Sample Business Plan on Car Dealership in Nigeria

This is a miniature sample business plan summary which is explains briefly some key issues involved in setting up an auto dealership is a business in Nigeria. An auto dealership is a business that sells cars to a range of potential customers whether corporate (businesses and organisations) or to private individuals from all walks of life.

Market Overview of Car Sales in Nigeria

Nigeria is one of the world’s largest car importing countries importing between 300,000 to 400,000 vehicles per annum. For a country with a population of over 200 million and the current number of cars in circulation at between 2.9 million and 3.2 million cars, the number of cars available to Nigerians is one car for every 86 persons which is grossly inadequate because South Africa has a car per capita of 1 for every 6 persons whereas Egypt has 1 for every 12 persons. They growth in car sales every year is between 6 and 15% per annum. Of all imported cars being sold in the market, second hand cars (Tokunbo) make up more than 90% (since most cars are imported and the naira is weak, brand new cars don’t come cheap) of them whereas brand new cars (tear rubber) make up the remaining 8 to 10%.

Market data	Description
Imported Cars per annum	Over 300,000 in 2019
Main importing countries	USA (over 30%), Germany, rest of EU, Cotonou and Togo
Yearly growth in car imports	Between 6 to 15%
Av. price of fairly used cars	Tokunbo (1.2 million+), Nigerian used (500,000 and above)
Per capita car usage	1 for every 86 Nigerians
Purpose	Commercial use (55%), private use (45%)
Market size	More than 144 billion naira imported in 2019

 

Business Opportunities for Car Dealership in Nigeria

There is a huge market for car sales in Nigeria as Nigerians buy cars every year for different reasons. Nigeria is a very large country by population and it has a sizeable middle class population - more than 9 million individuals with incomes that are capable of purchasing a car with their savings within 24 months. Besides these individuals, we have a large number of companies and businesses (more than 200,000) that need cars for marketing and administrative uses. Government at all levels (Federal, State and Local) need cars for monitoring and evaluation, security agencies especially the Army, DSS, Civil Defense, Road safety and the presidency buy new cars every year. Embassies, the national assembly, Universities, Banks, Hotels, Schools, Churches and NGOs all buy cars every year. High net worth individuals (people earning over 3 million per month) buy new cars almost every year. These are just small numbers. Besides not the only people who buy cars, ordinary citizens who save up cash (from 12 months to 2 years) to buy their first car or to replace their current cars. The rise of ride sharing services such as Uber and Bolt has also encouraged people to own cars as a source of income. Any country where more than 400,000 cars are sold through formal channels is a large market for automobile sales.

What are the kinds of Cars in Demand in Nigeria?

People usually want cars for commercial or business purposes (taxi service, interstate transport vehicles, logistics services, car hire services, school bus, evangelism, security patrol, commuter bus, delivery vans and a host of other business purposes). On the other hand cars could also be purchased for private use and in this class are sedan/space wagons, salon cars, SUVs and hatchbacks to mention a few. The more popular brands are Toyota and Honda are preferred because they are more fuel efficient and have cheap spare parts when compared to other car brands.

Who are the main buyers of cars in Nigeria?

Car buyers in Nigeria are mostly individuals (middle income and rich folks) and businesses such as; government, companies, churches etc. People generally prefer to buy the best car they can afford so that means a car that costs between 800,000 naira to just over 1.5 million naira is the likely choice for middle income earners. The rich people typically go for cars worth more than 5 million naira. Corporate customers (organisations and businesses) will likely buy grade A Tokunbo or brand new cars.

Rich	Want brand new cars that reflect their status and occupation. Usually more than 5 million naira in value
Middle income	Want a car mainly for mobility and convenience. They are conscious about maintenance and resale value
Organisations	Need a functional car for business and management purposes. Price is only an issue when there are many alternatives for them to explore

 

What are the main challenges of Car dealership Business in Nigeria?

For people going into car dealership business the major challenge is financing. Expansion in this business can be very tough and could require fast sales with large profit margins to help businesses grow organically. People involved in this business also have to worry about security issues e.g buying stolen cars from criminals or having their own cars stolen. Competition in this business is also very rife which can be tasking for new entrants among other challenges.

What are the requirements for setting up a car dealership in Nigeria?

Firstly you should register a business and a trade mark (optional) for selling your cars. Being a very sensitive business, a car dealership must be registered and licensed with a supervising state government for monitoring. That registration covers permits from the Nigeria Police and Customs, Auto dealership license from the state government and similar documentation. You will need a location preferably along a major road or intersection in a commercial area with high number of vehicular movement and traffic. Also you will need capital to start.

How much capital is needed to start a car dealership in Nigeria?

Besides rent for land space, car ports and initial operating expenses you will need capital to purchase the cars. Assuming you are going to specialize in reselling second hand cars from the US at an assumed average landing cost of 1 million naira per car and starting with 5 cars for a start your total startup capital should be at least 7.5 million naira.

What is the return on investment and Payback period?

All this will depend on how quickly you can sell off your cars and the profit margin on each car sold. Assuming that a car dealership can generate an average of one car sale every 2 weeks at assumed profit margin of 20% based on average car price of 1.3 million, that initial investment of 7.5 million will generate at least 65 million gross sales with yearly profit of between 10 and 14 million naira which means payback is achievable within first year.

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Paul Onwueme is a professional Business Plan writer since February 2014, has achieved respectable results with his business plan writing service with several of his clients securing funding and leaving positive feedback about his writing service. You can connect with him via phone: 0803 206 4106 or email: paulonwueme@gmail.com