Franchised vs Independent Dealerships: What is the Difference?

The auto-selling industry attracts thousands of entrepreneurs each year. Currently, there are about 17,600 new car dealerships in the US alone. The dealerships have ensured that the car-buying procedures are straightforward.

There are two main types of car dealers in the market: franchise and independent. When buying a car, one must decide whether to buy from independent or franchised dealerships. So, what is the difference between the two? Below is an overview that will help you understand the difference between a franchise and independent dealerships.

What is a franchised dealership?

A franchised dealership is a car dealer with exclusive rights from a specific brand or manufacturer to sell new cars to the public. A franchised dealer also has the right to sell used cars.

You can easily distinguish franchised from independent dealers through the dealership’s name. Most franchised dealerships, for example, Jane Smith Ford, will have the car brand or manufacturer in their name.

In addition, a franchise dealership setup requires investors to invest a significant amount of money. The investors will need to pay for things such as license fees and franchise fees. Also, the manufacturers and brands provide a set of rules which the franchise dealers need to follow to ensure a productive partnership.

What is an independent dealership?

Unlike the franchised dealership, an independent dealer only sells used cars to the public. However, some independent dealers have distribution rights from privately-imported cars.

Manufacturers or brands do not control independent dealers. Therefore, the dealers can run their businesses however they like. Also, starting an independent dealership is much cheaper than a franchised dealership due to fewer expenses.

Generally, an independent used car dealership costs between $50,000 and $1 million to open. However, this cost varies depending on the size of the dealership, specific bonds, your location, and insurance cost.

The primary differences between franchised dealerships and independent dealerships

Several differences exist between franchised and independent dealerships. Below are simple explanations of how they differ:

Regulatory standards

Franchise dealers need to comply with regulatory standards set by the manufacturer. For instance, individuals in managerial positions need to be well-versed with the manufacturer’s applications and warranty.

On the other hand, independent dealerships do not need to follow any manufacturer’s guidelines. However, some join the Independent Dealer Association (IDA), even though it is not a must. IDA provides a set of applicable standards for the independent dealership industry.

Financing

Franchise dealers are highly likely to provide you with low-interest rates for car loans. In most cases, the financing happens through the financial service department of the manufacturer.

For example, in Ford, there is the Ford Motor Company Credit. One main benefit of financing through a franchise department is incentives, like loyalty bonuses not available with independent dealers.

The independent dealers will also provide ways to finance your car purchase. However, the interest rate may be slightly higher than getting a loan through franchised dealers. One main benefit of financing by independent dealers is the availability of auto loans to people with bad credit. Therefore, anyone declined by franchised dealers can source financing from independent dealers.

Vehicle pricing

In independent dealerships, you will find that vehicles are available at relatively affordable prices. One of the main reasons for the low prices is that independent dealers sell used cars, which sometimes may be late models. Also, independent dealers do not need to pay royalty fees to manufacturers.

On the other hand, cars in franchised dealerships are more expensive than those at independent dealers. Franchised dealers have expensive cars because the vehicles have high quality and are the latest models.

Vehicle age

Independent dealerships may stock old vehicle models you may not find in franchised dealerships. However, they may also have models that are not very old. With franchised dealerships, you will find both used and new vehicles.

For the used vehicles, the dealers sell the latest model. Generally, most franchised dealerships will not have stock of cars over three years old. The used cars from franchised dealerships go by the name of certified pre-owned vehicles. They are the best in the market, as most have a single owner.

Also, the cars are refurbished and inspected to ensure they are in the best shape possible. The used cars from franchise dealerships have a manufacturer’s warranty that helps cater for unexpected repairs.

Vehicle service

Most franchise dealerships have a service department with well-trained technicians. The experts work on the specific brands of new vehicles that franchise dealers sell. Thus, the expertise of the trained technicians is to detect unique problems in the automaker’s vehicles.

Even though on-hand technicians may appear beneficial, they have limitations. For instance, a technician from Ford may not provide optimal service if you are buying a used Honda from the same dealership. However, they will give the best service to anyone purchasing a Ford as they are specifically trained to work on Ford cars only.

With independent dealerships, there are no service departments to help fix your car after purchase. You can find that some car models and makes will need specific technicians and tools, which the independent dealer does not have. Thus, you will need to take the car to the nearest mechanic shop.

Vehicle knowledge

As a general rule, franchised dealers working with a specific car manufacturer need to have extensive knowledge of cars produced by the manufacturer. The sales team will most likely have detailed knowledge relating to the vehicles. Extensive knowledge may be beneficial if you need in-depth information before purchasing.

On the other hand, a sales team from independent dealers may not have specific knowledge of the model you wish to buy. The salesperson will most likely provide you with a neutral guide, ensuring you have an overview of the car instead of in-depth knowledge concerning the specific model.

Vehicle selection

A franchised dealership sources its vehicles from a specific manufacturer. They can also get cars from other franchise dealers if they have the particular model and make they need. In addition, some franchised dealers affiliate with different brands to ensure they have a more extensive selection of new vehicles under one roof.

On the other hand, independent car dealers have a wide range of used car selections from several manufacturers. The dealers can choose which models and make to stock and which to avoid.

Final thoughts

Both independent and franchised dealerships provide a chance for anyone to own a vehicle. Buying from a franchise dealer ensures you enjoy better financing, car service and warranty, and exceptional customer service. On the other hand, buying from an independent dealer will allow you to have a wide range of car make and models at affordable prices.