Car Dealership Organizations Rely Heavily on Service Departments as Tariff Concerns Mount
In the first quarter of 2025, several prominent automotive chains have reported significant growth in their parts and service revenue, suggesting a positive trend for the industry.
Leading the pack is Group 1 Automotive, which saw a 5.6% increase in U.S.-market parts and service revenue, totalling $509.7 million. Meanwhile, Lithia Motors Inc. reported a 2.4% increase in quarterly revenue for its aftersales segment. Close behind is AutoNation, with a 2.1% increase in parts and service revenue, amounting to approximately $1.2 billion.
The focus on technology is becoming increasingly important for fixed operations success. AI and alignment are being utilised to schedule and manage repair orders more efficiently, streamlining the process and improving overall productivity.
Both Lithia and Sonic Automotive are working to maintain a balance between warranty and customer-pay work. Lithia is aiming to increase the mix of customer-pay work without sacrificing warranty work by adding technicians, service hours, and shifts, and working to schedule repair orders more efficiently. Similarly, Sonic Automotive is striving to balance these work types more effectively, by loading the shop appropriately and scheduling properly.
Bryan DeBoer, Lithia's president and CEO, emphasised the importance of this balance, stating that most customers need to repair their cars, which is a positive thing for the company regardless of whether it's for maintenance or hardline repair. Jeff Dyke, president of Sonic Automotive, considers tariffs as one more challenge to overcome, similar to online selling, the Great Recession, and the COVID-19 pandemic.
David Smith, Sonic's chairman and CEO, shared that it's more about scheduling properly rather than turning customers away. This sentiment is echoed by DeBoer, who stated that there is no reason for consumers to defect to the aftermarket for service, provided dealerships are cost-competitive.
Group 1 Automotive reported a 29% increase in warranty work in the first quarter compared to the previous year, while customer-pay work increased by 6%. This increase in warranty work, in part due to big-volume, high-value recalls for Toyota and Honda, is expected to continue for some time.
The increase in warranty work and the need for maintenance on older, higher-mileage cars and trucks mean that consumers may need to spend more on service and parts. However, Lithia and other dealerships view fixed operations as a potential silver lining for the tariff situation, assuming consumers continue to postpone new and used car purchases due to higher prices.
Four out of six publicly traded new-car chains have reported first-quarter results for 2025, all showing higher revenues for fixed operations compared to the same quarter in the previous year. This trend indicates a promising outlook for the automotive industry in the coming quarters.
