How to Start a Car Dealership Business: Your Guide to Starting the Car Selling Business

In this guide on How to Start a Car Dealership Business, we shall be discussing the step by step guide needed to start a successful business of selling cars in Nigeria and the capital needed.

A car dealership business also known as an automotive dealership, is a type of retail establishment that specializes in selling new and used automobiles to consumers.

These businesses serve as intermediaries between automobile manufacturers or wholesalers and individual car buyers.

Car dealerships business typically offer a variety of car makes and models such as cars, trucks, SUVs, and sometimes motorcycles to cater to different customer preferences and budgets.

Car dealerships play a crucial role in the automotive industry by providing a place where customers can browse, test drive, and purchase vehicles.

They often offer financing and leasing options to help customers purchase cars, and they may also provide services such as vehicle maintenance, repairs, and parts sales (only a few offers such complementary services and businesses in Nigeria).

Dealerships can be independently owned and operated or part of a larger franchise network affiliated with a specific car manufacturer.

In the case of franchise dealerships, they typically sell and service vehicles from a specific brand or group of brands.

Independent dealerships, on the other hand, offer a more diverse selection of vehicle brands.

Car dealerships need to have a physical location where customers can visit and interact with sales representatives, view the available inventory, and access various services.

They are an essential component of the automotive sales and distribution network, helping facilitate the sale of cars from manufacturers to consumers.

Here is how you can become a successful car dealer when starting a car selling company/business in Nigeria.

1. Decide on Your Car Business Model:

There are two major models by which you can run your car dealership business. These two models are; Independent Car Dealerships, and Franchises of Established Brands.

1. Independent Car Dealer: If you opt to be an independent car dealer, it means you are starting your own car dealership brand from scratch. You will select the name and identity of your dealership, decide on the types of cars you want to sell, and establish your own business practices and procedures. As an independent dealer, you have full control over your business but will also bear the sole responsibility for its success. This route offers greater freedom and the ability to make your own decisions, but it requires more effort in terms of branding and building a customer base.
2. Franchise of an Established Brand: Alternatively, you can choose to operate your car dealership as a franchise of an established car manufacturer or brand. In this case, you’ll partner with a well-known automotive company, such as Toyota, Honda, or Ford, and sell their vehicles under their brand name. This option comes with certain advantages, including brand recognition, access to marketing and advertising support, and the reputation of the parent company. However, as a franchisee, you’ll typically have to adhere to the franchisor’s rules and standards, which can limit your independence and creativity to some extent. Franchise opportunities may also require significant upfront investments.

The decision you make between these two models will significantly impact your business’s direction, operations, and long-term prospects. Consider the following factors when making your choice:

• Capital and Resources: Consider the financial and operational resources you have available. Operating as an independent dealer may require more initial capital to establish your brand, whereas a franchise may provide some financial and logistical support.
• Brand and Reputation: Franchising offers the benefit of leveraging an established brand’s reputation, which can help attract customers. Independent dealerships, on the other hand, allow you to build your unique brand identity.
• Control vs. Support: Assess how much control and autonomy you want over your business. Independent dealers have more control over decision-making, while franchisees receive support and guidance from the parent company.
• Market Analysis: Research the local market and consumer preferences to determine which approach is likely to be more successful in your area. Some markets may favor established brand names, while others may be open to new and independent dealerships.

Ultimately, the decision between operating independently or as a franchise should align with your business goals, financial capabilities, and your vision for your car dealership in Nigeria.

2. Capital:

Assess your financial resources and create a detailed business plan to guide you through the process of securing the funds and also spending the funds efficiently.

Before diving into the car dealership business, you must take stock of your existing financial resources.

This includes your personal savings, investments, and any other sources of income or assets you can allocate to your car selling business.

Understanding how much money you have at your disposal is the first step in determining if you have enough capital to start and run the car dealership business successfully.

Starting a car dealership business involves various initial costs, such as:

• Purchasing an initial inventory of vehicles to sell.
• Securing a location, such as a showroom or garage.
• Renovations or leasehold improvements for your chosen location.
• Licensing and permits to operate legally.
• Marketing and advertising to create awareness.

