Dealers Only Need $1 Of Service To Erase $10 Of Lost Car Sales
Dealership service profits are crucial in offsetting lost car sales revenue.
Key Takeaways
- Dealership service departments are becoming increasingly important profit centers as new-vehicle margins normalize from their pandemic-era highs.
- Industry adviser Erin Kerrigan says new-car margins can be around 5%, compared with service margins that can reach roughly 50%.
- That margin difference means roughly $1 of additional service revenue can offset $10 of lost new-vehicle revenue on a gross-margin basis.
- At Asbury Automotive Group, parts and service accounted for 13.9% of 2025 revenue but 47.9% of gross profit, while finance and insurance generated 23.4% of gross profit from 4.3% of revenue.
- Dealers are also fighting to retain service customers, with their share of U.S. service visits falling from 33% in 2018 to 29% in 2025, according to Cox Automotive.
Why Is Dealership Service So Profitable?
For a U.S. car dealership, selling a new vehicle is only one part of the business. Once a customer drives away, the service department can become a much more valuable source of recurring gross profit.
The economics are straightforward: new-car sales typically involve substantial vehicle acquisition costs, while dealership service revenue is generated from labor, parts, maintenance, diagnostics, and repairs. That can produce a much higher gross margin on each dollar of revenue.
Erin Kerrigan of Kerrigan Advisors has put the difference in particularly stark terms, saying new-vehicle margins can be around 5% while service margins can reach roughly 50%. On that basis, a dealer can replace $10 of lost new-vehicle revenue with approximately $1 of additional service revenue while maintaining the same gross-margin contribution.
That does not mean every dealership achieves a 50% service margin, nor does it mean service revenue is equivalent to net profit. Labor costs, technician pay, facility expenses, parts costs, equipment, and other overhead still have to be covered. The comparison illustrates why fixed operations are strategically important to dealership groups.
How Important Is Service to Dealership Profit?
The financial results of major dealership groups show why service and parts are so important. Asbury Automotive Group, for example, reported that parts and service represented 13.9% of its 2025 revenue but 47.9% of its total gross profit.
New vehicles generated 52.8% of Asbury’s 2025 revenue but accounted for 20.2% of gross profit. Finance and insurance represented just 4.3% of revenue while contributing 23.4% of gross profit.
| Asbury Automotive 2025 | Share of Revenue | Share of Gross Profit |
|---|---|---|
| New vehicles | 52.8% | 20.2% |
| Used retail vehicles | 25.3% | 7.8% |
| Parts and service | 13.9% | 47.9% |
| Finance and insurance | 4.3% | 23.4% |
Those figures show the difference between revenue volume and profit contribution. Vehicle sales produce the majority of dealership revenue, but fixed operations and finance can contribute a disproportionately large share of gross profit.
Asbury’s 2025 annual report also shows why dealerships continue investing in their service operations, noting a focus on growing customer-pay parts and service revenue through improvements to customer experience, technician support, training, and equipment.
How Much Service Revenue Do U.S. Dealerships Generate?
Dealership service revenue has continued to grow even as dealers have lost a portion of the overall service market to independent repair businesses.
Cox Automotive’s latest Fixed Operations and Ownership Study found that the average U.S. dealership generated approximately $9.23 million in parts and service revenue in 2025. That was a 33% increase over the previous eight years.
The problem for dealers is that revenue growth has not translated into greater market share. Dealerships handled just 29% of service visits in 2025, down from 33% in 2018.
| Dealership Service Metric | 2018 | 2025 | Change |
|---|---|---|---|
| Average service and parts revenue | — | $9.23 million | Up 33% since 2018 |
| Dealer share of service visits | 33% | 29% | Down 4 percentage points |
Cox Automotive says the number of vehicles in operation has grown while the number of independent and general repair businesses has also increased. That gives consumers more choices when deciding where to maintain an aging vehicle.
Why Are Dealerships Losing Service Customers?
The dealership service business faces competition from independent repair shops, quick-lube chains, tire stores, specialists, and increasingly mobile service providers.
Cox Automotive estimates that nearly 299,000 auto mechanic businesses operate in the U.S., up 12% from 2018. At the same time, consumers continue to view independent repair as a viable alternative to returning to the dealership.
Price and convenience are major factors. Cox found that the average dealership service visit cost about $261, compared with approximately $275 at general repair businesses. Despite the relatively small difference in average spending, many consumers still perceive dealerships as more expensive.
The competition is particularly important because service visits create an ongoing relationship between the customer and retailer. Losing the service customer can therefore mean losing future repair revenue and potentially losing the customer when it is time to buy another vehicle.
Why Does Service Retention Matter for Future Car Sales?
Service is not only about what happens in the workshop. It can also influence where customers buy their next vehicle.
Cox Automotive’s 2025 Fixed Operations and Ownership Study found that 74% of buyers who returned to a dealership for service said they were likely to purchase their next vehicle from that same dealership, compared with 44% among buyers who did not return for service.
That creates a powerful connection between the service lane and the showroom. A dealership that keeps a customer coming back for maintenance and repairs has more opportunities to maintain the relationship, identify future vehicle needs, and ultimately sell another vehicle.
How Does Finance and Insurance Make Dealerships Money?
Finance and insurance, commonly called F&I, is another high-value dealership operation. It includes financing-related products and services as well as products such as vehicle service contracts and other protection offerings.
