Alset Auto
Automotive
Founded 201912 locationsCompany Profile
Year Founded:2019
Alset Auto Franchise Cost
| Franchise Fee: | $45,000Key Metric |
| Total Investment: | $103,000 - $179,000Key Metric |
| Liquid Capital: | $25,000 |
| Royalty Fee: | 8% of gross sales |
| Marketing Fee: | 2% of gross sales |
Quick ROI Calculator
Based on Alset Auto's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:12
Scale relative to 1,000 locations
Franchised Units:10
Corporate Units:2
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AI-Powered Due Diligence Analysis
Our advanced AI analyzes Franchise Disclosure Documents (FDDs) to identify potential risks and opportunities across 10 critical categories.
15
High Risk
Critical items
43% of total
16
Medium Risk
Monitor closely
46% of total
4
Low Risk
Manageable items
11% of total
35
Total Items
Factors analyzed
10 categories
6.57
Overall Score
Low RiskHigh Risk
010
Franchisor Stability Risks
3 risks identified
2
1
Limited Operating History
High
Explanation:
- Alset Auto Development LLC was formed in 2020 and began franchising in the same year. This short operating history presents a significant risk as there's limited evidence of the franchisor's ability to successfully manage and support a franchise system over the long term.
- The lack of long-term performance data makes it difficult to assess the franchise model's viability and profitability potential.
- The franchisor's inexperience in franchising could lead to inadequate support, ineffective marketing strategies, and operational challenges for franchisees.
Potential Mitigations:
- Thoroughly research the management team's background and experience in the automotive industry.
- Speak with existing franchisees to understand their experiences and assess the level of support provided by the franchisor.
- Carefully review the FDD, particularly Item 19, to understand the franchisor's financial performance and projections.
- Consult with a franchise attorney and accountant to evaluate the risks and potential rewards of investing in a young franchise system.
FDD Citations:
- Item 1: "We were formed as a limited liability company... on September 11, 2020. We began offering franchises on December 21, 2020."
Dependence on Tesla Vehicles
High
Explanation:
- The franchise's business model is heavily reliant on Tesla vehicles. This narrow focus creates a significant risk as the franchise's success is tied to the performance and popularity of a single brand.
- Any decline in Tesla sales, negative publicity surrounding Tesla, or the emergence of strong competitors in the electric vehicle market could negatively impact the demand for the franchise's services.
Potential Mitigations:
- Assess the long-term market outlook for Tesla vehicles and the electric vehicle industry as a whole.
- Consider the potential for expanding the franchise's services to other luxury car brands in the future.
- Evaluate the franchisor's plans for adapting to changes in the automotive market.
FDD Citations:
- Market and Competition: "Your Franchised Business will particularly market to and serve owners of Tesla® vehicles."
Limited Franchisee Network
Medium
Explanation:
- The small number of franchisees (starting with 1 in 2022 and growing to 12 by 2024) indicates a limited track record of franchisee success and a smaller network for support and best practice sharing.
- This limited network can hinder the collective bargaining power of franchisees and limit opportunities for collaboration and peer learning.
Potential Mitigations:
- Connect with existing franchisees to gain insights into their experiences and assess the level of support provided by the franchisor.
- Inquire about the franchisor's plans for future expansion and the strategies for supporting a growing franchise network.
FDD Citations:
- Item 20, Table 1: "System-wide Outlet Summary... Outlets at the End of the Year: 2 (2022), 12 (2024)"
Disclosure & Representation Risks
6 risks identified
2
3
1
Limited Operating History
High
Explanation:
- Alset Auto was founded in 2019, representing a relatively short operating history in the automotive industry. This limited track record increases the risk associated with predicting future performance and the franchisor's ability to provide ongoing support and adapt to market changes.
- A new franchisor may lack the experience and established systems of more mature franchises, potentially leading to operational inefficiencies, inadequate training, and underdeveloped marketing strategies.
Potential Mitigations:
- Thoroughly research Alset Auto's management team, their experience in the automotive sector, and their plans for future growth.
