Dealerships Diversify in a Shift Away from Sky-High Car Sales

The era of pandemic-era profit margins is coming to an end. With car sales falling back down to earth, dealerships are looking for new ways to stay afloat. For many, that means shifting focus from the car lot to the service bay.

Dealerships have long relied on making big profits from new vehicle sales. But as those profits continue to decline – from $6.8 million per public dealership in 2022 to around $3.9 million last year, according to Kerrigan Advisers – they’re having to adapt. Service and parts sales are now a major source of revenue for dealerships, growing by 48% over the past five years to reach $164.6 billion as of last year.

As consumers hold onto their vehicles longer (the average age of a passenger car on the road is now 14.5 years), dealerships face a perfect storm: decreased profits from new vehicle sales and increased competition in the service market. Independent chains like Jiffy Lube, Meineke, and Walmart have been poaching customers with flexible scheduling and transparent pricing.

To compete, dealerships are doubling down on customer experience. At Pohanka Nissan Hyundai, executive vice president Tim Pohanka is prioritizing service as “the biggest opportunity.” His dealerships offer walk-in appointments, financing options, and video updates to show customers exactly what’s been done with their vehicle. This approach may be necessary in a market where prices are still sky-high ($49,249 for the average new-vehicle listing price, up 1.9% from last year).

Service is no longer just about getting customers back in the door; it’s about building long-term relationships and creating recurring revenue streams. By keeping customers engaged with regular maintenance and repairs, dealerships can keep them tied to their brand for years to come.

This shift has significant implications for the industry as a whole. Dealerships are no longer just car sellers; they’re service providers competing directly with independent chains for market share. The stakes are high: will dealerships be able to maintain their reputation for quality work at fair prices?

By embracing the service industry and prioritizing customer experience, dealerships may find themselves on the path to long-term success – and a healthier bottom line.

The Service Revolution: A New Era for Dealerships

As the car business normalizes from pandemic-era highs, dealerships are being forced to innovate. By focusing on service and customer experience, they’re not just diversifying their revenue streams; they’re building a new business model that’s more resilient to market fluctuations.

Pohanka’s approach is a prime example: by offering flexible scheduling, financing options, and transparent pricing, his dealerships are creating an unprecedented level of trust with customers. This bold move may pay off in the long run.

However, as the service industry continues to evolve, will dealerships be able to maintain their reputation for quality work? Or will they become the new purveyors of overpriced maintenance and repairs?

The Future of Service: A Competitive Landscape

Independent chains like Jiffy Lube and Meineke are gaining traction in the market. Dealerships must now compete with flexible scheduling and transparent pricing. By embracing the service industry and prioritizing customer experience, they may just find themselves on the path to long-term success.

The key lies in creating recurring revenue streams that keep customers engaged with regular maintenance and repairs. By doing so, dealerships can build long-term relationships and create a loyal customer base – one that will stick around even when prices rise.

Dealerships’ Double-Edged Sword: Prices and Profitability

As car prices continue to soar (the average new-vehicle listing price is now over $49,000), worries about a potential decline in overall sales are top of mind. However, Pohanka notes another factor at play: the reputation of dealerships for being pricey.

Despite their argument that factory-trained technicians and specialized equipment justify higher prices, many consumers remain skeptical. Will dealerships be able to maintain their pricing power as they shift focus from new vehicle sales to service revenue?

The Long-Term Outlook: A Shift in Focus

As the market normalizes, dealerships face a perfect storm of decreased profits from new vehicle sales and increased competition in the service market. However, by embracing the service industry and prioritizing customer experience, they may just find themselves on the path to long-term success.

The key lies in creating recurring revenue streams that keep customers engaged with regular maintenance and repairs. By doing so, dealerships can build long-term relationships and create a loyal customer base – one that will stick around even when prices rise.

The Clock is Ticking: Dealerships’ Last Chance

As the car business normalizes from pandemic-era highs, dealerships are running out of time. By focusing on service revenue and prioritizing customer experience, they may just find themselves on the path to long-term success – but only if they act fast.

The stakes are high, but one thing is clear: dealerships must adapt or perish in a market where profits from new vehicle sales continue to decline.