How to Buy a Car Dealership Franchise in 2025

Investing in a car dealership franchise is a great way to make a healthy annual profit without the risks associated with building a brand from scratch. Car dealerships are a relatively safe business, as vehicles are a necessity for many people — and given that no vehicle lasts forever — there will always be a steady demand for cars. 

Opening a car dealership franchise can be a time-consuming and complex process, which is why it’s crucial to do your homework before diving in. In this guide, I’ll break down the process of opening a car dealership franchise step by step. I’ll also detail some of the key benefits and drawbacks that you need to be aware of.

Key Takeaways

• Opening a car dealership franchise requires significant financial investment, with initial costs ranging from approximately $130,000 to over $913,500, depending on the franchise and location.
• Franchisees must account for franchise fees, ongoing royalties, and advertising fees, all of which impact overall profitability.
• Conducting thorough market research is essential to understand local demand, competition, and consumer preferences before selecting a franchise.
• Carefully reviewing the Franchise Disclosure Document (FDD) is crucial to fully understand the terms, obligations, and expectations set by the franchisor.
• Securing adequate financing is a critical step, often requiring personal savings, loans, or investors to cover startup costs and early operational expenses.
• Owning a car dealership franchise requires careful planning, substantial investment, and diligent research for long-term success.

How Do Franchise Car Dealerships Work?

Since the dawn of the car manufacturing industry more than a century ago, new cars in the USA have been sold under the franchise system. In this system, independent business owners pay car manufacturers for the rights to sell their vehicles. The franchise model is a crucial component to the success of the industry and is mutually beneficial for dealers, manufacturers, consumers, and local communities.

But how does it work?

The franchise model for the automotive industry allows franchisees to buy the rights from vehicle manufacturers to sell their vehicles. In most cases, when you buy a car dealership franchise, you’ll have the right to sell a manufacturer’s vehicle in a specific territory. 

Franchising also allows manufacturers to distribute their vehicles via a wide distribution channel without having to cover all the startup costs of opening each new dealership. In essence, franchising is a win-win for both parties.

The way you profit from a car dealership franchise is relatively straightforward. As a franchisee, you cover most of the initial costs of setting up the dealership. Then, you’ll pay a royalty fee to the manufacturer on every new car sold. 

The average new car dealership earns a net profit of 3.9%, which truthfully does not sound like a very high profit margin. That said, a brand-new vehicle may cost up to $50,000, so a car dealer can still bring in up to $2,000 in profit from a single sale.

Franchise dealerships may also gain the right to sell used cars by the same brand as their franchisor, though this is usually separate from the franchise agreement for new cars. 

How to Buy a Car Dealership Franchise: Step-by-Step

Buying a new car dealership is no walk in the park. In fact, there are quite a few hurdles to jump over and regulations you’ll need to meet before you can start selling cars. To make things easier, I have broken down everything you need to know about buying a franchise.

Step One: Research Different Car Dealership Franchises to Buy

Opening a car dealership requires intense research. You’ll need to become familiar with the automotive industry and the demand in the area you wish to open your dealership. How many vehicles are sold in your area annually? What percentage of those vehicles are cars, SUVs, trucks, etc.?

It’s also important to have a strong understanding of the different brands of car dealership franchises. Not all brands are created equal, and some may have a much better reputation or franchising terms.

Let’s say that you discover Ford cars make up a large portion of the vehicle sales in your area of interest – how many Ford dealerships exist already? Are there any gaps in the market that you could potentially exploit?

In addition to identifying current trends, you should also look to the future. For example, electric vehicles (EVs) are becoming increasingly sought after in many areas, which is a trend that is likely to continue for the foreseeable future.

Step Two: Draft a Strong Business Plan

A key advantage of investing in a franchise is that it provides you with the opportunity to capitalize on a tested and successful business model. But that doesn’t eliminate the need for you to draft a solid business plan specific to your area of interest and local consumer base.

• Does the local customer base prefer to buy new or used cars?
• How much, on average, do people spend on their vehicles, and how long do they keep them for? 
• Are you more likely to generate revenue through car sales or leases? 
• If you plan on opening a competing dealership in your area of interest, can you afford to beat the competition’s prices?

These are just a few of the most important questions that you should get answers to before you purchase a car dealership franchise. Drafting a business plan is a great way to create a blueprint for success. Not only do business plans keep things organized as you get started, but they also make it much easier to secure funding for the franchise when the time comes.

Your business plan should include, at the minimum, a competitive analysis, an outline of your target market, financial projections, and marketing strategies. Bear in mind that a well-crafted business plan may help you impress potential investors and lenders, so be accurate, honest, and thorough.

Step Three: Review the FDD

The Franchise Disclosure Document (FDD) contains detailed information about the parent company, such as its history, parent or affiliated companies, the executives and their experience, past lawsuits, potential costs (such as training, equipment, and supplies), and the obligations of franchisees.

It may also contain information pertaining to the franchisor’s financial records, though this isn’t always obligatory.