- Speak with existing franchisees to assess their satisfaction with the franchise system, training, and support provided by the franchisor.
- Carefully analyze the FDD, particularly Item 20 (Financial Performance Representations), if available, to understand the financial performance of existing franchisees and the basis for any projections.
FDD Citations:
- General information throughout the FDD related to the franchisor's history and management team.
Financial Performance Representations (Absence)
High
Explanation:
- The provided FDD excerpt does not include Item 20, which typically contains financial performance representations. The absence of this information makes it difficult to assess the potential profitability of the franchise and compare it to other investment opportunities.
- Without financial performance data, it's challenging to evaluate the franchisor's claims about potential earnings and make informed decisions about the investment.
Potential Mitigations:
- Request Item 20 from the franchisor and carefully review the information provided. If Item 20 is not available, inquire about the reasons for its absence.
- Conduct independent research on the automotive industry and comparable franchise systems to gain insights into potential revenue and expenses.
- Consult with a financial advisor to assess the investment opportunity and develop realistic financial projections.
FDD Citations:
- Absence of Item 20 in the provided FDD excerpt.
Dependence on Franchisor's Systems and Support
Medium
Explanation:
- As a franchisee, you are reliant on the franchisor's systems, training, and ongoing support for your success. Any deficiencies in these areas can significantly impact your business operations and profitability.
- The franchisor's limited operating history raises concerns about the robustness and effectiveness of their systems and support infrastructure.
Potential Mitigations:
- Carefully review Items 8 (Franchised Location Requirements), 10 (Franchisor's Obligations), 12 (Franchisee's Operations), and 14 (Intellectual Property) to understand the specific systems, support, and resources provided by the franchisor.
- Speak with existing franchisees to assess their experiences with the franchisor's training, support, and operational systems.
- Evaluate the franchisor's capacity to provide adequate support given their relatively short operating history.
FDD Citations:
- Items 8, 10, 12, and 14 of the FDD.
Restrictions on Operations and Marketing
Medium
Explanation:
- Franchise agreements typically impose restrictions on how franchisees can operate their businesses, including limitations on products/services offered, marketing strategies, and vendor selection. These restrictions can limit your flexibility and ability to adapt to local market conditions.
Potential Mitigations:
- Carefully review Items 12 (Franchisee's Operations) and 13 (Advertising, Promotions, and Related Fees) to understand the specific restrictions imposed by the franchisor.
- Assess whether these restrictions align with your business goals and allow for sufficient flexibility to respond to market changes.
- Negotiate with the franchisor to modify any overly restrictive clauses, if possible.
FDD Citations:
- Items 12 and 13 of the FDD.
Termination and Renewal Terms
Medium
Explanation:
- The franchise agreement outlines the terms for termination and renewal, which are crucial aspects to consider. Unfavorable terms can leave you vulnerable to losing your investment or facing difficult renewal negotiations.
Potential Mitigations:
- Carefully review Items 4 (Term), 5 (Renewal Option), and 17 (Defaults) to understand the specific conditions under which the agreement can be terminated or renewed.
- Seek legal counsel to review the termination and renewal provisions and ensure they are fair and reasonable.
- Negotiate with the franchisor to modify any unfavorable terms, if possible.
FDD Citations:
- Items 4, 5, and 17 of the FDD.
Franchisor's Limited Financial Resources
Low
Explanation:
- As a relatively new company, Alset Auto may have limited financial resources compared to more established franchisors. This could impact their ability to provide adequate support, invest in system development, and weather economic downturns.
Potential Mitigations:
- Request the franchisor's financial statements (if available) and review them carefully to assess their financial stability.
- Inquire about the franchisor's plans for future growth and investment in the franchise system.
- Consider the potential risks associated with investing in a franchise with limited financial resources.
FDD Citations:
- Item 21 of the FDD (if it contains financial statements or related information).
