Top Car Franchises: Dealerships and Auto Service Opportunities
Investing in a car franchise offers potential, especially in vehicle maintenance, but the industry faces challenges with rising electric vehicles and high loan default rates. Consider your investment horizon and the evolving market before committing.
Table of Contents:
Introduction
A car franchise can be a good opportunity, but before diving in, let’s explore the industry, growth potential, and key numbers over the past 10 to 30 years.
Car Industry
Overview
The United States has the largest car industry in the world. This encompasses several sectors, including:
- Auto manufacturing
- Suppliers
- Materials
- Retail
- Maintenance
Most franchises in this industry focus on the narrow niche of vehicle maintenance.
Current Trends
- The pandemic has significantly affected car sales, with fewer new cars being sold. This has driven up the demand for used cars, causing prices to increase by nearly 30%, well above inflation.
- As more people are driving used cars, vehicle maintenance is becoming increasingly essential.
- The rise of electric vehicles (EVs) is changing the landscape. The electric car market is growing at double-digit rates, presenting a new dynamic for the industry. However, EVs typically require less maintenance than traditional cars.
Future Outlook
While vehicle maintenance looks promising in the short term, the long-term picture (5 to 15 years) may shift due to the growing adoption of electric vehicles. It’s important to consider these changes when investing in a car franchise and align your investment with your time horizon.
Investment Considerations
Before jumping into the car industry, it’s crucial to ask yourself: Are you planning to invest in a property and hold the franchise long-term, or are you aiming to operate for 3 to 5 years and sell for a profit?
Royalty Fee, Franchise Cost & Loans
Royalty Fees
The average royalty for a car franchise is 6.8%, higher than the 4% typically seen in food and beverage franchises.
Franchise Costs
Opening a car franchise typically requires an investment between $300,000 and $400,000.
Loan Default Rates
According to data from thousands of loans issued to franchisees in the car industry, the default rate is relatively high. For every four franchisees that successfully pay back their loan, one defaults.
In comparison, non-franchise car businesses have a lower default rate, with a 10-to-1 success ratio.
Conclusion
Investing in a car franchise isn’t inherently more secure than owning an independent car business. While some franchises perform better, with success rates exceeding 10-to-1, others can be more volatile, with failure rates of 1 in 2.
If you’re considering entering the car franchise market, make sure to understand the specific franchise’s performance and your long-term goals.
