By on August 25, 2017

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For a variety of reasons (the post-recession binge finally cooling off is the biggest), new-car sales are down in the United States. One would expect that would hurt the revenue of new-car dealerships. Not so much, it turns out, as dealers have found other ways to generate revenue. Or at least that’s what a Bloomberg report says. But there are caveats that suggest the Bloomberg piece may be generalizing. In other words, maybe some shops are seeing more revenue from more work, but other shops aren’t, even as they get busier, due to other factors.

Traditionally, new-car dealerships have always generated revenue and profit from their service and parts departments – and those departments outshine sales at many stores. So it’s not surprising to see dealers turning to a reliable profit center when sales slump.

There is one extenuating factor, however. Despite the flurry of post-recession sales over the past seven years, the American vehicle fleet remains old.

“The vehicle fleet is still getting older every single year, in spite of our record sales,” Steve Szakaly, chief economist for the National Automobile Dealers Association, told Bloomberg. “So you’ve got a significantly larger population of vehicles that require service and are coming in for service pretty regularly.”

It also stands to reason that all those new cars sold since the economic recovery began need both routine maintenance work and repairs – and some are out of new-car warranty by now. All those sales almost certainly boosted service volume.

Bloomberg notes that after the Great Recession, new-car stores improved their service business to steal share from independent shops. The article doesn’t really back up that claim – dealers already did a nice service business before the Recession. Regardless, it does make sense that an aging vehicle fleet would provide work for the service facilities at new-car dealerships, along with independent shops. Of course, auto-parts stores are also benefitting from this.

Mark Bilek, senior director of communications and technology at the Chicago Automobile Trade Association, stated that even if there are more cars on the road that may need repairs, new-car warranties last longer now and manufacturers are working to cut flat-rate hours assigned to jobs, especially on warranty work, which has long paid less to techs and their shops than customer-pay work. The repair process for recalls has also changed. So those factors may prevent some shops from generating more revenue, even as they become busier.

Perhaps dealers are seeing more revenue from more service work, as Bloomberg says. Perhaps not. Either way, the landscape is different than it was less than a decade ago.

“It really goes to the fundamentals of how the industry has changed since the last recession,” Szakaly told Bloomberg. “It’s becoming more diversified.”

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55 Comments on “Dealers (Maybe) Using Service Department Revenue to Offset Sales Downturn...”


  • avatar
    PrincipalDan

    (Wanders into the service bay)

    “Hey, how you doin’?”

    (get’s slugged in the arm by a 5’3″ Latina)

  • avatar
    jalop1991

    $34. That’s what I just paid for an oil change from the guy up the street, who’s been there for 52 years and who does stellar work. No drama, no overselling, no $90 oil change to pay for the Keurig machine and the “free” coffee and wifi and badly connected TV in the waiting area.

    Oh, but wait: “if you can’t afford what M-B and BMW (for example) charge for service, you can’t afford the car.”

    Dealers should be worried, because everything that isn’t a Tesla has freedom to go almost anywhere to get maintained and fixed. And frankly, if it weren’t for those pesky state laws forcing dealerships down our throats, we wouldn’t use them to buy the car, either. We’d just buy it from the factory.

    Or from Amazon.

    • 0 avatar
      brn

      Where are you paying $90 for an oil change? Many dealers provide them for $25 to $30. I pay $40, but that gets me 6 quarts of a factory synthetic blend, a tire rotation, an work from my favorite repair shop for a 100 miles.

      • 0 avatar
        ajla

        “Where are you paying $90 for an oil change?”

        Dealers around here charge $110 to do an oil change on a Ram 6.7L.

        • 0 avatar
          ToddAtlasF1

          It costs $110 to change your own oil on any of the medium duty diesel pickups. Three gallons of synthetic Rotella and a $25-$30 filter will get you there.

      • 0 avatar
        rpol35

        Yeah but the $25 oil change always leads to a horde of other “supposed” maladies like “poisonous” cabin air filters ($49.95!?), $60 windshield wiper blades (whether worn out or not), highly dangerous chrome muffler bearings that need immediate changing, etc. ad nauseam. It’s gimmick city.

