Industry sector:

Motor dealer: Obtaining a franchise

Early motor manufacturers had little interest in selling their own products and so looked to develop networks of specialist suppliers. Selling new cars is not like selling most other goods - special training and facilities are needed, as is quite a large amount of space. Also, as the agent of a major manufacturer, a new car dealer is responsible for the public image of that particular marque. So vehicle manufacturers took steps to control how many dealers sold their cars and the way in which they sold them.

When legislation was introduced in the UK and Europe to increase competition among suppliers and retailers of consumer goods, the motor industry argued that it was a special case and was exempted from the normal competition laws under a 'Block Exemption' rule. As a result, only approved franchised dealers are permitted by vehicle manufacturers to operate as 'main dealers' for their products. However, a change in the rules in 2003 did make it easier for other types of business to sell new cars on a 'sub-dealer' basis. The legislation was reviewed in 2010, and the competition rules for motor traders in the EU changed again in 2013 when new car distribution switched to being covered by general competition rules that apply to most other industries.

To become a franchised main dealer, you will have to find a vehicle manufacturer that is looking to appoint a new franchise in the area where you want to open your business. It may be worth considering manufacturers that are new to the UK market, such as certain Chinese vehicle makers. You will then have to convince the manufacturer that yours is the best business to hold that franchise. Depending on the way in which the manufacturer appoints new franchises, you will probably have to do one or more of the following:

  • find an area that is not currently served by an existing franchise (often referred to as an 'open point')
  • convince the manufacturer that a particular area would support a second franchise - perhaps because the population has increased significantly
  • persuade the manufacturer to terminate an existing dealer's franchise and appoint you as the replacement
  • acquire an existing business that already holds a franchise
  • find a manufacturer which is looking to break into the UK market and establish a dealer network (for example a newly established manufacturer, or a small independent producer of specialist vehicles)
  • find a manufacturer which is about to completely reorganise its dealer network
  • demonstrate to the manufacturer that you and your business are suitable candidates to hold a franchise

Note that buying an existing franchised dealership will not automatically mean that you obtain the franchise. Most manufacturers state explicitly in their dealer contracts that a change of ownership may result in the immediate termination of the franchise agreement. However, if you can show that you and your business are appropriate for the position of franchise-holder then the manufacturer may be happy for the agreement to continue in your name. Always speak to the manufacturer in question before acquiring a business in this way.

Approach the manufacturer or manufacturers whose vehicles you would like to sell to find out about the possibility of obtaining a franchise. In practice, you may find that obtaining a franchise with a major manufacturer is difficult. Franchise numbers are currently falling as territories get larger, while some manufacturers are moving into ownership of their own retail outlets. Most vehicle manufacturers have reduced their number of franchised outlets in recent years and some are continuing to do so. When a profitable franchise does become available, it may get snapped up by a major dealer group which already has an established track record with the manufacturer.

When bidding for a franchise, it is often advantageous to have an established motor trade business of your own. Being already active within the industry will also be helpful when it comes to establishing useful contacts and finding out when a franchise opportunity is likely to become available.