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Independent dealership vs. franchise: Which is better?

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When you decide to go into the business of selling vehicles, you have two basic options with regard to your business model: independent dealership and franchise.

As explained by Profitable Venture, both business models have their respective pros and cons, and both will require a substantial investment of your time and financial resources.

Independent dealership

If you want to focus on selling used vehicles, becoming an independent dealership could be your best option since you have no constraints on what you do and how you do it. You can name your business whatever you want as long as you do not include the name of a major vehicle manufacturer. You can locate wherever you wish, and you can buy any brand of inventory you want from numerous sources, including the following:

  • Auctions
  • Finance companies
  • Fleets
  • Private sellers
  • Rental companies

Franchise

If you want to focus on selling new vehicles, you may wish to become a franchise operation. Here your business is a de facto subsidiary of the major manufacturer with which you have a franchise agreement. This gives you the right to include its name as part of your franchise’s name. It also gives you the immediate advantage of customer loyalty among the vehicle-buying public, many of whom buy only one brand every time they want a new vehicle.

Depending on the terms of your agreement, the manufacturer may provide you with a “turn-key” business, complete with a sales building, vehicle lot and service center. It likely will also train you and your staff on how to run the business and provide you with ongoing support. In any event, it will sell you your inventory. On the other hand, you may have to sell a specific quota of vehicles, paying the manufacturer a royalty fee for each.