        Sure you can no, no, no all of this stuff but not everyone knows to “no” it and the dealerships know that and play this non ending gotcha game.

    • 0 avatar
      krhodes1

      I change my own oil. BUT, that said, that is more for convenience than for cost savings – I can do it on my own time, not the dealer’s. 7qts of $5+/qt synthetic, plus a $12-$15 filter and you are most of the way towards what the BMW dealer charges (usually $79.95), minus the bit of mess and my time to do it and dispose of the oil. You are not getting the right oil and filter for a recent BMW for $34 from anyone.

      My biggest gripe with dealer service is that the flat-rate pay system encourages shoddy work. Especially warranty work.

      You can buy a car from the factory if you want to pay too much for it. Just try to get a discount on a Tesla. Go ahead, I will wait. Dealerships have an assortment of valuable functions, and competition among them is good for your wallet. If you want to get the buying from the factory experience, just go in and ask them how much to write the check for.

      But ultimately, isn’t the premise of this article a bit silly? New car dealers largely make their money on used cars and service, not new cars. Been that way for decades. Just like movie theatres make their money at the concession stand.

    • 0 avatar
      FOG

      Sincere question. What do you mean by state laws forcing us to work with dealerships? I would like to understand this better.

      • 0 avatar
        I_like_stuff

        State laws in pretty much all states, don’t allow you to buy a car direct from Toyota, but instead have to go through a Toyota dealer.

        Tesla has been challenging these laws across the country. It won in some states and lost in others. The battle is ongoing.

        • 0 avatar
          krhodes1

          Toyota really doesn’t want to sell you a car direct.

          I will be amazed if Tesla can continue to when they are selling the volumes they want to sell. Even the Europeans, who have no such restrictions AND don’t inventory cars the way sales are done in the us largely use the dealership model. Though in some cases the manufacture owns the dealership group.

          • 0 avatar
            dash riprock

            “Just try to get a discount on a Tesla. Go ahead, I will wait”

            They are heavily discounting Model s and X as we speak. From the Tesla forum:

            G’sinHawaii, Friday at 11:47 PM

            OMG, for what its worth its true….

            I have been watching a New Inventory…. Started at $158,800 the other day found it at $144,500 due to the new pricing and just looked its at $134,000

            Last month they also dropped the price of new Model X’s by $3,000 last month.

            And if you already have a Tesla to trade….they will over allow on that to move a new unit.

    • 0 avatar
      DeadWeight

      People that pay more than $20 for a conventional oil/filter change, or more than $45 for one with genuine, full synthetic, don’t shop around (I often see prices for these from reputable places – aka NOT Jiffy Lube or similar hack chains with monkey techs – for $12.99 and $24.99,’respectively – they buy their filters and oil in mass quantity and save about 60% over retail prices by doing so).

      It’s moot to me. I do my own oil changes and will until I am horrifically injured, contract a debilitating disease, or simply can’t due to old age. It costs me 30 minutes of my time and about $12 to $15 of my money depending on what sales are going on and what filter and oil I’m using.

    • 0 avatar
      OneAlpha

      “And frankly, if it weren’t for those pesky state laws forcing dealerships down our throats, we wouldn’t use them to buy the car, either. We’d just buy it from the factory.”

      Hear, Hear! Well said!

  • avatar
    brn

    The back end (service and parts) has been subsidizing the front end (sales) for 20 years. As cars have become more reliable, it’s been a lot more difficult.

    Btw: Nice photo. That face oil doesn’t look at all like a professional put it on her. /s

  • avatar
    ToddAtlasF1

    The fleet may be aging, but the cars I see being serviced by new car dealers are almost all less than half the age of the average car on the road. Very few people take off-warranty cars to new car dealers for service.

