It’s no secret—the auto industry has been through a lot in recent years. Inflation, supply chain problems, and changing consumer expectations have left dealerships in a tough spot. Gone are the days when car sales could easily cover all the dealership’s expenses. Today, the average American only owns about nine cars in their lifetime, down from 13 a few decades back. Car owners hold onto their vehicles longer, usually around 5-7 years. With this shift, there’s a rising demand for reliable parts and consistent maintenance to keep these cars roadworthy for longer stretches. Dealerships that can pivot to meet these demands, particularly through their parts and service departments, will pull ahead. Those who don’t risk being left in the dust.
The Digital-First Consumer
Today’s buyers—especially Millennials and Gen Z—aren’t interested in spending hours at a dealership. They want digital convenience, and they want it now. In fact, nearly 60% of OEM auto parts buyers fall into these two generations, and this number is climbing. Think about that: over half of your parts-buying customers expect an online experience. For dealerships, this shift is as much an opportunity as it is a challenge. If you’re not meeting these digital-first expectations, there’s a good chance your competitors are.
Electric Vehicles:
Changing the Game for Parts and Service
Electric vehicles (EVs) bring another twist to the dealership world. They’re incredible for reducing fuel costs and emissions, but they don’t need as much traditional service. Without as many mechanical parts, EVs sidestep routine oil changes and engine repairs, which impacts revenue for dealerships relying on these services. Yet, EVs still need specialized care—like battery replacements and software updates. The rise of EVs may mean a lower volume of mechanical fixes, but it creates fresh demand for EV-specific parts and digital services, areas where innovative dealerships can thrive.
Mounting Financial Pressure and Profit Squeeze
Dealer margins on new cars are dropping fast as inventory levels bounce back. While dealers enjoyed margins close to 7% when cars were scarce, they’re now hovering around 3.2%. Front-end profit margins across dealerships are projected to slide another 10-15% from 2022 by the end of 2024, driven by mounting competition and waning demand. This is putting enormous pressure on dealerships to find alternative revenue streams fast.
Fixed Ops: The Reliable Profit Engine
This is where fixed ops comes in, providing the steady income that keeps a dealership afloat regardless of car sales trends. In fact, fixed ops has grown to cover an increasing portion of dealership expenses, jumping from 35% in 2010 to an estimated 65% by the end of 2024. With customers holding onto cars longer, they’re coming back for regular maintenance and parts, which means a constant revenue flow for dealerships savvy enough to tap into it.
So, if your dealership is serious about securing its future, boosting your absorption rate is non-negotiable. By maximizing your fixed ops revenue, especially within the parts department, you’re creating a sustainable buffer against the ups and downs of car sales.
Conclusion
To quote Wayne Gretzky, “I skate to where the puck is going to be, not where it has been.” The auto industry’s puck is already moving towards fixed ops. Dealership leaders who prioritize absorption rates now will thrive as you enter 2025.
In the end, fixed ops is about more than just revenue. It’s about building a stable future in an industry known for rapid shifts and unpredictability. By making fixed ops the powerhouse of your dealership’s strategy, you’re turning challenges into opportunities—and setting your team up for long-term success.