Financial & Fee Risks
3 risks identified
1
1
1
Uncertainty of Franchisee Profitability
High
Explanation:
- The FDD explicitly states that no representations are made about future financial performance or past performance of company-owned or franchised outlets. This lack of financial performance information creates significant uncertainty for prospective franchisees in assessing the potential profitability of their investment.
- Relying solely on estimated initial investment figures without corresponding revenue projections makes it difficult to determine break-even points, potential return on investment, and overall financial viability.
Potential Mitigations:
- Conduct thorough independent market research in your target area to assess demand for automotive services and potential competition.
- Develop realistic financial projections based on market research, industry benchmarks, and estimated operating costs. Consult with a financial advisor to review these projections and assess potential profitability.
- Request information from existing franchisees (if permitted) about their financial performance, while acknowledging that individual results may vary.
FDD Citations:
- Item 19: "We do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets."
- Item 19: "If you receive any other financial performance information or projections of your future income, you should report it to the franchisor’s management..."
Variability in Initial Investment
Medium
Explanation:
- The wide range in the estimated initial investment ($102,744 - $178,994) presents a risk. The upper limit is significantly higher than the lower limit, indicating potential unforeseen costs and making it difficult to accurately budget and secure financing.
- Several categories have broad ranges (e.g., Leasehold Improvements: $3,000-$20,000, Operating Expenses/Additional Funds: $17,500-$38,000), making it challenging to predict actual startup costs.
Potential Mitigations:
- Carefully review each line item in Item 7 and request clarification from the franchisor on the factors contributing to the wide ranges.
- Obtain detailed quotes from multiple vendors for key expenses like leasehold improvements, equipment, and inventory to develop a more accurate budget.
- Secure financing that allows for flexibility in case actual costs exceed the lower end of the estimated range.
FDD Citations:
- Item 7: Entire table of estimated initial investment costs.
Deferred Initial Franchise Fee Payment (Virginia only)
Low
Explanation:
- While seemingly beneficial, the deferral of the initial franchise fee and other initial payments in Virginia until pre-opening obligations are met introduces a potential risk. Delays in fulfilling these obligations could impact the franchisee's launch timeline and create financial strain.
- This is specific to Virginia and may not apply to other states, creating inconsistencies in the franchise agreement application.
Potential Mitigations:
- (For Virginia franchisees) Clearly define the franchisor's pre-opening obligations in the franchise agreement and establish a firm timeline for completion.
- Maintain open communication with the franchisor throughout the pre-opening process to monitor progress and address any potential delays promptly.
- Ensure sufficient working capital to cover initial expenses even if the fee payment is deferred.
FDD Citations:
- Item 5: "The Virginia State Corporation Commission... requires us to defer payment of the initial franchise fee and other initial payments... until the franchisor has completed its pre-opening obligations."
Legal & Contract Risks
3 risks identified
1
2
Broad General Release
High
Explanation:
- The General Release (Exhibit G) is overly broad, requiring the franchisee to release the franchisor from virtually all claims, including those that may be unknown or unsuspected at the time of signing. This could prevent franchisees from pursuing legitimate claims related to misrepresentations, fraud, or other breaches of contract.
- The release covers "any claims or representations made relative to the sale of the franchise," which is particularly concerning as it could bar claims related to the FDD itself.
Potential Mitigations:
- Negotiate to narrow the scope of the release. Specifically, carve out claims related to fraud, misrepresentation, and breach of the franchise agreement.
- Seek legal counsel to review the release and advise on its implications before signing.
- Request clarification on the specific intent and scope of the release from the franchisor.
FDD Citations:
- Exhibit G: "...release, discharge and hold harmless... from any suits, claims... of every nature... whether presently known or unknown... arising under, relating to, or in connection with the Franchise Agreement... or any claims or representations made relative to the sale of the franchise..."
Acknowledgement of Independent Investigation
Medium
Explanation:
- Requiring franchisees to acknowledge they've conducted an independent investigation and waive claims for business failure, even with the disclaimer regarding the FDD, can be problematic. It could be used by the franchisor to argue the franchisee didn't rely on any representations outside the FDD, even if such representations were made.