  • avatar
    Felix Hoenikker

    I used to avoid the dealers for service after the warranty expired like the plague, but lately I’ve been changing that strategy. Most of my repair work that I can’t or choose not to do myself goes to a local garage that has a stellar reputation for competence and honesty. This past June, my Accord turned three years old, and I took it into the Honda dealer I bought it from for a state inspection and some routine maintenance. They talked me into an additional brake flushing service which they based on the age of the car (3 yrs) rather than the mileage (22,000 miles).I went along with this because not so much as feeding their brake flushing money machine $100 for $5 worth of fluid, but to build up a business relationship with them. The car has an excellent CVT transmission, but how long it will last is the big unknown. My thinking is that when the car is out of warranty and needs the tranny replaced under a class action lawsuit, they will give me better treatment since I have been throwing the regular maintenance at them. Basically, I don’t mind throwing a couple hundred their way every other year. This is far cheaper than buying a very over priced extended warranty.

    • 0 avatar
      33873

      I got news for ya – they won’t even know who you are and they won’t give you better treatment because you spent 100 bucks on a brake flush, your just another sucker who took the bait.

      • 0 avatar
        BuzzDog

        I think it depends on the dealer.

        In my smallish town, I’m convinced my dealer went to bat for me with Ford Motor Company when my water pump went out at 5 years and 3 months old, with 24,000 miles on the odometer (factory power train warranty is 5 years/50,000 miles). I’d had it serviced there a few days prior, and service all of my vehicles there. And I only do what the factory maintenance schedule specifies; no replacing the air in the tires with Arctic mountain air, or anything like that.

        I ended up paying something like $25 or $50 when all was said and done. I also think the fact that I’ve always been friendly and polite with them may have been a factor, and when this happened I opened the conversation along the lines of, “Hey, do you think it’s worth seeing if the manufacturer could do something to cover at least part of the cost?” No demands, and no acting like an entitled ‘hole.

        • 0 avatar
          geozinger

          I think domestic car dealers have gotten the message that the little things make a big difference. I’ve gotten some freebies from my local dealer on annoyance items. Such as the infamous GM remote key fobs that have bad solder joints. I went to the local Buick-GMC place to get new ones as I had tried all of the YouTube fixes and they failed, too. Much to my surprise, they fixed the solder joints and put in new batteries in both for free. I was quite amazed that they would forego $200 in parts sales to do that for me, but I will remember that bit of goodwill.

          I’ve been fortunate that I have not had a car with serious problems during or just after the warranty period recently. And I’m glad that your dealer was able to get Ford to work out the issue. Something similar to that was the reason why I stopped buying Fords, a highly defective car and an insensitive dealer turned me off for over 25+ years.

          After that experience, I went to a local Dodge dealer who really got “it”. I have never been to one like it since, but they treated you royally. Even though I was buying a leftover demonstrator, they extended the warranty back to the full 70K miles as if it were off the truck. If the car needed overnight service, you got a brand new, clean rental car, usually from their new car fleet. On one occasion, they even did a paint repair gratis, because they felt that the factory paint would fail and cause rust.

          I wish that more dealers had that attitude.

          • 0 avatar
            azmtns

            Starting this year, my local Honda dealer has become much more competitive in repair pricing than the independent shop near my house that I frequent. The latest example is that the dealer was $200 less on a Ridgeline timing belt change. An isolated example? Not sure.

          • 0 avatar
            ToddAtlasF1

            What was the actual cost of the change? Doing it right(Mitsuboshi or Honda belt, Aisin water pump, Honda hydraulic tension adjuster, Bando drive belts, Honda seals, Honda coolant) should be about $850 with labor. There are MUCH cheaper parts out there, and I wouldn’t put it above my local Honda dealer to use them. They certainly don’t abide by Honda’s fluid requirements.

        • 0 avatar

          I had all my oil changes done at VW on the TDi, based on warnings on forums with warranty work…..oh well.

      • 0 avatar
        ToddAtlasF1

        33873,

        As someone who knows a thing or two about getting Honda to make goodwill repairs on off-warranty cars, either outcome seems equally likely. When a dealer puts in your customer information, they have immediate access to your history. People who spend money get leeway on things like being mildly insufferable, or asking stupid questions, or even having something break outside of a warranty. Shops don’t want to eat a repair that represents more than they’re likely to earn from you in the future. A track record of spending money there makes them comfortable that the parts they’re going to pay for and time they’re going to spend will be recouped by future purchases. It’s also possible they’ll be stupid selfish jerks.

