How to Start a Used Car Dealership in Minnesota: A Comprehensive Guide
Starting a used car dealership in Minnesota can be a lucrative business venture, but it requires careful planning and adherence to state-specific regulations. Here’s how you can navigate through the process:
1. Understand Local Regulations and Obtain Dealership Licenses
To legally sell cars in Minnesota, you must first secure a dealership license from the Minnesota Department of Public Safety (DPS). There are different types of licenses depending on whether you’re dealing in new, used, or wholesale vehicles. Here are the steps:
- Application: Fill out the dealer application provided by the DPS. Apply here for your dealership license .
- Zoning and Location: Ensure your chosen location complies with local zoning laws. You’ll need a commercial building for your operations, which should meet specific criteria like being on a permanent foundation and connected to local sanitation systems.
- Inspection: A commercial location checklist must be completed, and used license applicants should provide photos of the building, display lot, and signage.
2. Secure a Surety Bond
A surety bond is mandatory for car dealers in Minnesota to protect consumers against fraud. The bond amount is typically $50,000 but can vary. Consider it a safeguard that ensures you adhere to state regulations.
3. Insurance Requirements
- Garage Liability Insurance: This covers claims of bodily injury or property damage that might occur on your lot. It’s essential for protecting your business from legal liabilities.
- Garage Keepers Insurance: Specifically designed for auto dealers, this covers damage to customer’s vehicles while they are in your custody for service or storage.
- Physical Damage Insurance: This protects your inventory from damage due to accidents, theft, or natural disasters. Given the high value of your stock, this insurance is crucial.
- Consult a qualified Insurance Agent to help you navigate this part of the business. Your dealership tags will be dependent upon you being able to obtain sufficient insurance. See Burch Insurance Group
4. Inventory and Dealer Tags
- Inventory: Start by sourcing your initial stock. This can be from auctions, trade-ins, or direct purchases. You’ll need a diverse and appealing selection to attract buyers.
- Dealer Tags: Obtain temporary dealer tags through the eTAG system for vehicles you sell. These tags allow customers to drive the vehicle legally until they get permanent plates. Ensure you follow the correct protocol for issuing these tags to maintain compliance.
5. Financial Planning
- Startup Costs: Consider costs like leasing/buying a lot, purchasing inventory, licensing, insurance, and marketing.
- Financing: You might need to secure loans or find investors to cover these costs. Here are two reputable floorplan finance companies that can help:
- NextGear Capital offers floorplan financing tailored for auto dealers.
- AFC (Automotive Finance Corporation) provides inventory financing solutions for new and used vehicle dealerships.
6. Marketing Your Dealership
- Digital Presence: Create a website, use social media, and consider online advertising.
- Local Advertising: Utilize local newspapers, radio, or sponsor local events to increase visibility.
7. Sales and After-Sales Service
- Sales Team: Hire knowledgeable salespeople who understand the car market in Minnesota.
- Customer Service: Offer warranties or service contracts to build trust. Minnesota has specific laws regarding used car warranties which you need to comply with.
8. Compliance and Ongoing Operations
- Annual Renewal: Dealership licenses must be renewed annually, and you need to keep up with any changes in dealer regulations.
- Record Keeping: Maintain meticulous records of sales, vehicle titles, and customer interactions for legal and tax purposes.
Conclusion
Starting a used car dealership in Minnesota involves more than just passion for cars; it requires a solid understanding of local laws, financial acumen, and a commitment to customer service. By securing the right dealership licenses, surety bond, and insurance like Garage Liability Insurance, Garage Keepers, and Physical Damage coverage, you lay a strong foundation for a successful business. Remember, the key to thriving in this competitive industry is not just in buying and selling but in building a reputation for reliability and customer satisfaction.
