An automobile or car dealership is known as a local distribution center that sells new and used vehicles or cars. Based on the dealership contract, cars may be sold at retail or wholesale prices. The amount is based upon the dealership’s contract with the sales subsidiary or the contract with the automaker. Traditional dealerships are located on large lots and employ salesman, automotive technicians, parts and service technicians, financial specialists and administrative personnel. As a result of automotive manufacturers shifting to create a standard look for their dealerships, the large corner car lots across towns are fading. BMW, Audi, Mercedes-Benz, and Tesla are all leading the way with hi-tech showrooms allowing customers an interactive sales experience. The automobile industry recorded close to $715 billion in new car sales and $89 billion in used car sales. The automotive industry is so lucrative that even Warren Buffet has entered into the ranks of automobile dealership owners. Known as one of the wealthiest and most successful investor the world, Buffet has crest into ownership of the fifth-largest chain of vehicles in the country, Berkshire Hathaway Automotive. Private equity companies have shown interest in entering the automotive retail business, but they are not favored by automakers as they are known to load dealerships with debt and see after several years. Soros has been a favorite in getting approved by the National Automobile Dealership Association (NADA) as he has gained wealth in bonds, interest rates and equities and trading currencies(1). Cox Automotive President Sandy Schwartz was excited about Buffet’s acquisition and told Business Insider, “This acquisition shows the importance and value of dealerships such as the Van Tuyl Group in the automotive ecosystems.” (2) Schartz added, “As we continue to innovate and find more effective and efficient ways to further our industry and serve our customers, it’s exciting to have a leader like Warren Buffett be a part of the automotive community,” Schwartz added. (2)
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The auto market is robust in the United States with new vehicle deliveries topping 16 million annually. Sales are expected to continue to soar for some time. The modern dealerships now consist of multiband automobiles from different carmakers. BMW was one of the first to move in creating a standard look for their dealerships located worldwide. They pioneered introducing ‘product geniuses’ as a liaise with their consumers. Audi spearheaded a hi-tech showroom allowing customers to experience new vehicle personalization in the showroom. Mercedes-Benz presented the ‘city centre’ brand store model offering a new standard in customer service. Some dealerships specialize in electric cars such as a rising star in the market, Tesla Motors. This new automaker is an American company that sells electric vehicles, electronic vehicle powertrain, and battery powered products. Since 2008, thisTesla has been using lithium-ion battery packs to power their vehicles. Tesla pricing is competitive to other mid-sized model cars starting at approximately $35,000. The Department of Transportation Motor Vehicle Administration provides basic information about different dealer types including new, wholesale, motorcycle, emergency, trailer, manufacturer and distributor. New vehicle dealers sell new vehicles under a franchise agreement with a licensed distributor or manufacturer. This business type requires a suitable location for sales. Used car dealers sell used vehicles to other dealers and the public. A physical location is needed and the only business conducted must be auto sales related. Wholesale dealers sell, exchange and buy used vehicles from other dealers. Wholesalers cannot sell to the retail public, but may purchase vehicles from the public. Motorcycle dealers sell new motorcycles under a franchise agreement with licensed distributors or manufacturers. At times, motorcycle dealers may be licensed to sell only used motorcycles. Emergency Vehicle Dealers sell new emergency vehicles under a franchise agreement with a licensed distributor or manufacturer. Their location may be only an office and does not require a car lot. Trailer dealers sell new trailers under a franchise agreement with a licensed distributor or manufacturer, but the dealer must have a suitable site for retail. Finally, a distributor is an authorized importer of new vehicles assembled or manufactured outside of the United States.
A business term franchise refers to a variety of business ventures. The structure is designed to protect the owner of a process, product, system, service or name. Permission is given to another party to use it in exchange for a fee. There were roughly 1200 companies in business in 18 industries offering franchise opportunities in the United States by early 2000. According to Arthur Pressman in the Legal Intelligencer, 550,000 franchisees generated over $800 billion in annual sales in the U.S. Franchises are recognized as a traditional method of starting a new business, and for good reason. Mitchell Stern, author of Buying Your Own Business,notes that the failure rate for new businesses is nearly 40 percent in the first year, compared to less than 5 percent of new franchise failures in that same year.
Distributorships and Dealerships are both licensed to distribute a product, but there are some differences. The Reference to Business differentiates the two well, in saying “Distributorships and dealerships are in essence a license to distribute a product. Both dealers and distributors work with a manufacturer to get its goods to the buyer. Both dealers and distributors have a continuing relationship with the licensor of the product but do not need to incorporate the entire business plan of the Licensor into their own business.” (5) They go further to say, “A dealer differs from a distributor in that a dealer will typically sell only to a retailer or a consumer while a distributor can sell to a number of dealers or to the general public.Dealerships and distributorships are known as product franchises.(5) Hannah Elliott of Forbes Magazine did an in-depth look into America’s Best Auto Dealerships. In 2008 and 2009, Chrysler and General Motors were closing about 800-1,100 dealerships nationwide while Jaguar shined through the recession. The top five dealerships were Mercedes-Benz, Lexus, Jaguar, Saturn and Land Rover. Visibly absent from the top five was German made BMW.(4)