Franchise Dealership or Starting Independently
Many entrepreneurs consider the car market as a profitable business opportunity. Some people will build their car empire from scratch, while others will choose a franchise dealership. So, if you are one of those people who dreamed of entering this industry, you are probably wondering what the better option for you is. Hopefully, after reading this article, we will be able to provide you with a more apparent answer to your question.
What Is a Franchise Car Dealership and Independent Dealership?
Franchise dealers are under a contract with a particular manufacturer. These carmakers are basically giving them the right to sell their vehicles and car parts. Usually, a franchise dealership will have the brand’s name they are selling. On the other hand, an independent dealership is a dealership developed from scratch. Like any other private company, they will operate according to their own standards, principles, and regulations. They also have their managers and owners. They have no affiliations with any car manufacturers.
What Are the Difference Between Franchise and Independent Car Dealer?
With the fluctuating economy and the uncertainties brought by the pandemic, it pays to understand the difference between your two options when you are planning to open a car dealership. Hopefully, it will give you a better view of how they operate.
Financing Options
When a customer wants more loan options, an independent car dealership can provide you with a solution. They are more flexible when it comes to purchasing terms. Since these dealers are not restricted by the rules and regulations of the manufacturers, they can be in partnership with any bank and financial institution. Customers who do not have an ideal credit standing can also be their go-to solution for all their car needs. On the other hand, the franchise dealership near me targets high-paying clients. They can only work with banks or loan companies that are in partnership with the manufacturer.
Control
If you want complete control over your car dealership, going independent would be the right solution. They have the liberty to create their own decision, primarily when related to management. They will not have a contract that binds them, and they do not have to consult the car manufacturer. Basically, the owner calls all the shots, be it in marketing, working hours, prices, payment terms, etc. With a franchise car dealership near me, you should understand that you are representing the manufacturer and want to make sure that you are keeping their best interest in your consideration. You will be required to abide by the existing rules and regulations of the carmaker.
Goals
Independent car dealers have the freedom to set and pursue their own goals. They can also make alterations along the way, and no one will stop them. Those who will choose a franchise dealership will have to purchase a specific number of vehicles. They are also responsible for meeting the sales quota they set.
Startup Cost
Perhaps most of you have been waiting for this section of the article. However, we have constantly reminded our readers to look beyond the cost. When you choose to become an independent dealer, the initial cost would be the location, license and permits, and the cost of purchasing the product. You are in control of the other expenses related to your business.
Marketing your business may cost higher since your dealership is pretty much unknown. With a franchise car dealership, you will be paying for the right to set up a business. You will have to handle the training fee, licenses, and equipment. Nonetheless, it is easier for the clients to trust you since you are associated with a particular car manufacturer. They understand that you will need to abide by the rules and regulations of the maker. Apart from the initial cost, they also need to consider royalty fees, which are payments to the car manufacturer to grant the right to sell their product.
Customer Service
Again with a franchise dealership near me, they are bearing the manufacturer’s name. Therefore, their branding will attract a higher number of clients compared to independent dealer. Before the franchisee can even operate, the manufacturer will ensure that they have all the equipment and people needed to offer an outstanding customer experience. Simply put, the franchisee is more equipped to handle the demands and numbers of customers. Their people will go through a series of training and seminars to ensure that they are maintaining an ideal customer satisfaction index. The Independent car dealer will be required to develop their own customer service approach. Moreover, they will be getting fewer customers than franchises. These independent car dealers have to develop a more personal strategy on their customer service to set them apart.
What Are the Pros and Cons of Buying Franchise Car Dealership?
Deciding to open a car dealership is just the start of a long journey; after that, you will have to determine how you operate. Based on the data, franchise dealership has a higher success rate than independent dealers. However, you will still need to decide whether it suits you. Here are some of its advantages and disadvantages.
How Suitable Are You?
Operating a franchise car dealership near me requires a particular type of entrepreneur. You should have the qualities of a good leader and an excellent follower. One of the concerns of most business people when choosing this option is their lack of freedom and autonomy. You will be forced to operate under particular restrictions regarding the promotions, inventory, terms, prices, etc. There’s a little room for you to showcase your creativity or business decisions. However, a franchisee could be a fantastic option for those looking for a safer bet. It would be perfect for entrepreneurs who don’t like taking risks. You are operating according to the manual, and the brand’s name has already been established.
Getting into the Market
Throughout the duration of the contract, franchise dealers will have little to no bargaining power. The car manufacturers will usually be committed to preserving their branding campaign’s consistency and uniformity. Therefore there will be no room for negotiation, which can drive away some entrepreneurs. Nonetheless, if you want a quick setup, a franchise dealership would be better since everything is already established. According to the data, independent dealerships will take at least 4 years before they can return on investment. It will then take another ten years before they will be successful in the market. When you choose a franchise, you are putting yourself on the path towards success.
The car manufacturer will basically arm you with the equipment, training, protocols, regulations, and every resource you need to operate efficiently. They will ensure that you have fresh inventory and enough vehicles to showcase in your showroom. People are already familiar with the brand; therefore, you don’t have to do a massive promotion or marketing strategy. There are even franchisors who will be willing to assist you with your initial operation. They can help you locate the best site, manage the hiring process and training of the employees, provide a long-term planning strategy, and in your grand opening.
Financing, Earning, and Cost
One of the disadvantages of choosing a franchise car dealership near me is its higher startup cost. Aside from the upfront, you are paying for the franchise and royalty fees. Some entrepreneurs may find it discouraging to share their income with others. Nonetheless, the potential sales from the trusted company can significantly outweigh the cost. The franchise in the automotive industry has the highest pre-taxed revenue than other sectors. The franchisee will also benefit from the servicing department, which can drive plenty of profits. Usually, the car dealership will only add a 2% to 5% markup on their vehicle; they will mostly depend on their servicing department to gather profits.
Customer Perception
The customers are aware of your restrictions which can discourage them from doing business with you. Customers prefer to go around and bargain on the terms and price, and they may not have a negotiating power if they choose to work with a franchise dealership near me. With a franchise, you will be limited on a predetermined condition, warranty, and price. Your target customers are aware that there is little to nothing that you can do regarding this. Customers who want leverage and flexibility will choose the independent dealership. Nonetheless, some brands will be more open to their protocols concerning franchising.
Perhaps the most significant advantage of why entrepreneurs are choosing a franchise dealership would be trust. Whether you are purchasing the rights to sell Honda, Ford, or General Motors, these brands have already cultivated a recognizable brand to the target market. Some customers will be more at ease in doing business in a company they are familiar with than an independently-owned dealer.
Note that the approval process and the duration of the franchise dealership contract will depend upon the manufacturer. Some franchisors will readily approve your application. They will also be ready with the awarding of the franchise and accreditation process. However, others are more scrutinizing on approval. They want to ensure that your proposal is feasible and that it will provide benefits to the brand. Sometimes, the application will take months, but there are also instances when it can take years.