Why Is Dealership Servicing So Expensive?
It’s a fairly reasonable assumption that most dealership service centres are a ‘bit of a rip off’ and, to be fair, there’s a lot that fall into that category. However, (new) car dealerships are actually an incredibly difficult business to run and (like most things in life) it’s a little more complicated beneath the surface.
While you might not know it, the vast majority of dealerships are actually a franchise. Like Subway or Jim’s Mowing or even McDonalds, the franchisee’s buy a licence from the manufacturer and have to adhere to a very strict agreement.
These licences are often very expensive and can need to be renewed yearly. Meaning the cost to even open the doors each year is massive to begin with.
In addition to this, a large number of dealerships make little to no profit from the sale of new cars; Forcing them to recoup the losses in selling parts and the service and repair of vehicles.
This is particularly difficult for a lot of dealerships as, while they have to make most of their money through mechanics, they are also required by the manufacturer to use ‘genuine parts’ and to provide warranty work.
These genuine parts are a particularly annoying product as, while there are some instances where the part is made by the manufacturer, a lot of the service items and smaller components are actually bought from a supplier such as Bosch or NGK.
Warranty work is also particularly harmful for a dealership service department because, instead of the vehicle owner paying, the manufacturer pays the dealership to perform the repairs whilst also dictating the price they’ll pay and the amount of time the repair takes.
Allowing the manufacturer to set the price and labour rate means that, while vehicle owners might pay for 1 hour at $180/hr for a service, the manufacturer might pay .7 of an hour at $80/hr for the same job.
Does this excuse the price of dealership servicing then?
Well, yes and no. While in a business sense it might be fair for dealerships to charge a higher amount for servicing, there’s a lot of unhealthy practices in the industry as well.
Mechanics in particular are often paid quite poorly at dealerships ($20-$28/hr after qualification) and are often incentivised in really unhealthy ways. By using ‘efficiency’ (completing the work as fast as possible), sales targets or up-sell targets, the dealership is creating a situation where the vehicle owner is often the only loser.
From the outside, it’s easy to see why a lot of people think dealership service centres are a money grab and they often seem to be very flawed businesses morally. However, it is an incredibly hard business to run and the expenses are absolutely astronomical.
While dealership servicing is still a bit of a rip off, it might actually be a symptom of a much bigger problem overall.