The Auto Franchise Industry
The manufacturing and sale of vehicles are both major parts of the auto industry, with another major part of the industry taking place after vehicles are made and sold. Franchises within the auto industry often service this part of a vehicle’s life cycle, referred to as the automotive (or motor vehicle) aftermarket.
As stated on the website of The Automotive Aftermarket Industry Association (AAIA), the industry “encompasses all products and services purchased for light, medium and heavy duty vehicles after the original sale including replacement parts, accessories, lubricants, appearance products, tires, collision repairs as well as the tools and equipment necessary to make the repair.”
The automotive franchise industry encompasses a wide variety of services and products that can be divided into the following main segments. These segments can also have subcategories of their own, and many franchises overlap segments:
- Maintenance (ex: AAMCO)
- Repair (ex: Precision Tune Auto Care)
- Auto Body Shop (ex: Maaco)
- Car Wash (ex: Superior Wash)
- Car Rental (ex: Hertz)
- Aftermarket Parts & Accessories (ex: Perfect Car)
In 2012, the motor vehicle aftermarket employed over four million people and sales were on the upswing. Overall aftermarket sales in 2012 were calculated at a total of $307.7 billion, an increase of 3.5 percent over sales figures from 2011. Three-quarters (or approximately $231.2 billion) of these sales account for cars and light trucks regularly serviced by auto franchises.
Overall Aftermarket Sales (in billions) for 2012 (Source: AAIA)
Overall Aftermarket Sales (in billions) for 2010, 2011 & 2012 (Source: AAIA)
Franchised Business vs. Independent Operation
The Franchise Business Economic Outlook for 2013, prepared for the International Franchise Association (IFA), reveals that automotive franchise businesses grew by nearly two percent in economic output over the previous year. The industry also grew just under one percent in total establishments over the same timeframe. In contrast, overall industry numbers for areas such as auto repair and auto mechanics, which includes independent operations, were level or slightly down.
Part of the reason franchises are showing more stable numbers than their independent counterparts is due to advantageous positioning to benefit from consolidation and technical advancements occurring within the industry.
“[The independent shop owners] don’t have the scale or resources to meet the standards of many of the major insurers,” says David Byers, CEO of CARSTAR Auto Body Repair Experts. “The economics of insurance-paid repairs can put significant margin pressure on an independent owner.” Through franchise models, owners can retain a measure of independence, “but deliver centralized billing and repair management to the insurance partners.”
This means that certain aspects of the industry increase the likelihood of franchisees having access to much needed resources when compared to their independent counterparts. The ability of franchises to obtain these resources is a distinct benefit to individuals seeking to enter the industry.
Business Format vs. Product Franchising
The vast majority of franchises fall under the category of business format franchising which means the franchisor licenses their brand to a franchisee for use, along with a predetermined way of conducting business, and the franchisee can expect a certain level (typically extensive) of business support from the franchisor.
The automotive franchise industry nevertheless features a significant number of product, or distribution, franchises. Product franchises usually involve the franchisor granting franchisees permission to sell and distribute a product using their logo, trademark, and trade name. In many cases this agreement involves limited operational support after the initial training is completed. Another main difference between business format franchising and product franchising involves fee structure. One example of a product franchise is Line-X, which features a franchisee fee without royalty fees if the franchisor (or designated vendor) sells proprietary products to the franchisee for use. Another example is Matco Tools which doesn’t require franchise or royalty fees, though franchisees are subject to initial and ongoing minimum inventory purchases.