Depending on the preferences and perspectives, owning a franchised auto dealership provides some highs and lows. Acquiring a franchised auto dealership is a big decision. There are many significant benefits and drawbacks, as there are in any business decision. After deciding to enter the industry, prospective used auto dealers should figure out the most effective strategy for operating in that sector.
The business’s high earning potential likely draws anyone looking to purchase a franchised auto dealership. After all, franchises generally have a much higher success rate than independently-owned firms. Plus, they come with the advantage of affiliation with a recognizable brand and the support that goes with it.
But are all those benefits enough reason to purchase an auto dealership franchise? What about the drawbacks? Are they enough to dissuade potential investors from pushing through with their plans?
Pros of Buying a Franchised Auto Dealership
Here are some of the advantages and perks that come with buying a franchised auto dealership.
A Running Start
One of the most notable benefits of buying a franchised auto dealership is that it eliminates many of the growing pains associated with starting a business. Why? Because it exists on an existing enterprise, the owner won’t have to start from scratch. Investing in a franchise means not having to go through developing a business plan, creating a product, and performing market research.
Name Recognition
One of the most significant challenges of starting and running a business is establishing the company name. Customers can take a long time to know and recall an enterprise, which places startups at a distinct disadvantage.
Franchising does away with this problem by giving the investor a familiar name. For a new auto dealership, this instant name recall could place them several steps ahead of the game.
Relatively Easy Financing
Another common obstacle many new business owners face is getting startup capital. Lenders are generally hesitant to commit to a new and untested business. But by franchising an established brand, entrepreneurs are more likely to convince banks or other lending institutions to help them out. Furthermore, franchisees may have access to lines of credit that wouldn’t be available to other would-be business owners.
Cons of Buying a Franchised Auto Dealership
Here are some of the disadvantages and drawbacks that come with buying a franchised auto dealership.
Franchise Rules
Franchisees are always subject to the rules and guidelines of the franchise owner, no ifs, and, or buts. It isn’t necessarily bad, but it does mean there isn’t much leeway for personal creativity and innovation in operating the business. The best way to do this would be to propose suggestions to the owner. However, the owner may not always approve of the ideas.
Clientele Perception
Brand recognition can work against the franchisee as well. Although customers will be well aware of a brand’s strengths, they will also be mindful of its shortcomings and constraints. In some cases, this could compel them to shop around and compare the offerings of multiple brands, so there is always the possibility of losing out on a potential customer.
Franchisees are also constrained to selling vehicles at a specific price with predetermined warranties and conditions. Because potential buyers often have no leeway to negotiate, they may opt to go with an independent dealership that offers more flexible terms.
Price of Admission
Startup costs are always a significant challenge when starting a new business. Unfortunately, this is also the case when buying into a franchise. Initial franchising costs for established brands are often pretty steep and may even be considerably higher than the expense of starting a business from scratch.
Insurance Requirements
All businesses require insurance, of course, but franchisees will have to deal with the standard insurance policies and traders’ insurance. It covers the franchisee and their employees if something happens to the vehicles in their facility.
As you can see, owning a franchised auto dealership is a bit of a mixed bag. Based on the above pros and cons, prospective investors should be able to decide whether to reconsider or take the plunge.
About K2 Insurance Services
Your used auto dealership clients will benefit considerably from the risk protection that Aegis Specialty Dealer Division provide. Apart from the full range of insurance coverages, K2 also offers an ACH payment system that bills your clients directly. Call us today at (866) 429-1638 to find out how you can partner with the leading name in auto dealership insurance.
