How to Start a Car Dealership Business in India? | Procedure and Requirements

Bharath Bharath
Jul 26, 2022 7 min read
How to Start a Car Dealership Business in India? | Procedure and Requirements

From the stage of luxury, the need for cars among Indians has become a comfort. It might soon become a necessity as the sale of cars depicts an increasing figure year on year. Excluding the pandemic years, the country's car sales have shown a consistent rise. As per National Family Health Survey reports, the percentage of Indian households who own cars in India stands at 8%. Though this number looks small, it is considered to be a positive growth compared to the numbers derived during the beginning of this century which stood at around 1%.

Unlike those days, people today have numerous choices of cars to choose from. Many companies have entered this industry and they launch multiple models and price them accordingly to suit all categories of people. They come in different prices, sizes, comforts, mileage, and a lot more amenities. In addition, various institutions offer loans and finances for purchasing cars at the best rates. All these facilities attract, encourage and pave the way for people to own their cars regardless of any limitations.

To meet the rising sales of cars there needs to be a car dealer in every locality to meet the sales requirements of people and for further assistance in car maintenance. Nowadays, all the companies place dealers in almost every district in the country to capture and retain their market. A car dealership is a good business and if you ever get a chance to set one up, then never miss the opportunity. However, there are certain requirements, rules, and regulations to be followed before starting a car dealership business. This article covers the working of car dealerships along with the market awareness to possess and the procedures for commencing the business.

How Does a Car Dealership Business Work?
Points to Consider Before Starting a Car Dealership Business in India
Requirements and Procedures for a Car Dealership Business in India

Prominent Car Dealerships in India

How Much Money Does a Car Dealer Showroom Make on Sale of Cars?

How Does a Car Dealership Business Work?

Car dealers procure cars from manufacturers and distributors to sell in their locality. They usually get the cars on credit or through floor planning from the manufacturer where the latter assists the dealers financially. Also, financial institutions lend their hands to support dealers in their business.

The profit for the dealer comes in the form of commission, maintenance and repair charges, and the sale of accessories. The commission for the car dealership in India ranges between 2% to 6% as of now. However, certain brands, like BMW, offer a little higher commission of around 7%. The major profit for this business flows into the sale of accessories. A higher profit margin is fixed on those additional products and it helps the dealers gain a considerable profit on their sales.

Points to Consider Before Starting a Car Dealership Business in India

Motor Vehicle Sales Volume in India from 2015 to 2021
Motor Vehicle Sales Volume in India from 2015 to 2021
  • The following are some of the points that need to be considered before starting a car dealership business in India:
  • Starting a business without a plan results in self-destruction. So, for a big investment business like a car dealership, a perfect plan becomes a significant and prime need for its operation.
  • A few years of work experience in this field could be of great advantage. It gives you a clear understanding of the market.
  • You should be informed of the current market trends, prices, demands, and the issues faced by the industry. This is where planning becomes essential so that you can foresee and prepare yourself for the ever-changing market.
  • Further, there are some needs and regulations to be adhered to which a dealer should be aware.

Requirements and Procedures for a Car Dealership Business in India

The following are some of the primary requirements and legalities that you should follow before stepping into the car dealership business in India:

Basic Requirements

  • The very essential requirement to start a car dealership business is space. You require an area to hold the cars, an outlet to display them and the infrastructure for availing maintenance and repairs.
  • There has to be sufficient space for parking and storing the cars. The location need not necessarily be in the heart of the city. It needs to be situated in an easily accessible location. Since you are going to be the sole dealer for the manufacturer, customers will reach you once they are into buying the brand.
  • The next most important need is the employees. Hire experienced and suitable employees for marketing, customer relations management and others. You also need people for maintenance and other related stuff. Ensure you choose the right person for the job.
Share of Car Dealers Across India by Sector in FY 2020
Share of Car Dealers Across India by Sector in FY 2020

Cost Structure

The minimal financial requirement to start a car dealership business in India is around Rs 60 lakhs. Since the value of the goods (here cars) you’re yet to receive has a high price and other expenses like land procurement and operational costs would pile up, you will need at least Rs 1 crore to enter this field of business. The process of registration is quite lengthy and hence, you need to get the money beforehand to avoid any delay during the process. This initial amount varies depending on the manufacturers. It may go up as per the car’s brand value.


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Licensing

After all the initial plans and fund arrangements, you should obtain a license from the state to start a dealership business to sell cars. There exists a few types of licensing that depend on the mode of operation. These types are listed below:

  • New Car Dealer Licensing
  • Used Car Dealer Licensing
  • Wholesale Car Dealer Licensing
  • Reconditioner Licensing
  • Rebuilder Licensing

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The Indian automobile industry includes aspect manufacturing which is anticipated to attain Rs 16.16-18.18 trillion (US$ 251.4-282.eight billion) through 2026

Documentation

It is a lengthy and time-consuming process. This process includes obtaining surety documents, a license for operation and other necessary related documents. The proceedings get started with filing the surety bonds with the Department of Motor Vehicles (DMV) of your locality. It acts as insurance that safeguards your customers in case of fraud.

The nature of your business further requires you to obtain certain bonds. If you are into wholesale car trade or used car trade, then the corresponding bonds need to be submitted for approval. An RV bond would also be required which states that the manufacturer confines the agreement signed between him and the dealer.

Other Procedures

Obtain GSTIN by Applying for GST Online
Obtain GSTIN by Applying for GST Online

After licensing and documentation get over, there are a few other procedures that need to be complied with. You need to open a bank account for your business and get the GSTIN (Goods and Services Tax Identification Number). Ensure your business is completely protected from any kind of losses. Tie up with banks or any other financial institution to help customers secure quick loans. Although the overall advertising for the brand would be taken care of by the manufacturer, you can market your business locally through newspaper ads and pamphlets. It is good to create a brand for yourself in association with the manufacturer.

Prominent Car Dealerships in India

Prominent Car Dealerships to Have in India
Prominent Car Dealerships to Have in India

The following are some of the most prominent car dealerships (subject to availabilty) to have in India:

  • Maruti Suzuki
  • Mahindra
  • Toyota
  • Hyundai
  • Honda
  • Nissan
  • Renault
  • Tata

Conclusion

Since it is a business that involves huge investments, risks and the public, there exist strict legal procedures and regulations. They are formed to ensure security and safeguard the interests of all the parties. All the rules, regulations and requirements laid by the state have to be followed for the smooth and secure functioning of the business. The process might be lengthy but proper knowledge about it would save you a considerable amount of time and get it approved as quickly as possible.

FAQs

How profitable is a car dealership in India?

The commission for the car dealership in India ranges from 2% to 6% and on spare parts, it ranges from 12% to 15%. As per NADA (National Automobile Dealers Association), the profit of a new car dealership through the early months of 2021 was up to 128.2% as compared to the same period in the previous year.

Is BMW dealership profitable?

BMW dealership is profitable as the brand offers the highest margin that is up to 7%.

How do dealerships make money?

Dealers mostly make money by leasing or financing cars. Also, there are other sources for dealers to earn profit like selling insurance, warranties or spare parts.

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