In the US, the franchisor is legally obliged to provide potential franchisees with an FDD at least 14 days before the franchisee signs the Franchise Agreement or pays any fees. Essentially, the FDD gives you insight into the parent company before making any legally binding commitments. You can think of your 14 days with the FDD as the dating period – this is the time to pull out if anything seems off. 

Step Four: Do Your Due Diligence

You shouldn’t rely solely on the FDD when researching a franchisor. After all, it’s in the franchisor’s best interests to make sure the FDD conveys them in the best light possible. So, while there certainly will be some good information inside, it’s also worth doing your homework.

The National Automobile Dealers Association (NADA) is a fantastic place to start your research into a car dealership franchise. NADA represents around 16,500 new vehicle franchises in the USA, providing them with resources such as consulting, in-depth training, and a range of data that you can use to analyze the health of a particular car manufacturer.

Using NADA, you can analyze industry data and insights, market trends, manufacturer-dealer relationships, and much more. You can uncover a lot of information to determine a franchisor’s position in the automotive market as well as current consumer trends.

In addition to exploring NADA, you should also carry out your own research into your company of interest. For example, you might want to speak to existing franchise dealerships for your company of interest. You can also work alongside a franchise expert to conduct financial projections independently of the franchisor’s projections.

Step Five: Choose a Location

Naturally, if you want your car dealership to be a success, you need to choose a winning location. Two main factors you should consider are visibility and accessibility. If no one can see your car dealership, or if it is hard to get to, you are bound to lose potential customers.

However, these aren’t the only important considerations. You also need to look at specific zoning laws for your area, which might mean contacting your local zoning or planning department.

Even in zones allocated for commercial purposes, there may be restrictions that limit your ability to run a successful car dealership franchise. When analyzing commercial (C-3) zones, make sure that “automotive sales” is explicitly listed as a permitted use. Also, check whether you may face any restrictions on activities like servicing and repairs, test drives, and outdoor displays. You may also need to analyze the fine details, such as minimum parking lot size requirements.

Step Six: Get Funding

There’s no denying that starting a car dealership franchise is an expensive business venture, particularly when it comes to startup costs. Just to gain the right to operate the franchise, you’ll need to pay a franchise fee to the parent company. Depending on the franchisor, this can range from $30,000 to a whopping $500,000!

Beyond the initial franchise fee, you should also prepare for the startup costs, such as equipment, a showroom, renovations, employee salaries, and marketing expenses, to name a few.

Since most aspiring franchisees don’t have this kind of start-up capital, the next step is to obtain funding. Luckily, there are quite a few different ways to finance a franchise.

• Franchisor funding: Some manufacturers offer programs known as floor plan financing, which allow franchisees to stock their dealerships with vehicles without having to do anything upfront. Instead, you repay the manufacturer as you sell their cars. These types of loans often have low interest rates to help dealerships get started, though they’re expected to be repaid relatively quickly. For example, Ford Credit, Ford’s financing department, offers interest rates as low as 0.7%.
• SBA bank loans: Many car dealership owners will qualify for SBA7(a) loans. These are federally supported loans for small businesses that often have lower interest rates and lessen the risk on lenders.
• Business bank loans: You may be able to access loans specifically designed for car dealerships from traditional lenders such as credit unions or banks. Often, franchisees obtain loans that cover the first six to 12 months of costs, often using the cars on their lot as collateral.

Pro tip: Have a solid business plan mapped out before attempting to secure funding. Lenders are much more likely to approve a loan if you have a solid blueprint for the future.

Step Seven: Sign the Franchise Agreement and Pay the Franchise Fee

Now that you’ve secured funding, you’re ready to sign the Franchise Agreement (FA). This document is a legally binding contract between the franchisor and franchisee, containing all of the terms and conditions of the franchise relationship.

The FA will clearly describe your obligations, such as the territory in which you have the right to operate, your rights to brand and trademark usage, and your minimum sales requirements. Just as importantly, it details the fees and royalties you’ll need to pay your franchisor.

Other details you’ll find in the FA include your franchise term and renewal terms, any floor plan financing agreements, operating guidelines, branding standards, marketing obligations (if any), and termination and transfer conditions.

You’ll also find information pertaining to your franchisor’s obligations to you, such as any ongoing support and training.

Make sure to go through the FA with a fine-toothed comb, preferably with a legal or franchising expert. I know how tedious these documents can be to read through, but I really can’t stress enough how, once signed, you are legally obligated to comply with the terms of your FA, which includes strict rules and financial obligations.

Step Eight: Acquire Necessary Licensing and Permits

Automobiles are highly regulated. On the consumer end, vehicles need insuring, licensing, and – in most cases – financing. So, as you might expect, there are also many different regulatory hurdles for car dealerships. Before you can operate a car dealership franchise, you’ll need to obtain licenses and permits that allow you to sell and, in some cases, service vehicles. These licenses not only protect consumers but also ensure that dealerships comply with local and environmental regulations. They also provide you with some legal protections against your franchisor.

Each state has its own requirements regarding the auto dealership license, though the process is often very similar. In most cases, you’ll need to submit an application to the state’s Department of Motor Vehicles or a similar regulatory agency (for example, the New Jersey Motor Vehicle Commission or the Colorado Department of Revenue).