    • 0 avatar
      geozinger

      That’s really typical of Honda (and other import) dealers, they work on you to buy all kinds of extra things. About 13-14 years ago, my elderly mother took her Civic into the local Honda dealer for an oil change. Neither one of my brothers (who lived near her) knew this, it seems she did this without telling anyone. They managed to talk her into about $1200 of repairs and services (BG oil treatments, anyone?) by the time she left. This was on a three year-old car with about 15K miles.

      For a while, I worked at a Toyota dealer in the South. Our service writers were constantly pushing extra this, that and the other thing on customers. It was terrible, in my estimation. But, folks were glad to pay for it, as they thought it would keep their Corolla rolling forever.

      I don’t know that I agree with your logic about the CVT and who knows that when (or even if) your CVT pukes, that the dealership staff you’re seeing now will even be around when that happens. While my situation is a bit different, my dealer went from Buick-Pontiac-GMC to just Buick-GMC, the staff has been totally exchanged and no one I knew from the old days is there now. I think I’d take my chances on the extended warranty…

      • 0 avatar
        ToddAtlasF1

        Honda and Toyota dealers have to hit people up for extra services, because they’d starve waiting for the cars to break. I run an independent shop, and Toyota and Honda owners make up the majority of my customers and at least 20% of my revenue. It’s probably an equal split between timing belts on V6s and fifteen year old Honda A/C compressors; and oil changes and tire rotations. It isn’t unusual for me to have a 1999 or 2000 CR-V getting an oil and differential fluid change in a bay next to a 2012 Jeep that needs a four figure repair with a quarter of the miles. The only thing that makes me wealthier than Detroit is Subaru. Subarus wring their owners dry. When they exceed their pain threshold, we buy the cars for less than $500. Once we fix what the owner couldn’t stomach, we sell them to someone else who will pay us a few thousand dollars a year to keep an old Outback or Forrester on the road. These people could be leasing Aston-Martins instead, at least until they can’t.

        • 0 avatar
          S197GT

          how is your pricing compared to dealers? do you even have any idea if you are cheaper or more expensive?

          i am honestly curious because in my area the indies are charging dealer pricing and sometimes more…

          the european specialists want to charge the same as a dealer and might have an older loaner for you where i can go to the bmw dealer and get a nearly brand new equivalent (or nicer) to my car.

          i just don’t get it…

          • 0 avatar
            ToddAtlasF1

            We’re much cheaper than the dealers for anything more involved than an oil change or a state inspection. We aren’t up against the varsity though. Our area dealers offer promo pricing or free oil changes and inspections, but sometimes it sounds like you need to sign an agreement to pay for whatever they ‘find’ to get the ‘free’ service. The competition doesn’t just rob people blind, they are happy to provide them with extensive documentation of what they intend to do accompanied by photos of perfectly serviceable components that they deem to be in need of attention.

            Sometimes it is hard to explain to customers why we don’t want to spend our time fighting their legal battles against dealers and bigger shops that tried to rip them off. For one thing, the owner served as an expert witness recently, and the compensation didn’t begin to cover lost productivity. For another thing, why would we want our competition to be forced to step up their games?

            We don’t do much in the way of warranty-covered BMWs or Mercedes-Benzes. There are local dealers, and they cater to lessees very well. We sometimes see other new premium cars, as there is no local Lexus or Acura dealer. The off-lease BMWs we see tend to be in the hands of people who can’t afford the upkeep. They have cooling issues in our climate that cost as much as Subaru’s A/F sensor, O2 sensor, and CV issues combined, but old Subarus are often driven by people who are hiding their wealth, while old BMWs are driven by people who can’t afford an unplanned restaurant meal.

        • 0 avatar
          dchturbo

          I LOVE Subarus. People that own them will not own anything else, and they’ve accepted that owning them costs A LOT of money.

          I won’t ever buy another one. Maintenance queens.

    • 0 avatar
      30-mile fetch

      You’re planning on spending a couple hundred dollars every year to butter up a dealership service department in the hopes that when the transmission fails, you’ll get favorable treatment?

      Why not just buy a car with a transmission that you don’t expect to trigger a class-action lawsuit? It’s a four-cylinder appliance-grade sedan, not a sports car.

