How to Open a Car Dealership

Assessing Customer Needs

1. 
   Perform market research. The first step in any business venture is to determine if there is a demand for your product or service. Once you determine the demand, you need to consider how your company might attract some of that customer demand.^[1]

   1. Determine the number of cars sold in your area. Assume, for example, that the typical car buyer is willing to visit a dealership within 10 miles (16.1 km) of their home. Try to determine the number of cars sold within a 10-mile radius of your proposed car dealership. Assume that 50,000 cars are sold in that area each year.
   2. Once you know the total number of cars, research those purchases by category. For example, how many cars are purchased, compared to trucks? What percentage of the cars sold are new, and how many are used? You may even be able to determine the number of cars by model (Honda, Ford, etc.)
   3. Assess the existing car dealers in the market. Say, for example, that 3,000 new Hondas are sold in your area each year. You're considering a Honda dealership. How many existing Honda dealers are in your area? Of the Hondas sold, how many were purchased by consumers who went online and bought a new car from a dealership located out of town?
   4. This analysis will help you determine if there is a need for a new dealership in your market.
2. 
   Determine your ideal customer. Every business needs to identify their ideal customer. Your ideal customer is a summary of the traits that your best customers have in common. When you identify the ideal customer, you can design your business to meet their needs.^[2]

   1. Look at the age, gender, occupation and income level of the customers you are trying to attract. Assume that you want to open a Honda dealership. Do some research to determine the type of people who buy a Honda.
   2. You may find that the ideal Honda customer is a male between the ages of 27 and 50 years old. That customer is a white collar professional with an above average level of income. The Honda customer has owned a Honda previously, or has a family member who owns a Honda.
   3. Many car dealers build relationships with customers by selling cars and providing a service department. Some customers go back to the car dealer to get service on their vehicle.
   4. Find out where the ideal Honda customer gets their car serviced. Do they go to their dealership, or to their local repair shop? This information can help you create a service department that will attract customers.
3. 
   Calculate the size of your market. The goal of your dealership market research is to determine if there is sufficient demand for your product. Ultimately, you need to know the dollar amount of sales for your product, and estimate how much of that customer demand you can attract.^[3]

   1. Assume that that 3,000 new Hondas are sold in your area each year. You're also considering selling used Hondas, which generate 2,000 in sales each year. The size of your market is 5,000 Hondas.
   2. Based on your research of existing car dealers and customer demand, you believe that your new dealership can attract 20% of the existing Honda car market. That 20% figure would mean (5,000 new and used car sales multiplied by 20% = 1,000 car sales).
   3. Assume that the average profit per car (considering both new and used) is $500. If your dealership sold 1,000 cars, the business would generate (1,000 cars X $500 = $500,000 in profit). In addition, you estimate that your service department would create a $300,000 profit. The total profit for your dealership would total $800,000.