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Dealer startup guide

How to start a car dealership

Starting a used car dealership takes a state dealer license, a surety bond, insurance and a location that passes inspection, plus a plan for inventory, financing and marketing. Here's the order to do it in, with real fees from state rules.

By Jason L. Baptiste · Updated

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What do you need to start a car dealership?

To start a car dealership, you need a registered business, a state dealer license (with its bond, insurance and qualifying location), inventory, and the money to carry that inventory until it sells. This guide covers how to open a car dealership that sells used cars. Selling new cars also takes a franchise agreement with the manufacturer: New York, North Carolina and Pennsylvania all require one with a new-dealer application.

The short checklist for how to become a car dealer:

  • A registered business, an EIN and a sales tax permit
  • A pre-license course, where your state requires one
  • A location with the office, sign and display space your state requires
  • A surety bond and dealer insurance
  • A dealer license and dealer plates
  • A way to buy inventory: dealer auctions, trade-ins or both
  • A floor plan line or cash to carry the cars
  • Compliance paperwork: Buyers Guides, titles and odometer disclosures
  • Listing photos, a website and a plan to market every car

What kind of car dealership should you open?

Decide this first, because it sets your license type, your location and how much cash you need.

ModelHow it worksWhat it takes
Retail used lotBuy at auction and from trade-ins, sell to the publicA retail dealer license, display space in many states, reconditioning and marketing
WholesaleBuy and sell only with other dealers and at dealer auctionsA wholesale license; often no display lot, but no retail sales
Buy here, pay hereYou finance buyers yourself instead of sending them to a lenderYou carry the loans, so more capital and lending rules. Illinois issues a separate Buy Here, Pay Here license.
Franchised new-car storeSell a manufacturer's new cars, plus usedA franchise agreement and a new-dealer license. Texas requires both a franchise license and a GDN.
Luxury or specialty usedA retail used lot with fewer, pricier carsThe same used dealer license, more money per car, and a higher bar for presentation

Not sure between the first two? Compare them on our wholesale dealer license page.

How to start a car dealership, step by step

  1. Write the plan and the budget

    Decide what you'll sell, how many cars you want on the lot, and where the money comes from. The license is the cheap part; inventory is where the cash goes. Price your location, insurance and first month of inventory before you commit to anything.

  2. Form the business

    Register an LLC or corporation with your Secretary of State, file any assumed name, and get an EIN from the IRS. Use the exact same business name on every form that follows: the license, the bond, the insurance certificate and the tax permit.

  3. Register for sales tax

    Get your state's sales tax permit or resale certificate. New York calls it a Certificate of Authority and California a CDTFA resale permit, and Alabama won't license a new or used dealer without a state sales tax number.

  4. Lock in a location that qualifies

    Read your state's location rules before you sign a lease. Texas wants an office of at least 100 square feet and display space for 5 cars; Michigan wants 1,300 square feet to display 10 cars plus customer parking; Ohio wants a 3,500-square-foot lot. Florida suggests waiting to sign until its examiner approves the site, and Illinois wants the lease to cover the whole license period.

  5. Take the pre-license course

    North Carolina requires 12 hours, Illinois 8, and Texas and Ohio 6. Michigan's pre-licensing training is free and has to be done within 6 months before you apply.

  6. Get the surety bond

    The bond amount is set by law, and you pay a premium to a surety company to carry it. Bryant Surety Bonds, a surety agency, says Missouri's $50,000 bond starts at about $500 a year with strong credit, and that weak credit can pay up to about 10% of the bond.

  7. Buy dealer insurance

    Expect a garage liability or dealer policy that covers your inventory and plates. Missouri wants a dealer garage liability policy with the application, Michigan wants 20/40/10 fleet no-fault coverage, and North Carolina wants proof the policy covers your dealer plates.

  8. Apply and pass the inspection

    Submit the application with your fees, bond, insurance certificate, course certificate and photos of the site. Expect fingerprints for each owner in states like California, Florida, Michigan and Texas, and an inspection of the location in states like New York, Michigan, California and Florida.

  9. Get plates and paperwork ready

    Order dealer plates, then set up your deal paperwork: an FTC Buyers Guide for each used car, title forms, an odometer disclosure and a bill of sale for every deal.

  10. Stock the lot and start selling

    Join AuctionACCESS once you're licensed, buy your first cars, recondition them and list them with real photos the same week. A car that isn't listed can't be found online, so photos are part of check-in, not an afterthought.

