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Service and parts absorption is stuck—here are 3 levers top dealers are pulling to fix it

Phones, bays, and broken math

Hey, everyone — We're back today at 1 p.m. EST with another killer lineup on Daily Dealer Live.

Joining the show:

  • Matt Bowers, President and owner of the Matt Bowers Automotive Group

  • Jade Terreberry, Sr. Director, Strategic Planning & Business Development at Cox Automotive/Autotrader

  • Jake Lebowitz, Dealer principal of Raceway Kia of Freehold

Multi-rooftop insights. Real dealer perspective. Major brand coverage.

Streaming on all CDG channels.

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Welcome to The Breakdown, an analysis of auto retail’s top trends, moves, and insights—in under 5 minutes.

Parts and service departments are busier than ever. Repair order revenue is up. Fixed ops gross is climbing.

But I've been hearing from dealers that there’s one metric that hasn’t moved nearly as much as it should: service absorption.

But wait, what the heck even is service absorption?

At a high level—service absorption is the ability for a dealership's parts and service gross margin to cover the overhead (operating expenses) of the dealership.

It's a crucial metric for overall dealership performance, and while there are certain variables factored in that are out of the service department's control (rent, floorplan, etc.), there are just as many within. Here are three levers the best dealers are pulling to improve service absorption...

Lever #1: Deploying AI to streamline service and parts operations.

Here's the problem: CDK Global found that 65% of customers call to schedule appointments, and they're sitting on hold for over eight minutes. While they're waiting, your advisors are juggling phones instead of selling work.

But for Kyle Morissette at Werner Hyundai in Florida, an AI system now books 800 to 1,000 appointments every month.

"It's like having another employee with no restrictions," he told me. "It can take infinite incoming calls at the same time."

However, here's what nobody tells you about AI—it's not plug-and-play. "When I started this in January, it was painful," Morissette said. "These bots are basically babies. They need to grow and learn. I went through every single call, and if a customer wasn't happy, I personally called them back to make it right."

The payoff is his advisors' phones aren't ringing constantly anymore. They actually get face time with customers for the work that matters (like building relationships and upselling). Voice AI handles the Tier 1 calls 24/7, digital schedulers push high-margin jobs to available bays, and recall mining tools automatically pre-book campaign work.

The result is a 15% to 25% jump in appointment capture, higher effective labor rates, and advisors who can finally focus on selling.

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Lever #2: Matching each repair order to the correct skill level for peak alignment.

Most shops have the same issue: too many low-skill jobs going to high-cost techs, which kills productivity. But there's a deeper issue, diagnostic work that ties up expensive labor for hours.

I talked to a Mercedes-Benz dealer in the Midwest who solved this by creating what he calls Central Diagnostic Techs. Their only job is to remove bottlenecks.

"So much of what we do now isn't replacing parts," he explained. "It's over-the-air updates, reprogramming, recalibrations. We don't want our best techs stuck on diagnosis while cars sit on racks for three hours."

His CDTs work like medical triage. They diagnose the problem first, figure out which specialist should handle it, then dispatch the work to team technicians. The key insight: CDTs get paid based on department performance, not individual production, so they're incentivized to keep the whole shop moving.

And the GM tracks everything on crawl screens showing daily targets—10 hours per bay across his 37 bays means 370 hours daily. 

The kicker is—no technician gets more than one bay. "I'm like a landlord with 37 units. Rent's due on every one."

The result: Service absorption grew from 62% to 92% over the course of five years.

Lever #3: Scrutinizing the local competition to gain an extra edge.

Curtis Biggs at NewRoads Mazda runs at a 78% absorption baseline, hitting 97% during busy seasons. And he figured out something most dealers miss: you can't compete with what you don't understand.

So, he partners with local colleges and uses co-op students to secret shop competitors. They get quotes, ask questions, and, most importantly, talk to customers.

NewRoads Mazda

"We had this brilliant student who would ask people: 'Why are you servicing here instead of at your dealer?'" he told me.

When customers said independent shops were faster and cheaper, Biggs got tactical. He created geofenced marketing campaigns that only hit customers when they're physically near competitor locations.

But here's the genius part: every service differentiator now has a dollar value attached. Loaner cars, pickup and delivery, after-hours drop-off—everything gets quantified on the work order. 

"We're not just giving you a car because that's what we've always done. There's a $50 value attached to it," he said.

His insight: Service absorption isn't just about retention. Dealers need to grow their customer base. Most dealers spend all their marketing energy on sales and wonder why service suffers.

Bottom line: Service absorption is a strategic moat.

The stores breaking through 90%+ service absorption aren’t doing it with one shiny tool or a single department hero—they’re getting serious about solving the friction points everyone else just lives with. And they treat service as a standalone business, with its own intelligence, its own operating model, and its own growth strategy. That's the real unlock.

Missed Wednesday’s episode of Daily Dealer Live?

CA Senate Greenlights Higher Doc Fees, latest Lithia Motors acquisition, and more

This episode is brought to you by: Nomad Content Studio

Featuring:

  • Dennis Gingrich, Sales & Finance Director at The Niello Company

  • Alex Casebeer, GM/Dealer at Capitol Subaru of Salem, Capitol Nissan of Salem

The truth about culture, cash flow, and customers from a dealer in the trenches

Stream now on YouTube, Spotify, or Apple. And shout out to CDK Global, Mia, and Nomad Content Studio for making this episode possible!

The hunt for auto tech's next unicorn—why Silicon Valley is betting on Toma and what it means for dealers

Stream now on YouTube, Spotify, or Apple. And shout out to Toma, Lotlinx, and Qmerit for making this episode possible!

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—Car Dealership Guy

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