Potential Mitigations:
- Document thoroughly your independent investigation, including all sources consulted and findings. This can help demonstrate due diligence if a dispute arises.
- Seek legal counsel to review the acknowledgment statement and advise on its implications.
- Clarify with the franchisor in writing the scope of this acknowledgment and its impact on potential future claims.
FDD Citations:
- Exhibit H: "Franchisee (or Developer) has conducted an independent investigation... no representations of performance... has been made to Franchisee (or Developer) by Franchisor... and hereby waive any claim against Franchisor for any business failure..."
Potential Conflict Between Franchise Agreement and Virginia Law
Medium
Explanation:
- Item 17.h highlights potential conflicts between the Franchise Agreement and the Virginia Retail Franchising Act regarding termination without reasonable cause and the use of undue influence. This suggests the Franchise Agreement may contain provisions that are unenforceable in Virginia.
Potential Mitigations:
- Carefully review the Franchise Agreement with legal counsel specializing in Virginia franchise law to identify and address any conflicting provisions.
- Request clarification from the franchisor on how these conflicts will be resolved and ensure any agreed-upon modifications are documented in writing.
FDD Citations:
- Item 17.h: "...If any grounds for default or termination stated in the franchise agreement does not constitute “reasonable cause,” as that term may be defined in the Virginia Retail Franchising Act... that provision may not be enforceable."
- Item 17.h: "...If any provision of the Franchise Agreement involves the use of undue influence... that provision may not be enforceable."
Territory & Competition Risks
3 risks identified
2
1
Non-Exclusive Territory
High
Explanation:
- The FDD explicitly states that the franchisee will NOT receive an exclusive territory. This means other Alset Auto franchises, company-owned outlets, or other distribution channels could operate in the same area, increasing competition and potentially cannibalizing sales.
- The limited protection only prevents another Alset Auto outlet within the defined territory, but not other brands or services offered by the franchisor.
Potential Mitigations:
- Thoroughly research the competitive landscape within the assigned territory and surrounding areas. Identify existing automotive service providers, including other Alset Auto franchises, and assess their market share and pricing strategies.
- Develop a strong local marketing plan to differentiate the franchise and build a loyal customer base. Focus on highlighting the unique aspects of the Alset Auto brand and services.
- Negotiate with the franchisor for a clearer definition of the competitive landscape and potential encroachment from other channels.
FDD Citations:
- Item 12: "You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control."
Competition from Alternative Distribution Channels
High
Explanation:
- The franchisor reserves the right to sell products and services through alternative distribution channels, such as retail outlets, automotive dealerships, body shops, and the internet, within the franchisee's territory. This direct competition from the franchisor can significantly impact the franchisee's sales and profitability.
- Franchisees receive no compensation for sales made through these alternative channels in their territory.
Potential Mitigations:
- Clarify with the franchisor the specific types of products and services that will be sold through alternative channels and the extent of their presence in the territory.
- Focus on building strong customer relationships and providing exceptional service to differentiate from alternative channels.
- Explore opportunities to collaborate with alternative channels, such as dealerships, to potentially generate referral business.
FDD Citations:
- Item 12: "We and our affiliates may sell products and services under the Mark within or outside the Territory through any method of distribution other than a dedicated ALSET Auto outlet location… You will receive no compensation for our sales through Alternative Distribution Channels in the Territory."
Performance Requirements
Medium
Explanation:
- The FDD outlines specific minimum annual gross revenue requirements that franchisees must meet, starting in the second year of operation. Failure to meet these requirements could lead to penalties or even termination of the franchise agreement.
Potential Mitigations:
- Develop a realistic business plan with detailed financial projections, taking into account the market conditions, competition, and operating expenses.
- Closely monitor sales performance and implement corrective actions if revenue targets are not being met.
- Consult with the franchisor for guidance and support in achieving the performance requirements.
FDD Citations:
- Item 12: Lists specific revenue requirements for each year of operation.
