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Factors Influencing Profitability in Auto Dealership Fixed Operations

Factors Influencing Profitability in Auto Dealership Fixed Operations

Profitability in the fixed operations departments of auto dealerships (also known as service and parts departments) is being challenged today. While new vehicle sales have rebounded well from the sharp declines during the pandemic, service and parts departments are facing some significant headwinds that threaten their profit growth. Let’s explore the major trends impacting fixed operations profits and proven strategies dealerships can implement to overcome them and capture more market share.

The Number of Off-Warranty Vehicles is Rising

As vehicles stay on the road longer, cars are aging. This means the number of off-warranty vehicles in operation is increasing. These out-of-warranty vehicles generate the most profitable service work for dealership fixed ops departments. However, as consumers hold onto older vehicles longer, they are more inclined to use independent repair shops, believing they offer greater value and pricing over dealership service. If dealerships do not take action to change this perception and make their service departments more competitive, they risk losing more and more of this profitable work.

Eroding Customer Loyalty

Younger generations of vehicle owners today do not have the same level of loyalty to dealership service that prior generations did. Younger customers are more apt to shop around for the best value on vehicle service and are more easily lured away by independent shops, online retailers, and other options. Dealerships can no longer rely on traditional customer loyalty to drive service business. They must implement stronger customer retention strategies to build loyalty among new car buyers.

A Shortage of Qualified Service Technicians at Dealerships

The industry is facing a growing shortage of qualified automotive service technicians. This makes it challenging for dealership service departments to maintain adequate staffing levels to handle consumer demand. When customers try to make an appointment and are quoted long wait times, this causes frustration and incentivizes them to take their vehicle to an independent repair shop that can service it sooner. Dealerships are forced to turn away business due to a lack of technicians. Investing in technician recruiting and training programs needs to become a top priority.

Pent-Up Demand for Vehicle Service

During the peak of the pandemic, many vehicle owners delayed routine maintenance and repairs. This has created significant pent-up demand for a backlog of service work. Dealerships are missing out on capturing this extra work because of inadequate staffing and capacity constraints. Adding service bays, expanding operating hours, and ramping up staffing can help dealers tap into this pending work and increase market share.

How to Capture Market Share and Improve Fixed Ops Profits

To position their service departments for stronger profit growth, dealerships should focus on these key strategies:

  • Implement more competitive service and parts pricing. Analyze current rates compared to independents and align with the market.
  • Upgrade fixed ops facilities and equipment to offer a higher-end customer experience.
  • Invest in more technician recruiting and training to expand capacity. Offer incentives to retain experienced techs.
  • Use online appointment scheduling and vehicle service updates to improve convenience.
  • Develop retention programs to build loyalty with new car buyers. Send periodic service reminders and coupons.
  • Offer more routine maintenance value packages and menus versus a la carte pricing.
  • Expand operating hours to be open when customers need service. Offer after-hours drop-off.
  • Train advisors to sell more multi-point inspections to uncover added service work.

Contact DealerPRO Training for Fixed Operations Training and a Free Profit Improvement Plan

DealerPRO Training provides dealership service and parts department training, coaching, and consulting to maximize profitability. Our experts can assess your fixed operations and develop a profit improvement plan with no obligation. We offer fixed operations training and consulting tailored specifically for dealerships. Request a free profit improvement assessment today from our team of experts. Contact us today to schedule your assessment.