Major Retailers Say Fixed Ops Mostly Flat in First Quarter

The recovery in dealership fixed operations picked up some momentum in March, but looking at the first quarter overall, fixed ops continues to lag other dealership profit centers in rebounding from the COVID-19 pandemic, according to earnings reports.

“We saw signs of growth in parts and service over this past quarter, as drivers are returning to the road,” says David Hult, president and CEO of Asbury Automotive Group.

On a same-store basis for the entire first quarter, Asbury reports its parts and service revenue increased about 1% vs. the year-ago quarter, to $212.4 million. For the month of March, without disclosing the monthly result, Dan Clara, Asbury senior vice president-operations, says parts and service revenue exceeded pre-COVID levels.

“We continue to see this trend thus far in April,” Clara says in an April 27 conference call.

Asbury, based in Duluth, GA, says that within parts and service, on a same-store basis first-quarter gross profit for customer-pay work increased 3% vs. a year ago, wholesale parts increased 23%, and internally billed reconditioning and preparation work was up 5%. But warranty work was down 13% vs. a year ago.

Other publicly traded, new-vehicle dealership chains report a similar trend for the quarter, with gains in customer-pay work recovering faster than warranty or collision repairs (pictured, below left). However, Asbury’s Hult says he sees collision repair coming back, too. He describes business in March as “full acceleration forward.”

Meanwhile, for the entire first quarter, Lithia Motors reports its same-store revenues for service, body and parts were down 1% vs. a year ago, to $317.3 million. In contrast, Lithia’s new-vehicle sales revenue increased 29%, used vehicles gained 32%, and F&I rose 30%.

Same-store gross profit for service, body and parts increased 3.8% for the entire quarter overall, to $169.5 million, Lithia says. “But in March, we saw double-digit increases in service, body and parts, driven by a 32% increase in our highest-margin, customer-pay work,” says Lithia chief operating officer Chris Holzshu.

“We expect these trends to continue into the second quarter as the economy reopens further and consumers look to get back on the road and return to previous routines,” Holzshu says in an April 21 conference call.

For the entire quarter, Lithia’s customer-pay work increased 7%, he says. But other fixed ops categories decreased: warranty work, down 12% vs. a year ago; wholesale parts, down 6%; and body-shop revenues, down 14% for the quarter.

People are driving more than they did during widespread COVID-19 shutdowns in 2020, but still not as much as pre-pandemic.

Asbury Automotive Group collision shop

Meanwhile, AutoNation reports separately that its parts and service business “continues to gradually improve,” according to CEO Mike Jackson. AutoNation refers to parts and service as Customer Care.

For the first quarter, AutoNation gross profit from service and parts increased just 0.7% vs. a year ago, to $389.1 million, while parts and service revenue decreased 0.5% for the quarter.

AutoNation Chief Financial Officer Joe Lower says customer-pay work is recovering faster than other categories of fixed ops, along with internal work, such as prepping cars for retail sale.

“Warranty and collision have trailed, as we’ve mentioned, and it really is tied to that miles-driven,” Lower says. “That’s been the laggard.” However, there’s been “sequential monthly improvement” in those slower categories, he says.

“We do expect that will continue to improve over the course of this year, which will help all of our Customer Care business,” Lower says. “But March was our best month we’ve seen in a while. We’ve continued to see a positive trend.”