DETROIT (May 3, 2016) — Earlier this year, some auto industry titans warned that new-car sales have peaked and would plateau.
OK, so what if they do? Who cares!
That's because “there is a lot of upside in service and parts,” said Lithia Motors Inc. CEO Bryan DeBoer.
Mr. DeBoer isn't alone in hailing the promise of auto dealers capitalizing on the service and parts business.
The past few years have seen robust annual sales, with the number surpassing 17 million last year. The used-car market is robust, too.
All of these cars in circulation need servicing, which means car dealerships have a shot at a lot more customer-pay service jobs.
Meanwhile, there are millions of new and used cars with open recalls waiting to be fixed. Say hello to more warranty work.
“As these parts began to hit the ground, initially we'll be fixing consumers' cars. Then we'll be fixing our stop-sale vehicles,” Mr. DeBoer said.
Even in hard-hit markets such as Houston, make way for more service work. Recent flooding there might have hurt new-car sales, but it will help service revenue. At some point, vehicles damaged by floods will need repair.
In the first quarter, Lithia had a 19-percent revenue increase in warranty parts and service, Mr. DeBoer said. Referring to millions of cars across multiple brands waiting for parts to fix their airbags made by Takata Corp., he added, “When the airbags and other parts start to come in, that should be as robust or even more.”
Lithia's first-quarter customer-pay service revenue rose 8 percent, he said. That will also grow because “units in operation continue to increase quarter to quarter,” Mr. DeBoer said.
To prepare for the rush of service work, Lithia plans to hire nearly 100 new service technicians in the next 12 months and expand service hours.
Sonic Automotive Inc.'s leaders also sang the praises of fixed operations after it reported gross profit for its parts and service business rose 6.2 percent to $166 million. On a same-store basis, it rose 7.9 percent to $165.6 million.