    • 0 avatar
      White Shadow

      Pro tip: If you’re looking to build a relationship and good rapport with your local dealer, bring them a box of donuts every time you bring your car in for service. They’ll remember you for sure and a box of donuts is far less expensive than some overpriced BS service that they push on you.

      • 0 avatar
        MBella

        Now assuming that a brake flush was completed correctly, it isn’t an unnecessary service. It’s even called out in the Honda’s required services. A power steering fluid exchange usually is a bit over the top, especially with the way the machines work. (You could simulate one with a turkey baster)

    • 0 avatar
      bullnuke

      I was surprised by the Local (49 miles away!) Subaru dealer. Timing belt, water pump, idler rollers, tensioner and “Super Coolant” were replaced on my EJ-engined ’11 Outback for $840. Job was completed in around 5 hours and they even offered a new Legacy for a loaner during the work. I had considered doing it myself to save a few bucks but the price of the parts and the cost of the labor at the dealer was pretty reasonable. This didn’t and doesn’t change my view of dealerships – too many years of experience with the sharks swimming those waters – but I was okay with this experience.

      • 0 avatar
        S197GT

        exactly my experience, too, bullnuke.

        and too many indies wanting to charge dealer prices and then use aftermarket (though likely decent enough) parts with huge markups.

        for every bad dealer story i can come up with a bad indie story. fact is, none of them are batting 100%.

  • avatar
    I_like_stuff

    How every conversation goes when I took my wife’s Sienna in for service to the dealer went:

    Me: I I’m here for Miles X scheduled service

    Clerk: Great and would you like our special $69.99 Service we’re running this month for this super important other thing that you’ve never heard of?

    Me: No, I think if it was super important Toyota would have included it in their recommended service

    Clerk: Are you sure? If you don’t do it the car could explode (well OK not quite explode but not far from it).

    Me: No, just the scheduled service please./

    • 0 avatar
      brn

      You do all the scheduled service? That’s unusual. Not a bad thing at all, but unusual.

      I’ve found that dealers tend to overcharge for the scheduled service. The customer is already in your shop, asking for exactly the thing you’re overpricing. Cha-Ching!

  • avatar
    I_like_stuff

    My experience with German car dealers has been good over the years. They don’t have to up-sell the bullshit because even the legit stuff costs an exorbitant amount. Which is why I never drive German if it’s out of warranty. Learned that lesson the hard way.

  • avatar
    Gardiner Westbound

    Repulsed by their strident upselling of unnecessary services we avoid our Infiniti dealer’s repair department. An exception was required for the recent Takata passenger side airbag inflator replacement recall.

    When the car was returned several electronic items including the backup camera no longer functioned. They demanded $360 to diagnose the issues claiming they were unrelated to the dash disassembly and recall work.

    Turned out the tech had overlooked replacing the fuses he had pulled. I successfully persuaded the Service Manager to cancel the charges. We won’t be going back to the dealer – ever!

  • avatar
    S197GT

    our bmw e90 goes to the dealer for the value-line oil change service for $90; every 18k miles or so (once a year) when CBS calls for it. (now at 185k miles for you conspiracy theorists.)

    we get a nearly brand new f30 for the day if we want it. just fill it back up with gas.

    they give us a list of issues they see and very low pressure. i decide how important it is and whether i can diy or go to indie shop.

    here is the thing, though, too many indie shop estimates are right up there with dealer-equivalent prices. last couple of repairs have been done at the dealer because i know it will done right with OEM parts. and if something isn’t done right i can complain to someone higher than them. (service surveys from manufacturer)

    another reason i like dealers (or indie specialists) because they know the cars better and know where to look for common issues. they give me a list and I say thank you very much, you MAY be hearing from me.

    i used to call them stealers but lately they have been getting more of my service business. indies need to lower their prices to stay competitive.

    • 0 avatar
      krhodes1

      My BMW dealer is perfectly pleasant to deal with as well. They give lifetime state inspections to buyers, so mine goes in once a year for the look-over. Same deal, they give me a list, I say thanks. Nothing has actually broken in years, just needed tires last year and the 40K service is now due. Which I will DIY when I am back in Maine for a weekend. But zero pressure, ever. Was the same when it was under warranty, though they would always recommend a tire rotation and balance with every service. Which I declined, since in the owner’s manual BMW says not to. And the tires wore all but perfectly evenly. I was not super impressed with their attention to detail on what little warranty work I had done though. I think I have told my door seal story before – in short, I took it off and put it back on properly myself.