How much does it cost to start a car dealership?

There's no honest single number. What the state charges is small and easy to price; the location, insurance and inventory decide your real budget. Here's what to price, with real figures where official rules set them:

CostExamples from official sourcesNotes
Dealer license$125 a year in Alabama; $231 for 2 years in North Carolina; $700 for 2 years in TexasSome states charge extra for each added location
Surety bond premiumAbout $250 a year on Michigan's $25,000 bond and about $500 on Missouri's $50,000 bond, with strong creditEstimates from Bryant Surety Bonds, a surety agency; weaker credit pays more
Pre-license courseUp to $150 in Texas; free in MichiganCalifornia also requires a written exam at $16 per attempt
Background check$32 per person for California's DOJ checkTexas offers an optional $100 criminal history evaluation letter before you apply
Dealer plates$10 each in Michigan; $90 each for 2 years in TexasGet enough for test drives and moving cars
LocationSet by your marketRent, sign, office furniture, utilities and any lot surfacing your state requires
InsuranceQuoted by your insurerGarage liability or dealer coverage at your state's minimums
Inventory and floor planYour biggest numberCars, auction fees, transport and reconditioning, plus interest if you use floor plan financing
Listing photosYour choice of toolCarShots is $50 a month for 333 photos, about 15¢ a photo

State figures come from official agency pages and statutes, checked October 2026. Surety premiums are a private company's estimates, not state figures.

Can you become a car dealer without a lot?

In a few states, yes. Georgia licenses dealers from an established office rather than a car lot, and North Carolina needs only a 96-square-foot salesroom with a sign. Elsewhere, the no-lot route is a wholesale license: California, Florida, New York and Texas waive the display area for wholesalers, who can sell only to other dealers.

Don't plan on running it from your kitchen table. Florida and Texas both reject dealer offices inside a residence. Each state's rules are on our dealer license guide.

Where do new car dealers get inventory and financing?

Inventory. Dealer auctions sell only to licensed dealers, so your license comes first. Join AuctionACCESS, register with each auction, and add trade-ins, cars bought from private sellers and dealer-to-dealer deals as you grow. The process is in how to get a dealer license for car auctions.

Floor plan. A floor plan is a line of credit for inventory: the lender pays for the car, and you pay the lender back, with interest, when it sells. It lets you stock more cars than your cash covers, but every day a car sits costs you interest.

Customer financing. Line up lenders who will buy your retail installment contracts, and plan for cash buyers too. Financing buyers yourself is buy here, pay here, which ties up much more of your own cash. If you advertise financing, federal Truth in Lending rules apply: an ad that states a down payment, the number of payments or term, a payment amount or a finance charge must also state the down payment, the repayment terms and the annual percentage rate (12 CFR 1026.24). If you arrange financing, ask your lawyer whether the FTC's Safeguards Rule applies to you; it requires covered financial institutions to protect customer information.

What paperwork does a new car dealer need?

Set this up before your first sale:

  • FTC Buyers Guide: once you sell or offer more than five used vehicles in 12 months, each used car, light truck and van you offer needs a Buyers Guide displayed on it. Make one with our free Buyers Guide generator.
  • Title and odometer paperwork: transfer each title correctly and give the federal odometer disclosure where it applies.
  • Cash reporting: if a buyer pays more than $10,000 in cash, the IRS requires you to report it on Form 8300.
  • State forms: dealer records, temporary tags and sales tax returns follow your state's rules, and your licensing agency lists them.

How do you get your first customers?

Shoppers judge a new dealer by its listings, so make yours good from day one:

  • Shoot every car the same way: same angles, same backdrop, same order.
  • List the price, mileage and the details buyers ask about on the phone.
  • Post each car on Facebook Marketplace and keep your Google Business Profile current.
  • Answer every message fast, and ask every buyer for a review the day they drive away.

CarShots handles the photos from your phone. On-screen outlines show where to stand for each angle, and each photo comes back on a clean studio backdrop in about 20 seconds, with no booth to buy. More ideas are in our car dealership marketing ideas.

McLaren GT front three-quarter view, after CarShots Dark Showroom background
McLaren GT front three-quarter view, phone photo before CarShots
BeforeCarShots
McLaren GT: the phone photo, then the same shot on the CarShots Dark Showroom backdrop. Drag to compare.

Dealer license requirements by state

Your state's dealer license page has the agency, bond, lot rules, fees and forms:

This is general information, not legal advice. Check every requirement with your state's licensing agency before you sign a lease or apply.

