Largest Dealer Groups Report Big Gains in Fixed Operations

Despite the gains, fixed ops as a department – especially in warranty work – continues to lag the astronomical gains the dealer groups are putting up in other profit centers: in new- and used-vehicle gross profits, and finance & insurance.

Jim Henry, Contributor

August 3, 2021

3 Min Read
auto mechanic with gloves (Getty)
Heads of dealer groups see fixed ops business rebounding as people drive more.Getty Images

By normal standards, the six biggest publicly traded, franchised dealer groups posted substantial gains in fixed-operations revenues in the second quarter, including decent increases vs. the pre-COVID quarter of 2019, and enormous gains vs. second-quarter 2020, which was depressed by dealership shutdowns and factory closings.

But these are not normal times, so the favorable numbers need to be placed in context. Despite the gains, fixed ops as a department – especially in warranty work – continues to lag the astronomical gains the dealer groups are putting up in other profit centers: in new- and used-vehicle gross profits, and finance & insurance.

Asbury Automotive Group, for instance, had parts and service revenue of $234.6 million in the second quarter. That’s a spike of 40.9% vs. the second quarter of 2020, and 10.1% ahead of the pre-COVID second quarter of 2019.

However, as a percentage of Asbury’s total gross profit, parts and service accounted for 36.7% in the second quarter, down from 41.4% for the same quarter in 2020, and 47.7% in 2019. The contribution from parts and service was diminished, as new-vehicle sales increased to 25% of gross profit in second-quarter 2021, from a depressed level of 15.9% a year ago. Retail used-vehicle sales increased to 14.8%, from 13%.

Asbury CEO David Hult says in a July 27 conference call the dealer group is concentrating on growing customer-pay work, the most profitable “bucket” of service work, as opposed to warranty or internally billed repair orders.

 

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Fixed Ops parts and service

Asbury and its competitors note fixed ops revenue has stabilized and is moving in the right direction.

“One shift we’re highlighting is that as the economy opens up more, we expect our parts and service business to return to its historical growth rate,” says Karen Reid, Asbury treasurer and vice president-corporate planning and analysis.

Asbury operates 91 dealerships with 112 franchises representing a total of 31 brands. It also has Clicklane, its online sales platform. Asbury is No.7 in the WardsAuto 2021 Megadealer 100, based on 2020 total revenues.

Chris Holzshu, chief operating officer for Lithia Motors, says Lithia’s customer-pay work was up 11% in the second quarter, but warranty work was down 10% and body shop revenue was off 8%.

“Our stores remain focused on the highest-margin business lines, service body and parts, which increased 3.4% in revenue and 11% in gross profit, as consumers returned to work and traveled the roads in the comfort and safety of their vehicle,” he says. Percentage comparisons are against data from the second quarter of 2019.

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Roger Penske

Lithia, based in Medford, OR, operated 216 locations representing 33 brands in 22 states as of March 31, 2021, plus its Driveway online brand. Lithia is No.3 in the 2021 WardsAuto Megadealer 100, based on 2020 total revenues.

Roger Penske, chair and CEO of Penske Automotive Group, says in a July 28 conference call the dealer group is contacting customers to bring their vehicles in for service, even if they haven’t been driving them as much.

“I would say trajectory-wise, it’s coming back. People are now starting to drive vehicles. In fact, we’re out calling our customers (and) saying to them, ‘It's not just the miles driven, it’s time, you need to bring your vehicle in for service,’” Penske (pictured, above left) says. “So, we’re being very proactive on that.”

Penske Automotive is based in Bloomfield Hills, MI. It has 144 franchised dealerships in the U.S. and 161 outside the country, mostly in the U.K., which combined offer more than 35 brands worldwide, plus standalone used-car stores under the CarShop brand. Penske is signed up with Cox Automotive, to jointly develop an online sales platform. Penske Automotive is No.2 in the 2021 WardsAuto Megadealer 100, based on 2020 total revenues.

About the Author

Jim Henry

Contributor

Jim Henry is a freelance writer and editor, a veteran reporter on the auto retail beat, with decades of experience writing for Automotive News, WardsAuto, Forbes.com, and others. He's an alumnus of the University of North Carolina - Chapel Hill, where he was a Morehead-Cain Scholar. 

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