Car dealerships are relying more on parts and service for profits

When people buy new cars, auto dealerships make money. When they don’t, dealerships still find a way to make money.

A dealership typically has four profit streams: new vehicle sales, used vehicle sales, parts and service departments, and finance and insurance offices. This gives dealers some kind of product or service to offer in good times and bad.

Now, parts and service departments and finance and insurance packages are becoming more important sources of profit for car dealers, as profits from new vehicle sales show signs of softening.

“The auto retailer remains one of the more attractive hedged business models,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors, a sell-side advisory and consulting firm for dealerships.

“If you lose $10 of new vehicle revenue, you only have to pick up $1 of service to have your gross margin remain flat,” she said. “It’s 5% new car margin, 50% service margin.”

This is why dealerships were still profitable even in the financial crisis, while automakers such as General Motors and Chrysler, now part of Stellantis, went bankrupt, she added.

During the pandemic, new car prices soared, due in large part to tight supply. The average pretax profit per dealership more than tripled from $1.9 million in 2018 to $6.8 million in 2022, according to a Kerrigan Advisors analysis of publicly traded dealership group filings.

Facing supply constraints, automakers manufactured more expensive and higher-margin vehicles. That trend has continued for years, but is starting to show signs of buckling.

“If you look at the weakest part of auto sales right now, it’s what we call the mass affluent,” said Jeff Lick, managing director at Stephens. “Those are the people that generally go off and lease the high-end Lexus. Everyone talks about the K-shaped economy in the car business. You’re actually seeing relative strength in the lower part of the K, because that’s the need. The mid-level [BMW] 5 Series, that’s the want. And you know, that consumption can be postponed.”

Since that 2022 peak, average gross profits for dealerships owned by the public dealership groups fell to about $3.9 million in 2025, according to Kerrigan Advisors.

But over roughly the same period, the average dealership’s parts and service gross profit rose — from $3.3 million in 2020 to $5 million in 2025, according to Kerrigan Advisors.

Finance and insurance, often abbreviated to F&I, often contributes an outsized share of gross profit compared with revenue. Finance and insurance revenues for Asbury Automotive, one of six publicly traded dealership groups, was only about 4% of revenues from January to June, according to the company. But it made up 23% of the company’s gross profit.

“F&I has proved very stable, if not continued to grow slightly,” said Glenn Chin, senior equity analyst at Seaport Research Partners. “I do think there’s true value in some of these products, as much as people pooh-pooh them. If you’re spending…