Washington Automotive Wholesalers Association

"Lang Marketing has identified three factors which threaten to significantly reduce Dealer service bay business over the next 36 months. This looming crisis is causing automakers to examine ways in which they can assist Dealers in adapting to changing market conditions by repositioning themselves and Dealers in the automotive aftermarket, in general, and the repair (DIFM) market, in particular."

Jim Lang

 Service Bays Vital To Dealers Survival

Parts and service revenue generated by Dealer service bays are vital to Dealer survival. Over the past five years, parts and labor volume represented a growing portion of Dealer sales and profits.Most Dealers lost money on new vehicle transactions last year. With first quarter 2009 car and light truck sales running 40% below 2008 levels, new vehicle sales will continue to generate red ink on the financial statements of virtually all Dealers this year. Prospects for 2010 are not much brighter.This means Dealers must rely on used car volume along with parts and service sales to stay afloat. Service bay revenues account for over 75% of Dealer parts and labor sales (the balance represented by wholesale parts volume to independent installers).

Factors Threatening Dealer Bay Volume

Three factors are threatening to reduce Dealer service bay business: fewer vehicles five years and newer on U.S. roads, a dramatic reduction in new vehicle leasing, and falling warranty work.

Fewer Vehicles Five Years and Newer

Most Dealer service bay work is performed on cars and light trucks five years and newer. Crashing new vehicle sales mean fewer cars and light trucks are in this age "sweet spot" for Dealer bay revenue. The reduction in 2008 vehicle volume and further sales declines in 2009 mean there will be up to 10 million fewer light vehicles under two years old in the U.S. at the end of this year than there were two years earlier.Three years from now, if new vehicle volume remains anemic (as many experts think it will) the number of cars and light trucks five years and newer could be over one-third lower than the population of this vehicle age group at the end of 2007.Much of this reduction will be concentrated among domestic models, given the increase in sales share captured by foreign cars and light trucks (imports and transplants). All this will translate into much lower service bay volume for Dealers, especially domestic outlets, given their traditional reliance on vehicles five years and newer.

Leasing Extinction

Falling vehicle residuals and tight credit led to a drastic reduction in leasing offered by virtually all automakers.Reduced vehicle leasing will curtail Dealer service bay volume, since consumers leasing vehicles are more likely to return to Dealers for service than consumers who purchase new cars and light trucks.

Warranty Work Dwindles

For years, Dealers could rely on warranty work to keep their service bays and techs busy. However, improved new vehicle quality has significantly reduced warranty work. Nationwide, Dealers saw an estimated 20% reduction in warranty business in 2008 and up to a 50% drop over the last five years.This is a big hit to Dealer service bay volume since the typical Dealer averaged over $0.5 million annually in warranty parts and service just a few years ago.