The single most consequential decision in building a dealership is not which brand to carry or how big to build the showroom. It is where to open a dealership. The right market will cover operational mistakes and generate returns for decades. The wrong market will grind down even the best-run operation until the owner either relocates or closes. For comprehensive guidance, see our how to start a car dealership resource.
We are Auto Lift Services, and we build and equip dealership service departments across the country. We partner with general contractors including our partner construction companies to deliver complete facility projects — architecture through equipment, with a minimum two-year warranty on the building and everything in it. We have seen dealers build beautiful facilities in markets that could not sustain them, and we have seen dealers with basic buildings in the right market generate revenue well beyond projections. The market matters more than the building. But the building and equipment determine how much of that market you capture.
This article covers the data points, OEM processes, and strategic decisions that go into choosing where to open a dealership — the analysis that should happen before you hire an architect or sign a purchase agreement on land.
The Population Ratio: How Many People Per Dealership
The national ratio is approximately 19,700 people per franchised new-car dealership. That number gives you a baseline for market saturation.
If you are evaluating a market with 150,000 people and eight same-brand dealerships, the ratio is roughly 18,750 per dealer — below the national average. That market is likely saturated for your brand. If the same market has 150,000 people and four same-brand dealerships, the ratio jumps to 37,500 per dealer — nearly double the national average. That market is underserved and worth serious analysis.
The ratio is a starting point, not a conclusion. Some markets support higher dealer density because of above-average income, high vehicle ownership rates, or geographic factors that create natural trade areas. Other markets with adequate population may not support the brand you are pursuing because the demographics do not match the vehicle lineup.
Use the ratio to quickly screen markets. If the math is tight from the start, dig deeper before committing capital.
Income Demographics: Who Is Actually Buying
The average household income of a new car buyer is approximately $115,000. Over the past several years, buyers earning under $100,000 have dropped from 50 percent to 37 percent of new vehicle purchases. The customer base for new cars is wealthier than it was a decade ago, and your market needs a sufficient concentration of those households.
Census data and the Bureau of Economic Analysis provide household income distribution at the ZIP code level. Pull the data for every ZIP code within your projected trade area — typically a 15 to 30 minute drive radius depending on whether you are in a metro, suburban, or rural market. Count the number of households earning $100,000 or more. That is your addressable customer base for new vehicle sales.
For used-car operations, the income threshold is lower but still relevant. The average used car transaction price has pushed past $28,000, which means even used-car buyers need substantial household income or strong credit access.
Income data also tells you which brands to pursue when deciding where to open a dealership. A market with a high concentration of $75,000 to $120,000 households supports domestic and mainstream import brands. A market skewing above $150,000 supports luxury and premium brands. Mismatching the brand to the income profile is one of the most expensive mistakes in dealership site selection.
Traffic Count and Visibility
Your state Department of Transportation publishes average daily traffic counts for every road segment. This is free, public data, and it is one of the first things OEM site approval teams evaluate.
A dealership on a corridor with 25,000 or more vehicles per day has fundamentally different visibility than one on a road with 5,000. Higher traffic count means more eyes on your signage, more drive-by awareness, and more impulse service visits. OEMs factor traffic count directly into their site approval scoring.
The nuance: traffic count alone does not determine accessibility. A dealership on a divided highway with no median break requires customers to make a U-turn to reach your lot. A dealership at a signalized intersection with a dedicated turn lane is far more accessible. When evaluating a potential site, drive the corridor yourself during morning rush, lunch, and evening. Watch how traffic flows. Ask whether a customer can easily enter your lot from both directions.
Frontage matters almost as much as traffic count. A 200-foot lot frontage on a high-traffic road gives you showroom visibility and inventory display. A 100-foot frontage set back behind another commercial building gives you an address but not a presence.
Zoning and Real Estate Requirements
Dealerships require commercial zoning that specifically permits automotive sales and service. Not all commercial zones include this use. Many municipalities separate general commercial (retail, office) from automotive-specific uses. Some cities have auto row overlay districts that concentrate dealerships in designated corridors.
Before you negotiate on land, verify the zoning classification permits automotive sales, service, and outdoor vehicle display. If it does not, a re-zoning application or special use permit adds 6 to 12 months to your timeline and carries denial risk.
Lot size requirements depend on brand, inventory volume, and building footprint. Most franchise dealerships need 1 to 5 acres. The site must accommodate the building, customer parking, service drive access, vehicle display, employee parking, and delivery staging. OEMs have minimum lot size requirements in their facility standards.
Environmental due diligence is critical for automotive sites. A Phase I Environmental Site Assessment is standard. If the property was previously used for automotive service, gas station, dry cleaning, or industrial purposes, a Phase II assessment with soil and groundwater testing may be required. Environmental remediation on a contaminated site can add $100,000 to $500,000 or more to the project and delay construction by 6 to 18 months.
OEM Primary Market Area Rules
For franchise dealerships, the manufacturer controls where to open a dealership more than you might expect. Every OEM divides the country into Primary Market Areas (PMAs), and each PMA has defined boundaries that determine which dealer has sales and service rights in which geography.
When you apply for a new franchise point, the manufacturer evaluates whether the PMA is underserved. If the existing dealer in that PMA is meeting sales and service performance standards, the manufacturer may not approve a second point. If the PMA is underperforming or the population has grown significantly, the manufacturer may actively seek an additional dealer.
