Australia’s used-car market was valued at USD 37.68 billion in 2021 and is projected to grow to USD 53.87 billion by 2027. If you are passionate about cars and looking to start a car-dealership business, there is no better time than now!
Starting your car dealership business can be an intimidating process. You need to obtain licences and be aware of your legal obligations as a car-dealership business owner.
Car dealership businesses are subject to some very specific laws within Australia. These, on top of the process of starting a new business, means it’s easy to get confused about what processes you may need to consider.
Here’s our guide to making sense of how to open a car dealership or how to become a car dealer in Australia.
What does a Car dealership business entail
A car-dealership business sells new and/or used cars. Car dealerships can partner-up directly with automobile manufacturers to sell them at their dealership or buy used-cars from private sellers and sell them.
Car dealerships often sell a variety of automobiles from different manufacturers, giving customers ample options to choose from. Car dealerships can also sell separate parts of automobiles for repairs and enhancement or vehicles.
Getting started: The Pre-Planning Steps
Before you start your own car-dealership, you need to create a strong business plan, find a location for your operations and hire employees. You should also have a few sellers, either individuals or manufactures) willing to sell you their automobiles for you to re-sell through your dealership.
- Create a business plan
Before you register your business and start operations, you will need to create a plan for your business. This will involve research on your competitors, target audience, business structure and business name.
- Business name: You will need a business name in order to apply for an Australian Business Number (ABN).
- Competitor analysis: Your business plan should have research on your potential competitors, their strengths and weaknesses. This will help you in creating a plan to thrive in that competition.
- Target audience: Your target audience is composed of individuals who are likely to be interested in your products and services. Your business plan should outline your target audience based on your research.
- Business structure:
You will need to decide the type of business you want to establish. Is your company a sole-proprietorship, a partnership or a company?
- A sole trader is someone who owns and operates a business under their personal name.
- A partnership is when two or more people come together to form a business.
- A company is when you register your business as a separate entity from your personal affairs.
Your business structure can have a strong impact on your business finances and long-term success. Therefore, you should do your research before making a decision.
- Register your business
To operate within Australia, you will first need to register for an Australian Business Number (ABN). This number is what the government uses to identify your business, and is important for processes like tax and invoicing.
You will likely also want to register a business name. It’s important to stand out from the crowd where you can.
- Insurances
Insurance is the most important step when setting up your business. It is crucial that you protect yourself and your business from any legal action. This is why you need a type of public liability insurance, which will be beneficial for you and your business when customers or staff experience injuries on site or otherwise.
Public liability insurance from insurance companies such as BizCover can help you protect your property and your employees from damage or injury.
You will also need insurance coverage for all your products and equipment to protect against loss, damage or theft.
- Hiring Employees
Your business will require employees to run various aspects of the car-dealership–from purchasing the cars to advertising and selling them to the right customers. You can hire casual, part-time or full-time employees:
- Part-time employees: Part-time employees generally work for less than 38 hours a week. They can still receive some employment benefits, such as sick-leaves or annual leaves, on a pro-rata basis.
- Full-time employees: Full-time employees work consistently for fixed pay, subject to change on employer discretion. Generally full-time employees receive a wide variety of employment benefits such as sick leaves, health insurance, etc.
- Independent Contractors: Independent contractors are freelancers or individuals who offer their services for a fixed period of time to a company for a fixed price.
Here is a webinar on how to hire the right employees for your business.
- Finding the right location
As with any retail-like business, location is important to draw in customers. However, within a car dealership, you face the obvious issue of space. Finding the right location that will accommodate your stock, whilst remaining convenient is tricky. That being said, depending on what type of vehicles you are dealing in will also affect this. It is likely that customers will be more willing to travel to your business if it caters to a niche, say with supercars, as opposed to a second-hand car dealer.
Similarly, consider your competition. While you may want to avoid areas where you are competing with several other dealers, these areas may also provide an opportunity to steal new customers from existing dealers. This is why a strong business plan is needed as a foundation for the rest of your decisions.
For a car dealership, you will require a commercial lease of the property, rather than a retail lease.
- Sourcing the vehicles
This is the biggest decision within this process as it will dictate your entire business moving forward. The main options that we will discuss are:
- Through franchising
This is generally the easiest way for you to source vehicles without going into debt. However, it is also the hardest to gain. Many large car brands allow for applications for franchising requests, but to be successful in these requests a considerable amount of planning is needed. You’ll need to show them that you have an idea, that the demand exists, and that you can run the business. Hence, extensive experience and evidence are likely required for this to work.