      No idea how the VW dealer down here in FL will be, the car has not darkened their door since purchase other than for them to put the correct license plate on it a month after I bought it. Their oops. Probably never will unless a warranty issue crops up.

  • avatar
    kvndoom

    Damn… Paris Hilton has hit hard times apparently.

  • avatar
    DenverMike

    Funny I just drove past a dealer (Chevy I think) with a huge “EXTENDED SERVICE HOURS!!!” sign.

    But the service dept is where most of the raping happens anyway. Even if you “know cars” and you know you’re getting sodomized, sometime you just gotta have your car/truck back on the road. I feel sorry for the poor folks not having a clue.

    Figure all dealers are criminal enterprises until proven otherwise. I know you have deal with them to get a new ride, but I won’t bring my truck there unless I absolutely have to.

    And they can *keep* their Free Oil Changes.

  • avatar
    backtees

    2 points. 1) I lean toward dealers as when I need a new water pump I want a guy who has been there- done that. If it’s a two hour job he can bill and knock out in one then great. He knows the shortcuts. Besides they match most coupons anyway.

    2) Met an OEM rep on a plane and did he draw the short straw. I wore him out for 2 hours on warranty work (he did fixed ops for luxury import) parts mark up and dealer margins. He says it absolutely makes a difference if a “goodwill” ask from a dealer is on behalf of a long time customer. CPO or new. The 6 year old car with 100k that they bought COO needs a new alternator and has been out of warranty for 2 years. Tough luck.

    • 0 avatar

      There are a few jobs I go dealer for….the timing belt on my Acura. Sure, my indy is good, but does he do this all day every day….

      The indy’s alignment guy was totally flummoxed by the CTS. I had control arms done, as the Golden Grommets wore out at 120k, you can’t change the Grommets separately a la BMW.-so GM sells the arms on exchange basis. I was again reminded the RWD CTS has totally different suspension and steering than the AWD version.

      The alignmemt guy couldn’t do the job, despite 3 attempts, began complaining about poor engineering, etc.

      Went to dealer. There, is a rack that picks up the front of the car, and more important, a “guy”, who is under that rack all day, every day. I watched from outside the building….and had a very brief conversation with him-trick is to pick up front of car. In waiting room, discovered that is a $6,000 addition to the Hunter rack.

      Car came back perfect.

    • 0 avatar
      brettc

      Just got a goodwill repair from the dealer we bought our cars from, despite me doing a lot of my own oil changes and primarily taking the cars to the other local VW dealer for a lot of the work since it was more convenient.

      I was surprised that VW covered it since I wasn’t good buddies with the service department but I did tell the regional rep that I’d owned VWs since 1998 and would like to buy another one (that might be a fib). They authorized the repair for $1139 so I was happy.

  • avatar

    I stopped going to dealers years ago. Recently I went back to an Acura dealer for an oil change as I move around a lot for contracting work and I didn’t know of any good local shops. $45 for synthetic oil change and free car wash, not bad, but then they recommended $3,082 in repairs on an otherwise flawlessly running TSX. The service rep made it sound like my car will break down at any moment without these repairs (shocks, belts, tire rotation, transmission fluid, forgot what else). They used to pull this on me all the time. I learned the hard way, after getting second opinions from local shops and learning how much I was getting ripped off. They will over-repair if you let them.

  • avatar
    olddavid

    I guess it is a good thing I am no longer working for the OEM’s. I don’t understand the business anymore. Money is dirt cheap. New and used sales have hit record levels. The manufacturers have reduced their factory employees while still having great productivity. When we first started the Holy Grail build rate was 10 million. The prime money rate was about 4%. With every member of our family doing something, we managed to be profitable in year two. Now the build is 17 million, the money 1% and the corporations are in the doldrums. I guess if you have not made money in these times, you have your answer to the question many fear to ask themselves.

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