This post was originally published on Wards Auto
Driven in part by recalls, warranty work is up at dealership parts and service departments, boosting revenues from fixed ops for many retailers.
In addition, the lower-margin warranty work is generating more activity in the higher-margin, customer-pay service business, further bolstering sales for dealers in that part of their operations, according to fourth-quarter earnings results from two of the nation’s largest auto retail chains, Asbury Automotive and Group 1.
“The warranty numbers are pretty high right now,” says Daryl Kenningham, president and CEO of Houston-based Group 1 Automotive. During a recent earnings call, Group 1 reports its warranty work for U.S. operations on a same-store basis was up 28% in fourth-quarter 2024 vs. a year earlier.
Asbury Automotive Group saw warranty work rise 26% in the fourth-quarter 2024 vs. the year ago, while its customer-pay service business increased 13%, says Dan Clara, senior vice president of operations.
But Wait, There’s More
To take advantage of this heightened demand, both groups notably have increased — and plan to continue boosting — their technician headcount, as well as improved scheduling to optimize customer appointments and technician shifts to handle more repair orders without adding service bays.
Group 1 reports an increase of around 300 technicians, or 7%, in the U.S. market during 2024. The company expects to hire a similar number in 2025. Group 1 is also investing in air-conditioning all its U.S. shops by the end of 2025 to improve technician retention, says Kenningham.
Meanwhile, Asbury reports a 5% net increase in technician headcount in 2024.
“We have a lot of opportunity to add capacity without adding brick and mortar,” says David Hult, president and CEO.
Big Recalls
Nevertheless, recalls are a factor in escalating fixed ops revenues. During 2024, the six big, publicly traded new-car auto retailers cited high-profile recalls, including those involving high-volume models from Toyota and Lexus, Kia and BMW, as a reason to expect rising warranty claims to continue into 2025.
“I expect the warranty (work) to continue through the year,” Group 1’s Kenningham says. “And the good thing is, one-third of customers who come in on warranty end up with some customer pay on their repair order” as a result of routine, multipoint inspections that identify additional needed work.
Group 1’s customer-pay work is up 9% vs. the year-ago quarter. Customer-pay accounts for 52% of Group 1’s U.S., same-store parts and service revenue and 62% of the parts and service gross profit in the fourth quarter. Warranty work accounts for 18% of the revenue and 23% of the gross profit in parts and service.
By the Numbers
Asbury Automotive reports fourth-quarter parts and service revenue of $521.7 million, a 6.3% increase over the same period in 2023. For the full year, parts and service revenue was about $2.1 billion, up 1.8% on a same-store basis.
Group 1 also reports substantial gains, with fourth-quarter U.S. parts and service revenue rising to $501 million, up 8.7% compared with the same quarter a year ago. For 2024, revenue totaled $1.9 billion, a 3.7% gain for same-store operations in the U.S.
“We continue to view aftersales as a differentiator at Group 1,” Kenningham says, referring to fixed operations. “We believe it is the most underinvested area of our business, and adding human capacity is the critical leverage in performance.”
