Your Dealership’s Revenue Engine

2025 has been volatile for retail dealers. New vehicle gross profit margins have fallen, waning customer confidence, and rising auto loan rates have all rocked the market. These pressures are a wake up call for dealers to reassess where their most stable revenue actually comes from. I know it’s nerve wracking, but unless you’re brand new to these industries you have already survived worse and there are opportunities among the challenges. An old boss of mine would always say “Make hay while the sun is shining.” Believe it or not, that time is now.

There is a compelling financial case for fixed operations. On average, fixed ops represents only a small percentage of total dealership revenue and is rarely prioritized. Publicly traded dealer groups reported $18.2 billion in fixed ops revenue in 2024 with parts and service gross profit growing 7.7% while new/used vehicle margins contracted. The U.S. vehicle fleet reached an all-time high of registered vehicles with a record oldest average age. Why should you care? The smallest revenue department is the biggest margin generator! Your dealership margins might look like this: 30% for parts, 50% for Fixed Operations labor and maybe 40% for F&I vs. 5% for vehicle sales. When sales slow, that steady parts and service revenue becomes a bigger piece of the total pie. There is a multiplier effect from increased RO volume of the higher margins that can close the gap to your goal faster than you might realize.

Service absorption rate matters more than ever. Divide your service and parts gross profit by the total dealership fixed expenses to get your absorption percentage. In theory, at 100% service absorption, the sales department can break even or operate at a loss and the dealership still profits. Industry benchmarks show below 50% is poor and 75%+ is excellent. In current market conditions where new vehicle margins are compressed, high service absorption provides the financial cushion dealers need during downturns. Measure this frequently.

We still have to acknowledge the challenges facing dealers as we head into 2026. The end of federal EV tax credits are creating uncertainty in EV sales trajectories, Auto loan rates all over the place, reduced manufacturer incentives and increased lender risk aversion, are just a few examples. Recently published federal documents suggest average auto loan rates may not decline meaningfully until summer 2026. This is our current reality, but it’s not a death sentence. Dealerships relying heavily on vehicle sales margins are exposed to significant volatility if they don’t pivot.

Looking forward, these challenges present some unique fixed ops opportunities. When consumers face affordability pressures and higher interest rates, they keep vehicles longer, driving increased service demand. The aging fleet with increasing technological complexity requires specialized dealer service capabilities that independents can’t match, but data shows service visits to dealerships declined from 35% in 2021 to 30% in 2024. This is both a warning and a massive opportunity for market share capture that smart dealers will capitalize on.

To navigate this successfully, track and improve service absorption rate monthly as a primary performance indicator, evaluate fixed ops capacity and technician productivity to identify money left on the table, and leverage F&I products like VSCs and prepaid maintenance to create closed-loop service customers while improving PVR. Strategically reengage your sold unit and service customers to increase RO volume. Prioritize supporting your service department with engaged traffic generation and feed them qualified leads. Invest in customer retention marketing support with the same eye for return as you do for Sales.

Have you optimized Parts and Service recently? Practice operational excellence in fixed ops with tools like digital vehicle inspections, and scheduling optimization. Major public dealer groups are investing heavily in service-related business areas despite higher upfront costs because of long term return and you should too. Specific technologies like self service kiosks that improve customer experience while reducing labor costs are just one example of ways to prioritize efficiency gains and customer satisfaction improvements that directly impact profitability. This is the long game.

The market is uncertain, but you don’t have to be. Service and Parts is your dealership’s flywheel, steadily spinning away and storing energy to help you go the distance in between Sales’ power strokes. Measure and let data drive your decisions. Building a world-class service department takes time and investment, but the data proves it’s the most reliable path to stable profitability. Conduct a fixed ops health assessment focusing on absorption rate, capacity utilization, and customer retention metrics. Monitor employee retention and turnover closely too, especially your techs. Dealerships that figure this out will make all the hay.

About the Author:

Sheila Pogue is a Dealership SME at Dealer OMG, a Meta Automotive Agency Partner helping dealers run smarter, more effective ad campaigns that convert clicks into cars sold.

Contact:
Sheila Pogue
512.666.4439
Sheila@dealeromg.com
http://www.dealeromg.com

About Dealer OMG

Dealer OMG is an automotive digital marketing firm focused on helping dealers measurably grow sales, service, and trades. Founded by former Facebook employees and automotive executives, Dealer OMG pioneered the vinAMP platform to refine target audiences, making ads more relevant to shoppers. Through white-glove dealer-specific creative and vinAMP platform, Dealer OMG’s dealership clients are able to be the dealership continually in the shopper’s feeds.

For more information, you can contact our Chief Operating Officer, Keith Turner at Keith@DealerOMG.com