written by Khatabook | November 16, 2021

How to Start A Car Dealership Business in India in Easy Steps?

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Table of Content


Almost everyone drives a car for work or pleasure. If you drive a car, you will need to have it repaired and maintained as well. As a result, buyers seek out car dealers to purchase vehicles and have them serviced. The expense of starting and running a dealership, on the other hand, might be in lakhs or more. Let's go through the complete procedure for starting a car dealership in India.

How to start a car company in India?

Assume you've stumbled onto the ideal business venture with an automaker and thus are ready to take the next step. Surprisingly, you should know that there is more to launching a business than simply registering with the state. A few of the essential stages that will assist you in getting launched with your car dealership operation are discussed further.

Step 1: Plan Your Business

Once you've decided to enter this area, the first and most crucial step is to make a sound plan. To achieve maximum success in your business, a proper plan should be divided into numerous areas, each of which should be given equal attention.

In the process of creating a solid plan, you might want to ask yourself the following questions:

1. What do the initial startup and ongoing car dealership cost in India?

Due to the numerous clauses and restrictions, starting a car dealership franchise or business in India may seem difficult. The minimum car dealership cost in India is INR 60 lakhs, therefore, make sure you have the necessary budget to start this business. 

While the documentation process is lengthy, you will need to obtain certain documents to establish a foothold in this market, such as a surety bond, company experience, and correct licensure.  The registration of a surety bond with the local state's DMV is the first step in starting your business as an auto dealer. The dealer is then able to qualify for an auto dealer licence. This licence will be necessary to sell autos in that state.

Following the acquisition of a licence, the next stage is to purchase bonds. A surety bond is frequently referred to as insurance because it protects clients and the state from such dealers' fraud. Some forms of bonds about which you should be aware and have access are listed below. These ties are essential to the successful operation of your organisation: 

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

2. Steps to take after you've obtained the bonds you require:

Obtaining a premium bond plan depends entirely on your banking skills, making it challenging for dealers to calculate the actual costs of starting a business. Surety bonds are frequently reliant on the following factors: 

  • The amount of the bond required.
  • Your financial assets and credentials are at risk.
  • If you prefer to finance the premiums, there will be additional expenses.
  • Your credit rating.

Dealers must obtain their licence in addition to receiving a bond. The types of licences you may require are determined by the state and area you intend to conduct business.

The following is a list of licence categories as defined by most states:

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

3. The standard approach for entering the vehicle dealership business is as follows:

  • Completing the application form
  • The process of obtaining a surety bond.
  • Purchase automobile liability insurance.
  • Obtain a Goods and Services Tax identification number or GSTIN.
  • Establish your car dealership business in a prominent location.
  • Ensure that your dealership's pictures and business signs are compliant with state-specific photo and signage requirements by regulating them with the location.
  • Pay the fees that are required.
  • The courthouse will issue you a dealer's tag.
  • To sell cars, you'll need a sales licence.

4. Who should I sell cars to with my auto dealership?

Using both physical and online ads to bring people to your auto dealership is one of the most effective ways to advertise your car dealership business. While marketing accounts for a substantial portion of your revenue, referrals are equally crucial to the success of your auto dealership.

When it comes to attracting clients to your dealership, you should start with those that have strong credit. Because your company deals with automobiles, you should be aware that most of them will require a sound financing option, which will necessitate a solid credit score. While the majority of dealers have a difficult time locating clients with strong credit, certain dealerships specialise in financing those with bad credit.

Also Read: What are the 6 Profitable Dealership Business Ideas in India?

5. What are the ways that a car dealership makes money?

Dealers make their money by selling vehicles at a higher price than their actual price and do regular maintenance on the cars it sells. Customers often pay commissions on automobiles they buy (which are included in the overall sales cost of the vehicle) and hourly or fixed maintenance costs. You can look at examples  of Kia dealership in India or Mahindra franchise cost for familiarizing  yourself with all aspects of this business.

6. What would be a reasonable fee for customers?

To understand this, you must first comprehend the profit model of a vehicle dealership. A company's revenue and profits are generated by selling vehicles at a higher price than the owner's invoice price. The other way they make money through this automobile dealership opportunity is by servicing the cars they sell.

When it comes to charging the correct price, dealers are typically allowed to sell their goods at the manufacturer's suggested retail price (MSRP). They do, however, have the right to provide varied discounts to their clients. If the dealer wants to sell their vehicles for less than the dealer list price, they can do so.

7. What is the maximum profit a vehicle dealership can make?

Profit, like dealer operating costs, is entirely dependent on wholesale prices and inventory costs, charges for insurance and bonds, and other expenses. A dealer can generally profit between 2% and 3% of the car's listed price or invoice price.

8. How can you increase the profitability of your company?

It's not easy to make a car dealership profitable. Since there are so many policies and rules controlling the sale of automobiles, most dealerships rely on customer service to help them flourish in the future. Therefore, excellent customer service can boost a dealer's chances of generating more money. A Honda dealership, for example, may earn more than a typically used car dealership. Luxury dealers can generate more money than dealers who sell mid-to low-end brands.