Regulatory & Compliance Risks
3 risks identified
2
1
Dependence on Single Supplier (Franchisor)
High
Explanation:
- Franchisees are required to purchase essential operating supplies exclusively from the franchisor (Item 8: "You must purchase all paint protection films...from us. We are the only approved supplier of these items."). This creates a high dependence and eliminates competitive pricing benefits.
- The franchisor's significant revenue from these required purchases (Item 8: "$281,791.13 in rebate revenue...24.6% of our total revenue") raises concerns about potential price gouging and conflicts of interest.
- Lack of transparency in supplier selection criteria (Item 8: "Our criteria for approving items and suppliers are not available to you.") further exacerbates this risk.
Potential Mitigations:
- Negotiate for greater transparency in the franchisor's pricing and supplier selection process.
- Seek legal counsel to review the Franchise Agreement for unfair provisions related to mandatory purchases.
- Join a franchisee association to collectively bargain for better terms with the franchisor.
FDD Citations:
- Item 8: "You must purchase all paint protection films...from us. We are the only approved supplier of these items."
- Item 8: "$281,791.13 in rebate revenue...24.6% of our total revenue"
- Item 8: "Our criteria for approving items and suppliers are not available to you."
Limited Operating History of Franchisor
High
Explanation:
- The franchisor, Alset Auto Development LLC, was formed recently (Item 1: "September 11, 2020") and began offering franchises shortly thereafter (Item 1: "December 21, 2020").
- This limited operational history increases the risk of unforeseen challenges and potential business model failures, impacting franchisee success.
Potential Mitigations:
- Thoroughly research the background and experience of the franchisor's management team.
- Speak with existing franchisees to understand their experiences and challenges.
- Seek financial advice to assess the franchisor's financial stability and long-term viability.
FDD Citations:
- Item 1: "We were formed as a limited liability company...on September 11, 2020."
- Item 1: "We began offering franchises on December 21, 2020."
Environmental Compliance Risks
Medium
Explanation:
- The use, storage, and disposal of paint protection and ceramic solutions require strict adherence to environmental regulations (Industry Specific Regulations: "You must comply with all best practices and environmental laws...").
- Non-compliance can lead to significant fines and penalties, impacting profitability.
Potential Mitigations:
- Develop a comprehensive environmental compliance plan in consultation with environmental experts.
- Ensure proper training for all employees on safe handling and disposal procedures.
- Maintain accurate records of all chemical purchases, usage, and disposal.
FDD Citations:
- Industry Specific Regulations: "You must comply with all best practices and environmental laws regarding the use, storage and disposal of paint protection and ceramic solutions."
Franchisor Support Risks
3 risks identified
2
1
Limited Pre-Opening Support for Site Selection and Build-Out
Medium
Explanation:
- While the franchisor approves the site, the franchisee bears full responsibility for site negotiation, lease/purchase, plan adaptation, permitting, and construction. This can be challenging for inexperienced franchisees and lead to delays or unsuitable locations.
- The franchisor's site selection criteria are broad and potentially subjective, leaving room for disputes and potentially unfavorable locations.
Potential Mitigations:
- Thoroughly research potential sites and engage experienced real estate professionals familiar with commercial leases and local regulations.
- Clarify site selection criteria with the franchisor and obtain written confirmation of approved locations.
- Consult with architects and contractors experienced in franchise build-outs to ensure compliance with franchisor specifications and efficient project management.
FDD Citations:
- Item 11, Section 1.a: "We will not own and/or lease a site to you. You are responsible for negotiating a purchase or lease..."
- Item 11, Section 1.b: "You, your architect and your contractor are required to adapt our specifications... We do not adapt plans or obtain permits for you."
Limited Ongoing Operational Support
Medium
Explanation:
- Ongoing support is primarily reactive and upon request, potentially leaving franchisees without proactive guidance and best practice sharing.
- The franchisor's "reasonable limits" clause for support via phone, email, etc., is vague and could limit access to crucial assistance.
