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Service Department Profitability
Nov 26, 2025
2 min read

The Service Surge: Decoding Profit Pathways in Automotive Departments

Service department technicians working on cars
In today's fast-paced automotive industry, service departments are under relentless pressure to keep the wheels of profitability turning. Rising costs, a growing technician shortage, and fierce competition have created a complex web of challenges for dealerships across the nation. According to recent studies, U.S. franchised dealers wrote a staggering 137 million repair orders in the first half of 2025 alone, a testament to the immense demand for service. Yet, despite this demand, many dealerships are finding it increasingly difficult to maintain profitability. So, what's going wrong? The answer lies in the ever-widening gap between the potential revenue from service operations and the actual returns being realized. As costs escalate and customer expectations evolve, dealerships must navigate a landscape where traditional strategies may no longer suffice. Customers are demanding greater transparency, efficiency, and convenience, and those who fail to adapt risk losing valuable service visits to non-dealer competition. As the average age of vehicles on the road continues to rise, the demand for maintenance and repair services grows in tandem. However, with 12% of service visits already lost to competitors since 2018, the stakes have never been higher. Fortunately, there's hope on the horizon. By leveraging the right tools and strategies, dealerships can not only reclaim lost ground but also drive their service departments to new heights of profitability. In this comprehensive guide, we'll explore innovative approaches to optimizing workflows, enhancing customer retention, and embracing technological advancements that can transform your service department into a powerhouse of profitability. Get ready to unlock the potential of your service operations and pave the way for sustained growth in an ever-evolving industry.

Understanding the Challenge

Declining service retention graph

Service departments are facing a perfect storm of challenges that are putting pressure on profitability. Rising operational costs, a chronic shortage of skilled technicians, and increased competition from independent repair shops are just a few of the obstacles. Additionally, customers now expect a seamless, transparent service experience, further complicating the landscape.

One of the most significant issues is the effective labor rate (ELR), which varies widely across customer pay, warranty, and internal operations. A failure to optimize ELR can lead to substantial revenue losses. Yet, many dealerships struggle to accurately calculate and maximize their ELR, leaving money on the table.

Another critical challenge is the decline in service retention. According to the Cox Automotive Service Industry Study, dealerships have lost 12% of service visits to competition since 2018. This erosion of customer loyalty is partly due to communication gaps and unexpected costs, which drive customers to seek alternatives.

Moreover, the shift towards electric vehicles (EVs) is transforming the service landscape. EV service satisfaction trails internal combustion engine (ICE) vehicles significantly, and the reduced maintenance needs of EVs challenge traditional revenue models. Dealerships must adapt their strategies to cater to this evolving market.

Despite these challenges, there is a silver lining. By understanding the root causes of these profitability issues, service departments can begin to implement targeted strategies that address these pain points head-on.

Related Topics

increase service department revenuedealership fixed ops profitabilityservice department kpi improvementeffective labor rate (ELR)fixed absorption

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