OK to set up a car dealership for any customer that drives past, but you’ll likely get more custom if you narrow down your target market. This way, you can focus on matching your available motors to their wants and needs.

Start by performing market research to identify your target market and assess whether there’s demand for the vehicles you want to sell. Look at the number of cars sold in your area – particularly those you’ll be selling – to get a good idea of the size of your market.

Next, consider your competition and whether nearby dealerships are selling similar vehicles. Then, build a profile for your ideal customer based on age, occupation, income, and buying behaviours.

Decide which vehicles to sell

You may already know the types of vehicles you want to sell. But remember, just because you like a vintage Ford doesn’t mean your target market will too. Research which cars are selling well in the market to figure out demand, and then consider how much you can sell them for to ensure you can make a healthy profit.

You should also consider car trends and changes to keep up with demand. For instance, many car dealerships are selling electric vehicles due to upcoming legislative changes. Find your niche, and consider whether you want to sell new, used, classic, or electric cars, cars on finance, vans and cars, or other motor vehicles.

Franchise or an independent car dealership business?

Setting up on your own can be incredibly challenging. You’ll need to find customers, source vehicles, and establish yourself in the trade. So, you may consider going down the car dealership franchise route instead. This means you enter a contract with a manufacturer like Ford or FIAT and agree to sell their cars. Essentially, you act as a reseller for their vehicles. Doing so allows you to piggyback on an established brand while also running your own profitable business.

Or you may run a completely independent car dealership. This way you may not establish any agreements with car manufacturers. Instead, you could be solely responsible for sourcing vehicles from various brands and selling them on your forecourt.

Decide on your pricing method

You’ll also need to decide on your pricing bracket. This should reflect what your customers can afford – and what your market research reveals customers are spending.

While this gives you a good range for your vehicles, you’ll also need to consider various other factors when pricing them individually. This includes:
• How much you paid for the vehicle
• How you purchased the vehicle, e.g., as a part exchange or at auction
• How long you’ve had the vehicle in stock
• The vehicle’s condition, including mileage, age, mod cons (heated seats, Apple CarPlay, Sat Nav, etc.), engine type, and other features.
• How much other garages are selling the same model for
• How much you expect customers to want to pay
• Whether you’re prepared to negotiate the vehicle’s price
• Whether you’ll allow customers to part exchange their vehicle
• If you offer any additional services such as extended warranty or service packages to increase the price

Consider offering other services

Alongside selling vehicles, you may offer additional car garage services such as MOT and servicing, valeting, or automobile part and accessory sales. This allows you to generate a higher profit, while also making you stand out from other dealerships. Plus, if you offer some of these services in a sale package, such as two free annual MOTs, customers may be more inclined to buy.

Remember, you’ll need to price these services accurately and conduct market research. You may also need to employ staff to help you deliver these services.

Decide on your marketing tools

Getting your car garage out there is an important part of the process. The effectiveness of marketing shouldn’t be overlooked. Think about how you want to advertise your car dealership – perhaps by creating your own website or using social media channels. While you can pay for display adverts on your typical social media sites like Facebook and Instagram, you can also take advantage of free social media groups, which help you reach a broad audience and zone in on specific likes and interests.

You could also think about specific car sales websites such as Autotrader and CarGurus, so you can target people looking to purchase vehicles. However, you’ll need to factor in listing fees.

How much does it cost to start a car dealership?

The real burning question is how much does it cost to start a car dealership? Building any business from scratch requires time and money. And in the case of the motor trade, it can mean significant cash flow to get your business going.

Consider your start-up costs

Having a rough idea of your start-up costs is essential, so you know exactly how much you need to put aside and what you need to sell to start making a profit. Consider the following:
• The cost of your premises, including ground rent fees, utility bills, and other running costs
• How much stock you plan on buying
• How much it’ll cost to get your stock ready to sell, e.g., do any cars need significant repairs?
• How much you want to spend on the initial marketing of your car dealership
• Any franchise or licence fees, if not building an independent car dealership
• Whether you’ll have any employees, especially if you plan on delivering additional services

Funding options

Once you know your start-up costs, it’s time to think about options. You may already have enough capital to get the dealership up and running. Or you may need to look at other funding opportunities. This could include bank loans or investments from friends and family. If you go down the bank loan route, be prepared to show clear projections and plans for your business.


Not all income you receive will be profit. You’ll need to allocate money for paying tax bills, including business rates. Depending on whether you set up a limited company or act as a sole trader, you may also need to pay income tax, corporation tax, and personal tax.

Motor trade insurance

Opening a car dealership means you’ll need insurance – not just to insure the car you drive, but those on your forecourt. Motor trade insurance can provide protection against road risk, accidents, theft, damage caused by customers, and more. It can cover you to drive customers’ vehicles, move unlicensed cars without trade plates, and test cars on the road.

You can take out a tailored car dealership insurance policy. This is a type of motor trade insurance providing cover against types of road risks listed above, as well as extra security for stock and property. At ChoiceQuote, we also include cover for public and employers’ liability claims, which can support your business if in the event you must pay out potentially costly legal fees associated with personal property damage and accidents. Our specialists can talk you through our core policies and help you decide on flexible add-ons that can help tailor your insurance to your unique business requirements. Just call us on 0800 062 2312 or get a quote online.


Seeking accreditation isn’t compulsory, but it’s worthwhile if you want your car dealership to stand out to customers. To get accreditation, you’ll need to apply to the Motor Ombudsman. Once approved, you’ll be recommended as a garage for customers to visit if anything goes wrong with their vehicle elsewhere. Not only may this deem your business more trustworthy to customers, but it could also help to market your dealership.

Register your car dealership and start trading

If you’re ready to start trading, you must register your business first. How you do this depends on whether you’re setting up as a sole trader, limited company, or partnership. Visit the GOV.UK website to guide you through the registration process.

You’ll also need to apply for trade plates, so you don’t need to tax every vehicle at your dealership. This helps you avoid additional costs and allows you to drive and test vehicles legally. Trade plates also cover you to take an untaxed vehicle from your dealership to the customer’s address.

The final piece of the puzzle is to start buying and selling your cars. Setting up a car dealership is an exciting venture – just make sure you’ve ticked everything off this list first, and you’re good to go.

The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. We do not accept any liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.