Potential Mitigations:
- Clarify the scope of "reasonable limits" for ongoing support in writing before signing the Franchise Agreement.
- Establish clear communication channels with the franchisor and document all support requests and responses.
- Network with other franchisees to share best practices and address common challenges.
FDD Citations:
- Item 11, Section 3.c: "...provide individualized assistance to you within reasonable limits... subject at all times to availability of our personnel..."
Mandatory Training Costs and Potential Disruptions
Low
Explanation:
- Franchisees are responsible for all travel, lodging, and meal expenses associated with mandatory training, adding significant costs beyond the franchise fee.
- Mandatory training and annual meetings can disrupt business operations, especially for single-unit owner-operators.
Potential Mitigations:
- Budget for travel and other expenses related to mandatory training and meetings.
- Schedule training and meetings during slower business periods to minimize disruption.
- Explore options for remote training or alternative arrangements to reduce travel costs.
FDD Citations:
- Item 11, Section 3.a: "You must also pay your transportation, lodging, meals and other expenses to attend any mandatory training program."
Exit & Transfer Risks
5 risks identified
2
2
1
Restrictive General Release
High
Explanation:
- Exhibit G presents a broad general release that requires the franchisee to release the franchisor from virtually all claims, including unknown or future claims. This severely limits the franchisee's legal recourse in case of disputes or misrepresentations.
- The release covers a wide range of claims, including those related to the franchise agreement, the franchised business, and representations made during the sales process. This comprehensive scope raises concerns about the franchisee's ability to protect their interests.
- The waiver of rights and benefits conferred by law further restricts the franchisee's legal options and could be detrimental in situations where the franchisor acts improperly.
Potential Mitigations:
- Carefully review the General Release with an experienced franchise attorney. Negotiate to narrow the scope of the release and exclude specific areas of potential concern, such as fraud or misrepresentation.
- Document all communications and representations made by the franchisor during the sales process. This documentation can be crucial in case of disputes, even with a broad release in place.
- Consider obtaining an independent legal opinion on the enforceability and implications of the General Release in your specific jurisdiction.
FDD Citations:
- Exhibit G: "Franchisee AND PRINCIPAL(S) ON BEHALF OF THEMSELVES AND THE FRANCHISEE RELEASORS WAIVE ANY RIGHTS AND BENEFITS CONFERRED BY ANY APPLICABLE PROVISION OF LAW…"
- Exhibit G: "…release, discharge and hold harmless…from any suits, claims, controversies…of every nature…whether presently known or unknown…"
Limited Recourse in Virginia Despite Statutory Protections
Medium
Explanation:
- While Item 17.h acknowledges the Virginia Retail Franchising Act's protections against unreasonable termination and undue influence, it also states that these provisions may not be enforceable if they don't meet the Act's definition of "reasonable cause" or "undue influence."
- This creates uncertainty about the actual level of protection afforded to franchisees in Virginia. The franchisor's interpretation of these terms could differ significantly from the franchisee's, leading to potential disputes.
Potential Mitigations:
- Consult with a Virginia franchise attorney to understand the specific requirements of the Virginia Retail Franchising Act and how they apply to this franchise agreement.
- Seek clarification from the franchisor on their interpretation of "reasonable cause" and "undue influence" and how these terms are applied in practice.
- Document all interactions with the franchisor related to these provisions.
FDD Citations:
- Item 17.h: "If any grounds for default or termination stated in the franchise agreement does not constitute 'reasonable cause'...that provision may not be enforceable."
- Item 17.h: "If any provision of the Franchise Agreement involves the use of undue influence...that provision may not be enforceable."
Potential for Waiver of Claims Under State Franchise Laws
Medium
Explanation:
- Although the FDD states that no acknowledgment can waive claims under state franchise laws (including fraud in the inducement), the inclusion of such statements and the requirement for initials creates a potential point of confusion and possible future dispute.
- Franchisees might inadvertently waive certain rights if they don't fully understand the implications of these acknowledgments.
