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Definition of a franchise dealership

Updated November 22, 2016

A franchise dealership is not owned by the manufacturer, but by an independent business owner who pays to sell the manufacturer's products. A dealership franchise must follow all manufacturer's requirements, such as paperwork procedures and building design.

Size

A franchise dealership may be as big as the owner plans. Some dealers maintain only a small inventory of new vehicles, while others offer acres of new cars. Dealers also offer used cars of other makes for sale. These vehicles are not regulated by the franchise. Additionally, dealers may buy into different franchises and sell multiple makes of vehicles on the same property.

Significance

A franchise allows a dealership to order particular makes of vehicles and increase business on the lot by selling that specific manufacturer's product. Manufacturers are often regulated, so a franchise dealer operates differently than a used car dealership. For example, new car franchises must follow strict customer satisfaction guidelines.

Impact

A franchise dealership impacts other dealers in the area because of distance rules. For example, some manufacturers require another same-make dealership to be at least 100 miles away. This may cause problems in the area for dealers who want to change franchises or customers who are unhappy with the business practices of the dealership. Buyers may have to travel to find another dealer or to complete warranty service.

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About the Author

Shanan Miller covers automotive and insurance topics for various websites, blogs and dealerships. She has extensive automotive experience, including auction, insurance, finance, service and management positions. Miller has worked for dealer sales events around the United States and now stays local as a sales and leasing consultant for a dealership.