Dealership Business Model: Setting Up Your Business

The traditional dealership model has remained mostly unchanged over the years, despite technological advancements and shifts in customer expectations. However, with the rise of online car purchasing, dealerships need to adapt to meet changing customer needs. In this article, we will explore the history of car dealerships and how they can prepare for the future.

Key Takeaways:

  • The traditional dealership model needs to adapt to meet changing customer needs.
  • Online car purchasing is on the rise, demanding a shift in how dealerships operate.
  • Understanding the history of car dealerships can help in preparing for the future.
  • The customer experience plays a crucial role in the car dealership business.
  • By embracing technology and providing exceptional customer service, dealerships can thrive in the evolving landscape.

The History of Car Dealerships

Car dealerships have a long and fascinating history that dates back to the late 1800s when the first car sale took place. Initially, cars were primarily sold directly by auto manufacturing factories. However, the first dedicated car dealership, Waverley Electric, was established in 1889 in Indiana. This marked the beginning of a new era in automotive retailing.

As the popularity of cars grew, so did the demand for specialized dealerships. World War II played a significant role in the expansion of the car dealership model. After the war, there was a surge in demand for vehicles, leading to an increased number of dealerships across the United States.

Over the years, car dealerships have been subject to regulations aimed at protecting consumers’ interests. These regulations require dealerships to provide transparent information about pricing and vehicle specifications to customers. This has helped to establish trust between dealerships and consumers, ensuring a fair and informed buying process.

To gain a visual understanding of the growth of car dealerships over time, take a look at the following chart:

Growth of Car Dealerships over Time

Year Number of Car Dealerships
1900 500
1920 8,000
1945 40,000
1970 65,000
2000 20,000

As the table illustrates, the number of car dealerships grew significantly as the automotive industry expanded. This growth is a testament to the importance of car dealerships in providing a crucial link between manufacturers and consumers.

The Car Dealership Business Model: Then Versus Now

The traditional car dealership business model has stood the test of time, but recent changes in the automotive industry have necessitated adaptations. The rise of online car sales and the impact of the COVID-19 pandemic have expedited the shift towards online purchasing, reshaping the way dealerships operate. Today, more customers are initiating or finalizing their car purchases online, transforming the dynamics of the car dealership business model.

Previously, offline interactions and physical showrooms were the primary means of attracting and engaging customers. However, with advancements in technology and evolving customer expectations, dealerships are now tasked with meeting the demands of a digitally-savvy consumer base.

Online Car Sales: A Major Shift

The advent of online car sales has revolutionized the car dealership business model. Customers are increasingly turning to the internet to research, compare, and even purchase vehicles from the comfort of their homes. This shift has necessitated changes in how dealerships operate, forcing them to prioritize their online presence and provide a seamless digital buying experience.

Benefits of the Digital Age

The digital age presents numerous advantages for car dealerships. It allows them to reach a wider audience, provide transparent information about their inventory, and streamline the car buying process. Online platforms enable customers to browse through various models, compare prices, and access detailed vehicle specifications. Additionally, customers can take advantage of virtual showrooms and online test drive experiences, saving time and offering convenience.

The Role of Physical Showrooms

While the focus has shifted towards digital platforms, physical showrooms still play a crucial role in the car dealership business model. They provide an opportunity for customers to see and experience the vehicles in person, allowing for a tactile and immersive experience. Additionally, physical locations often offer test drive opportunities and personal interactions with sales representatives, which can enhance the overall customer experience.

Striking the Right Balance

As the car dealership business model evolves, finding the right balance between online and offline strategies becomes essential. Dealerships must invest in robust online platforms, optimizing their websites for user-friendly navigation and incorporating features such as live chat assistance and online financing options. Simultaneously, physical showrooms should be designed to create a welcoming and informative environment, facilitating personal interactions and test drives.

Adapting to the changing landscape of the car dealership business model is crucial for long-term success. By embracing digital innovations while maintaining a strong physical presence, dealerships can cater to the evolving needs and preferences of their customers.