In addition to startup expenses, you’ll have ongoing operational costs, which include:

• Employee salaries and benefits.
• Utility bills and maintenance costs for your facility.
• Insurance premiums to protect your business.
• Vehicle maintenance and repair expenses (if you offer servicing).
• Marketing and advertising to attract and retain customers.
• Financing costs if you have loans or credit lines.

However, the capital required for a small to medium-sized car dealership business in Nigeria falls within the range of 20 million to 100 million Naira or more.

After identifying the capital requirements for your car dealership, you must ensure you have access to the necessary funds. This can be achieved through various means such as:

• Personal savings or investments.
• Loans from banks or financial institutions.
• Partnership with investors.
• Government grants or incentives for small businesses.

It’s essential to have a clear understanding of your financial situation, both in terms of available capital and potential financing options.

This knowledge will help you make informed decisions that will help you avoid financial pitfalls as you launch and operate your car dealership business.

3. Get Your Car Dealership License:

The car dealership license requirement is not up for debate of necessity. Without your car dealership license, operating a car selling business won’t be possible in Nigeria.

Just like in any law-abiding country, operating a car dealership business in Nigeria is subject to legal requirements and regulations.

These requirements are in place to protect consumers, ensure fair business practices, and maintain safety standards within the automotive industry.

These legal requirements and regulations include:

• Business registration and incorporation with the Corporate Affairs Commission (CAC)
• Dealership license: A specific license for operating a car dealership business in Nigeria. The Vehicle Licensing Office is in charge of issuing the Dealership License in Nigeria.
• Import and trade permits: If you plan to import vehicles, you’ll need the necessary import permits and licenses.
• Tax identification number (TIN): Obtaining a TIN is essential for tax compliance.
• Compliance with zoning regulations: Ensure your dealership location complies with zoning and land use regulations, especially in states like Lagos and Abuja.

Failure to obtain the necessary licenses and permits can result in legal issues, fines, and the potential shutdown of your business.

4. Get a Garage, Showroom, or an Open-Air Car Sale:

Depending on the size and scale of your car dealership, you will need sufficient space to display your vehicles effectively.

This space can take the form of a showroom, a garage, or outdoor car sales also known as open-air car sales:

• Garage: A garage may be suitable for selling used or less expensive vehicles. It should be equipped to maintain and service the vehicles you plan to sell.
• Showroom: A showroom is a well-designed space where you can display your vehicles indoors. Showrooms are especially important if you plan to sell new or high-end vehicles, as they allow customers to view the cars in a clean and controlled environment.
• Open-air car sales: In this scenario, instead of having an indoor showroom, you display your cars in an outdoor space, such as a parking lot, car lot, or an open area where customers can view and inspect the vehicles. Outdoor car sales are often seen at car dealerships that have a large inventory and limited indoor showroom space.

Most importantly, when choosing the right location for your car dealership business look out for these factors:

• Accessibility
• Visibility (High foot or vehicle traffic)
• Consider the demographics and preferences of the local market.
• Competition
• Zoning Regulations: Some areas especially in Lagos and Abuja may have restrictions on the type of business that can be operated.

Ensure that the location you choose has the necessary infrastructure and amenities for your dealership. This includes electricity, water supply, parking facilities, and any additional features needed for your showroom, garage, or outdoor car sales.

5. Buy Your Cars:

To begin your car dealership, you need to source vehicles that will fill your showroom or parking lot.

This can involve purchasing new cars, used vehicles, or a combination of both. The way you source your inventory can vary depending on your business model and budget.

New Cars: If you intend to sell new cars, you can establish relationships with manufacturers or authorized distributors in Nigeria or outside Nigeria.

These relationships will allow you to purchase brand-new vehicles directly from the factory.

You may need to meet specific requirements set by the manufacturer, including financial stability, showroom quality, and staff training.

Selling new cars often comes with the advantage of offering the latest models and factory warranties.

With the ongoing expansion of local car manufacturers and assembly plants in Nigeria like Innoson Motors, Nord Automobiles, Coscharis Motors, Globe Motors, and GAC Motors, you can readily and easily acquire and showcase a range of new high-end car brands such as Ford, BMW, Rolls-Royce, Renault, Land Rover, Morris Garages, Mini vehicles, Toyota, Hyundai, Mercedes-Benz, and Higer in your showroom or outdoor car sales parking area.

