How service lanes are transforming dealerships

Hey, everyone. A wise person once said, “When that phone rings, it’s money calling.” If you work at a dealership and walk past a phone ringing, you pick it up. No exceptions. Agree or disagree? Hit reply and tell me your POV. I’ll share some of the responses next week.

—CDG

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This Revenue Driver Is In for Major Changes 👀

Fill in the blank: Average revenue per _____ increased for dealers by 30% from 2019 to 2023.

Did you guess “service visit” as your answer? If you did, you’re right on the money. Dealers’ average revenue per service visit jumped by almost a third in the last four years, according to new data from Cox.

The auto care industry is slated to surpass $400 billion in 2025 thanks to an increase in service visits. Here are some of the driving forces behind the increase in revenue from the service lane.

There are a handful of consumer preferences that are changing the nature of service → 

• Drivers are keeping their cars for longer and logging more miles before trading in or buying something new.

• Electric vehicles are getting more popular, and while EVs often require less service, repairs can be more costly (FYI, EV repairs cost $1,712 on average, compared to $1,695 for gas-powered vehicles).

There are also macroeconomic reasons for an increase in service revenue →

• The costs of parts (magnified by inflation hitting the auto industry especially hard) and labor (magnified by a shortage of skilled workers) are increasing for repair shops.

• Many repair shops have to pass those costs along to customers to keep their balance sheets in check. Higher costs → higher prices → higher revenue.

So where are people going for service? Dealers are still the top choice among service providers, but they are losing ground to service chains—primarily quick lube centers and retailers, Cox found.

The cream of the crop among dealers, according to a recent J.D. Power study?

• Buick ranked highest in dealer service satisfaction, followed by MINI and Subaru. 

• Lexus, Porsche, and Cadillac owners and lessees reported the highest satisfaction in the luxury category.

Why is business shifting away from dealership service lanes? I’d bet a good deal of it has to do with drivers’ perceived cost of dealership service. Lots of drivers think dealership service will run up a higher bill, but the reality is that service prices are largely the same across the board…the average spend per visit at the dealer is nearly comparable to the overall market: $258 vs. $251, according to Cox.

Still…kind of pricey.

Overall, the price of vehicle repairs has increased by almost 20% over the last year—some 6X the rate of inflation, according to CNBC. So…

• More than one-third of consumers would consider financing or delaying their service, Cox found.

• Those who would consider financing would be willing to finance an average of $2,218, primarily via a branded credit card or repair loan (I smell an opportunity for dealerships here 👀).

Oh, and if you’re wondering if your bill is higher because of your zip code…

One more thing on the “where” of service: Warranties play a big part in where drivers choose to take their service business, too. New car owners are more likely to choose dealerships for service needs if their car is still under warranty or requires specialized equipment, while older vehicle owners are more likely to choose independent service providers and chains.

Finally: What are the limiting factors here? Understanding drivers’ biggest complaints with the service experience helps us understand where they’re going and why.

48% of dealer customers had at least one frustration related to their service experience, according to Cox. The top five pain points:

1. Service taking longer than expected (wait times are up—mass-market car owners wait an average of 5.2 days for a dealer appointment, while premium owners wait an average of 5.4 days)

2. The dealer pushing additional services

3. Difficulty scheduling an appointment

4. Being charged more than the estimated cost

5. Having to wait for an available appointment

(Worth noting - There are some good solutions in the market to help with the pain points above)

Bottom line: The reality is that new car sales are slowing down—it’s been a choppy start to 2024 with monthly auto sales reflecting a higher likelihood of mostly moderate growth. The post-Covid normalization of the auto industry (read: no more gangbusters sales quarters for the average dealer business) paired with some macroeconomic fluctuations have put a renewed focus on fixed operations like service lanes. I expect the increase in both attention to and profit from service business to stick around…for at least a little while.

Is this the Amazon of car shipping? Royce Neubauer, CEO of Auto Hauler Exchange, might be building the next big thing. I got Royce’s POV on business building, the dirtiest secrets of the $70 billion vehicle logistics industry, how to save dealers millions of dollars, and so much more. You’ve got to hear this one.

We’re back for more. The second episode of the Car Dealership Guy Market Update, brought to you by Edmunds, is here…finally.

Guests? Jessica Caldwell, Head of Insights at Edmunds and Gen Balouev, General Manager of Norm Reeves Honda Superstore West Covina. Topics? Well, everything that matters—including a conversation on whether leasing can save the car business, the reality of $25,000 Teslas, negative equity crushing new car sales, and tons (I mean tons) more. You can’t miss this episode.

Also, dealers: As part of this launch, Edmunds is offering 50% off for 90 days on Edmunds Premier, helping you reach more shoppers. Take advantage today.

Listen to the episodes here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts. And thank you to Experian, Auto Hauler Exchange, and Edmunds for making these episodes possible.

Today's Car Dealership Guy Podcast guest, Jeremy Beaver, CEO of Del Grande Dealer Group, says that one of the biggest game-changers for their dealerships was elevating the experience for buyers and employees alike using Upstart Auto Retail.

“Upstart’s platform fits right into the entire journey—upfront pricing where you know you’re going to get a good deal, online AI-powered financing where you know exactly what you’re getting, upfront trade-in values so the entire process is going to be smooth A to Z.”

After checking out the latest CDG episode, you can hear more from Jeremy regarding the Upstart partnership here.

We’ve got tons of great jobs hitting the CDG Job Board right now. Here are some standouts for anyone looking for their next move—and we’ve got a range of specialties today.

• Know someone looking for a new dealership sales role? Tom Whiteside CDJR is hiring a sales representative.

• Caribou’s goal: reduce drivers’ monthly auto expenses and increase the predictability of those expenses over time. The team is bringing on a backend sales support specialist to help with that mission.

• BizzyCar aims to improve the customer experience when it comes to automotive care. They’re looking for a VP of product to lead the charge.

Looking to hire? Add your roles today—it’s 100% free.

• The top 10 most in-demand used cars by dealers

• Elon Musk is putting in overtime trying to get Tesla’s full self-driving tech rolled out in China.

• Goodyear debuted a second-gen all-season EV tire…but do you need EV specific tires?

• Stellantis reported a 12% decline in revenue in Q1, care of lower sales and foreign exchange impacts.

• Toyota will invest $1.4 billion to assemble an all-new, three-row electric SUV at its manufacturing plant in Indiana.

Thanks for reading. See you back here Thursday—and don’t miss my daily market updates on the CDG site in the meantime.

—Car Dealership Guy

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