Likewise, the profits you gain from any sales will be significantly less than if you source the cars yourself. While the percentage of profits that are returned to the franchisor will depend on your individual agreement with them, it will impact the amount you make.
However, franchising won’t pay for everything. You will still need to finance the business to keep the lights on. It will just be significantly less than if you need to purchase the vehicles outright. You can find a template to create an agreement with the franchisor
- Through financing
Purchasing the vehicles outright to be resold is a great way to retain substantially more control over your business than with a franchise, but comes with its own caveats. These caveats, however, depend on how you raise these funds.
If you decide to raise capital by selling stakes in your car dealership, you will avoid a lot of the issues associated with debt. The issue here, however, will be that you relinquish some of your power and funds to your investors. Very similar to the franchising situation, there will be people to answer within this scenario. However, where franchising will limit your vehicles to the franchisors supply range, through this method you will retain the ability to select your products.
If you decide to finance your vehicle purchases through a loan you will have to deal with the issue of significant debt. It is also likely that the lender will take with it a Purchase Money Security Interest over the vehicles you purchase with that loan. What this means is that in the event you fail to repay your loan, all the cars you have purchased with the loan will be seized by the loaner. So there is significant pressure in this scenario to generate profits as to not default on any repayments.
A third option does exist: to purchase outright provided you already have the funds. However, unless you are a multi-millionaire, this is wholly unlikely so we will avoid it.
We will get further in-depth within each option, but it is important to discuss any and all queries you may have with your lawyer and accountant. In particular, you will need to consider what suits your business best. It may be easier to finance a business model with low risk, low reward structure, compared to one with a higher risk.
Marketing Your Car Dealership Business
Once you have your business set up, you also need to advertise your business to attract clients. You can market your car dealership by starting a social media page or through advertisements in local newspapers. Another simple and effective approach to reaching new customers is through word of mouth.
Social media platforms such as Facebook and Instagram also provide a marketplace option to sell your products directly to online customers. As a car dealer, you can showcase your automobiles on your social media page and attract potential customers.
A marketing strategy will help you target your target audience in the most efficient way. You can find out more about marketing your business here.
Considering the Law
Any guide on how to be a car dealer or how to run a car dealership is incomplete without discussions of your legal obligations as a new business owner. Here are some legal documents and considerations that you might require as you start your own car dealership business:
- Employment contracts: You will need to draw up employment contracts, non-disclosure agreements and other employee documents for new hires to work in your car-dealership.
- Workplace health and safety (WHS) regulations: Your business must comply with workplace health and safety standards.
- Car dealer licence: You will require a car dealer licence to operate in your state. You can apply for the licence from your state’s official website. For instance, you can apply for a car dealer licence in Victoria and New South Wales from their respective websites.
- Bill of sale: A bill of sale documents the sale of goods or transfer of property from one party to another.
- Rental lease agreement: You will need to rent a commercial space to run your car-dealership business from. This will require a commercial lease agreement.
Conclusion
Starting a car dealership is an exciting opportunity. The automotive industry is expansive and can prove successful for new entrants. However, entering the market can prove challenging without a strong business plan. You can build a robust business plan through a consultation to find more about the industry and best business models to fit your needs. Lawpath can help you hire a lawyer or speak to a business lawyer.
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Frequently Asked Questions (FAQs)
- How much does it cost to open a car dealership in Australia?
Starting a car dealership can be costly. The car dealer licence has a fee of $1,483.70 for 1 year or $2,781.70 for 3 years. You can also expect to pay $39.45 for a criminal history check. You will also need to lease a large area to store purchased cars. Additionally, you will need a large sum of money to buy the cars you want to place at your dealership. Overall, while this can be expensive, you can explore your financing options to ensure the start-up costs of the dealership does not burden your business.
- How much do car dealers make in Australia?
The median average earnings for a car salesman is around $82,500.
- How profitable is a car dealership?
In a report, Deloitte revealed that new-car dealers made more money in 2021 than ever before in recorded history. The industry is also expected to grow rapidly in the upcoming years.
- How do I get a car dealer licence in Australia?
You can apply for a car dealer licence based on the region of your business operation. You will need to meet the eligibility requirements, provide your business and personal details and make your payment. For example, you can apply for a car dealer licence if you are in Victoria, here.