Used Vehicles: Acquiring used vehicles for resale can be done through various means:

• Auctions: Participating in vehicle auctions, where you can bid on and purchase used cars from a wide range of sources.
• Trade-Ins: Some customers may trade in their old vehicles when buying new ones. You can accept these trade-ins as part of your inventory.
• Wholesalers: Establish relationships with wholesalers or dealerships specializing in used cars to purchase inventory at wholesale prices.
• Private Sellers: Buy used cars from private sellers, but ensure the vehicles are thoroughly inspected and meet quality standards before offering them for sale.

The bottom line when it comes to sourcing inventory for your car dealership business is to consider the types and brands of cars that are in demand in your target market.

Research consumer preferences and market trends to determine which vehicles are likely to sell well.

And set competitive pricing for your vehicles to attract customers while ensuring you maintain healthy profit margins.

6. Develop an Online Presence:

In today’s digital era, establishing an online presence is imperative for car dealers, much like the well-known online vehicle marketplaces in Nigeria like TokunboCars.NG, Carmart.ng, Cars45, autochek.africa, Jiji.ng, OList Nigeria, and Cars.ng.

These platforms allow both car dealership companies and individual car dealers to display their inventory on the internet, making it part of a fundamental aspect of their business.

Create a professional website for your dealership to showcase your inventory, provide contact information, and offer potential customers a way to inquire about your cars.

It is also business-wise to engage in social media marketing to reach a wider audience.

7. Employ Staff:

Hire employees to help run your dealership efficiently. Depending on the size and scope of your business, you may need salespeople, mechanics, administrative staff, and customer service representatives.

Ensure your staff is knowledgeable about the vehicles you sell and can maintain a good customer relationship while dealing with customers.

8. Insurance:

Purchase comprehensive insurance coverage for your business. This should include liability insurance, property insurance for your showroom, Open-air car sales and garage, and coverage for your vehicle inventory.

Insurance is essential to protect your business in case of accidents, theft, or other unforeseen events.

9. Advertise Your Business:

To advertise your business effectively, you should employ a variety of marketing and promotional strategies tailored to your target audience and local market conditions.

Consider the following advertising methods for your car dealership company:

• Branding and Image
• Customer Testimonials and Reviews
• Online Advertising: Establish a strong online presence through a professional website and active social media profiles. Utilize digital advertising channels such as search engine marketing (SEM), social media advertising, and email marketing to reach a wider audience.
• Local Media: Advertise in local newspapers, magazines, radio, and television. Local media can help you reach potential customers in your immediate area.
• Auto Shows and Events: Organise or participate in auto shows, exhibitions, and events related to the automotive industry. These events provide an excellent opportunity to showcase your vehicles and interact with potential customers.
• Direct Mail and Brochures: Create high-quality brochures and direct mail materials to distribute to your customers. These materials should highlight your inventory and unique selling points.
• Word-of-Mouth and Referrals: Encourage satisfied customers to refer friends and family to your dealership. Positive word-of-mouth can be a powerful marketing tool.
• Special Promotions and Discounts: To entice potential buyers, consider offering special promotions and discounts such as Seasonal Sales Offers, Loyalty Programs, and Financing Offers (such as low-interest rates or extended payment terms, to make purchasing a vehicle more affordable)

The aim of advertising your business is both for publicity and increase in sales. In other to achieve this you have to understand that advertising is an ongoing process that requires planning, creativity, and adaptability.

And it will demand a portion of your budget in other to consistently market and promote your car dealership business and retain customers.

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Final Thoughts on Starting a Car dealership Business in Nigeria

Starting a car dealership in Nigeria is a profitable venture if executed with a well-thought-out plan and a commitment to delivering quality service.

Keep in mind that success may take time, so be patient and adapt to market conditions as necessary to grow your business.

It’s important to mention that there is a significant disparity between the market demand for cars in Nigeria and the available supply.

According to the latest report, the market demand for cars, particularly Tokunbo cars (also known as second-hand or fairly used cars), exceeds 500,000 units annually, while the demand for new cars stands at just 13,000 units annually.

The substantial gap between the demand for Tokunbo cars and new cars is primarily due to the affordability of purchasing a Tokunbo car.

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