- Servicing carries fatter margins than new car sales, cushioning falling dealer profits.
- Dealership service profits climbed sharply even as pandemic-era sales margins faded.
- Repair chains are grabbing customers just as dealers increasingly need their business.
Selling you a new car might be the glamorous part of the dealership business, but fixing it can be far more profitable. In fact, one industry expert says dealers need only $1 in additional service revenue to offset $10 they lose from new-car sales. Suddenly those workshop reminders you keep getting make a lot of sense.
That stat comes from Erin Kerrigan, founder and managing director of dealership advisory firm Kerrigan Advisors. She told CNBC that new-car margins are around 5 percent while service margins can hit 50 percent even when customers aren’t being charged $2,195 for an AMG air filter. “If you lose $10 of new vehicle revenue, you only have to pick up $1 of service to have your gross margin remain flat,” she said. That makes the workshop a particularly useful safety net when the showroom isn’t delivering.
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And showrooms aren’t delivering anything like the pandemic-era windfalls they once did. Average pretax profit per dealership rocketed from $1.9 million in 2018 to $6.8 million in 2022 as shortages sent vehicle prices and dealer margins soaring. Kerrigan noted that this mix of revenue streams helped dealerships remain profitable even during the financial crisis, when General Motors and Chrysler, now part of Stellantis, went bankrupt.
But those glory days are fading away. Average gross profit among dealerships owned by publicly traded groups fell to roughly $3.9 million in 2025, according to Kerrigan Advisors. But parts and service gross profit traveled in the opposite direction, rising from $3.3 million in 2020 to $5 million last year.
Insurance Is Another Money Spinner
A dealer’s secret weapon is finance and insurance, another business that can generate substantial profit out of kilter with revenue. At Asbury Automotive, F&I represented only around 4 percent of revenue during the first half of this year but delivered 23 percent of gross profit, CNBC says. Extended warranties and prepaid servicing can be especially lucrative because dealers are largely intermediaries.
There is, though, one rather inconvenient problem. Every other business wants those servicing dollars too. Cox Automotive says dealerships handled 29 percent of service visits in 2025, down from 33 percent in 2017. Another study found 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.
That helps explain why dealers are trying harder to make their workshops competitive. And why they might be happy to strike a deal on your next new or used car. Because selling you that car might only the beginning of the relationship, and just their first of many chances to open your wallet.