Traditional Car Dealership Model Evolved Car Dealership Model
Offline interactions and showrooms Online car sales and digital platforms
Physical test drives and negotiations Online test drives and virtual showrooms
Personal sales representatives Live chat assistance and online customer support
Local customer outreach Global reach and wider customer base

Automotive Retailing and the Customer Experience

The customer experience plays a crucial role in the car dealership business. Unfortunately, many people find visiting a dealership to be stressful and time-consuming. However, the customer experience holds significant influence over the purchasing decision, with a substantial percentage of respondents considering it when buying a car.

To succeed in the automotive retailing industry, dealerships need to focus on factors they can control, such as enhancing the customer experience. By prioritizing customer satisfaction and providing a seamless and enjoyable buying process, dealerships can set themselves apart from the competition and build long-term customer loyalty.

An essential aspect of improving the customer experience is ensuring that transactions are efficient, transparent, and personalized. Dealerships should invest in technology solutions that simplify the buying process and provide customers with accurate and accessible information about available vehicles and pricing. Additionally, offering flexible financing options and delivering exceptional customer service throughout the entire journey can significantly improve customer satisfaction.

Benefits of Enhancing the Customer Experience:

  • Increased customer satisfaction and loyalty
  • Positive word-of-mouth marketing
  • Higher likelihood of repeat business
  • Competitive advantage in the market
  • Stronger brand reputation

By focusing on the customer experience, automotive retailers can create a positive and memorable interaction that exceeds customer expectations. This, in turn, can lead to increased sales, enhanced brand reputation, and long-term success in the industry.

Continuing on with our exploration of the evolving car dealership business model, the next section will discuss the future of car dealerships and how they can prepare for upcoming challenges and opportunities.

Preparing for the Future of Car Dealerships

To prepare for the future, car dealerships need to understand and meet changing consumer needs. As technology continues to shape the automotive industry, convenience and simplicity have become key factors that customers look for when purchasing a car. In an increasingly digital world, dealerships must leverage digital tools and platforms to enhance the customer experience and stay competitive.

One of the most significant trends that car dealerships must embrace is the rise of online car sales. With the convenience of online browsing and purchasing, customers now expect a seamless digital experience when shopping for a vehicle. This means dealerships need to invest in user-friendly websites, mobile apps, and online sales platforms that allow customers to easily browse inventory, compare prices, and complete transactions.

Embracing technology doesn’t mean losing the personal touch that customers appreciate when buying a car. Dealerships can use digital tools to enhance the customer experience in various ways. For example, implementing live chat or chatbot features on their websites can provide immediate assistance to customers who have questions or need guidance. Virtual reality or augmented reality can be used to offer virtual test drives, allowing customers to experience the vehicle in a more immersive way.

The Role of Data Analytics

Data analytics can also play a crucial role in preparing car dealerships for the future. By analyzing customer data and market trends, dealerships can gain valuable insights into consumer preferences, buying patterns, and demand. This information can help dealerships make data-driven decisions when it comes to inventory management, pricing strategies, and marketing campaigns.

Table: Key Digital Tools for Car Dealerships

Tool Function
Customer Relationship Management (CRM) Software Manage customer data, track interactions, and streamline sales processes.
Online Sales Platforms Enable online vehicle browsing, price comparisons, and secure transactions.
Live Chat and Chatbot Features Provide real-time assistance and support to customers on dealership websites.
Virtual Reality (VR) and Augmented Reality (AR) Offer immersive virtual test drives and personalized vehicle experiences.
Data Analytics Tools Analyze customer data, market trends, and inventory performance for data-driven decision-making.

By embracing digital tools, leveraging data analytics, and finding the right balance between technology and personalized service, car dealerships can thrive in the evolving automotive landscape. By adapting to changing consumer expectations and providing a seamless online and offline experience, dealerships can position themselves for success in the future of car sales.

