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Car Franchise – Want To Start One In 2024? Read This!
Written by: Parth Parth
Last Updated by
Sabrina Giampaolo: January 19, 2023
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In the world of Automotive and Car Franchises, there are a number of sub-categories. In this article, we will look at some of the top ones.
The U.S. has one of the largest car industries in the world. Auto manufacturing deeply depends on thousands of suppliers, materials, retail, and vehicle maintenance. Thus, it is an industry that delivers economic benefits and creates jobs in many different sectors in all 50 states.
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The Auto industry supports a total of 9.9 million American jobs, about 5.1% of private-sector employment.
In addition, it is an industry that provides great global trade benefits: $99 billion in exports of cars and parts were shipped from the U.S. ports in 2017.
Car Franchise
Most car franchises are going to be in the narrow niche of vehicle maintenance. With the pandemic, there aren’t many new cars being sold. It’s a lot of used cars. Prices have gone up nearly 30% for used cars, a lot higher than inflation. So, there are a lot more people driving cars than ever before. And there are no new cars available so these used cars need maintenance.
There are also a lot of technological changes and there hasn’t been a period in time where there have ever been more electric cars, and electric car markets are growing at double-digit growth figures in the United States. So, for the next few years, although vehicle maintenance might look positive, if you look 5 to 15 years out, it might be a different story, especially as electric cars don’t need as much vehicle maintenance.
US Automotive
The average royalty for a car franchise is 6.8% so it’s definitely higher than a food and beverage franchise that’s around 5%. And it’s going to cost you around $300,000 to $400,000 to open up an average car franchise. We’ve also looked at thousands of loans that have been issued to franchisees in the car industry. The default rate is pretty high. For every four people that pay their loan back in full, there’s one person that defaults on a car franchises loan. So that’s not a very good stat, especially, when you look at non-franchise car businesses where it’s 10 to 1.
This industry comprises businesses primarily engaged in changing motor oil and lubricating the chassis of automotive vehicles, such as passenger cars, trucks, and vans.
New gas car sales are estimated to decrease, dampening demand in this industry. An abrupt decline in demand will cause industry profit to drop considerably. The industry has experienced strong external competition from major retailers. The implications of new, more efficient motor oils will complicate inventory management, which could hurt profit. Operators will need to focus on providing quality service to gain a strong referral business and retain consumer satisfaction and brand loyalty.
The external competition will likely affect growth as major retailers continue to pose price competition. An unprecedented reduction in demand at the end of the period has placed downward pressure on industry profit.
Jiffy Lube
Jiffy Lube is an automotive oil change company that was founded in 1971 but has been a subsidiary of Shell since 2002. It is currently led by W James Hindman, the CEO. As of 2021, they have over 2000 stores in operation.
The initial Jiffy Lube Franchise Fee is $35,000. You have to pay this upfront fee when opening a Jiffy Lube franchise. This fee might be waived for U.S. veterans.
The estimated total investment necessary to begin the operation of a Jiffy Lube Franchise ranges from $232,000 to $442,650. Based on the median sales provided by Jiffy Lube’s franchise locations, at the industry standard of a 5% profit margin it will take around 14 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 5% profit margin which would elongate getting a return on your investment.
When you go to sell a Jiffy Lube franchise based on the median multiple of .49 and net sales averaging between 2020 and 2021 of $511,434, it will sell for $250,602. This is lower than the midpoint investment of $337,325.
Jiffy Lube Franchise
Looking at the businesses listed for sale on BizBuySell, however, it is seen that the multiple is actually closer to 1.1. Based on the new multiple, when you go to sell a Jiffy Lube franchise with net sales averaging between 2020 and 2021 of $511,434, it will sell for $562,577. This is higher than the midpoint investment of $337,325. Selling a franchise for that much will instantly recuperate your initial investment not adjusting for inflation. That said, Jiffy Lube franchise sales close for around 10% less than the asking price. Therefore, your revenue and final selling price are going to be closer to a 1:1 ratio.
Over the last three years, the company has been in expanding. Both franchising units and company-operated stores have increased. Over the last three years, franchises have opened at a rate of 12 units a year. This is an indicator that these stores are performing well but compared to the aggregate number of stores, it might indicate saturation in the market.
Jiffy Lube offers an opportunity to be a part of an industry that has long stood its ground, with automobiles being a necessity for most of the American population. However, with the introduction and rise in popularity of electric cars, it remains to be seen how the oil change business will adjust.
Midas Franchise
Midas is one of the world’s largest providers of automotive services, offering brake, maintenance, tires, exhaust, steering, oil change, and suspension services. It has 2,000 franchised, licensed, and company-owned Midas shops in 13 countries, including nearly 1,300 in the United States of America and Canada.
In 1956, Midas – an acronym of Muffler Installation Dealers’ Associated Service – was established by Nate Sherman. The first Midas Muffler opened that year in Macon, GA. The chain was originally known as Midas Muffler as they specialized in the replacement of mufflers. In recent years, they have re-marketed themselves as Auto Service Experts, capable of performing most routine and common automobile services, including brakes, fluid changes, and suspensions. The name is derived from King Midas and his golden touch, hence the slogan “Trust the Midas touch”.
