1. I don't think in the domain name you should use your city unless you want to improve rankings on specific keyword match
ex: you want to rank better for car dealer chicago
If you buy cardealerchicago.com exactly it will help you a bit but any other variation ex: if someone searches car dealer in chicago you domain won't get sort of the boost it need because is not exact match....
SO unless what i mentioned 1st i suggest buy a domain that is easy to remember for the user so when he comes the 1st time straight away they remember the domain they landed. Great for further advertising, marketing etc.
2. Now by reading your question again seems like you have the domain name domain.com/ and you are wondering if you should use it in the url /car-dealer-chicago
I think it depends on your on-page optimization if you can format you content to have these car dealer chicago everywhere then i think you can aviod using it in the url IF your website is showing ONLY 1 car dealer you should aviod that. If listing multiple car dealers in a specific city then yes definetly use it.
So response 2 in my opinion avoid using city name in url as google knows the cities etc if you mention it in your content unless you list multiple car dealers in a specific area.
Keep it short, clear and simple... everyone loves that including Google.
Hope it helps.