Service Drive Revolution — Episode #374
Official Full Transcript
Host: Chris Collins
Guests: Adam Krey and Chris Hogland
Published: August 31, 2026
Duration: 1:02:11
Listen on Apple | Listen on Spotify
Across automotive retail, front-end new and used vehicle sales are slowing down, and gross margins are compressing. Historically, when sales drop, dealership fixed operations experience a significant surge. As consumers keep their vehicles longer, service and parts departments typically carry overhead expenses and keep dealerships profitable through absorption.
However, current market data reveals a troubling trend: while front-end margins are down by double digits, fixed operations performance across major dealership groups remains largely flat.
As discussed in Service Drive Revolution Episode #374, fixed ops is failing to save struggling dealerships because of severe technician capacity shortages, market share loss to independent repair shops, over-reliance on AI phone bots, and antiquated operational systems.
Unpacking these operational blind spots helps SERVICE MANAGERS, Parts Managers, Fixed Ops Directors, and Dealership Leaders understand why revenue is stalling—and how to fix it.
The Current State of Fixed Operations in Automotive Retail
Traditionally, fixed operations act as a financial counterweight to vehicle sales. When economic uncertainty or high interest rates discourage consumers from purchasing new cars, they invest in maintaining their existing vehicles.
The Shift in Vehicle Age vs. Service Revenue
The average age of light vehicles on American roads has reached an all-time high of over 12 years, with many drivers pushing vehicles past 100,000 miles. Vehicle utilization is up as travel habits shift. Theoretically, service drives should be experiencing unprecedented demand and record repair order volume.
Why the Traditional Safety Net Is Failing
Despite ideal market conditions for service growth, major public dealership groups (such as Lithia, AutoNation, and Penske) reported flat fixed operations revenue in recent quarters. Front-end grosses dropped by roughly 16%, yet fixed ops failed to capture the off-setting service demand.
Instead of expanding market share, many dealerships are turning away customer-pay work, leaving millions of dollars in labor and parts gross profit on the table.
4 Core Reasons Fixed Ops Revenue Is Stagnating
1. Technician Capacity Constraints and The Warranty Trap
The primary bottleneck preventing fixed operations growth is shop capacity. Developing an internal training pathway aligned with ASE certified standards enables dealerships to promote lube techs into line technicians quickly. Dealerships across the country are severely understaffed, lacking the technical horsepower to meet local demand.
- Long Booking Windows: When a service department is booked out two to three weeks, consumers requiring routine maintenance or urgent repairs will not wait. They defect to local independent repair shops.
- The Warranty Inversion Indicator: A clear warning sign of capacity loss on a dealership financial statement is when warranty repair order count equals or exceeds customer-pay repair order count.
- Loss of Monopoly Power: Dealerships hold a monopoly on manufacturer warranty repairs; owners cannot take recall or warranty work to an independent shop. When shop capacity is choked, warranty work fills the bays because it is forced to wait, while lucrative customer-pay work leaves the drive permanently.
Developing an internal training pathway aligned with ASE certified standards enables dealerships to promote lube techs into line technicians quickly.
2. Independent Repair Shops Are Stealing Market Share
Dealership customer-pay market share has slipped from 30% down toward 25% or lower. Independent repair facilities are winning customer retention not because of lower pricing, but because of convenience and availability.
Comparative Analysis: Dealerships vs. Independent Repair Shops
3. The Over-Reliance on AI Phone Bots and Gimmick Technology
In an attempt to cut labor costs, many dealerships rushed to adopt automated AI phone systems, self-service kiosks, and digital check-in tablets. Rather than streamlining operations, these tools often alienate vehicle owners.
- The AI Phone Bubble: Dealerships using AI phone systems frequently discover that customers cannot reach a live human when scheduling appointments or checking repair status. Over 90% of callers prefer human interaction over rigid automated prompts.
- Kiosk and Tablet Failures: Self-service check-in kiosks and drive tablets promised fast check-ins, but failed to drive sales or build trust. When advisors use technology as a barrier rather than a support tool, sales drop.
- Internal Software Leverage vs. Front-End Bots: AI excels when used internally for backend coding, data analysis, and workflow automation. However, replacing human connection on the service drive destroys customer retention.
4. Consolidated Groups Running Antiquated Systems
The widespread consolidation of automotive retail by public dealer groups and private equity has detached leadership from local market realities.
- Focusing on Cost-Cutting Over Innovation: Consolidated groups often run dealerships strictly by financial spreadsheets from remote headquarters. To maximize short-term ROI, they trim expenses, cap advisor pay plans, and fail to reinvest in drive infrastructure or local technical training. Partnering with expert Fixed Ops Coaching helps dealership leaders break free from these remote corporate constraints and rebuild local operational efficiency.
