If you love cars and are a natural salesperson, investing in a car dealership franchise might interest you. As a franchisee, youโll sell new or used vehicles from a particular manufacturer. For example, Ford, Honda or Hyundai. The automotive sales industry is hugely competitive, so you need the capital, drive and determination to succeed. First, though, research the market, costs and additional factors to ensure youโve covered all bases before you invest.
Overview of the Market
Research shows the pandemic hit new car dealers hard due to low consumer confidence, reduced income and, of course, limited driving. Lockdowns also decreased demand for new cars and repairs.
However, as incomes and confidence improved, the industry is recovering in the US. Though demand has slowed due to rising interest rates, industry revenue has still grown at a rate of 1.5% annually over the past five years to reach an estimated $1.2 trillion in 2024.
Reports also show the US used car market is expected to grow by $41.9 billion at a 4.6% annual rate from 2023 to 2028. This growth is driven by the better value used cars offer compared to new ones, along with the rise of websites that make buying used cars easier for consumers.
But the market faces challenges, like strict emission rules that limit the sale of non-compliant used cars. Youโve got to follow these rules to win consumer trust and support the marketโs long-term success. Itโs worth researching other automotive franchises, including car wash franchise opportunities, to see if anything else grabs your attention.
Independent Car Dealerships Versus Car Dealership Franchise
You can build a car dealership from scratch or join a franchise. Both options come with advantages and challenges:
Independent Car Dealerships
- You call the shots when it comes to running the dealership. This refers to all aspects of your business, such as prices, working hours, marketing, etc. And no one tells you what type of car to sell. In contrast, franchisees usually have a contract with an automobile manufacturer that gives them the right to sell their branded vehicles.
- The start-up costs for any dealership are high because you need real estate and inventory. However, you can reduce or upgrade certain aspects of the business as you see fit and to suit your budget. For something more affordable, check out other franchise opportunities, including franchise opportunities under 50K.
- Starting a business without ongoing franchise support can take longer to build trust as a reliable dealership.
- Smaller, independent car dealerships can offer a more personalized customer service, boosting word-of-mouth recommendations.
Franchise
- You represent the franchisor (automobile manufacturer) and must follow its rules and regulations. On the upside, you are following an established business model, which can help you avoid start-up mistakes.
- Start-up costs can be steep. Franchise costs can be around $1.5 million, depending on the partnership. For more affordable options, see which industries are most likely to franchise for less.
- Partnering with a well-established automobile brand gives you the edge in a crowded market. As a result, itโs easier to attract more customers. Moreover, a reputable franchise will provide training to ensure your customer service is on point. See other opportunities like an oil change franchise or an auto glass repair franchise.
- Youโre working with a proven system in the car dealership sector. Furthermore, you can make the most of the training and ongoing support to help avoid the common mistakes of an independent startup. Furthermore, you can ask about international franchising or franchise opportunities for veterans. Alternatively, if you want to add to your business portfolio, you may be interested in absentee owner franchises.
Other Factors to Consider
Owning a car dealership can be a lucrative venture with the potential for big profits. But before you jump into this type of business, other factors to consider include:
License and Permit Requirements
Depending on the state you choose for your dealership, there are specific requirements for each one. For example, acquiring a car dealer license should be the priority, whether youโre selling new or used cars. Contact the Department of Motor Vehicles (DMV) or a similar agency for more details. Youโll also need a business license, a sales tax permit, a surety bond, insurance, etc.
Location
Choosing a location near highways or major roads can attract potential customers. However, other factors, like easy access and convenient parking, are also a must. Also, note that new car dealers often set up shop in suburban and semi-urban areas. Growing populations in these regions with limited public transport can help boost business.
Equally important, you need space โ room to show off your vehicles and grow your business. And avoid areas that are home to similar car dealerships. However, you may find it beneficial to be near businesses such as an auto repair franchise, especially if you sell used cars.