Common questions

How much money do you need to start a car dealership?

It depends mostly on your inventory and location. State fees are small, such as $125 a year in Alabama or $700 for a two-year Texas license, and a surety agency estimates about $500 a year for a $50,000 bond with strong credit. The cars, the lot and insurance are the big costs, so price those first.

How long does it take to open a car dealership?

The license review can be quick: Alabama says about 3 to 5 business days after it receives your documents, and Michigan says to allow 30 days. But you can't file until the course, location, zoning approval and bond are done.

Can you start a car dealership from home?

Rarely. Texas and Florida don't allow a dealer office in a residence, and Alabama rejects virtual and shared offices. Georgia is worth checking: a separate office building detached from your home can qualify where local rules allow.

Do you need a dealer license to sell cars?

Yes, once you pass your state's limit. Florida's is 3 vehicles in 12 months, Michigan's and North Carolina's 5 in 12 months, and in Texas you need a license to sell even one car that isn't owned and registered in your name.

How do you start a luxury car dealership?

A used luxury store needs the same used dealer license as any lot; the differences are the money tied up in each car and the presentation buyers expect. A new luxury franchise needs the manufacturer's franchise agreement before your state will issue a new-dealer license.

Does bad credit stop you from becoming a car dealer?

It raises your bond cost. Bryant Surety Bonds estimates 1% to 3% of the bond amount a year for strong credit and up to about 10% for weak credit, so a $50,000 bond could run up to about $5,000 a year. If you have a criminal record, Texas lets you request a $100 criminal history evaluation letter before you apply.

Sources

  1. TxDMV: Independent (GDN) Licensetxdmv.gov
  2. TxDMV Form LF628, Dealership Premises Checklisttxdmv.gov
  3. TxDMV Motor Vehicle Dealer Manualtxdmv.gov
  4. TxDMV: Dealer Licensing Educationtxdmv.gov
  5. TxDMV: Fingerprintingtxdmv.gov
  6. TxDMV: Franchise Licensetxdmv.gov
  7. TxDMV: Dealer License Platestxdmv.gov
  8. Michigan Department of State: Vehicle dealersmichigan.gov
  9. MCL 257.14, established place of businesslegislature.mi.gov
  10. Ohio Administrative Code 4501:1-3-08, Place of business for used dealerscodes.ohio.gov
  11. Ohio BMV Dealer Licensing: Used Motor Vehicle Training Courseautodealers.ohio.gov
  12. 625 ILCS 5/5-102.5, Used vehicle dealer prelicensing educationilga.gov
  13. 625 ILCS 5/5-102.8, Buy Here, Pay Here used vehicle dealersilga.gov
  14. 92 Ill. Adm. Code 1020.10, Dealers Established Place of Businessilga.gov
  15. FLHSMV: Motor Vehicle, RV and Mobile Home Dealer/Broker Licensesflhsmv.gov
  16. NCSHP ISU-415 Minimum Dealer License Requirementsncshp.gov
  17. N.C. Gen. Stat. 20-286, Definitionsncleg.gov
  18. Rules of the Georgia State Board of Registration of Used Motor Vehicle Dealers (Department 681)rules.sos.ga.gov
  19. NYS DMV: Open a dealershipdmv.ny.gov
  20. NYS DMV Form VS-1D, Original Facility Applicationdmv.ny.gov
  21. Pennsylvania State Board of Vehicle Manufacturers, Dealers and Salespersonspa.gov
  22. ALDOR: Dealer Licenses and Dealer License Platesrevenue.alabama.gov
  23. ALDOR FAQ: Processing time for a dealer licenserevenue.alabama.gov
  24. Alabama Administrative Code chapter 810-5-12, Dealer Licenseadmincode.legislature.state.al.us
  25. RSMo 301.560, application requirements, bonds and feesrevisor.mo.gov
  26. California DMV: Vehicle Dealer Licensedmv.ca.gov
  27. California DMV: Live Scan Fingerprintingdmv.ca.gov
  28. AuctionACCESS: FAQs (membership eligibility)auctionaccess.com
  29. FTC: Used Car Ruleftc.gov
  30. FTC: Safeguards Ruleftc.gov
  31. CFPB: Regulation Z, 12 CFR 1026.24 Advertisingconsumerfinance.gov
  32. IRS: Form 8300 and reporting cash payments of over $10,000irs.gov
  33. IRS: Get an employer identification numberirs.gov

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