Selling you a new car might be the glamorous part of the dealership business, but fixing it can be far more profitable. In fact, one industry expert says dealers need only $1 in additional service revenue to offset $10 they lose from new-car sales. Suddenly those workshop reminders you keep getting make a lot of sense.
That stat comes from Erin Kerrigan, founder and managing director of dealership advisory firm Kerrigan Advisors. She told CNBC that new-car margins are around 5 percent while service margins can hit 50 percent even when customers aren’t being charged $2,195 for an AMG air filter. “If you lose $10 of new vehicle revenue, you only have to pick up $1 of service to have your gross margin remain flat,” she said. That makes the workshop a particularly useful safety net when the showroom isn’t delivering.
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