|Marie Groves knew plenty about the used car sales business when she started exploring what she needed to do to open her own lot. After all, she had worked for sub prime finance companies and also had done a stint in the F&I department of a dealership.|
But, it was precisely because she had a background in the business that the idea of opening up her own lot left her hesitant. She knew she needed a host of vendors to support the business. As a new dealer out on her own, she also knew that wouldn’t be easy.
So at the beginning of 2006, Groves opted to pay for a Payless Car Sales franchise. She opened her doors at the end of February and has been counting the advantages ever since.
“We have negotiated rates with several of the floor plan companies that are lower than what Marie Motors could get, which helps with interest and fees,” said Groves. “Payless also brings lenders to the table. Most will not sign you up if you haven’t been in the business two to five years, and we signed up several out of the gate.”
Groves is convinced that the franchise approach has also helped her grow far faster than she would have on her own. “This store has gone way beyond my expectations,” she said. “We’re in a small town – a depressed area – an hour and 45 minutes outside of Charlotte in Shelby, North Carolina.”
However, business is good. Considering that she’s still a member of the freshman class of dealers, it’s been very good. Groves’ best month in 2006 turned out 60 cars, but on average the dealership retailed between 40 and 50 units per month. This year, she expects to average between 60 and 65 cars a month and hopes to see an 80-plus month.
Instant name recognition, vendor and lender relationships built on group rates, and some essential support services are among the leading reasons why a relatively small group of dealers around the country like Groves has opted to pay tens of thousands of dollars and a per-car royalty to join the ranks of Payless and Thrifty Car Sales dealers. During 2006, both groups looked to reenergize their franchise with new offerings and expect to capitalize on their work with rapid growth in 2007.
The Payless Way
Formed in 2001, Payless Car Sales has grown to 58 franchises in 16 states and Canada. Next year, said Ben Harned, the CEO of Dealer Diversified, LLC the Regional Area Master Developer for Payless Car Sales, the company expects to expand its dealer network to 90 to 100 franchisees working under the Payless banner. Most of those new dealers will have a track record in car sales, but now about one in five are also new to the business.
All of them, though, are expected to have a good history in business, a minimum net worth of $500,000 and $150,000 in cash on hand. With that kind of financial base, they’ll be able to qualify to buy a franchise for $30,000 and fork over a royalty of $125 for every car sold.
“Every bank tells us we do a better background check than the banks do,” said Harned, himself a Payless franchise owner. “What we approve is approximately three inches thick. Clean is the word I would best describe what I’m looking for.”
In return, said Harley, dealers get a brand name that attracts business, direct business support from a franchisor that cares and listens and the chance to take advantage of lender/vendor relationships that are touted as some of the best in the business.
“Selling anything other than the brand first is just wrong,” said President Mike Harley, who had been selling Payless rental franchises dating back to 1983 before he switched to the sales franchise approach. “Anybody that comes to you has got to believe in the brand. It’s emotional, action driven. It means something. It’s not ABC Car Sales. It’s not Mike’s Car Sales. This name is going to draw that consumer in.”
“After the brand, it’s undoubtedly dealer support,” added Harley about the benefits of a franchise deal. “If you’re the prospect and you become the franchisee, we don’t say ‘Good luck. Send us a check every month.’”
Dealers have a chance to tap into business relationships Payless has negotiated on behalf of all of its dealers. And those kinds of numbers can deliver a significant advantage. “The relationships we bring to these dealers are second to none,” said Harley.
But dealers can still pick and choose among the after-sales products as they please. “You can’t make franchisees do anything,” said Harley. “You have to entice them. About half of the dealers in the U.S., for example, are signed with CitiFinancial Auto for the service side of the business.”
With franchises all over the country, the dealers routinely get together by phone or over the Internet. “We get over 100,000 unique visitors a month looking for a car,” said Harley about the corporate Web site. “Behind the Web site we built an intranet for the dealers. If one of them had a successful tent sale, they can write that up and other dealers can respond to it.”
A remodeled Thrifty
With 39 franchises around the country, six years after Thrifty Car Sales started actively seeking out new dealers, it’s fair to say that the used car franchise isn’t where the company expected to be at the beginning of 2007. However, Thrifty has also been refurbishing the brand by adding some powerful new incentives as it plans a rapid scale-up through the year ahead.
“Over the last two years we have spent a lot of time remodeling Thrifty Car Sales, reestablishing the business model, adding value,” said Vice President and General Manager Jeff Cerefice. “We think it’s a great opportunity, but we needed to tweak the business model. We even took a pause selling franchises and in ‘06 we’ve come out full blast selling franchises again, and we think now we’ll see a much faster growth pace.
