Automotive Franchise Industry Report
The aforementioned manufacturing and sale of vehicles are both major parts of the auto industry. But a major part of the industry also takes place after those vehicles are made and sold. Franchises within the auto industry are often found within this part of a vehicle’s life cycle, sometimes referred to as the automotive 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”.
Just as the overall auto industry is a substantial part of the American economy, the motor vehicle aftermarket industry is a significant part of the economy in its own right. In 2010, approximately 3.8 million people were employed in the field with overall aftermarket sales totaling $285.7 billion, which represented a 4.2% increase over the sales for 2009.2
The automotive franchise industry encompasses a wide variety of services and products that can be divided into the following main segments with potential overlap for certain companies. These segments can also have subcategories of their own:
Because they operate in an industry impacted heavily by environmental regulations, franchise systems have taken numerous steps (both voluntary and mandated) to do their part in having as little negative impact on the environment as possible, including:
- Abiding by strict guidelines set forth by agencies such as the Environmental Protection Agency (EPA) and organizations such as the American Society for Testing and Materials (ASTM).
- Recycling water used in washing and rinsing processes immediately on site, and sending the remaining waste water to local water treatment facilities, in compliance with local requirements to reduce total water usage.
- Reusing used motor vehicle parts when safe, including scrap metal and plastics.
- Recycling scrap tires to produce products such as playground material, rubberized asphalt, mulch, and athletic field material.
- Recycling engine oil to become combustible fuel for heating and power plants.
- Phasing out certain refrigerants, lubricants, and substances in favor of safer or less harsh ones.
Recent economic crises and natural disasters have impacted the immediate outlook for the manufacturing and sales segments of the overall automotive industry, making predictions of any range for those segments tenuous at best. However, while how these parts of the industry fare will have an impact on the aftermarket portion of the industry, the outlook is considerably more positive for segments of the industry serviced by most auto franchises.
The 2011 Franchised Business Economic Outlook released by the International Franchise Association (IFA) revealed that the automotive franchise sector grew by nearly four percent in number of outlets and employment in addition to growth of over seven percent in economic output over the previous year.3 Furthermore, the automotive aftermarket industry in general is steadily growing in popularity and expected to generate global revenue of over $336 billion by the year 2015 across all segments of the industry.
Franchises, specifically, are in position to take advantage of consolidation and technical advancements occurring within the industry, especially those in auto repair areas. According to David Byers, the CEO of CARSTAR Auto Body Repair Experts, there are aspects of the industry that franchises have a higher likelihood of having, or having the ability to obtain, needed resources when compared to their independent counterparts. “[The independent shop owners] don’t have the scale or resources to meet the standards of many of the major insurers. The economics of insurance-paid repairs can put significant margin pressure on an independent owner,” says Byers. Through certain franchise models, owners can retain a measure of independence, “but deliver centralized billing and repair management to the insurance partners.”