Some manufacturers publish open point opportunities — markets where they want a new dealer. Others operate on an application basis where you propose a market and they evaluate it. In either case, the OEM site approval process involves their real estate team reviewing your proposed location against their PMA data, competitive landscape, and facility design standards.
The PMA system means your market analysis must account for manufacturer territory rules, not just raw market potential. A market with perfect demographics and zero competition may still be denied if the existing PMA holder objects and the manufacturer agrees. Understanding the OEM’s territory allocation logic is essential to realistic market selection.
The OEM Application Process
Securing a franchise is not like applying for a business license. Manufacturers evaluate applicants rigorously, and the timeline from application to approval typically runs 60 days to 6 months.
Experience requirements. Most OEMs require a minimum of 5 years in automotive retail management. Some require prior dealership ownership experience. If you do not have it personally, you need an operating partner or general manager who does. The manufacturer evaluates the management team, not just the financial backing.
Capital requirements. Manufacturers verify liquid capital, not total net worth. Depending on the brand, you need to demonstrate $2 million to $10 million or more in accessible funds. The manufacturer wants proof you can absorb losses during the ramp-up period without running short on cash.
Facility commitment. Your application must include a facility plan that meets the manufacturer’s design program standards. This is where the equipment spec matters — the manufacturer wants to see that the service department is planned with approved equipment, proper bay count, and correct specialty bay configuration for their vehicle lineup.
Background and reputation. OEMs conduct background checks, review litigation history, and evaluate community standing. A franchise is a long-term brand partnership. The manufacturer is putting their name on your building, and they take that seriously.
Population Growth Trends Matter More Than Current Population
A market with 80,000 people and 5 percent annual population growth is a better bet than a market with 120,000 people and flat or declining population. The growth market will need additional dealer capacity within 3 to 5 years. The flat market may already have too many dealers for the stable population base.
Census data, building permit trends, school enrollment growth, and commercial development activity all signal whether a market is growing. New housing developments, corporate relocations, and infrastructure investments (highway expansions, transit projects) indicate sustained growth. Markets losing employers, losing population to outmigration, or seeing school enrollment decline are markets where fixed costs will outpace revenue growth.
When evaluating a market, project 10 years forward. You are making a $5 million to $15 million capital investment that needs to perform for decades. The market that looks adequate today needs to look strong in 2035.
Service Density Analysis: Are Existing Dealers Underserving the Market
Vehicle sales get all the attention in market analysis, but service demand is the more stable revenue indicator. Every vehicle in the market needs service regardless of whether new car sales are up or down.
Count the number of service bays operated by franchised dealers and independent shops in your projected trade area. Compare that to the registered vehicle count (available from state DMV data or R.L. Polk registration databases). If the bay-to-vehicle ratio is tight — meaning existing service capacity is near or at full utilization — there is room for a new service operation.
This analysis matters because the service department generates 49.6 percent of a dealership’s gross profit from only 13 percent of total revenue. Gross margins on service labor run 65 to 75 percent. A market where existing dealers have 3-week service appointment backlogs is a market screaming for more service capacity. That backlog is revenue waiting for someone to capture it.
Buy an Existing Dealership or Build New
This is a strategic decision that interacts directly with your market selection.
Buying existing. An established dealership comes with a customer database, service history, trained technicians, OEM relationships, and immediate revenue. You pay a blue sky premium — typically 2 to 4 times annual adjusted net profit — on top of the hard asset value. The advantage is revenue from day one and an existing service customer base that generates high-margin income immediately. The risk is inheriting aging equipment, deferred facility maintenance, and a reputation you did not build.
Building new. New construction lets you design the facility around current OEM standards and your equipment plan from the start. No compromises on bay dimensions, ceiling height, electrical capacity, or concrete thickness for lift anchors. The disadvantage is 12 to 24 months of construction before you generate revenue, and the full capital investment hits before doors open.
When buying makes sense: The market has an existing dealership with a strong customer base but aging facilities. You acquire it, keep revenue flowing, and renovate the service department and equipment over 2 to 3 years using the income the dealership generates.
When building makes sense: The market is underserved, no suitable acquisition exists, or the existing facilities would cost more to renovate than to replace. Building new also makes sense when EV infrastructure, ADAS calibration capability, and modern service department design would require gutting an older building.
Your Facility Partner Should Be Part of the Market Analysis
We handle dealership service department construction end-to-end — architecture coordination with our GC partners at our partner construction companies, all equipment specification and installation, and ongoing service with a minimum two-year warranty on the building and equipment.
When you are evaluating where to open a dealership, the facility cost is not a number you figure out after the market is selected. It is a number that varies dramatically by market — construction costs, land costs, labor availability, permitting timelines, and environmental requirements all change the math. We can help you run realistic facility cost estimates for your target markets before you commit to a site.
The equipment plan should be part of your franchise application. The service department layout should be part of your site evaluation. And the relationship with the company that installs and maintains your equipment should be established before the concrete is poured, not after.
Call us at (515) 868-2009 or visit autoliftserv.com/contact to start the conversation.
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Josiah Ragsdale
Founder, Automotive Lift Services
Josiah has been installing, repairing, and inspecting automotive lifts since he was 18 years old. He founded Automotive Lift Services in 2019 after years of seeing lifts installed wrong, never inspected, and putting technicians at risk. His team now services all 50 states from their Iowa headquarters. Read more
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