Potential Mitigations:
- Carefully review all documents requiring acknowledgment with a franchise attorney. Ensure that no statement contradicts the protection afforded by state franchise laws.
- Seek clarification from the franchisor on the purpose and implications of these acknowledgments.
- Document any concerns or discrepancies regarding these statements.
FDD Citations:
- Exhibit H: "No statement...shall have the effect of (i) waiving any claims under any applicable state franchise law..."
- Amendment to Franchise Agreement: "No statement...shall have the effect of (i) waiving any claims under any applicable state franchise law..."
Waiver of Claims for Business Failure (Except as Disclosed)
High
Explanation:
- Exhibit H requires franchisees to acknowledge that they waive any claim against the franchisor for business failure, except for claims related to information disclosed in the FDD. This significantly limits the franchisee's ability to hold the franchisor accountable for factors contributing to the business's failure that may not be explicitly covered in the FDD.
Potential Mitigations:
- Thoroughly review the FDD, paying close attention to any disclosures related to potential business risks and challenges. Consult with a franchise attorney and financial advisor to assess the adequacy of these disclosures.
- Negotiate with the franchisor to remove or modify this waiver provision. While unlikely to be successful, attempting to negotiate demonstrates your awareness of the risk and your desire for greater protection.
FDD Citations:
- Exhibit H: "...no representations of performance...has been made...and Franchisee...waive any claim against Franchisor for any business failure...except as may be set forth in Franchisor's Disclosure Document."
Maryland Residents Excluded from Acknowledgement Statement
Low
Explanation:
- Exhibit H specifically excludes Maryland residents from signing the acknowledgment statement. This suggests potential legal variations or specific regulations in Maryland that the franchisor seeks to avoid. While not directly impacting franchisees outside of Maryland, it highlights the importance of state-specific franchise laws and the need for careful review.
Potential Mitigations:
- If you are a Maryland resident, consult with a Maryland franchise attorney to understand the specific regulations and protections afforded to franchisees in your state.
- Even if not a Maryland resident, this exclusion underscores the importance of understanding your own state's franchise laws and seeking legal counsel specialized in your jurisdiction.
FDD Citations:
- Exhibit H: "*DO NOT SIGN IF THE FRANCHISEE IS A MARYLAND RESIDENT OR IF THE FRANCHISED BUSINESS WILL BE LOCATIED WITHIN THE STATE OF MARYLAND*"
Operational & Brand Risks
3 risks identified
1
2
Mandatory Sourcing Restrictions & Potential Mark-Up
High
Explanation:
- Franchisees are required to purchase essential supplies exclusively from the franchisor, creating a potential conflict of interest. The franchisor's significant revenue from these sales (24.6% in 2024) raises concerns about inflated pricing and reduced franchisee profitability.
- Lack of transparency regarding the franchisor's cost basis for these supplies further exacerbates this risk.
- The franchisor explicitly states they may retain any future rebates or discounts, prioritizing their own financial gain over potential cost savings for franchisees.
Potential Mitigations:
- Carefully analyze the cost of required supplies and compare them to market prices for similar products. Negotiate with the franchisor for better pricing or explore alternative approved suppliers if possible.
- Request detailed breakdowns of the franchisor's costs for supplied items to assess potential markups.
- Consult with a franchise lawyer to understand the legal implications of the mandatory sourcing requirements and explore options for negotiation.
FDD Citations:
- Item 8: "You must purchase all paint protection films...from us. We are the only approved supplier of these items."
- Item 8: "During our fiscal year...we received $281,791.13 in rebate revenue from required purchases by franchisees. This amounts to 24.6% of our total revenue."
- Item 8: "...any rebates or discounts we receive may be kept by us in our sole discretion."
Dependence on Franchisor's Supplier Relationships
Medium
Explanation:
- Franchisees are entirely reliant on the franchisor's supplier relationships. Any disruption in these relationships (e.g., supplier bankruptcy, contract disputes) could significantly impact franchisees' ability to operate.
- The franchisor's criteria for approving suppliers are not disclosed, limiting franchisees' insight into the selection process and potential vulnerabilities.
