Auto dealerships traditionally profit from four main streams: new vehicle sales, used vehicle sales, parts and service, and finance and insurance. As new vehicle sales show signs of softening, parts and service, along with finance and insurance, are becoming more critical for profitability.
Erin Kerrigan of Kerrigan Advisors noted that even a small increase in service revenue can offset losses in new vehicle sales, emphasizing the resilience of the dealership model. During the pandemic, average pretax profits per dealership surged from $1.9 million in 2018 to $6.8 million in 2022, driven by higher-margin vehicle sales amid supply constraints.
However, average gross profits have since declined to about $3.9 million in 2025, while parts and service profits have risen from $3.3 million to $5 million in the same period. Finance and insurance, while only 4% of revenues for Asbury Automotive, accounted for 23% of its gross profit, showcasing its importance.
Despite the growth in service revenues, dealerships are losing market share to chain service centers, which have increased their primary service provider share from 20% to 42% between 2020 and 2025. This shift indicates a growing consumer perception that independent shops may offer better pricing, prompting dealerships to enhance their competitiveness in service pricing.
Overall, the evolving landscape of dealership profitability underscores the need for adaptation in a changing market environment