Why Parts and Service Are the Backbone of Dealership Profitability

Why Parts and Service Are So Important for Car Dealerships' Profit

When people think of car dealerships, they usually focus on selling cars. But the real money for dealerships often comes from parts and services, not car sales. These departments make steady profits and help the dealership stay financially healthy in the long run. In fact, research shows:

• Parts sales make four times more money than car sales.
• Service departments make three times more money than car sales.

This shows that while cars bring customers into the dealership, it’s the parts and service departments that keep the business running smoothly. Let’s look at why parts and service are so important to a dealership's success and how they offer big opportunities for growth—especially when selling parts online.

1. Steady Income: The Key to Dealership Success

One of the biggest benefits of parts and service is that they bring in money over and over again. Unlike car sales, which happen once in a while, parts and services keep customers coming back regularly. Customers need things like oil changes, tire rotations, brake repairs, and other maintenance at least once a year, so they keep paying for services all the time.

• Customer Loyalty: When dealerships provide great service, customers return not just for repairs but also for their next car purchase. Happy customers are more likely to stick with the same dealership.
• Predictable Income: Parts and service provide a steady flow of income, which helps dealerships stay stable even when car sales go up and down.
• Loyalty Programs: Dealerships can also boost their income by offering loyalty programs, service packages, or extended warranties. These programs keep customers coming back for regular service.

2. More Profit and Lower Costs

Parts and services make more money compared to selling cars. When selling new cars, dealerships usually have low profit margins because of discounts and incentives. But parts and services can bring in much higher profits.

• Parts Sales: Dealerships often make a profit of 40-60% on parts, while the profit on new cars is only about 5-10%. This is because parts are marked up to cover costs like storage and handling.
• Service: Maintenance and repairs can be even more profitable. For example, an oil change might cost a customer $50, but the dealership only spends a small amount on the oil and labor, making it a very profitable job.
• Lower Costs: Unlike selling cars, parts and services don’t require expensive vehicle inventory or large showroom spaces, so dealerships can save money on costs.

3. How Service and Parts Help Keep Customers Coming Back

Providing great service and high-quality parts helps build long-term relationships with customers. When people are happy with the service they get, they are more likely to return for future repairs and car purchases.

• Building Trust: Service gives dealerships the chance to connect with customers beyond just selling cars. If customers trust the service department, they’ll keep coming back.
• Word of Mouth: Satisfied customers often tell their friends and family about their positive experience. Referrals like this are one of the best ways to attract new customers without spending a lot of money on ads.
• Taking Care of Older Cars: As cars get older, people rely more on parts and services to keep them running. Dealerships that offer good parts and services will keep customers coming back even after their initial car purchase.

4. Missing the Chance to Sell Parts Online

Even though parts and service bring in a lot of profit, many dealerships aren’t taking full advantage of selling parts online. Only 3% of dealerships sell parts online, which is a big missed opportunity.

• Wider Reach: Selling parts online lets dealerships reach customers outside their local area. They can sell parts to anyone, anywhere, which means more sales.
• Convenience: Customers can shop for parts from home instead of visiting the dealership, making it easier for them to maintain their cars.
• Staying Ahead: Dealerships that start selling parts online now will be ahead of competitors who still rely on in-store sales. As more people shop online, those dealerships with an online store will attract more customers.

5. The Future of Parts and Service

As the car industry changes, parts and service will become even more important to dealerships. With longer-lasting cars, more interest in green options, and a focus on maintenance, dealerships that invest in parts and service will do well.

• Eco-Friendly Options: As more people care about the environment, there will be a growing demand for eco-friendly parts and services. Dealerships that offer green options will be able to serve these customers and earn more money.
• Tech Advances: New technology, like telematics (devices that send car data to the dealership), is changing how services are done. By using these new technologies, dealerships can offer better services and make more money.
• Subscription Plans: Some dealerships are now offering service packages or subscription plans. These plans let customers pay a regular fee for maintenance, which creates steady income for the dealership.

Conclusion: Making the Most of Parts and Service

To make the most money, dealerships need to focus on their parts and service departments. These areas bring in more profit, create steady income, and build loyal customers. By selling parts online, dealerships can increase sales and stay ahead of the competition. The key is to move beyond just selling cars and realize how powerful parts and service can be for long-term success.