Franchise System

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 and trucks, 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, the current franchised new-car and new-truck dealer model has benefited consumers, manufacturers and local communities for nearly a century. It is supported by both dealers and factories as the best and most efficient way to buy, sell, service and finance cars and trucks.

Key Points

  • The dealer franchise system benefits consumers. 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. 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 any time. 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.