The Basics of the Car Dealership Industry

The car dealership industry plays a vital role in the buying and selling of new and used vehicles to consumers. It encompasses various vehicle segments, ranging from passenger cars to commercial vehicles. In addition to vehicle sales, dealerships also provide additional services such as maintenance, repairs, financing, and warranties. Succeeding in the car dealership industry requires keeping up with market trends and technological advancements to meet the evolving needs of customers.

The Vehicle Segments in the Car Dealership Industry

The car dealership industry covers a wide range of vehicle segments to cater to diverse customer preferences. These segments include:

  • Passenger Cars: This segment includes sedans, hatchbacks, coupes, and convertibles designed for personal use.
  • Sports utility vehicles (SUVs): SUVs are popular for their spaciousness, versatility, and capability to handle various terrains.
  • Trucks: Dealerships offer light-duty, medium-duty, and heavy-duty trucks, which are commonly used for commercial purposes and hauling heavy loads.
  • Commercial Vehicles: This segment includes vans, minivans, and buses designed for transporting goods or passengers for business purposes.
  • Luxury Cars: Luxury car dealerships specialize in selling high-end vehicles that offer premium features, comfort, and performance.

Dealerships have a diverse inventory that caters to different customer needs, allowing them to provide a wide range of options to potential buyers.

Additional Services Offered by Car Dealerships

In addition to vehicle sales, car dealerships provide various services to enhance the overall customer experience. These services include:

  • Maintenance and Repairs: Many dealerships have service centers equipped with expert technicians who offer maintenance and repair services for vehicles.
  • Financing: Dealerships often collaborate with financial institutions to provide financing options for customers who require assistance in purchasing a vehicle.
  • Warranties: Dealerships offer warranties that provide coverage for specific car components or repairs within a certain period, giving customers peace of mind.
  • Trade-Ins: Dealerships accept trade-ins, allowing customers to exchange their current vehicle as part of the purchase of a new or used car.

By offering additional services, dealerships aim to provide a comprehensive solution to customers’ automotive needs, fostering long-term relationships and customer loyalty.

Factors Importance
Market Trends High
Technological Advancements High
Customer Preferences High
Competition Medium
Regulations Medium

Key Players in the Car Dealership Market

The car dealership market is comprised of several key players, each with their own unique offerings and advantages. Understanding these players is essential for navigating the industry effectively.

Franchise Dealerships

Franchise dealerships hold exclusive rights to sell new vehicles from a specific brand. They are authorized by manufacturers to represent their brand and offer the latest models to customers. Franchise dealerships benefit from brand recognition, access to manufacturer incentives, and specialized training, which allows them to provide comprehensive support and services to customers.

Independent Dealerships

Independent dealerships operate without ties to specific manufacturers and have more flexibility in terms of inventory selection and pricing. They often offer a wide range of vehicles from different brands, including both new and used cars. Independent dealerships can provide a personalized and customer-centric approach, tailoring their offerings to meet the needs and preferences of their target market.

Online Car Marketplaces

Online car marketplaces have emerged as a popular alternative for car buyers and sellers. These platforms connect individuals and dealerships, offering a wide selection of vehicles for sale. Online car marketplaces provide convenience, allowing customers to browse and compare cars from the comfort of their own homes. They also typically offer various tools and services to facilitate the buying process, such as financing options, vehicle history reports, and even home delivery.

Key Players Advantages
Franchise Dealerships Exclusive brand representation, manufacturer support, specialized training
Independent Dealerships Flexibility in inventory selection and pricing, personalized approach
Online Car Marketplaces Wide selection, convenience, additional services

Profitability Factors in the Car Dealership Business

Profitability in the car dealership business relies on several crucial factors. Understanding and effectively managing these factors can significantly impact a dealership’s success. Let’s explore the key profitability factors that car dealerships need to consider:

