At its recent earnings call, Lithia Motors CEO Bryan DeBoer explained why the company is holding off on bringing Chinese automotive brands into U.S. showrooms.
He made it clear that the issue is not political backlash or tariffs. Instead, the concern is infrastructure cost, return on investment, and the implications for Lithia’s business model.
According to the report, roughly 50 % to 60 % of Lithia’s profits come from service and parts operations, not new car sales. This emphasis reveals the fundamental force shaping dealer strategy: profitability comes from what happens after the sale.
Dealership Profit Engines
Understanding Lithia’s stance requires a concrete look at how traditional franchise dealerships make money.
New car sales account for a majority of revenue in a typical dealership. Industry data indicates new vehicle sales can be 53 % of total revenue but often yield modest gross margins in the 5 % to 10 % range.
Used vehicles help, with slightly better margins, but the real profit center is found in after-sales work.
Multiple industry analyses show that service and parts departments are the most profitable part of dealership operations.
According to independent management consultant Umbrex, service and parts typically make up around 10 %–15 % of total revenue yet contribute about 50 % of gross profit on average.
A recent NADA profile shows service and parts gross profits still contribute a large share of total dealership profits, with healthy labor and parts margins on warranty and out-of-warranty work.
Some industry commentary estimates that in certain dealerships, service and parts can account for up to 65 % of total profit even while representing only around 15 % of revenue.
This split occurs because routine service, warranty work, maintenance, and parts replacements carry higher gross margins than the sale of a new car. Labor rates at dealerships, for example, often exceed $150 per hour while the cost of technicians is far lower, creating lucrative profit margins on labor alone.
Reliability, Parts Demand, and Dealer Economics
Now consider this: dealership service revenue flows only when vehicles need work.
This means dealership profitability, especially for large multi-location groups like Lithia, implicitly depends on a base of vehicles that generate recurring maintenance and repair work.
Implicitly, if cars are extraordinarily reliable and seldom require service, a traditional dealer’s fixed operations revenue could shrink significantly.
Improving vehicle reliability has been a long-term trend in the automotive industry, with average vehicle age in the U.S. now more than 12 years according to industry data. An older fleet typically supports more repair work as vehicles age beyond warranty periods.
As cars require less routine maintenance, the volume of service visits could decline or become more concentrated around complex electronic issues that are harder to monetize in a traditional parts-and-labor model.
Data from service revenue studies shows increases in total service dollars even when the number of service visits is flat, driven by higher costs per repair rather than higher visit frequency.
Electric vehicles especially highlight this trend. They have fewer moving parts, no oil changes, and less routine maintenance than internal combustion vehicles. McKinsey analysis shows EV ownership can reduce dealer service opportunities because EVs generate fewer routine service visits overall. That means dealers need different strategies to monetize service work in the future.
In other words, dealers like Lithia live off vehicles needing service work. When cars are most reliable — requiring little routine maintenance — the dealership’s high-margin service engine turns slower unless replacement parts or major repairs fill the gap.
Chinese Brands and Infrastructure Concerns
When DeBoer stresses that building infrastructure is costly, he is signaling more than “we do not like Chinese brands right now.” New brands entering the U.S. must support service networks and parts inventories. For a dealer heavily reliant on repeat service revenue, that matters plenty.
Without a robust parts and service infrastructure, dealers risk selling vehicles without any guaranteed future fixed operations profit flow.
Chinese automakers like BYD Auto, Nio Inc., and Li Auto have rapidly grown their global footprints. In some cases, their vehicles are technologically complex EVs that may require different service models than traditional dealerships currently operate.
Franchise laws in the U.S. add another layer of complexity. Dealers would have to invest heavily in facilities and technician training with uncertain service throughput, which could dampen fixed operations revenue expected from these cars.
It stands to reason that this isn’t a rejection of Chinese brands forever. Rather it is a caution that short-term investment returns for dealers are tied to predictable and profitable service revenue — and without stable, high-volume service work, a new brand becomes a riskier proposition.
The Strategic Implications
The tension in the parts model is unmistakable.
With most large dealership groups earning 50–60% of their profits from service and parts, that means their business depends on vehicles needing regular maintenance, repairs, and replacement components. If cars became so reliable that they required little to no service, the dealership model as we know it would be undercut.
If cars truly reached near‑maintenance‑free reliability, dealerships would need to reinvent themselves — shifting toward financing, subscriptions, software updates, or mobility services. Otherwise, yes, their current profit model would collapse.
Dealer groups will seek opportunities that preserve or expand service demand rather than shrink it, which helps explain why a company that makes most of its profit off service is hesitant to embrace brands whose service economics are unclear or potentially weaker in the U.S. market.