3 minBusiness
Dealership Service Profits Offset Falling New Car Sales Margins
Dealership service departments are becoming increasingly vital as new car sales margins decline. Industry experts note that just $1 in service revenue can offset $10 lost in vehicle sales, though competition from independent repair chains is intensifying.
Dealership service departments have become a critical financial lifeline as new car sales margins continue to shrink from their pandemic-era peaks. Industry expert Erin Kerrigan, founder of the dealership advisory firm Kerrigan Advisors, says that just $1 in additional service revenue can offset $10 lost from new vehicle sales, a ratio that highlights the growing importance of the workshop to dealer profitability.
New car margins currently hover around 5 percent, while service margins can reach 50 percent, according to Kerrigan. This disparity means that when showroom sales underperform, the service bay can help stabilize overall dealership gross profit. The dynamic helps explain why dealers increasingly emphasize service reminders and maintenance packages to customers.
The shift comes as dealerships move further away from the extraordinary profits generated during the pandemic era. Average pretax profit per dealership surged from $1.9 million in 2018 to $6.8 million in 2022, driven by vehicle shortages that pushed prices and margins to historic highs. Kerrigan noted that the mix of revenue streams helped dealerships remain profitable even during the financial crisis, when General Motors and Chrysler went bankrupt.
Those boom years have faded. Average gross profit among dealerships owned by publicly traded groups fell to roughly $3.9 million in 2025, according to Kerrigan Advisors. Meanwhile, parts and service gross profit moved in the opposite direction, climbing from $3.3 million in 2020 to $5 million last year, underscoring the growing reliance on after-sales operations.
Finance and insurance products represent another significant profit center for dealers. At Asbury Automotive, finance and insurance accounted for only about 4 percent of revenue during the first half of this year but delivered 23 percent of gross profit. Extended warranties and prepaid servicing are especially lucrative because dealers largely act as intermediaries in these transactions.
Despite these advantages, dealerships face mounting competition from independent repair chains. Cox Automotive reports that dealerships handled 29 percent of service visits in 2025, down from 33 percent in 2017. Another study found that the share of customers identifying chains such as Jiffy Lube, Meineke and Walmart as their primary service provider surged from 20 percent in 2020 to 42 percent five years later.
This competitive pressure helps explain why dealers are working harder to make their workshops attractive to customers. It also suggests that negotiating a deal on a new or used vehicle may be just the beginning of a longer relationship, as dealers seek additional revenue from maintenance and repairs long after the sale is complete.
