What About An Automotive Franchise?

Is Now A Good Time To Join An Automotive Franchise?

More than 90% of American households own at least one vehicle, and most of them are used cars that require ongoing maintenance to keep them operating in a safe and efficient manner. Used car prices have risen by nearly 30% since the pandemic, so many entrepreneurs may be assessing this market and determining that the benefits outweigh the risks.

There are some very good reasons to buy into an automotive franchise, but investors should be cautious and carefully assess their financial situation and the broader automotive industry forecast and consider all of the risks they could face. This will help determine whether moving forward is a smart move.

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The benefits of an automotive franchise

Most automotive franchises deliver goods and services aimed at keeping used cars in top condition. Since most American vehicles are used, there is certainly demand for the services offered.

Many automotive franchises operate from a set location during specified hours, which means that franchisees can enjoy a good work-life balance that is free from interruptions and uncertainty. Work tends to be planned in advance, so scheduling staff and workshop space and forecasting cash flow is reasonably simple.

Automotive franchises offer well-known brands and excellent levels of customer support, so local communities tend to trust a franchise brand more than they would a completely new, independent garage or mechanic offering the same services.

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The drawbacks of automotive franchises

The average royalty for automotive franchises is 6.8%, which is higher than that associated with a food and drink franchise. The buy-in figures are usually higher than the U.S. average, too, so prospective entrepreneurs need deep pockets to join this industry.

It is estimated that 20% of franchisees in the automotive industry default on their loans because they are unable to secure enough work to make the necessary repayments.

Part of this relates to the rise of electric vehicles. These new, modern vehicles are set to overtake traditional vehicle sales in the next 10 to 15 years. Because they need specialized maintenance, it is unlikely that the current format of automotive franchises will be set up to maintain these vehicles. This means that there is a likely end date for any new franchises that are established in the near future, which could limit appetite.

In conclusion, there are plenty of options available to entrepreneurs who have a passion for vehicle maintenance, but they ensure they can afford to invest and see a return on that investment in the near term before making the leap.

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