Develop a Business Plan
Keep track of your budget and goals with a well-written business plan. It should include an executive summary, business description, services, industry and competitive analysis, operations and management, and financial assumptions and projections.
Finding and Financing Inventory
This can be the most challenging part of opening the business. Do you plan to borrow money to buy cars from manufacturers or auction houses? The upfront costs can quickly escalate, so ensure you set a realistic budget and stick to it. Check out similar opportunities, such as a car rental franchise, to compare costs and ROI.
Hiring and Partners
For a new business, itโs best to hire people with prior experience in car sales. Skilled salespeople on the lot will help you sell your inventory and drive the business to success.
Consider partnering with other automotive companies like an auto parts franchise, transmission repair franchise or a paint shop. These businesses can help sell vehicles by maintaining them and enhancing their appearance.
Business Opening
Once all the documents are signed, employees hired, and you have a dealership showcasing shiny cars, youโre ready to open the business! Focus on advertising and marketing to help push the company to success right out of the gate.
Car Dealership Opportunities and Franchise Cost
If you want to partner with a brand, check out the key players. However, have your financing in order because investing in a car dealership can run into millions. If you have a limited amount to invest, check out low cost franchise opportunities. Here are some options:
Motors Holding offers an opportunity to help you become an independent General Motors (GM) dealer. The company will help you on the path to business ownership by providing ongoing support, such as management experience and other operational assistance. GM brands include Chevrolet and Cadillac. See candidate qualifications to see if this is a good fit for you. The initial investment can be between $3 million and $10 million, depending on the location, brand and size of dealership.
Honda sells vehicles through more than 1,000 independent Honda dealers. Sales have picked up, and the brand is hoping for a sales increase of 10-15% compared to 2023. It has various opportunities, including becoming a power sports dealer. If your passion is motorcycles, this could be your moment. Contact the company for investment costs.
Byrider offers used car dealership franchise opportunities. The company has 114 dealerships nationwide and has territories available for ambitious entrepreneurs. On average, opening a used car franchise takes 9-12 months. The initial franchise fee is $60,000. Other costs, like staffing and funding for a location, also apply. Since your franchise could manage up to $10 million in automotive receivables, new franchisees may need up to $1 million in capital.
Hyundai Franchise
Hyundai is a South Korean brand founded in 1967. In the US, it has over 820 dealers nationwide with a new American company headquarters in South Carolina, which opened in 2014. and began selling automobiles in theย US in 1986. Also, it invested $1.7 billion in its Alabama manufacturing facility.
However, Hyundai is not like a traditional franchise like an ice cream franchise or a work from home franchise. Instead, it operates through a dealership model, which is common in the automotive industry. Hyundaiโs business involves granting dealerships the right to sell and service its vehicles under specific guidelines and agreements. So, while Hyundai dealerships might resemble franchises, they are more like authorized dealerships rather than true franchises.
Ford Motor Group
Ford also offers partnerships where you enter into an agreement with the company to sell its vehicles. Although itโs not strictly a franchise, you do have to follow guidelines when youโre working under the Ford brand. Furthermore, all dealers can now sell and service EVs without joining the Model E dealer certification program. Again, costs depend on the location, the size of the dealership, and whether youโre buying an existing dealership or starting a new one.
Conclusion
To sum up, investing in a car dealership franchise varies widely depending on the brand and the size of the dealership. For example, buying a smaller used car franchise is more affordable than partnering with one of the leading brands. Your real estate costs and inventory of vehicles are going to be your biggest expenses and may run into millions.
Also, many automotive dealerships, such as Hyundai, are usually independently owned businesses that have entered into a franchise-like agreement with the manufacturer. They must adhere to branding, sales practices, and service standards but remain independently owned.
So, if you want to partner with a traditional franchise business model, explore your options. For example, DetailXPerts is seeking ambitious entrepreneurs who want to invest in a mobile auto detailing and commercial cleaning franchise. Our steam cleaning technology deep cleans vehicles, buildings and public spaces using minimal water. Customers love the convenience and eco-friendliness of our services.
