Auto Franchise Information
Important Note: The provisions and fees illustrated in this report are only the most common and not a complete listing. Please review the Franchise Disclosure Document (FDD) for all of the provisions and fees related to investing in any specific franchise.
There are several factors that should be taken into account before investing in a franchise regardless of the industry. Below are a few key factors to consider while researching and evaluating franchise systems.
What are franchisors looking for?
Many franchisees entering the auto franchise industry don’t have related industry experience, but they do have initiative along with a passion for cars and their particular service area. A key attribute for many franchisors is the business sense of incoming franchisees.
“Good business people with good grounded values and philosophies, providing good customer service, good leadership for their team, honesty and integrity” are key attributes of incoming franchisees according to Yarusso. “Probably every franchisor looks for that in their franchisees.”
“I like franchisees that come to me with an open mind. I think the franchisees in any system and any industry that think that they can reinvent the wheel so to speak generally are the ones that struggle the most. So if you’re willing to learn, we’re going to make you successful.”
The auto franchise industry is one of the most competitive industries in business, particularly in the United States. When driving down a short stretch of road, there may be several competitive businesses, franchises and non-franchises, in close proximity to one another. This high level of competition means that exclusive territory rights as may be common in several other franchise industries, is a rarity in auto franchising though it does occur with certain franchise systems.
In many cases, franchise agreements grant franchisees the right to operate their franchise business at a certain location, with no territorial right in terms of exclusivity. Of course there are exceptions, like Line-X, that do grant exclusive territories in regards to brands owned or controlled by the franchisor. When an exclusive, or protected, territory is granted, the size of a franchisee’s territory is dependent on one of a combination of the following factors: number of households in the area, natural and manmade boundaries, number of potential customers in the area, etc.
Product franchises, or distributorships, are often mobile businesses and feature a defined territory. The territory can be defined by a number of factors that commonly include one or a combination of the following: geographic area, prior distributor routes, potential new distributor routes, etc.
The range of investment between franchises can widely vary due to differences in business systems and execution requirements. For example, some franchises only offer a single system type, while other franchises offer different levels of investment. These levels can be defined by the physical size of the business or the size of the territory offered to the franchisee.
Costs associated with opening a franchise include the franchise fee, training expenses (such as travel and living expenses, not the actual training courses), equipment, inventory, leasehold improvements, professional fees (such as obtaining a business license), and more.
The following chart illustrates this by comparing initial costs associated with opening one of the 13 example franchise systems presented. The costs given below are for new single unit franchises (not conversions or regional master franchises).
Estimated Initial Investment Ranges for Selected Franchises
(Note: Some estimates may not include costs for real estate leases or purchases, vehicle purchases and related items because of their variability from market to market, as well as general market conditions.)
A sometimes overlooked financial requirement involved in franchise investment is the minimum amount of cash, or liquidity, required of a prospective franchisee. Liquidity is the amount of cash immediately accessible, or assets that can be quickly converted to cash, such as certificates of deposit or stocks. The amount of liquidity desired by franchisors acts as a safety net in the opening days of the franchise to ensure franchisees have available cash to pay bills, professional and personal, until revenue starts steadily coming in.
Ongoing and Other Fees
The average length of the franchise agreement for the 10 highlighted franchises is approximately 12 years, and regardless of length there will be regular costs during the active franchise agreement. These costs include items such as royalty fees and marketing costs, and are predominately assessed for the franchisee to continue reaping the benefits that come with being a part of the franchisor’s business system. Although fees like these are common, how they are assessed and amounts vary. The following chart illustrates this by showcasing the royalty fee for selected franchises.
|Alloy Wheel Repair Specialists||5% of Gross Revenue|
|Color Glo||4% of gross sales or $150 per month, whichever is greater; $200 for the second full year or $300 a month following a full year of business|
|Grease Monkey||5% of Gross Receipts|
|Honest-1 Auto Care||2% of weekly gross sales for the first 13 weeks of operation only—provided the franchisee scheduled onsite coaching—then 6% of weekly gross sales beginning on the 14th week of operation (2% of weekly gross sales on tires and batteries only throughout the term of the franchise)|
|Jiffy Lube||Under the Non-Product Supply Franchise Agreement, 4% of Gross Sales, assuming eligibility for 1% prompt pay discount; Under the Product Supply Franchise Agreement, for new-to-system locations, as sliding scale of 0% to 3% (time-dependent)|
|Matco Tools||No set royalty; franchisee must maintain an inventory of Products at least equal to the starter inventory; 80% of the lesser of the National Distributor Purchase Average of the District Distributor Average; and maintain a ratio of purchase average to total sales of 60%|
|Midas||2-10% of Net Revenue|
|Novus Auto Glass||Typically, 8% of Gross Revenues from glass repair products and services, from glass replacement products and services, and from any other products and services sold under the Novus name, or the "Minimum Monthly Royalty Fees," whichever is greater|
|Ziebart||8% on all products except those listed in Item 6 of the franchisor’s FDD, which are 5% of total weekly gross sales; minimum royalty fee is $387 per week|
Royalty Structure for Selected Franchises
(Note: Links will take you to a franchise's full profile with more detailed information.)
Usually the royalty fee is collected in the form of a certain percentage of revenue or a predetermined flat fee. How the royalty is assessed by a franchisor can be more complex and one example of this is with the Meineke franchise.
Meineke franchisees are required to pay an annual minimum royalty fee of $20,800 or a calculated royalty based on percentages of gross revenue of their authorized products and services as illustrated below:
Example of a Specialized Revenue Structure (Courtesy: Meineke 2013 FDD)
Additional ongoing and regularly assessed fees can include technology fees to cover items like server hosting, internet access, etc. Select fees are assessed on an “as needed” basis such as audit fees or costs for additional training. All prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs involved before investing.
Being a part of the automotive franchise industry is an attractive option for future franchisees for several reasons, including the chance to become part of “a strong network that can deliver high-quality, reliable results through a multi-store operation network,” according to Byers. He adds that work handled by employees in the auto industry “will almost always be handled locally where the driver lives. [A great deal of the jobs] require skilled labor—jobs that cannot be exported.”