Key Takeaways
Affordability pressure is extending vehicle ownership cycles, which may weigh on vehicle sales but support demand for maintenance and repair.
Record fixed operations revenue does not necessarily mean franchised dealers are gaining service market share, especially as vehicles age out of warranty.
For valuation purposes, fixed ops should not be treated as one homogeneous earnings stream; customer-pay work generally provides a stronger indication earnings than warranty, internal, or inflation-driven growth.
In Q1 2026, the public groups reported tighter vehicle margins and softer volumes, which Presidio attributed in part to affordability pressure and economic uncertainty weighing on consumer demand. For private dealerships, the mantra has been “bad for sales, good for service”. Dealerships may see more demand for maintenance and repair, but they must retain those customers as vehicles age and more service alternatives compete for the repair wallet.
Affordability Pressure Is Extending the Ownership Cycle
The average age of U.S. light vehicles reached 12.8 years in 2025, rising by two months in each of the past two years, according to S&P Global Mobility. S&P described the trend as reflecting changes in consumer purchasing behavior, economic conditions, and the durability of modern vehicles. For dealers, an aging vehicle parc has two competing implications.
The first implication is negative for variable operations: if consumers are stretching the ownership cycle because replacement vehicles are less affordable, new and used vehicle volumes for dealerships may be pressured. Fewer transactions can also mean fewer trade-ins, fewer F&I opportunities, and less front-end gross profit. In valuation, this affects both current earnings and the risk assigned to those earnings, particularly for stores still heavily dependent on vehicle gross profits that are normalizing.
The second implication is that older vehicles generally require more maintenance and repair, and that demand should support fixed operations, which partially offsets the first implication. NADA’s 2025 data underscores the size of the opportunity: franchised dealers wrote more than 276 million repair orders, while service and parts sales exceeded $164 billion. In theory, affordability pressure can create a natural hedge for dealerships. Consumers who delay replacing vehicles may spend more to keep their current vehicles roadworthy. However, the hedge breaks down if the dealership cannot retain the service customer.
Record Fixed Ops Revenue Does Not Necessarily Equal Market Share Gains
Cox Automotive’s 2026 Fixed Operations and Ownership Study captured this tension well. According to Cox, dealerships are generating record fixed ops revenue (up 33% since 2018) but losing market share (29% in 2026 compared to 41% in 2018) as some customers migrate to general repair competitors. The Q1 2026 Haig Report similarly noted that same-store fixed operations gross profit for the public retailers increased 3.6% year-over-year, roughly in line with inflation, suggesting limited real fixed ops profit growth despite the department’s continued importance.
Revenue growth alone does not prove the dealership is gaining ground. Fixed ops revenue can rise because of higher labor rates, parts inflation, vehicle complexity, warranty or recall activity, or a larger installed base of recent vehicle sales. All these factors can support revenue, but they do not necessarily indicate that the dealership is deepening customer loyalty or gaining share of the repair wallet.
The market share issue becomes more acute as vehicles age. During the warranty period, franchised dealers have a natural advantage. Customers are more likely to return to the selling dealer, and warranty reimbursement supports shop volume. After the warranty period expires, that advantage can fade. Consumers may become more price-sensitive, more convenience-oriented, and more willing to consider independent repair shops, quick-service chains, tire stores, or mobile service providers. A customer who purchased a vehicle from the dealership may not continue servicing there once the vehicle is seven, eight, or ten years old. The aging vehicle parc creates demand. The dealership still has to win the repair order to generate enterprise value.
Not All Fixed Ops Revenue Deserves the Same Multiple
Fixed operations are often described as a steadier and high-margin revenue stream. That characterization is directionally correct, but it can obscure meaningful differences within the department. Customer-pay work is often the most valuable component of fixed ops because it reflects consumer choice. A customer who returns after the warranty period signals trust, convenience, perceived quality, and some willingness to pay. Strong customer-pay retention suggests the dealership has a real relationship with its owner base, not just warranty-driven traffic.
In valuation terms, customer retention can support a higher assessment of earnings quality. Cox’s study indicated that 74% of buyers who returned for service are likely to repurchase their next vehicle from that dealership compared to 44% of buyers who didn’t return for service. That means it’s not just lost service work but potential future vehicle sales as well.
Warranty work can provide consistent shop volume and maintain technician productivity, but it is tied more closely to the OEM, recall activity, and reimbursement rates. Internal work supports used vehicle operations, particularly reconditioning, but it does not necessarily reflect external customer demand. Wholesale parts can add scale, but margins and customer relationships may differ from retail service work.
For these reasons, a dealership with strong fixed absorption is not automatically equivalent to another dealership with the same fixed absorption ratio. The composition matters. A store with high customer-pay penetration, strong service retention, disciplined pricing, sufficient technician capacity, and high customer satisfaction may deserve a different valuation treatment than a store whose fixed ops gross is heavily dependent on warranty, internal work, or price inflation.
Service Retention Bridges Affordability and Valuation
The tempting conclusion is that affordability pressure may be self-correcting for dealers: if consumers do not buy vehicles, they will service them. However, a cash-strapped consumer who delays a new vehicle purchase may also shop more aggressively for repairs. The same budget pressure that prevents a replacement purchase can make the customer less willing to pay dealership labor rates after the vehicle is out of warranty.
This dynamic should influence both operating strategy and valuation diligence. Dealers should ask whether their service departments are built to retain customers beyond the warranty period through convenient scheduling, pricing transparency, effective advisor communication, digital tools, pickup and delivery, mobile service, express maintenance, and adequate technician capacity. Buyers and valuation analysts should focus on fixed ops mix (customer-pay, warranty, and internal work) and whether fixed ops growth reflects volume gains or simply inflation and an aging vehicle base.
Conclusion
The industry’s aging vehicle parc and persistent affordability challenges should support service demand. For dealers, however, the opportunity is only valuable to the extent it is captured in the service lane. Longer vehicle ownership may create more repair work, but customer-pay retention determines how much of that opportunity accrues to the dealership.
Mercer Capital provides business valuation and financial advisory services, and our auto dealership team helps dealer principals, their partners, and family members understand the value of their business. Contact a member of the Mercer Capital auto dealership team today to learn more about the value of your dealership.