Starting a used car dealership is one of the most accessible businesses you can launch with relatively low startup costs and strong earning potential. Unlike franchise dealerships that require millions in capital and manufacturer agreements, an independent used car lot can start small and grow at your own pace.
But accessible doesn't mean easy. There are licenses to obtain, inventory to source, insurance to secure, and systems to set up — all before you sell your first car. Getting these foundations right from the start saves you months of headaches and thousands of dollars down the road.
This guide walks you through every step of opening a used car dealership, from the initial business plan to your first sale.
Write a Business Plan
Get clear on your business model. A business plan doesn't need to be a 50-page document — but it does need to answer the key questions.
What type of dealership are you opening? Retail-only, buy here pay here, wholesale, or a combination? Each model has different capital requirements, margins, and risk profiles. A BHPH operation requires more upfront capital because you're financing the vehicles yourself, but the long-term returns can be significantly higher.
Who is your target customer? First-time buyers? Families looking for affordable transportation? Subprime borrowers who can't get traditional financing? Your customer profile shapes everything from the vehicles you stock to how you market.
What's your startup budget? Be realistic about how much capital you have and how you'll allocate it across inventory, location, licensing, insurance, and operating expenses.
What are your revenue targets? Know how many units you need to sell per month to cover your overhead and turn a profit. For most small dealers, 15–30 units per month is a realistic starting target.
Get Your Dealer License
The process varies by jurisdiction, but generally includes these steps:
Secure Your Location
Location matters, but for a used car dealership, the rules are different than for retail stores.
Visibility and traffic count. A location on a busy road with good signage visibility gives you free advertising every day. Drive-by traffic is still one of the biggest lead sources for independent lots.
Lot size. Start with enough space for 20–50 vehicles plus customer parking. You can always expand, but starting too big means paying for empty space.
Zoning. Confirm that your location is zoned for automotive sales. Some municipalities have specific requirements for dealership lots including paving, drainage, and lighting.
Lease terms. Negotiate flexible lease terms, especially when starting out. A 1–2 year initial lease with renewal options gives you room to grow or relocate without being locked in.
Get Insured
Insurance is required before you can obtain your dealer license in most jurisdictions.
Garage liability insurance covers your dealership operations, including test drives and customer injuries on your property.
Dealer lot insurance (open lot) covers your inventory against theft, fire, vandalism, hail, and other damage while vehicles are on your lot.
Workers' compensation is required if you have employees, and the requirements vary by jurisdiction.
Shop around for insurance
Insurance costs vary significantly between providers. Specialized dealer insurance brokers can often find better rates than general commercial insurers — sometimes saving you 20–30% on your premiums.
Source Your Inventory
This is where your business acumen matters most. Buying the right cars at the right prices determines whether you make money.
Dealer-only auctions are the primary source for most independent dealers. Platforms like Manheim, ADESA, and regional auctions give you access to a high volume of trade-ins, off-lease vehicles, and fleet units at wholesale prices.
Trade-ins become a source once you're operational. Offering fair trade-in values brings in inventory you can recondition and resell at a profit.
Private purchases from individuals can yield good deals, especially if you're buying vehicles that don't fit the auction profile.
Online wholesale platforms have expanded significantly, giving you access to inventory beyond your local market.
Start conservative
Stock 10–15 vehicles in your first month, learn what sells in your market, and scale from there. Tying up too much capital in inventory that sits on your lot for 60+ days is the fastest way to kill your cash flow.
Set Up Your Dealer Management System
This is where many new dealers make a critical mistake: they start with spreadsheets, notebooks, and a filing cabinet full of contracts. It works for the first month. By month three, they're drowning in paperwork and losing track of deals, customers, and payments.
Set up your DMS before you sell your first car. You'll need software that handles:
LotPulse is built exactly for this moment. It's designed for independent used car dealers and BHPH operations, with 5-minute onboarding and a modular design that grows with your business. Start with inventory management and deal structuring at $39 CAD/month, and add CRM, websites, marketing, and BHPH tools as you need them.
Build Your Online Presence
Buyers are searching "used cars near me" and "buy here pay here [your city]" every day — and if your lot doesn't show up, those buyers go to the dealer that does.
At minimum, you need a professional website with your full inventory, your location and hours, and a way for buyers to contact you. Ideally, your site auto-syncs with your inventory system so it's always current without manual updates.
Beyond your website, list your inventory on the platforms where buyers are shopping: AutoTrader, Facebook Marketplace, Kijiji (in Canada), and Cars.com. Multi-channel syndication tools can push your inventory to all of these from one place.
Set up your Google Business Profile with photos, hours, and reviews. For a local business, this is often the first thing buyers see when they search for dealerships in your area.
Sell Your First Car
With your license, location, insurance, inventory, software, and website in place, you're ready to sell. The first few months are about building momentum and learning your market.
Track everything. Know your average days on lot, your gross profit per unit, your closing rate on leads, and your monthly overhead. These numbers tell you whether your business is healthy and where to improve.
Don't skip the follow-up. Most buyers don't purchase on their first visit or inquiry. A CRM that tracks every lead and reminds you to follow up is worth more than any advertising you'll run.
If you're running a BHPH operation, set up your payment tracking and automated reminders from the very first deal. Building good habits with 5 accounts is a lot easier than fixing bad habits when you have 50.
The Bottom Line
Starting a used car dealership is achievable with the right planning and a willingness to learn. The dealers who succeed are the ones who treat it like a real business from day one — with proper licensing, smart inventory sourcing, and systems that scale.
Launching Your Dealership?
Start with LotPulse — the DMS built for independent dealers from the ground up. Get your inventory, CRM, deals, and website running in under 5 minutes, starting at $39/month.
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