Full Breakdown
Dealerships Lean Heavily on Service and Finance as New-Car Margins Thin
8/20/2026, 3:09:20 AM
Shift in Dealership Profit Sources
Auto retailers are increasingly relying on parts-and-service departments and finance-and-insurance (F&I) contracts to sustain profitability. As new-vehicle margins soften, the service segment’s higher margin and the near-pure profit from F&I products provide a hedge against declines in vehicle sales.
Historical Profit Trends
During the pandemic, limited supply drove new-car prices up, and the average pretax profit per dealership more than tripled—from $1.9 million in 2018 to $6.8 million in 2022, according to a Kerrigan Advisors analysis of publicly traded groups. After that peak, average gross profit for publicly owned dealerships fell to roughly $3.9 million by 2025. Over the same period, parts-and-service gross profit rose from $3 million in 2020 to $5 million in 2025.
Data Highlights
- Service margin: Roughly 50 % versus a 5 % margin on new-car sales.
- F&I contribution: For Asbury Automotive, F&I revenue represented about 4 % of total revenue (Jan-Jun period) but accounted for 23 % of gross profit.
- Consumer behavior: The “mass affluent” segment—customers who typically lease premium models—has shown the weakest demand, while lower-priced “need” vehicles retain relative strength.
Official Perspectives
Jeff Lick, managing director at Stephens, notes that the weakest part of auto sales is the mass-affluent segment, which drives demand for higher-margin leased vehicles. Glenn Chin, senior equity analyst at Seaport Research Partners, observes that F&I has remained stable and is growing slightly, emphasizing the value consumers place on warranties and prepaid maintenance plans.
Verbatim Quotes
- “The auto retailer remains one of the more attractive hedged business models,” — Erin Kerrigan, managing director
- “If you look at the weakest part of auto sales right now, it's what we call the mass affluent,” — Jeff Lick, managing director at Stephens
- “F&I has proved very stable, if not continued to grow slightly,” — Glenn Chin, senior equity analyst at Seaport Research Partners