Asbury’s 2025 results illustrate the importance of F&I. The business represented just 4.3% of total revenue but generated 23.4% of total gross profit.
| Dealership Profit Center | Revenue Share | Gross Profit Share | Role |
|---|---|---|---|
| New vehicles | 52.8% | 20.2% | High-volume vehicle sales |
| Parts and service | 13.9% | 47.9% | Recurring maintenance and repair |
| Finance and insurance | 4.3% | 23.4% | Financing and protection products |
This is why a dealership can generate enormous sales revenue without relying entirely on the profit from the vehicle itself. The transaction can produce additional gross profit through F&I, followed by years of potential parts and service revenue.
Are New-Car Sales Becoming Less Profitable?
New-vehicle profitability surged during the inventory shortages of 2021 and 2022, when constrained supply gave dealers significantly more pricing power. Those conditions have since eased.
According to data cited by Kerrigan Advisors, average pretax profit per dealership climbed from $1.9 million in 2018 to $6.8 million in 2022 before falling to roughly $3.9 million in 2025 among the dealerships tracked in its analysis.
At the same time, parts and service gross profit increased from roughly $3.3 million in 2020 to $5 million in 2025. The contrast helps explain why dealership groups are putting greater emphasis on fixed operations as showroom profitability normalizes.
| Metric | Earlier Period | Later Period | Direction |
|---|---|---|---|
| Average pretax dealership profit | $1.9 million in 2018 | $6.8 million in 2022 | Sharp increase |
| Average pretax dealership profit | $6.8 million in 2022 | About $3.9 million in 2025 | Decline from peak |
| Parts and service gross profit | $3.3 million in 2020 | $5 million in 2025 | Increase |
How Are Dealers Trying to Win Back Service Customers?
Dealerships are increasingly treating the service department as a customer-retention business rather than simply a repair operation.
That can include more competitive pricing, easier appointment scheduling, faster turnaround times, improved communication, digital inspection reports, pickup and delivery, loyalty programs, and clearer explanations of recommended repairs.
Technician availability is another major issue. A dealership can lose a customer simply because the service department cannot offer a convenient appointment or has a long repair backlog. Cox’s research indicates that independent repair businesses and other competitors are benefiting as customers look for convenience and perceived value.
The dealership therefore has an incentive to make the service experience competitive even when the customer is not currently shopping for another vehicle. A strong service relationship can generate immediate repair revenue while also improving the odds of a future vehicle purchase.
What Does This Mean for Car Buyers?
For consumers, the changing dealership business model means service pricing and experience are increasingly important parts of the ownership relationship.
Dealership service is not automatically more expensive than independent repair. Cox Automotive’s latest data actually found average spending of $261 at dealerships versus $275 at general repair businesses, although individual repair orders can vary considerably.
Consumers should compare the complete quote, including parts, labor, warranty coverage, diagnostic charges, and any recommended maintenance. For newer vehicles, manufacturer-specific diagnostics, software updates, recalls, and warranty work can also make a franchised dealer particularly useful.
For older vehicles outside their warranty period, independent repair shops can provide another option. The most important consideration is whether the business has the appropriate equipment, training, parts, and experience for the particular vehicle.
Why Dealerships Need the Service Department More Than Ever
The dealership business is increasingly built around multiple profit centers rather than new-vehicle sales alone. New cars bring customers through the door, F&I can add significant gross profit to the transaction, and service and parts can generate revenue repeatedly throughout the ownership cycle.
The challenge is retention. Cox Automotive’s data shows that dealerships are generating record service revenue while simultaneously losing share of service visits to competitors. That means dealers cannot rely on vehicle sales alone to keep customers in their ecosystem.
The most valuable customer may therefore be the one who does more than buy a car. A customer who finances the vehicle, returns for maintenance, pays for repairs, and eventually trades the vehicle for another one can generate revenue across several dealership departments over many years.
Frequently Asked Questions
Are dealership service departments more profitable than new-car sales?
They can be. Erin Kerrigan of Kerrigan Advisors has said new-car margins can be around 5%, while service margins can reach roughly 50%. Actual margins vary by dealership, manufacturer, repair type, labor costs, and other operating expenses.
How can $1 of service revenue offset $10 of lost car sales?
The comparison is based on gross margins. At a roughly 5% new-vehicle margin, $10 of vehicle revenue produces about 50 cents of gross profit. At a roughly 50% service margin, $1 of service revenue also produces about 50 cents of gross profit.
How much of a dealership’s gross profit comes from service?
It varies by dealership group. At Asbury Automotive Group, parts and service accounted for 47.9% of total gross profit in 2025 while representing 13.9% of revenue.
How much do U.S. dealerships make from service?
Cox Automotive reported average dealership parts and service revenue of approximately $9.23 million in 2025, up 33% over eight years.
Are dealerships losing service customers to independent repair shops?
Yes. Cox Automotive found that dealerships handled 29% of U.S. service visits in 2025, down from 33% in 2018. Independent repair businesses, quick-lube operators, specialists, and mobile service providers are competing for the same customers.
Why is finance and insurance so profitable for dealerships?
F&I can generate significant gross profit from a relatively small portion of dealership revenue. At Asbury Automotive Group, F&I represented 4.3% of 2025 revenue but contributed 23.4% of gross profit.
Does servicing a car at the dealership help when buying another car?
It can. Cox Automotive found that 74% of buyers who returned to a dealership for service were likely to buy their next vehicle from that dealership, compared with 44% among buyers who did not return for service.
Is dealership service more expensive than an independent repair shop?
Not necessarily. Cox Automotive’s 2025 data found average spending of about $261 at a dealership compared with $275 at general repair businesses. Individual prices vary significantly depending on the vehicle and repair.
