The Value of the Dealer Franchise System
New cars and trucks are sold through franchised dealers because the business model benefits consumers, local communities and manufacturers.
Motor vehicles are highly regulated products that require licensing, insurance and financing. These vehicles also must meet numerous environmental and safety standards. All 50 state legislatures have enacted laws governing the sale and servicing of cars, which is usually done by franchised new-car and -truck dealerships. These franchise laws not only protect consumers, but also govern the relationship between dealerships and manufacturers.
Simply put, new cars and trucks are sold through franchised dealers because the business model benefits consumers, local communities and manufacturers.
How Consumers Benefit
Consumers benefit from the franchised dealership business model first and foremost on pricing. When local dealerships of the same brand compete for a customer’s business, prices drop—often significantly.
An independent study of car prices in Texas from 2011-2013 showed that when same-brand dealers compete within 30 miles of each other, prices are much lower than when no other dealers of that brand serve the area. In one example, the price of a Honda Accord—the best-selling car in the state at the time —was $500 less in areas where multiple dealers competed against one another.
Dealers also compete on financing, where they have access to multiple lenders nationwide that are all trying to outbid each other. This competition benefits consumers, who usually don’t have access to or the time to pursue such an array of lenders.
And dealers compete on service and parts, providing consumers with access to professional and certified repairs virtually anywhere at anytime. Consumers also benefit when dealerships take on warranty and recall work. That’s because dealerships get reimbursed by the manufacturers for performing warranty and recall repairs, which enables dealers to make warranty and recall repairs at no cost to their customers.
How Local Communities Benefit
Local dealerships are the economic cornerstone of their communities. When other large companies move in and out of communities, dealers remain, offering good-paying jobs with opportunities for advancement.
More than 8,000 dealership companies operate nearly 18,000 dealerships across the country, and more than half of those companies own only one store. Another 2,000 own only two stores.
Along with the more than 1.1 million jobs at their stores, dealers also support an additional 1.18 million jobs in industries that service and do business with auto retailers. These jobs are critical—especially in providing tax revenue—to the bottom line of many local communities.
How Manufacturers Benefit
With franchised dealerships, vehicle manufacturers gain a free distribution channel for their products. Local dealerships have invested more than $200 billion in land, buildings and infrastructure to sell and service vehicles. New-vehicle dealerships have transformed over time from corner lots adjacent to service stations into multi-million-dollar facilities with modern amenities, focused on customer satisfaction.
Why Franchise Laws Matter
Franchised new-car dealerships help consumers obtain low prices in the buying, financing and servicing of their vehicles.
Franchised dealerships provide their communities with long-term, good-paying jobs, as well as significant tax revenue.
And franchised dealerships provide auto manufacturers with a free distribution and service network that they would otherwise need to pay for themselves.