“At the end of next year we’d like to be 60 to 65 locations,” added Cerefice. “That might sound conservative, but we do want to take a deliberate, measured approach to selling franchises.”
One of the new features that have attracted a lot of positive buzz from its franchise dealers is the business development center run out of its corporate call center. Franchise dealers can freely use the center as much as they like, putting a corporate 800 number in their ads and letting the call group field queries and set up appointments.
Thrifty has also been working to create better relations with lenders and other vendors. Its Web site has been revamped to help generate leads, and the company has begun to bring in a preferred event sales vendor to whip up the kind of special events that can juice a dealer’s sales. Franchise dealers can get a preferred rate for the service and the rental firm trucks in loads of its used cars in the region to beef up inventory and really bring in the crowds.
Would-be franchise owners need to come to the table with $500,000 in equity and $100,000 to $300,000 in liquidity. The first franchise costs $35,000 but drops to $20,000 to add a franchise. The per-car sales royalty starts at $150 and can slide down to $100 based on sales volume. Franchise dealers get a territory of their own, but it’s flexible in size – smaller in big cities and bigger in rural areas.
Experience in the field is non-negotiable, said Cerefice. Prospects need five years in the car business to qualify for a franchise, and if a Thrifty prospect doesn’t have it, he or she needs a partner who does.
To stay in the fold, dealers in both groups have a set of standards to maintain. The appearance of the lot has to retain a franchise look with specs on signage. Payless requires a paved lot, no dirt or gravel. Groves added that the corporate group also expects dealers to maintain a high ratio of late model vehicles with a minimum of 45 cars on the lot.
“They don’t want people to see us with only 20 cars,” said Groves, “and think we’re a small mom and pop. If we keep 45 cars at any one time, it looks better to lenders and floor plan companies. A lot of what they sold to the lenders is that we are a larger, mid-sized dealership.”
By having business standards that everyone can agree to, said Yul Armani, who runs two Payless franchises in Florida, each franchisee helps to maintain the reputation of everyone operating under the Payless name.
“The bad thing in a chain,” said Armani, “is that if you have one bad person, they can screw up your business. I want to make sure everyone will do the proper job and do business the right way.”
Brad Call operates two independent lots in Idaho that specialize in older, higher mileage vehicles. But his two Thrifty franchises deliver the kind of prospects he needs to sell late model, low mileage vehicles at a higher price.
“A lot of new car buyers will roll in to a franchise where he wouldn’t go to an independent,” said Call. “This is a new car alternative.”
Thrifty’s corporate office will provide creative support for advertisements and direct mail campaigns, said Call, which he’s excited about, but it’s Thrifty’s new call center that creates the real buzz.
“It’s really a great tool,” said Call.
Every customer who comes in is entered into the system, along with the kind of vehicle each customer test drove. “The call center will make follow-up calls; ‘Did you find and purchase the right car?’ Or, they will follow-up on a purchase, ask for referrals,” said Call. “We get a ton of feedback on the sales process. A customer will tell corporate something that they wouldn’t tell the sales person. They’re giving them the straight truth.”
“It sounds crazy, but at the dealership it gets so busy, you can’t give customers all the time they need,” said Tom Celona, who owns three Thrifty franchises in Rhode Island. The call center can, leaving the dealership’s sales team focused on making sales rather than appointments.
“They have established some terrific programs on warranties and financing, all the typical after-sales products,” added Celona. Thrifty has also struck national deals to support dealers’ direct mail campaigns and other promotional campaigns.
In this business, though, no one is resting on any laurels. “Payless is an innovative company,” said Groves. “I feel that they are open to new ideas, and I feel that they are a company that is continuing to bring more and more to the table in way of benefiting dealers.”
Both Thrifty and Payless dealers can buy rental cars at an advantageous price, often gaining an early look at the rental inventory. Some of the Payless dealers are also creating their own twenty groups, so they can brainstorm new ideas and track their financial performance in comparison with proven leaders in the field.
There are some drawbacks to franchising, though, Groves conceded. The Payless name isn’t as well known in North Carolina as it is in other parts of the country, so she wound up paying for name recognition that actually didn’t go very far at first, but she’s still eminently satisfied with the value of the relationship.
Now she plans to open five stores in four counties, and she’s more than confident that the franchise relationship will help make them a success.
Vol 4, Issue 3