Midas serves individual vehicle owners as well as nationwide vehicle fleets. The Midas brand is owned by parent company TBC Corporation, which also owns auto brands Tire Kingdom and National Tire Wholesale.
Midas Franchise Cost
Based on the median sales provided by Midas’ franchise locations, at the industry standard of a 5% profit margin it will take around 13 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 5% profit margin which would elongate getting a return on your investment.
When you go to sell a Valvoline Instant Oil Change franchise based on the median multiple of .49 and net sales in 2021 of $787,747, it will sell for $385,996. This is just lower than the midpoint investment of $405,473.
Over the last three years, the company has been in decline. Franchised locations have been in decline. Over the last three years, franchises have closed at a rate of 8 units a year. This is an indicator that these stores may not be performing well. Or their franchise term is up and they are not renewing it.
Midas is not a good opportunity when we look at the financials. It sells for almost $20,000 less than the initial midpoint investment. The existing franchisees are clearly leaving the business. As such, you should talk to at least 3 to 5 existing Midas franchise owners to figure out what is going on and whether the business is something you’d like to be a part of.
Valvoline Instant Oil Change
Valvoline Instant Oil Change provides preventive maintenance services for many different types of automobiles. Offering services from oil changes to battery service, the company also sells a variety of products under its brand and others such as motor and gear oil.
Valvoline has more than 1,500 units across the U.S. Great Canadian Oil Change, the largest quick-lube brand in Canada with almost 100 franchised locations, is a subsidiary. They boast about 15-minute drive-through oil changes, friendly and certified technicians, and convenient locations.
Valvoline Franchise
The estimated total investment necessary to begin the operation of a Valvoline Instant Oil Change Franchise ranges from $181,775 to $380,375. Based on the median sales provided by Valvoline Instant Oil Change’s franchise locations, at the industry standard of a 5% profit margin it will take around 8 years to recoup your investment. This is longer than other franchise opportunities but shorter than other opportunities in this market. You may not get a 5% profit margin which would elongate getting a return on your investment.
When you go to sell a Valvoline Instant Oil Change franchise based on the median multiple of .49 and net sales averaging between 2020 and 2021 of $1,077,854, it will sell for $528,148. This is much higher than the midpoint investment of $281,075.
Over the last three years, the company has expanded massively. From 1,170 stores at the start of 2019 to 1,483 at the end of 2021, Valvoline Instant Oil Change has grown a lot. The average number of units opened per year is almost 105. That is an average growth rate of almost 9% over the three years.
Valvoline Instant Oil Change is clearly an amazing opportunity when we look at the financials as it sells for almost $140,000 more than the initial investment. New franchisees are joining the business at a very fast rate – almost 2 new franchises open every week on average. You should talk to at least 3 to 5 existing Valvoline Instant Oil Change franchise owners to figure out what is going on and whether the actual figures for their locations live up to the data provided by the company.
Let’s also look at a couple of franchise opportunities in other industries.
Carstar
First, let’s have a look at an opportunity in the auto body repair business. This industry comprises businesses that repair or customize automotive vehicles, such as passenger cars, trucks, and vans, and all trailer bodies and interiors; and/or paint automotive vehicles and trailer bodies.
CARSTAR is an auto body repair chain that offers services ranging from fixing minor dents to restoring an entire vehicle after an accident. They also offer a 24/7 assistance program and fleet services.
A CARSTAR franchise costs between $23,500 to $165,300. That gives us a midpoint investment of $94,400. The profit margin in this industry is very low, at 2.5%. To recover the initial cost at that profit margin, would take around 4 years. This is shorter than other opportunities. A CARSTAR franchise would sell for $789,162 with median sales per store in 2021 of $1,753,695 and a median multiple of .45. This is much higher than the midpoint investment.
It is clear to see why this company is experiencing massive growth. Between 2019 and 2021, the company saw an average growth rate of 10% per year.
Lastly, let’s look at the tire replacement industry. It deals in retailing new and/or used tires and tubes or retailing new tires in combination with automotive repair services.
Big O Franchise
Founded in 1962, Big O Tires is a tire store franchise in the U.S. that sells its own private brand tires and other brands, while offering basic maintenance and replacement services. It has 450 independently owned and operated locations extending through 23 states primarily in the Western and Midwestern United States. In addition to selling and servicing tires, wheels, and alignments, Big O provides maintenance and replacement services including oil and filter changes, batteries, brakes, suspension, and steering services.
A Big O franchise costs between $313,500 and $1,143,800. That gives us a midpoint investment of $728,650. The profit margin in this industry is very low, at 2.5%. To recover the initial cost at that profit margin, would take around 11 years if your store performs in the top quartile. This is longer than other opportunities. A Big O franchise in the top quartile would sell for $1,592,246 with median sales per store in 2021 of $3,538,325 and a median multiple of .45. This is much higher than the midpoint investment.
However, it looks like the company’s financials are not as good for franchises in the other three quartiles. Big O has lost 23 franchises in the last three years. We recommend speaking to existing Big O franchise owners to learn more about the franchisor and the business.
Conclusion
We hope this article gave you some insight into the top franchise players in the car and automotive industry. With the decline in the number of gas cars expected in the coming years, it remains to be seen how these franchises will react.
Have a look at other franchise opportunities in the Automotive Industry on Vetted Biz.