  1. Market Demand: Keeping an eye on market trends and consumer preferences is vital for dealerships. Analyzing demand for specific vehicle types, brands, and features can help dealerships adjust their inventory and pricing strategies accordingly.
  2. Location: Choosing the right location for a dealership plays a crucial role in attracting customers. High foot traffic, easy accessibility, and visibility are essential factors to consider. Additionally, proximity to major roads, commercial areas, and residential neighborhoods can significantly impact a dealership’s visibility and customer reach.
  3. Pricing Strategy: Implementing a competitive pricing strategy is essential for profitability. Dealerships need to consider factors such as vehicle condition, market demand, competitors’ pricing, and customer expectations when setting prices.
  4. Inventory Management: Effective inventory management is critical to maximize profitability. Dealerships should monitor inventory turnover, optimize vehicle selection, and ensure a balance between supply and demand. A well-managed inventory helps prevent overstocking or shortage issues, reducing carrying costs and increasing sales opportunities.
  5. Customer Experience: Providing exceptional customer service is key to profitability. Positive customer experiences lead to customer loyalty, referrals, and repeat business. Dealerships should focus on fostering long-term relationships, offering personalized interactions, and addressing customer needs promptly.

By considering and effectively managing these profitability factors, car dealerships can position themselves for long-term success in a competitive market. Striving for profitability involves a combination of market awareness, strategic decision-making, and customer-oriented practices that align with evolving industry trends.

Identifying Your Target Market

Before starting a car dealership, it is crucial to identify your target market. Understanding who your potential customers are will help you tailor your inventory and marketing efforts to meet their needs and preferences. Here are some factors to consider when identifying your target market:

  • Demographics: Analyze the age, gender, location, and income levels of your potential customers. This information will help you determine the types of vehicles that are most likely to appeal to them.
  • Preferences: Consider the specific preferences and lifestyles of your target market. Are they primarily interested in fuel efficiency? Do they prioritize luxury features? Understanding their preferences will guide your inventory selection.
  • Local competition: Evaluate the existing car dealerships in your area and the types of customers they serve. Identify any gaps or opportunities in the market that you can capitalize on.

To gain a deeper understanding of your target market, it is essential to conduct thorough market research. This can include surveys, interviews, and analyzing data from sources such as industry reports and government statistics. By gathering and analyzing this information, you can make informed decisions about your inventory, pricing, and marketing strategies.

Remember, identifying your target market is an ongoing process. As the market evolves and customer preferences change, it’s important to regularly reassess and adjust your strategies to meet the needs of your target market.

Choosing the Right Location

The location of a car dealership plays a vital role in its overall success. To ensure maximum visibility and accessibility, it is crucial to choose a location that attracts high foot traffic and is conveniently located near major roads, commercial hubs, and residential neighborhoods.

Consider conducting a thorough market analysis before finalizing the location. Look for areas with a high demand for cars and potential customers who are likely to visit the dealership. Research the demographic profile of the target market, including income levels and preferences, to align the dealership’s offerings with customer expectations.

Additionally, it is essential to be conscious of local zoning laws and regulations. Verify that the chosen location permits car dealership activities to avoid any legal issues in the future.

Remember, a well-located dealership can provide a competitive advantage by attracting a steady stream of customers and increasing brand visibility. By strategically choosing the right location, dealerships can position themselves for success in the highly competitive automotive market.

Choosing Right Location

Factors to Consider Importance
Foot Traffic High
Proximity to Major Roads High
Commercial Hubs Nearby High
Residential Neighborhoods High
Local Zoning Laws High

Deciding on New or Used Cars

When it comes to running a dealership, one important decision that needs to be made is whether to focus on selling new or used cars. Both options have their advantages, and the choice ultimately depends on various factors such as market demand, available resources, and competition.

Selling New Cars:

Selling new cars can be an enticing option, especially for dealerships looking to establish partnerships with manufacturers. By offering brand-new vehicles, dealerships can provide customers with the latest models, advanced features, and warranties that come directly from the manufacturer.