Step 2: Establish A Legal Entity

The most popular business structures are sole ownership, partnership, limited liability company (LLC), and franchise.

If your vehicle dealership is issued, becoming a corporate legal body, including an LLC or corporation, prevents you from holding personally accountable. You can form an LLC on your own and pay only the state's modest fees, or you can employ one of the best LLC Services for a nominal fee.

Step 3: File Your Taxes

Before you can start doing business, you'll need to register for several state and central taxes. If you don't have your Permanent Account Number or PAN, you need to do so and adhere to Goods and Services Tax or GST compliance.

Step 4: Establish a Corporate Bank Account and a Credit Card

Personal asset protection necessitates the use of separate business banking and credit accounts. When your personal and corporate funds are intermingled, your assets (such as your home, car, and other possessions) are put in danger if your company is sued. This is referred to as piercing your corporation veil in business law. 

Furthermore, learning how to develop company credit can help you obtain credit cards and other funding in your business's name (rather than your own), lower interest rates, and increase credit lines, among other benefits.

  • Open a bank account for your business

This keeps your financial property separate from your firm's assets, which is vital for personal portfolio investments. It also simplifies accounting and tax preparation.

  • Get a credit card for your business

By keeping all of your company spendings in one location, you can easily distinguish between personal and business expenses. It also establishes your company's credit history, which can help you raise funds and attract investment in the future.

Step 5: Create a Business Accounting System

Understanding your business's financial performance requires keeping track of your numerous expenses and sources of money. Maintaining precise and complete records also makes annual tax filing much easier. For a small car dealership business, you can use an accounting app like Khatabook to develop business reports, remind vendors or customers for payments and always stay on track. 

Step 6: Get the Permits and Licenses You Need

Failure to get required permissions or licences can result in significant fines or possibly the closure of your firm. Therefore, learn about the requirements for State and Local Business licensing. In most states, obtaining a dealer's licence is required. The application process for this licence varies by state.

Step 7: Obtain Commercial Insurance

Insurance, like licences and permits, is required for your company to thrive safely and legally. In the case of a covered loss, commercial insurance can protect your corporation's economic well-being.

Step 8: Create a Brand for Yourself

Your company's brand is what it stands for, as well as how the general public perceives it. A strong brand will make your company stand out from the competition.

1. How do you sell and promote a car dealership?

It can be challenging to attract new clients. For selling or promoting your car dealership business, you can hold a tent sale. It is a special sale held off-site (away from the main business location) to attract new clients. Tent sales are governed by distinct rules and regulations in each state and county. For example, in some jurisdictions, you will be required to notify local authorities and charge for a licence to host the sale.

2. What can you do to keep your consumers coming back?

Relationships are the lifeblood of auto businesses. Because many of your clients are repeat customers, referral business and customer retention through exceptional customer service are critical. To attract new consumers, offer additional incentives such as special dealer financing or dealership perks (special service deals). Some dealers go above and beyond to deliver a one-of-a-kind customer experience. A dealer, for example, might set up a "play area" for kids and provide daycare services while parents buy.

Step 9: Make a Website for Your Company

The next stage is to construct a website for your car showroom in India after you've defined your brand and designed your logo.

While developing a website is an important step, some people may believe it is out of their grasp due to a lack of website-building skills. In the last few years, web technology has advanced dramatically, making the lives of small business people considerably easier.

Also Read: How to start your own Consultancy Firm in India?

Step 10: Set Up Your Mobile System for Your Business

Getting a business cellphone is one of the most effective strategies to keep your personal and professional lives distinct and confidential. That isn't the only advantage; it also aids in your organisation's automation, provides respectability to your company, and makes it a lot easier for potential consumers to locate and contact you.

Conclusion

The vehicle sector has had tremendous expansion in recent years, and this trend is projected to continue. This car dealership business is ideal for people who are passionate about cars and have excellent business acumen. So, if suitable steps are taken, and the above-mentioned vital factors are followed before beginning a business venture, the car showroom in India will grow to great heights and last for many generations. For more business tips, download the Khatabook app today.

FAQs

Q: Is it challenging to open a car dealership?

Ans:

Starting a vehicle business is an exciting opportunity. The automotive sector is large and can be profitable for newcomers. However, breaking into the market might be difficult without a solid business model and a well-thought-out strategy.

Q: In India, how much does a car dealership owner earn?

Ans:

According to the survey, most Indian automakers offer less than 5% of the average set dealer margins, ranging from 2.9 to 7.49% on ex-showroom price across all categories. In India, the most significant average dealer margins are offered by MG Motors and Maruti Suzuki, at 5.22% and 5.07%, respectively.

Q: What is the approximate cost of starting a car dealership?

Ans:

While estimates vary depending on various internal circumstances, you will need at least INR 60L-1cr to operate a vehicle dealership in India. When computing the total, remember to include the prices of Goods and Services Tax.

Q: Is a car dealership a dependable business?

Ans:

Yes, automobiles are an essential part of every day. Therefore, the car dealership industry, without question, is here to stay.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.