How to Own a Car Dealership Franchise

Since the introduction of Henry Ford’s iconic Model T in 1908, cars have been seen as symbols of ingenuity and innovation -- and their manufacturing as an American tradition. With over 200 million cars on the road today, despite recent economic hardship, the automobile industry remains strong. With millions of potential clients and cars in need of service, owning a car dealership franchise can be a dream come true for an entrepreneur.

Survey the market. Knowing what types of cars are selling today and who is buying them will be of great use in choosing a car manufacturer and potential location. By familiarizing yourself with the market and the brands within the market, you will be able to make an informed decision.

Research state and local laws. Laws significantly impact car dealership operation. From zoning to occupational safety, employment to taxation, a car dealership must operate within the confines of the law, or risk severe consequences.

Draft a business plan. A well-written business plan will let potential investors know that you have a vision, have done your research, appreciate the risks involved, and are serious about your franchise. People will be more willing to invest in you when assured you know what you are doing.

Obtain financing. Franchise fees range from tens of thousands to hundreds of thousands of dollars, depending upon the brand exclusivity, amount of support from the manufacturer, and a host of other factors. Some manufacturers will allow financing of the franchise fee. In addition to the franchise fee, take into consideration overhead expenses required to run the dealership, as well.

Purchase a motor vehicle dealer bond. Motor vehicle dealer bonds are required to ensure the dealership is in compliance with state regulations. The bond essentially protects the consumer from the dealer’s noncompliance with state law. Many states require a motor vehicle dealer bond as a prerequisite to obtaining a dealer license.

Get a car vehicle dealer license. Vehicle dealer licenses are another measure the states use to protect consumers. Licensed dealers are bound and regulated by state law, and thus the consumer has recourse in the event of malfeasance.

Request and Read the Franchise Agreement. The franchise agreement is a legal document that details the rights and responsibilities of the parties involved: you and the automobile manufacturer. Because the manufacturer drafts it, the terms of the franchise agreement will be favorable to the company, so it is best to have an attorney review the document for you before signing it. Be sure you are willing and able to perform all of the duties stated in the agreement, as you will be strictly held to them throughout the course of your contract with the manufacturer.

Fill your lot with cars. After the franchise agreement has been signed, you are now the owner of a car dealership franchise. Begin building your inventory of cars while hiring salespeople and administrative staff to help your dealership achieve success.

Warnings

  • Consult with an attorney throughout this process, as there are significant legal obligations placed on the owner of a car dealership.

References

About the Author

Shannon Johnson has been a freelance writer since 2008, specializing in health and organic and green-living topics. She practiced law for five years before moving on to work in higher education. She writes about what she lives on a daily basis.