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Transferring an auto dealer franchise: 3 things to know

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Looking to get out of an auto dealership franchise? One option is to transfer ownership. The buyer will take on the existing dealership rather than starting fresh as a new franchisee.

A transfer may be a much more attractive option than incurring exorbitant penalties from terminating a franchise agreement early. However, these transactions involve unique considerations. Some manufacturers are more open to them than others.

Here are three things to know if you’re considering pursuing a transfer.

  1. It starts with the franchise agreement

At the foundation of any franchise is the written franchise agreement. These contracts —which spell out the rights and obligations of both franchisors and franchisees — may contain strict rules and restrictions on transferring dealerships. Understanding how these provisions are spelled out is thus a critical early step when exploring a possible transfer.

  1. Beware of fees and conditions

Manufacturers often seek to impose hefty fees and onerous conditions on transfers. These fees and conditions may or may not be rooted in the franchise agreement itself. Either way, it’s far better to identify and address these potential hurdles early on, before you have a lot on the line (and a potential buyer on the hook).

  1. Dont be afraid to negotiate.

Even if the franchise agreement seems unfavorable to a transfer, you may still have a strong bargaining position. Perhaps the unfavorable terms are vague or unenforceable. Or maybe you can convince the manufacturer that it’s in their best interests to approve a transfer with minimal conditions. Don’t assume you’re out of luck without exploring all the options.

Transferring an auto dealership can be done, but it can be tricky. The takeaway? Don’t try to navigate such a high-stakes deal on your own.