Dealerships Turn to Service as Car Sales Profitability Slides

Summary

As car sales profits decline from pandemic-era highs, dealerships are shifting focus to service departments to maintain revenue. With margins compressed and competition from chains like Jiffy Lube and Walmart increasing, dealerships are emphasizing customer experience and transparency. Service and parts sales have grown 48% over five years, reaching $164.6 billion in 2025. Dealers like Pohanka Nissan Hyundai are offering walk-in appointments, financing, and video updates to retain customers. The average car age has increased, extending service opportunities. Pohanka said service is key to long-term dealership stability amid market shifts.

Our Reading

The numbers tell one story.

Dealerships are pivoting to service as car sales profits fall.

Competition from chains is rising, with 42% of Americans using them for service.

Dealerships are adding transparency and flexible options to stay relevant.

Service is now the main revenue driver, not just a side business.

Author: Evan Null

Dealerships Turn to Service as Car Sales Profitability Slides

Service as a New Revenue Stream

Dealerships are now relying on service departments to offset declining car sales profits. The shift comes as competition from independent chains grows, with 42% of Americans using them for vehicle service. Pohanka Nissan Hyundai is adapting by offering walk-in appointments and video updates to build trust. Service and parts sales have surged, showing the potential of this new revenue stream. Dealerships are also focusing on transparency and customer retention to stay competitive. The move reflects a broader industry trend toward recurring revenue models.

Market Normalization and Pricing Pressure

The car market is returning to a more balanced state after pandemic-era supply shortages. U.S. dealers had about 2.73 million new vehicles available in August, similar to a year earlier. While prices remain high, the average new-vehicle listing price was $49,249 in July. Dealerships face pressure to justify their service costs, despite claims of factory-trained technicians and specialized equipment. The challenge is to convince customers that the higher prices are worth it, especially as car prices continue to rise. This is a key hurdle in maintaining service revenue.

Longer Vehicle Lifespan and Service Opportunities

The average age of a passenger car on the road has increased to 14.5 years, up from 11.5 years a decade ago. This trend extends the window for service and parts sales, giving dealerships more opportunities to engage with customers. Pohanka said that keeping customers coming back for service can also lead to future car purchases. The longer vehicles stay on the road means dealerships have more time to build relationships and generate revenue. This shift is critical for dealerships looking to sustain profitability in a changing market.

Adapting to a Changing Industry Landscape

Dealerships are adapting to a market where car sales no longer guarantee high profits. The focus on service is a response to growing competition and shifting consumer behavior. Pohanka emphasized that relying solely on sales is risky, especially with potential disruptions like tariffs and supply chain issues. By building a recurring revenue model through service, dealerships aim to secure long-term stability. The move reflects a broader industry effort to diversify income sources and remain competitive in a more balanced market.