Selling Used Cars:

Selling used cars can offer dealerships more flexibility in terms of pricing and selection. With a range of pre-owned vehicles available, dealerships can cater to customers with different budgets and preferences. Furthermore, used cars generally have lower depreciation rates compared to new cars, allowing dealerships to potentially offer more competitive pricing.

It’s important to evaluate the market demand for new and used cars in your area. Consider factors such as the demographics of your target market, economic conditions, and local competition. Conducting market research will provide valuable insights into the preferences and purchasing behavior of potential customers.

Regardless of whether you choose to focus on new or used cars, it’s crucial to have a diverse inventory that meets the needs and expectations of your customers. By understanding the market demand and utilizing market research insights, you can make an informed decision that will drive the success of your dealership.

Remember, the success of a car dealership lies in understanding your target market, offering exceptional customer service, and providing a wide selection of vehicles to cater to customer preferences. By offering both new and used cars, your dealership can appeal to a broader customer base and maximize your chances of success in the competitive automotive industry.


The car dealership business model is undergoing significant changes in response to technological advancements and evolving customer expectations. To thrive in this evolving landscape, dealerships must adapt to the rise of online car sales and prioritize delivering an exceptional customer experience.

Understanding the history of car dealerships is crucial for navigating the future. By recognizing the industry’s roots and how it has evolved over time, dealerships can gain insights into the challenges and opportunities they may encounter.

Additionally, identifying target markets is essential for tailoring inventory and marketing efforts to meet specific customer needs. Conducting thorough market research and understanding demographic trends will enable dealerships to position themselves strategically and capture their desired customer base.

Furthermore, embracing digital tools and technologies is key to success in the modern car dealership business. As more customers turn to online platforms to research and purchase vehicles, dealerships must leverage digital channels, provide seamless online experiences, and integrate technology to enhance every touchpoint of the customer journey.


What is the car dealership business model?

The car dealership business model involves buying and selling new and used vehicles to consumers. Dealerships may also offer additional services such as maintenance, repairs, financing, and warranties.

How has the car dealership model evolved over time?

The traditional car dealership model has remained largely unchanged since its inception. However, the rise of online car sales and the COVID-19 pandemic have accelerated the shift towards online purchasing.

Why is customer experience important in the automotive industry?

Customer experience is influential in the purchasing decision, with a significant percentage of respondents considering it when buying a car. Enhancing the customer experience can lead to increased satisfaction and loyalty.

How can car dealerships prepare for the future?

Car dealerships can prepare for the future by understanding and meeting changing consumer needs. Embracing technology and providing personalized, convenient experiences can help dealerships thrive in the evolving landscape.

What is the car dealership industry?

The car dealership industry involves buying and selling new and used vehicles to consumers. It encompasses various vehicle segments, from passenger cars to commercial vehicles.

Who are the key players in the car dealership market?

The key players in the car dealership market include franchise dealerships, independent dealerships, and online car marketplaces. Franchise dealerships have exclusive rights to sell new vehicles from a specific brand, while independent dealerships offer more flexibility in terms of inventory selection and pricing.

What factors contribute to profitability in the car dealership business?

Profitability in the car dealership business depends on factors such as market demand, location, pricing strategy, inventory management, and customer experience. Understanding the target market, setting competitive prices, effectively managing inventory, and providing exceptional customer service can all contribute to profitability.

How do I identify my target market for a car dealership?

To identify your target market for a car dealership, consider demographics, income levels, preferences, and local competition. Conduct market research to gain insights into your potential customers and adjust your inventory and marketing efforts accordingly.

What should I consider when choosing a location for a car dealership?

When choosing a location for a car dealership, consider factors such as high foot traffic, easy access, visibility, and proximity to major roads, commercial hubs, and residential neighborhoods. It’s also important to check local zoning laws to ensure your chosen location allows for car dealership activities.

Should I focus on selling new or used cars in my dealership?

The choice of focusing on selling new or used cars will depend on market demand, available resources, and competition. Selling new cars may require partnerships with manufacturers, while selling used cars allows for more flexibility in pricing and selection.