So you want to build a new dealer

Jack Colleran, Former Branch Manager GM Motors Holding Los Angeles

NOTE: The following article is from the collection of articles in our Automobile Dealership Buy/Sell Newsletters. The newsletter deals with the complex area of buying and selling automobile dealerships. Some of the material may not be up to date because of changes in the law from the date shown at the end of the article. This article is not to be taken as legal, accounting, tax, or other advice. You should consult your own professionals for such advice and for any updating of the information provided. 

The overall success of your construction project will depend on how well you do your homework. As the former branch manager of the Motors Holding Division of GM in Los Angeles, I have seen numerous projects come and go. But the dealers who actually get new facilities built recognize that there is a great deal of planning necessary before the first shovel full of dirt is moved. Try these helpful hints.

1) Establish a Budget

This is a must for your first step. Your budget should include estimated land and construction costs, estimated architect and engineering fees as well as the cost of your construction loan. Many dealers will first hire an architect or contractor before they have a realistic budget that provides them with the ability to have a competitive rent factor and realize a profit in their operations Your manufacturer can provide you with some helpful guides such as registration figures, average per car rent factors, and facility square footage guidelines.

You will note I refer to manufacturer information as guides. Your own common sense and knowledge of your business will be the most important factor in establishing a budget. Do not ignore your banker or lending institution. Cost and availability of construction funds will be important to you. Do not start drawing plans until you have a budget and a good feel for your square footage requirements.

2) Selection of Land

There are many variables in this selection process with cost at the top. Location is also extremely important, but don’t forget access. You don’t want a facility with good freeway exposure that your customer can’t get to. Check access and traffic flow around the property. Get a map and plot how your customer would get onto your property from every conceivable direction. Then drive it yourself. This will help determine the best location for “curb cuts” onto your property. Check with the City–see if they will permit “curb cuts” where you want them or, in many cases, need them.

While at the City you might as well check for zoning instructions, height and signage restrictions and in some locations there may even be lighting restrictions. Do not ignore the cost of site preparation. Fill dirt (clean) and compaction can be expensive. Geological soil borings are essential. Solid rock beneath a foot of soil will destroy your budget.

Obviously, today Phase I and probably Phase 11 environmental testing is mandatory. These as well as many other areas must be checked out before you “close” on your ground. Involve an attorney experienced in purchasing land. Do not rely solely on a real estate broker. There is too much at stake.

3) Selection of Architect or Contractor

Experience is the key. Most dealers will build only one dealership in their career. You will have a lot to learn during this period and will expend a great deal of time. You do not want to spend time educating an architect or contractor in the car business. Select a company that has extensive experience in building automobile dealerships. Get a list of what they have built and visit some of the more recent projects. Beware! Some dealers will select a good friend or a good customer even though they have no prior automotive construction experience. Chances are good this individual will no longer be a good friend or customer by the end of the project. Finally, check the financial strength of your selection and require a performance bond. A partially completed facility with numerous liens on your property from “unpaid” subcontractors is not a position in which you want to find yourself.

4) Site and Facility Layout

Remember, you are not developing a site or constructing a building for one business but rather for four or five businesses–new cars, used cars, parts, service, and possibly a body shop. Each has its own special requirements and needs. There are three key factors to keep in mind when developing your site layout and facility floor plan: traffic flow, paper flow, and people flow.

a) Traffic Flow

Take into consideration the flow of customer vehicles to new and used sales, service, parts, and body shop. You must get these vehicles onto the site, to their desired location, park them, and get them off the site. Consider employee vehicles and where they will be parked. Don’t forget vendor vehicles. You will want to get parts delivery trucks, trash trucks, transport carriers, environmental waste removal trucks on and off the property as quickly as possible with a minimum of interference in your operations.

b) Paper Flow

Most of the paper flow around the facility is between the parts and service departments and the general office, not the sales department and the general office. Consider locating the general office close to the parts and service departments with the cashier located between or close to both the retail parts counter and service customer waiting area.

c) People Flow (Employee and Customer)

Plot the probable flow of each customer (Sales, Parts, Service and Body Shop) from the time they park their car until they complete their intended purpose. This is extremely important with service customers and retail parts counter customers. Plot your employee flow through the dealership. I suggest you get eight to ten copies of your first set of preliminary floor plan drawings, providing a copy to each department head, plus a copy to a salesman, a mechanic, a parts counterman, and a service writer. Ask them to follow their typical work days from the time they park their cars in the morning until they leave work in the evening. You will be amazed at the good suggestions you will receive to improve the efficiency of your facility.

Doing your homework on site and facility layout is of utmost importance. Do this first. Many dealers tend to design their facility from the outside in. They create an external image or look that they want for their facility then try to make the floor plan fit. Ignore the outside look. Develop your site plan and floor plan first. Make them functional and efficient and then hang whatever “gingerbread” you want or can afford on the outside. Design your facility from the inside out

One final cost-saving tip–carry a pair of old boots or shoes in your car trunk. This will save you at least ten pairs of good shoes.

This article was written in 1993.

Mr. Colleran retired from GM in January, is consulting with various auto dealerships and is currently involved in two construction projects. (805) 492-9810.