Dealerships' Parts and Service Revenue Booms

Parts and service revenues increase for the six publicly traded new-car dealership groups in the fourth quarter, partially offsetting the effect of lower gross profit per vehicle for new and used vehicles – especially for new, as new-vehicle inventory has increased.

Tom Szlosek, AutoNation chief financial officer, says all categories of parts and service work have shown an increase, especially customer-pay, the most profitable category.

“Customer-pay, warranty and internal all experienced double-digit year-over-year growth. The value per order is improving, and our total number of repair orders has also increased,” he says in a recent earnings conference call.

As a group, parts and service revenue for the six companies was about $3.9 billion in the fourth quarter, an increase of 5.3% vs. the fourth quarter of 2022. For all of 2023, parts and service revenue was about $15.4 billion for the group, up 7.7%. Revenue numbers in this story are on a same-store basis.

AutoNation, based in Fort Lauderdale, FL, reports $1.1 billion in parts and service revenue for the fourth quarter, an increase of 8.7% vs. a year earlier. For 2023, parts and service revenue was $4.4 billion, up 8.8%.

“This high-margin business is a key part of our continued engagement with our customers, and we’re focused on capacity utilization and technician development to support the continued growth of the business,” Szlosek says.

As a group, the dealership chains report customers are keeping and servicing their vehicles longer. The dealership groups are also working harder to attract and retain more parts and service business.

For example, many dealerships are staying open longer and allowing customers to book their own service appointments. The dealer groups also are delivering a growing number of parts and services via mobile service trucks. Dealer groups in many cases have also raised their hourly labor rates.

Sonic Automotive, Charlotte, NC, reports fourth-quarter revenue for parts, service and collision repair for its franchised dealership segment of $423.9 million, up 6.2% vs. prior-year.

“About one-third of that comes from higher repair order volume, and two-thirds is coming from passing along higher labor costs, higher parts costs (and) the effects of inflation as we’ve seen over the last several quarters,” Danny Wieland, vice president, investor relations and financial reporting for Sonic says in a recent conference call.

As always, the major dealership groups are working to hire and retain more service technicians.

AutoNation and Sonic both report a net increase in service technicians in 2023. AutoNation says it increased its technician head count 6% in 2023 on a same-store basis. Sonic says it had a net increase of 108 technicians in 2023, and it has a goal of 300 more for 2024.