Cox: Dealers optimistic about service and parts business

Dealers remain positive about their service and parts business, though that sunny outlook was a bit less than a year ago.

The latest Cox Automotive Dealer Sentiment Index showed dealers gave their fixed operations business a score of 61. That's the same number from last quarter but down from 68 in the first quarter of 2023.

"The number is still above 60, so it's a high number," Cox Chief Economist Jonathan Smoke said Tuesday. "It still means the majority of dealers describe fixed operations as strong."

Index results greater than 50 indicate dealers view conditions as positive or improving. A score of 50 is neutral.

When dealers were asked to gauge how the "future opportunity" for service and parts looks, they scored it a 72. That's up 4 points from last quarter and the same as the first quarter of 2023.

"Q4 tends to be the low point, and Q1 tends to be the rebound every year," Smoke said. "I think this is a bit of weather and seasonality when people are planning road trips and other things related to their vehicle."

Smoke said dealership service and parts departments will need to focus on customer retention because the number of newer vehicles on the road has dropped.

"We've had at least 2½ million fewer [vehicles] ... of every model year since 2019 that dealers are used to seeing," he said.

Dealerships rely on new vehicles under warranty to return for service for at least the typical three years of coverage. But fewer vehicles were sold the past couple years as the auto industry grappled with microchip shortages and kinks in the supply chain.

"I would anticipate the main issue that franchised dealers are really feeling in fixed operations is getting back to a similar level of activity because the fewer new vehicles sold means they've got the smallest number of in-service vehicles than they traditionally have," Smoke said. "In order to get the equivalent level of activity, they have to basically service older vehicles."

Smoke said similar to staffing issues dealerships are facing — especially service and parts — fixed operations has not quite returned to normal after the pandemic.

"We've never recovered the amount of tickets and appointments that are being done," he said. "The benefit that dealers have had has been very strong pricing power — both from parts and for labor. And so they've seen strong average-ticket size growth, and that's where the revenue growth has been. They continue to enjoy that, and they continue to have potential for strength.

"Dealers are positive on the profitability of fixed operations, but the amount of activities definitely are limited."

Jeff Daniel, service director at Maple Hill Auto Group in Kalamazoo, Mich., said service and parts sales were up 32 percent in February compared with a year earlier and that March is off to a great start.

Daniel said there is an occasional slow week, but overall, "business is outstanding."

"There's still a fair amount of parts distribution issues, which are bottlenecking the flow a little more than normal, so there's a bit of juggling going on," he said. "I expect that to remain the same over the next few months."

Daniel said there are opportunities out there for service departments.

"Cars on the road aren't getting any younger," he said. "You just need to find your happy spot and rock it."