Car Dealerships Increasingly Rely on Parts, Service for Profit
U.S. vehicle dealerships are shifting their profit focus toward parts and service departments as well as finance and insurance (F&I) operations due to softening new car sales margins. This diversification allows them to remain profitable even during economic downturns or supply chain disruptions. According to industry experts, the hedged nature of dealership business models—where profits can come from multiple streams such as vehicle sales, used cars, parts and service, and F&I—has historically protected dealerships through crises like the 2008 financial crash. Data shows that while new car prices surged during the pandemic due to supply constraints, average gross dealership profits more than tripled between 2018 and 2022. However, this trend has started reversing in recent years as automakers shift production toward higher-margin vehicles for wealthier customers. Meanwhile, parts and service departments have seen their contribution grow significantly—from $3.3 million to $5 million per dealership on average from 2020 to 2025. Finance and insurance operations also remain a key profit driver despite contributing only a small portion of total revenue. These contracts are often pure margin for dealerships, as they act more like facilitators than sellers.
Topics: automotive retail finance and insurance parts and service departments profit streams