Automotive Franchise Industry Research - Business Report I

Introduction to Auto Franchise Industry Report

This report gives an overview of the US automotive franchise industry and outlines the costs and fees associated with automotive franchises.  The data contained in this report was drawn from the Franchise Disclosure Documents (FDD), formerly known as Uniform Franchise Offering Circulars (UFOC), of a representative sample of 30 automotive franchises and from published industry sources.

US Auto Industry Background

Economic contribution

The auto industry is a very important engine of economic activity in the US economy.  Between 2001 and 2008, the industry including car manufacturers, dealers and auto parts suppliers employed over 3.5 million people and contributed almost 4% or $500 billion to America’s GDP.   It is estimated that the current contraction of the industry translates directly into a 1% decrease in GDP.

Financial crisis

The US auto industry is in deep financial crisis.  In recent years the big three auto manufacturers GM, Ford and Chrysler, have been struggling to stay afloat with collapsing sales, plunging share prices, steep losses in their operations and depleted cash reserves.  The credit crunch delivered a double whammy. Auto manufacturers cannot get credit to complete their restructuring while banks will not fund car loans to enable consumers to purchase new cars.
Auto parts suppliers are also on the brink of collapse which also threatens the automakers. Plummeting new car sales have almost brought vehicle production to a halt resulting in severe cash flow difficulties for suppliers.  In May 2009, Chrysler filed for bankruptcy and General Motors remains on the verge of bankruptcy. The very survival of the auto industry now depends on a government bail out which is contingent upon major corporate restructuring and the adoption of strict fuel efficiency and emissions standards.

Falling new car sales

With consumer confidence at a record low new car sales are in steep decline. The projected car sales for 2009 are 9.7 million units. This is a decline of 40% from sales of 16 million vehicles in 2007.  According to industry source Edmunds.com, sales to date in 2009 are the lowest since 1967, when the number of registered drivers was almost half of today’s approximate 200 million drivers.     Despite the availability of huge rebates, low interest financing and other incentives, in the first quarter of 2009, fearful consumers continued to pull back from big ticket purchases like new cars. 
On a more positive note  analysts predict that there will be a mild rebound in sales in 2010, to just over 11 million units.  There are also early signs that the US economy is starting to recover and that the credit crunch is easing which will in turn boost consumer spending.

Table 1: Light Vehicle Retail Sales 2004 - 2009 (Thousands of units)
 

Sources include: U.S.  Bureau of Transportation Statistics (Data 2004 -2007)
J.D Power & Associates (Data 2008 -2009)
National  Automobile Dealers Association (Data 2004 -2008)
*Forecast by CSM Worldwide
S&P Economics