At first blush, Great Clips and Singer Sewing Machines don’t have much in common with Ford or General Motors. Actually, they all are rooted in a business model that originated in Europe in the Middle Ages, but really got going in the United States in the mid-1800s. They all are franchise businesses.
These days, more than $1 trillion in goods and services are sold through more than 300 different types of franchise businesses in America. Few are more important to the American economy than automobile dealers.
Isaac Singer is considered the spiritual father of American franchising. He lacked capital and because home sewing machines weren’t widely accepted yet, he had a tough time marketing them. His answer was to franchise his brand in 1851.Great Clips and other chain beauty salons are descendants of a franchising operation begun by a housemaid in the 1891. Martha Matilda Harper started with her own secret shampoo formula and less than $400 in capital. By 1929 Harper had licensed more than 500 independently owned-and-operated salons throughout the U.S. She had a standardized textbook for operators and brought her operators together for a convention once a year to share ideas, receive additional training and get fired up.
General Motors helped get the wheels rolling in 1898 when it licensed its first dealer, William E. Metzger of Detroit. In 1908 Henry Ford, who was producing Model Ts on America’s first assembly lines, also started franchising dealers. The modern automobile dealership is essentially the same franchise model that has carried through the years.
The franchise model allowed manufacturers to choose their dealers to whom they gave exclusive rights to certain territories. In return they shifted the responsibility for providing the land, buildings and inventory to dealers. Dealers also assumed most of the costs of marketing and advertising, display, providing parts, service and fulfilling warranties, taking in trades and arranging financing, although they had to follow the manufacturers’ requirements. Dealers paid all their employees and the taxes.
By the end of the 1950s Americans’ love affair with the automobile was in high gear and there were almost 50,000 U.S. automobile dealers. That number has declined considerably, largely because of the huge capital requirements that accompany owning a franchise automobile dealership. In 2012 there were 17,540 new-car dealerships in the U.S. Even a small dealership requires an investment of between $12 million and $16 million. Some newer facilities cost even more. No successful auto manufacturer could or would want to assume the financial burden of taking over those operational.
Moreover, it would not benefit consumers or their communities if dealerships were turned into factory-owned businesses. As franchises, automobile dealerships display manufacturers’ signs and logos, but the majority of them are owned and operated by local people. That means that there is a real person there who cares about the business’s reputation and the quality of the products and services provided. Local dealers know and understand their community’s marketplace.
Local ownership means that money stays in local communities. New-car dealerships provide jobs for about 15,000 Coloradans, and generate annual incomes with an overall economic impact of more than $1.5 billion. Colorado dealerships add almost $420 million in annual revenue through taxes collected or paid. And there’s a huge multiplier effect from the products and services dealerships buy and the ancillary businesses that support the cars and trucks they sell – gasoline stations and car washes, for example.
Colorado’s automobile dealers historically have been among the most active businesses in local communities, too, sponsoring charitable causes from animal shelters to hospitals to neighborhood schools and athletic teams. They participate in service clubs and other civic-minded organizations. It’s good business, but it’s also part of belonging to a community and giving back something for its loyalty to them.