Potential Mitigations:
- Inquire about the franchisor's contingency plans for supplier disruptions. Seek assurances regarding backup suppliers or alternative sourcing options.
- Request information about the longevity and stability of the franchisor's relationships with key suppliers.
- Investigate the financial health of the approved suppliers independently.
FDD Citations:
- Item 8: "We approve suppliers after careful review...Our criteria for approving items and suppliers are not available to you."
- Item 8: "We reserve the right to revoke approval of any item or supplier..."
Limited Control over Operating Costs (35%)
Medium
Explanation:
- Approximately 35% of both initial setup and ongoing operational costs are tied to purchases from franchisor-approved suppliers. This limits franchisees' ability to control costs and potentially reduces profit margins.
Potential Mitigations:
- Thoroughly analyze the projected operating costs and assess the reasonableness of the 35% allocated to approved supplier purchases.
- Explore opportunities to reduce costs in other areas of the business to offset the impact of mandatory purchases.
- Negotiate with the franchisor for more favorable pricing on required supplies.
FDD Citations:
- Item 8: "We estimate that your purchase...will represent approximately 35% of your costs to establish your Franchised Business and approximately 35% of your costs for ongoing operation."
Performance & ROI Risks
3 risks identified
2
1
No Financial Performance Representations
High
Explanation:
- The FDD explicitly states that no financial performance representations are made regarding future or past performance of franchised or company-owned outlets (Item 19). This lack of information makes it difficult to project potential profitability and assess the investment's viability.
- While Item 20 provides outlet counts, it offers no financial data, making it impossible to gauge the average performance of existing franchises.
Potential Mitigations:
- Consult with experienced franchise attorneys and financial advisors to analyze the business model and market potential independently.
- Conduct thorough market research in your target area to assess local demand and competition.
- Request access to the financial records of any existing outlets available for purchase, as suggested in Item 19.
- Develop realistic financial projections based on available industry data and your own market analysis, understanding that these projections are independent of the franchisor's claims.
FDD Citations:
- Item 19: "We do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets."
- Item 20: Tables 1-5 provide outlet counts but no financial data.
Limited Operating History
High
Explanation:
- Alset Auto was founded in 2019 (Franchise Context) and Item 20 data shows a limited number of operating units, especially in the earlier years (2022-2023). This short track record increases the uncertainty of the business model's long-term viability and profitability.
- The rapid growth in 2023 (+10 franchised units) could indicate aggressive expansion, which carries its own risks of oversaturation and strained support systems.
Potential Mitigations:
- Carefully evaluate the franchisor's experience and expertise in the automotive industry despite the company's young age.
- Inquire about the reasons for the rapid expansion and the franchisor's plans for managing future growth.
- Assess the franchisor's training and support infrastructure to ensure they can adequately support a growing network.
- Focus on due diligence regarding the franchisor's long-term business strategy and financial stability.
FDD Citations:
- Item 20: Table 1 shows limited outlet numbers in 2022 and 2023.
- Franchise Context: "Founded: 2019"
Franchisee Turnover/Closures
Medium
Explanation:
- Item 20, Table 3 indicates several franchise closures under "Ceased Operations - Other Reasons." While the exact reasons aren't provided, this raises concerns about potential challenges in operating the franchise successfully.
- The decrease in franchised outlets from 12 to 10 in 2024 (Table 1) further suggests potential instability within the franchise system.
Potential Mitigations:
- Request clarification from the franchisor regarding the reasons for the ceased operations and any related litigation or disputes.
- Contact existing and former franchisees to gather their perspectives on the challenges and opportunities of the business.
- Analyze the franchisor's support systems and resources to assess their effectiveness in helping franchisees succeed.
FDD Citations:
- Item 20: Table 1 shows a decrease in franchised outlets from 12 to 10 in 2024.
- Item 20: Table 3 lists closures under "Ceased Operations - Other Reasons."
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FDD Year: 2024
Uploaded: 8/26/2025
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