You may need to attend between six and eight hours of training in order to become certified as an auto dealer. Most states also require you to obtain insurance, a surety bond, proof of financial stability, a sales tax permit, a dealership bond, vehicle title handling, and the FA between you and your franchisor.

There is usually a fee to obtain an auto dealer’s license, which can range from $100 to $700, depending on the state you operate in.

Step Nine: Get the Green Light From Your Local DMV

Once you have your state-specific licenses and permits to operate a car dealership franchise, you’ll need to get the green light from your local Department of Motor Vehicles to begin operation. In most states, you are required to have an onsite inspection by a DMV official, which ensures your facilities comply with state regulations. Once approved, your local DMV will issue you a license, giving you the green light to open your dealership and start selling vehicles.

Step Ten: Get Your Car Dealership Set Up

Now that you’ve complied with the regulatory bodies and obtained all the necessary permits and licenses, you’re ready to open your dealership – which is where the real hard (but rewarding) work begins. Now, you can press ahead with hiring staff, finalizing the details of your insurance, securing inventory (namely vehicles), and making a name for yourself in your local area.

How Much Do Car Dealership Franchises Cost?

It costs between $130,000 and $913,500 to open a car dealership franchise. Those figures can vary based on the size and location of your business and, of course, the brand. In some cases, starting a car dealership can require an initial investment of up to $5 million. When it comes to profitability, you can expect a return of 1% to 4%. While this may not seem like a good profit margin, think about it this way: 2% profit for a business that could potentially make millions in sales per year is a pretty good figure.

Some of the most significant costs of opening a car dealership franchise include:

• Business registration fees: $150 – $500
• Remodeling: $5,000 – $20,000
• Security deposits: $6,000 – $150,000
• Furnishings and equipment: $5,000 – $50,000
• Initial vehicle inventory: $50,000 – $500,000
• Vehicle maintenance equipment: $2,000 – $20,000
• Recruitment and training: $10,000 – $25,000
• Initial marketing: $10,000 – $20,000
• Licenses and permits: $5,000 – $10,000
• Insurance deposits: $5,000 – $10,000
• Signage: $5,000 – $10,000

You’ll also have recurring monthly costs such as employee salaries, land lease fees, bills, subscriptions, and inventory financing, which will amount to between $18,000 and $78,500.

Those fees mostly concern the cost of opening the dealership itself. You’ll also have to pay a franchise fee of at least $100,000, an auto dealer bond of between $250 and over $750, and an auto dealer license of between $100 and $700.

Pros and Cons of Buying a Car Dealership Franchise

Given that the automobile industry in the USA is set to experience growth until at least 2032, now is an excellent time to invest in a car dealership franchise. However, as with all investments, there are risks, and car dealerships aren’t the right opportunity for everyone. Below, we’ll take a quick look at some of the key benefits and drawbacks of starting a car dealership franchise in 2025.

Benefits

Wondering if a car dealership franchise is a good option for you? Here are some of the main benefits of the business model. 

• Brand recognition: When you open a car dealership franchise, you benefit from instant brand recognition. If you buy into a famous car brand such as Mercedes or Toyota, you can count on the parent company’s reputation to continuously drive sales.
• Proven business model: As a franchisee, you can utilize an effective business model that has been refined by the manufacturer over a long period. You’ll likely also receive a lot of support from the parent company to help ensure your success.
• Access to financing: Many car manufacturers will provide affordable plans and financing options that can help you get off the ground without sky-high interest rates and out-of-pocket costs.
• Exclusive territory: In many cases, the franchisor/car manufacturer will grant you exclusive rights to sell their vehicles in a particular territory, which reduces the risks associated with nearby competition. Franchisors in other industries, such as fast food, often don’t provide franchisees with these protections.

Downsides

Before you race ahead with and purchase a car dealership, let’s take a look at some of the cons.

• High startup costs: Opening a car dealership franchise is no doubt a very costly venture, with initial upfront costs sometimes rising into the millions (see above). It’s also crucial to keep in mind that, unlike other types of franchises, your profit margins will be relatively low.
• Lots of regulatory rules: The car industry is extremely regulated, which makes owning a car dealership a bit of a regulatory headache. There are many permits and licenses you’ll need to maintain to avoid fines and penalties.
• Limited control: Franchisors in every industry, including car dealerships, are obligated to abide by strict rules and guidelines, which limits your decision-making flexibility. You’ll also generally be limited to your car manufacturer’s vehicles, and you won’t be able to sell other brands.
• Potential for slow growth: Given what can be sky-high upfront costs and the relatively low net profit margins, it may take a few years or more to see a return on your investment. That said, with the right planning, opening a car dealership can be an extremely safe and smart business decision.

Get Started Today

Opening a new car dealership franchise is a pretty involved process, but once you’ve purchased the business, you’ll be set up for success. These high-volume businesses have a lot of potential for success and are a relatively safe investment. For franchisees looking for a long-term investment opportunity, a car dealership franchise is a great choice.

Ready to pull the trigger and get started? Use Franzy, we are the best online resource for prospective franchisees. Start making thoughtful, data-driven decisions today!