Fewer Miles Driven Hits Dealership Profits

Fixed operations, especially in the body shop and collision parts area, are one profit center that isn’t fully recovered from coronavirus shutdowns imposed last year, according to fourth-quarter reports from some of the publicly traded new-vehicle retail groups.

Despite record results in 2020 for new- and used-car profits and Finance & Insurance per vehicle, there’s less demand for parts and service. That’s because many customers are driving less –commuters who are now working from home, for example –so they’re putting less wear and tear on their vehicles and getting into fewer accidents.

Parts and service business was largely heading in the right direction at the end of 2020, and executives say they expect fixed operations to recover fully in 2021. What’s more, a comeback in parts and service could help offset an expected decline in new- and used-car margins once inventories get back to normal in the second half of this year.

“Turning to parts and service, although our parts and service revenue decreased in the quarter, our business improved from the lows in April,” Dan Clara, senior vice president-operations for Asbury Automotive Group, says in a Feb. 2 conference call. “But the recovery continues to be choppy due to the pandemic.”

On a same-store basis, Asbury’s parts and service revenue declined 4% in the fourth quarter to $208 million. For the year, parts and service revenue was down 8% to $775 million, also on a same-store basis.

At Group 1 Automotive, CEO Earl Hesterberg says, “Our collision business is extremely weak, because as you say, people are driving a lot less miles.” Warranty business and recalls are also slow, he says, but customer-pay business is “really holding up well.”

On a same-store basis for U.S. operations, Group 1 parts and service revenues were down 5% for the fourth quarter to $295 million. For the year, revenues were down 6.5% to $1.1 billion.

Hesterberg says in a Feb. 4 conference call he expects expenses to increase in 2021, because as inventory rebounds, Group 1 will need to add more employees and marketing expenses. “But by the same token, our parts and service business is going to come back, too,” he says.

Lithia Motors tells a similar story in its Feb. 3 conference call. Chief operating officer Chris Holzshu (pictured below, left) says service, body and parts revenue decreased 3% in the fourth quarter to $311 million on a same-store basis.

That includes a 2% increase in customer-pay work, offset by a 7% decrease in warranty, a 10% decrease in wholesale parts sales and a 13% decrease in body-shop revenue.

Chris Holzshu Lithia

For all of 2020, Lithia reports service, body and parts revenues were down 6.5% to $1.2 billion on a same-store basis. Lithia, based in Medford, OR, is No.3 in the WardsAuto 2020 Megadealer 100 with 187 dealerships and total 2019 revenue of $12.7 billion.

Group 1, based in Houston, is No.4 in the WardsAuto 2020 Megadealer 100, with 186 dealerships and total 2019 revenue of $12 billion.

Asbury, based in Duluth, GA, is No.7 in the WardsAuto 2020 Megadealer 100, with 88 dealerships and total 2019 revenue of $7.2 billion.