Record fixed operations results in the second quarter for the six big, publicly traded new-vehicle chains illustrate an old auto-retail truism: “New cars are just a pathway to be able to get to your high-margin businesses of financing, and servicing parts, cars and trucks.”
That’s what Bryan DeBoer, Lithia Motors president and CEO says, in Lithia’s Q2 earnings conference call.
“If I grow top line in new- and used-vehicle sales, I get to 62% of my net profit that’s generated from aftersales. So massive a point to remember. And obviously, to be able to grow the aftersales, you’ve got to spend money to do it,” DeBoer says.
The top line refers to where revenues appear on a profit and loss statement.
Down the Road
For example, personnel expenses in the sales department at a dealership account for the most significant part of selling, general and administrative expenses for the whole operation, DeBoer says. But that investment pays off when those customers come back to fixed ops, and ultimately, in customer loyalty, he says.
“So, anything that occurs there is going to pay later in aftersales,” he says. “So (it is) important to remember that.”
Lithia Motors, based in Medford, OR, reports second-quarter revenue of $998 million in what it calls its aftersales segment, an increase of 8.5% vs. a year ago. For the first half, Lithia Motors’ aftersales revenue is $1.9 billion, up 5.4%. Fixed operations revenue numbers in this story are reported on a same-store basis.
A Rising Tide
For the “Big Six” auto retailers, total fixed operations revenues are $4.6 billion for the second quarter, an increase of 9.3% vs. a year ago. The year-ago comparison is made easier because in June 2024, hackers caused a shutdown at dealership management system vendor CDK Global, which indirectly temporarily halted operations at thousands of dealerships.
For the first half of 2025, fixed ops revenue for the six publicly traded new-car groups is $9.0 billion, up 6.2% vs. a year ago.
“Aftersales was once again a key earnings driver,” with substantial increases in both customer-pay and warranty work, DeBoer says in the call. He’s referring to Lithia Motors, but the same holds true for the rest of the public auto retail groups.
High-Tech Investment
Asbury Automotive Group of Duluth, GA, reports parts and service revenue of $590.8 million in the second quarter, up 5.6% vs. a year ago. In the first half, Asbury's parts and service revenue is about $1.2 billion, up 3.5%.
“Our parts and service business continued to deliver stable, consistent growth with same-store gross profit up 7% for the quarter,” says David Hult, Asbury president and CEO, in an earnings call. “We are continuing to invest in tools and technology that will enable our fixed operations business to operate more efficiently and deliver an even better guest experience.”
In January 2024, the Asbury group announced a major investment in technology when it partnered with vendor Tekion of Pleasanton, CA, to provide cloud-based dealer management system (DMS) services.
Heart Transplant
Switching DMS providers is a challenging task for any dealership but especially for Asbury’s more recent acquisitions, which are new to both Asbury and Tekion, Hult says.
“We see the benefits and efficiencies with that and (including) making it easier for our teammates to work with the clients. But changing a DMS is like a heart transplant. It’s the one thing that dealerships never want to go through,” Hult says. “And even with planning and execution, you’re still going to have a lot of snafus. We had that throughout the quarter: inconsistency with software applications (and other technological challenges).”
A significant Asbury acquisition was announced in December 2023: the $1.2 billion purchase of Jim Koons Automotive Companies of Vienna, VA, including 20 dealerships, 29 franchises, six collision centers and one of the highest-volume Toyota dealerships in the U.S. “We are happy to report that our Koons stores are now 100% converted to the new DMS,” Hult says.
Fixed Ops Pays the Bills
Separately, Penske Automotive Group of Bloomfield Hills, MI, reports revenue of $792.7 million for its retail automotive parts and service business segment, including overseas dealerships, mainly in the United Kingdom. That’s an increase of 6.9% for the second quarter vs. a year ago. For the first half, fixed ops revenue is $1.6 billion, up 5.5%.
“Our U.S. service and parts operations generated record levels of revenue and gross profit” in the second quarter, says Rich Shearing, executive vice president, North American Operations for Penske Automotive, during its earnings call. Shearing adds that customer-pay gross profit is up 6% in the second quarter vs. a year ago, and warranty is up 24%.
“While our service and parts revenue and gross profit is at a record level, we continue to focus on driving higher utilization of our bays and increasing fixed cost absorption,” Shearing says. Fixed-cost absorption refers to the goal of covering expenses for the group with profits from fixed ops, reducing reliance on vehicle sales.
Meanwhile, the rest of the Big 6 auto retailers reported second-quarter results earlier: AutoNation of Fort Lauderdale, FL; Group 1 Automotive of Houston; and Sonic Automotive of Charlotte, NC, all reported increases in both customer-pay and warranty work as reported in WardsAuto.
