What You Need To Know To Start a Business in the Automotive Franchise Sector

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Automotive franchises offer valuable car-related products, repair services and valeting services.

Typically previous experience in the motor servicing is encouraged however this is not a requirement, a franchise like Car Service City have said that they are looking for franchisees that have the personal attributes to become a successful business person, rather than someone with previous motor servicing experience. “Our current franchisees come from varied backgrounds, which include chartered accountants, MBA’s, former Marketing and Financial Directors,” it said on their website.

If you are considering being part of the big brands in franchising, here’s what you should consider:

Franchise options

The Franchise Factor research report on the automotive after market covers a number of sectors, which includes:

  • body repairs and services;
  • glass repairs and services;
  • maintenance and repairs;
  • wash and valet;
  • specialised fitment;
  • tyre fitment and services;
  • parts supply;
  • vehicle tracking services, as well as battery repair and replacement.

Industry insights

The franchising analyst Bendeta Gordon told BusinessLive said the increase was prompted by a tough economy that had changed new-vehicle purchasing patterns. As vehicles were kept for longer, the need for maintenance and other after-market services had grown.

Gordon added: “The bottom line is that franchising is a lower-risk opportunity directed at offering black entrepreneurs entry into the mainstream of economic activity by making small-and medium-sized franchised businesses available to them.”

The Manufacturing Indaba said that the automotive sector currently contributes 33% to manufacturing GDP and about 6% to overall GDP. It produces approximately 600,000 vehicles per year, supporting 113,000 jobs.

Gordon said the majority of the 79 franchised systems in the 2017 report – 28 – have ten or fewer stores, while only two have more than 251 stores. The estimated turnover of the the franchised systems are R32-billion in 2017.

She also said that while there were no firm figures to confirm,  it was “likely” that these operators also took in about 30% of the sector’s R32bn turnover in 2017.

Setup costs

It depends on which franchise you are planning to buy in. For example, Car Service City said that the price of a franchise (with them) largely depends on the area one is planning to open the branch, as the prices range from R550,000 to R1,200,000.

On the other hand, according to the SA Franchise Brands, Midas asks for a conversion fee of R 50,000, while the franchise Tyres & More‘s requirements include access to funding, a total investment of R4-mil. of which R2.5-mil. is for set up costs and R1,5-mil for working capital.

Monthly fees would include your business insurance for the premises and things like the equipment.

Funding

According to the Franchise Association of South Africa (Fasa), most franchisors will insist that you fund between 30 –50% of the complete investment from your own resources. Fasa warns that if repayments are big, it would place strain on your new business’ cash flow.

Basic equipment

The Entrepreneur Mag reported that if you are looking to acquire equipment, for example, for wheel alignment, you can:

  • Contact wheel alignment outlets
  • Go to auction sales (find out about this in newspapers)
  • Check trade magazines for adverts on second-hand equipment
  • Check websites like Vottle and the web directory AutoStart

Legalities

Things you have to apply for include a business bank account and SARS Tax.

Laurette Pienaar, Nedbank’s national franchise manager, said to Moneyweb that similar to the franchise agreement, franchisees are encouraged to seek legal advice prior to entering into a lease agreement and supplier agreements.

Documentation

  • Disclosure profile document: It gives you the background of the franchise. “You’ll also get a list of franchisees who part of the franchise and you can call them up,” explained Riaan Fouche, the Chief Operations Officer at FNB Business. With this document you can do the necessary research about the franchise.
  • A non disclosure document: This will be forwarded to all interested parties to ensure confidentiality.
  • Franchise agreement: This document tells you what you are getting yourself into.
  • Approval letter from the franchisor: It will be needed for when you apply for a loan at the bank.
  • Personal details (for the bank loan application): This includes your personal details like the statement of assets and liabilities (or balance sheets), a business plan from their side, curriculum vitae of the individual (short), a comprehensive set up cost, and a cash flow projection for at least three years. The franchisor assists the franchisee with all of this.

Support and training available

  • Depending on what franchising you’re going into, the training is provided by the franchisor and it can take from several weeks to a couple of months.
  • The Seda Automotive Technology Centre (SATeC), which is supported by the Small Enterprise Development Agency (Seda), functions as a business incubator for the automotive sector. It offers entrepreneurs in the sector an environment which nurtures the development of their business to the point of sustainability.
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Melissa Javan
Melissa Javan
Melissa Javan is a writer with nine years' experience in the media industry. She enjoys blogging and taking part in Twitter chats. You can find her on Twitter @melissa_nel.