Franchise vs. Independent Dealer: What Is the Difference?
Long before online ratings and Yelp reviews, America’s first car dealerships opened in 1898. Even back then, when some cars being sold were powered by steam, there were two types of car dealers — independent dealers and franchise dealers — and that’s still the case 122 years later. Today, there are nearly 17,000 franchise dealerships in the United States, and even more independent car dealers. The problem is, many car shoppers don’t understand the differences between the two types of dealerships, and they don’t know the advantages and disadvantages of buying a car from each type.
They include Helen, a single mom from Las Vegas. “I’m shopping for a good used car right now, but I’m not sure where to go for the right car and the best deal,” she says. “Where we live there are so many dealers to choose from, big and small. Should I go to one of those big fancy dealerships, like a Toyota or Honda dealer? I was going to, but then my neighbor Sam said he got a good deal on a used Honda at the small dealership on the corner. What do you think I should do?” Let’s answer those questions now.
What is a franchise car dealer?
When most people think of franchising, they think of fast-food brands like McDonald's or Subway. Well, it means the same thing when it comes to car dealerships. All of the automakers, companies like Toyota, BMW, and General Motors, design, engineer and make the cars and trucks, and franchise the right to sell their products to licensed dealers. These dealers buy those products from the manufacturers and then sell them to the public at a higher price.
If you’re going to buy a brand-new car, in most states you have to go to a franchise dealership. This is because most states have made it illegal for auto manufacturers to sell their cars directly to the public. However, even in states where such a law does not exist, nearly every auto brand from Acura to Volkswagen sells its products through franchise dealerships. The primary exception is electric-car maker Tesla, which sells all its vehicles directly. It’s like when you buy an iPhone at an Apple store, while buying the phone from Verizon is like buying a car from a franchise dealer.
What is an independent car dealer?
Independent car dealers — from little mom-and-pop stores to huge brands with television commercials like Vroom or Carvana — have no relationship with an automaker and therefore do not have access to new-car inventory from any brand. They deal exclusively in used cars.
Independent stores do not deal in new vehicles. Think of it this way: The Subway sandwich shop down the street is like a franchise car dealer. It sells the subs that the people running the brand supply, and one Subway store sells the exact same food as another. Every Toyota dealer sells the same new Camrys and RAV4s. Every Chevrolet dealership sells the same new Tahoes. But the corner deli is an independent. It can change its menu whenever he wants. No tuna this week. Today it only sells roast beef. Next week it’s in the burger business. The twist is that franchise dealers sell used cars, too. Their lots are stocked with vehicles that have been traded in, returned at the completion of a lease, or bought at an auction. But these used-car operations are often separate from the dealer's relationship with the franchising car company. Remember, car dealerships, even franchise car dealers, are independent businesses.
Advantages of Shopping at a Franchise Car Dealer
The biggest advantage to buying a new or used car at a franchise store is selection. Franchise stores tend to be larger than independent dealers and will have more cars on site to shop. These are also the only dealers where you can compare new and used cars in person to find the best vehicle and the best value. With the support from a massive automaker and its thick wallet, franchise stores can also offer a wider range of corporate incentives, discounts, and financing terms, which may save you money. As we mentioned, however, franchise dealerships are independent businesses, so it’s important to remember than they can sell you a car for any price they want.
Some people will tell you it’s important to buy your new car from the franchise dealer closest to your home so you can get it serviced there down the road. While it’s true that franchise dealerships have technicians trained specifically on the brand’s new models and their service departments have access to approved tools and parts, they don’t just service cars that were purchased there. You can service nearly any brand of vehicle at nearly any brand’s franchise dealer, or any variety of independent repair shops.
Advantages of Shopping at an Independent Car Dealer
Often the biggest advantage OF buying a used car at an independent dealership is price. Usually independent stores offer better prices, but we’re not talking about the big used-car superstores like CarMax. It’s the mom-and-pop shops that have the lowest overhead and can sell cars for less and still make a profit.
It’s important to keep in mind, however, that these types of dealers may focus on older models than franchise dealerships, as well as cars with higher mileage. This is good if you’re looking for an affordable used car on an extremely tight budget, but it can severely limit your selection of vehicles if you were hoping to buy something newer with fewer miles on it. Some independent dealers also “carry their own paper,” which means they do their own in-house financing — letting you finance the car right through the dealership instead of a third party like a bank or credit union. This can be a big benefit for those with bad credit, as it may be the only way to secure the loan to purchase the vehicle. However, you could be charged extremely high interest rates, so know what you’re signing and do the math.
Certified Pre-Owned Cars and Trucks
The three most important things when shopping for a used car are its condition, its condition, and its condition. Remember that. New cars all the same, but when it comes to used cars, condition is everything. And generally, the best condition used cars are certified pre-owned (CPO) vehicles. Most automakers offer CPO vehicles on the very same franchise dealer lots as their new cars, and their CPO programs offer a long list of advantages over buying a used car from an individual or an independent used car dealer.
The concept was pioneered by luxury automakers like BMW, Lexus, and Mercedes-Benz, but most brands now have certified pre-owned programs. They continue to gain popularity because CPO programs offer car consumers a broad selection of nearly new cars, trucks, and SUVs that have been meticulously inspected, repaired, and otherwise spruced up by the dealer, then guaranteed by an extensive warranty. The higher quality and condition of a CPO vehicle is immediately apparent compared to the typical inventory at many small independent dealers or used car superstores. CPO vehicles do usually cost a bit more, but they’re often the best value.
How to Get The Best Deal
Before walking into any dealership, fill out an online used car finance application, take the time to find the lowest interest rate you can, and bring it with you. Maybe one of the dealership’s lenders will beat that rate, maybe not. Either way, this is the best way to get the car you want at the best price. It’s also always a good idea to have a trusted mechanic inspect any used car thoroughly. Any good seller selling a good used car will agree to such an inspection and make the car available.
And of course, always take a test drive. It may be in vogue to buy a car new or used over the internet these days, but it’s a big purchase. Before you click the “Buy” button, make sure you like driving the car and that it feels as good as the seller says it is. And lastly, if you’re buying a used car, first read its vehicle history report carefully. Twice. Stay patient. The right car for you is out there. You just have to find it.