Parts counters and service bays may give franchised dealerships the most effective way to stabilize their profitability even as gross margins shrink in other parts of the business. The average dealership saw gross profit per new vehicle drop by 33% in 2024, a $2,247 decline, according to the Presidio-NCM Average Dealership Performance Benchmark. Gross profit per used vehicle dropped 15.9% last year, a $1,399 decline.
Franchised dealers have a small share of the nearly $400 billion auto care segment
Franchised dealers command about 28% of the U.S. auto care market, which The Presidio Group estimates will have a $373 billion revenue pool in 2025. More of the market — 35% — is held by independent automotive repair shops, estimated to take in $130 billion in revenue this year. That $130 billion is a huge opportunity for the franchised base to grab market share. Franchised dealerships’ proprietary tools, diagnostics and processes should give them the ability and expertise to win more customer-pay work, especially as vehicle complexity proliferates with new and advanced drivetrain technologies.
The average vehicle driven in the U.S. was a record 14 years old at the end of 2024, representing the 2011 model year. That average model year matters as vehicle content and technology grew more complex as the industry moved beyond the Great Recession. Domestic-brand automakers began to recognize their dire financial condition as early as 2005 and shifted to a cost- and capital-saving mode that slowed their investment in new technologies and platforms. Ford and General Motors’ combined adjusted pretax loss was $22.2 billion in 2009. Following GM’s quick-rinse bankruptcy and Ford’s near-miss, the two automakers earned $28 billion in 2013. With growing operating profit, rationalized cost structures and reworked labor deals, they capitalized on the subsequent stability in earnings and cash flow to invest in engineering, design, safety and drivetrain advances that have extended the reliability of the vehicle fleet.
As average vehicle age in the U.S. continues to increase, the number of miles traveled annually rose to 3.55 trillion in 2024, just above 3.52 trillion for 2023 and surpassing the pre-pandemic high. An aging fleet with high tech content logging more miles than ever before notably expands the total addressable market for auto care. As new-vehicle margins shrink and the used-vehicle segment continues to be undersupplied, the aging vehicle fleet traveling more miles presents a high-margin opportunity for the franchised dealer base.
Fixed operations is light on revenue, big on gross profit for franchised dealers
The group of six publicly traded franchised dealership groups generated $18.2 billion in revenue from fixed operations in 2024, only 12.6% of the group’s total sales for the year. New- and used-vehicle revenue as a percentage of sales was more than three times larger. Fixed ops, however, ranked as the top segment for gross profit, accounting for $9.4 billion or 39.6% of the peer group’s $23.7 billion total. By comparison, new-vehicle sales represented 46.4% of total revenue for the group in 2024 but only 17.3% of gross profit. New-vehicle gross margin was 6.1% for the peer group last year, the second consecutive annual reading in the single digits and the lowest since 2019, indicating the end of the supply-constrained pandemic margin bump for that segment.
The Federal Highway Administration counted 292.3 million registered vehicles in the U.S. in 2023, the most recent available data, representing the largest fleet in history. With vehicle complexity in the U.S. here to stay, the fleet size combined with its record average age and miles traveled presents a significant opportunity. For the public peer group, these factors, in addition to acquisitions, have contributed to a 9.8% compound annual growth rate in total parts-and-services gross profit since 2017. Rising labor rates, particularly in the last few years, also have driven that growth. New- and used-vehicle gross profit saw strong bumps during the pandemic, with unprecedented margins during the supply-constrained years of 2020-22. But gross profit for both the new and used segments contracted in 2023 and 2024. By contrast, parts-and-service posted gains of 11.8% and 7.7% in each of the last two years. With its sustainable profit growth and superior gross margin, the fixed-operations business provides the most viable avenue for dealers to offset the current new- and used-vehicle revenue and profit recalibration.