- Legacy Dispatching and Workflow: Despite making billions in profitable years, large consolidators have introduced virtually zero meaningful customer-facing innovations in fixed operations over the last two decades. They continue to utilize 100-year-old dispatching, write-up, and labor management methods.
Partnering with expert Fixed Ops Coaching helps dealership leaders break free from these remote corporate constraints and rebuild local operational efficiency.
Leadership Insights: How Dealership Leaders Can Turn Fixed Ops Around
To transform a flat service department into a thriving profit center that carries total dealership overhead, dealership executives must execute specific operational changes.
Expand Technician Capacity Ahead of Constraint
Dealerships cannot wait for “unicorn” master technicians to apply. Fixed Ops Directors must build internal apprentice pipelines, sponsor local trade school students, and expand shop capacity proactive of demand.
Adjust Labor Rates to Match Market Value
Many managers hesitate to recruit higher-paid technicians out of fear of compressing gross margins. However, labor pricing is dictated by supply and demand. If your shop is booked out weeks in advance, increasing posted labor rates allows you to pay top dollar for technical talent while maintaining healthy department margins.
Re-Establish Human Connection on the Service Drive
Abandon rigid phone bots and return to personal, proactive customer communication. Ensure BDC agents and SERVICE ADVISORS act as genuine hosts who simplify decision-making for vehicle owners. Investing in comprehensive Service Drive Training equips your team with the hospitality skills needed to maximize customer retention and boost effective labor rates.
Investing in comprehensive Service Drive Training equips your team with the hospitality skills needed to maximize customer retention and boost effective labor rates
Financial Impact of Fixed Ops Optimization
According to NADA workforce research, maintaining strong fixed absorption rates is critical to insulating dealership operations from broader economic swings. When dealership leaders address shop capacity and modernize drive processes, the financial improvements directly stabilize total business performance:
| Operational Focus Area | Financial and Performance Impact |
| Fixed Absorption Rate | Covers 100%+ of total dealership overhead, insulating the business during front-end sales downturns. |
| Effective Labor Rate (ELR) | Increases as shop capacity opens up, allowing the drive to prioritize high-margin customer-pay work. |
| Customer-Pay RO Volume | Recaptures market share from independent repair facilities by offering prompt appointment availability. |
| Technician Retention | Improves through structured career pathways, modern facility tooling, and consistent work distribution. |
According to NADA workforce research, maintaining strong fixed absorption rates is critical to insulating dealership operations from broader economic swings.
Frequently Asked Questions
Fixed absorption is the percentage of a dealership’s total overhead expenses (such as rent, utilities, executive salaries, and administrative costs) covered solely by the gross profits generated by fixed operations (service, parts, and collision departments). A 100% absorption rate means fixed ops pays all dealership bills, allowing vehicle sales to operate with zero overhead pressure.
Fixed ops revenue is currently flat because dealerships suffer from severe technician capacity constraints, long booking delays, over-reliance on frustrated AI phone systems, and loss of customer-pay market share to independent repair shops. Additionally, many consolidated dealer groups have failed to modernize legacy drive systems.
A warranty inversion occurs when warranty repair order volume exceeds customer-pay repair order volume on a financial statement. Because customers must bring warranty claims to a franchised dealer, warranty work fills shop bays when capacity is constrained, while frustrated customer-pay clients defect to independent shops that offer quicker turnarounds.
Current AI phone bots frequently fail in service drive operations because they cannot adjust to real-time shop carryovers, technician call-outs, or complex repair diagnostic needs. Over 90% of consumers prefer speaking to a live representative, and rigid AI bots often lead to high call abandonment and lost appointments.
Dealerships win back market share by expanding technician capacity to shorten booking lead times, eliminating complicated phone trees in favor of direct human contact, offering transparent pricing, and training advisors to deliver warm hospitality rather than high-pressure sales scripts.
Final Thoughts
Fixed operations remains the ultimate safety net for automotive retail, but only when leaders actively manage shop capacity, prioritize human connection, and eliminate legacy bottlenecks. Relying on outdated systems or cheap software gimmicks will not carry your overhead during a front-end sales slump. By investing in technician talent, streamlining drive processes, and focusing on customer retention, your dealership can achieve sustainable 100%+ fixed absorption.
Actionable Takeaway: Audit your dealership’s financial statement today; if your warranty repair order count is higher than your customer-pay count, increase your technician recruiting efforts and adjust shop capacity immediately.
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Service Drive Revolution – Episode #374 Transcript
Fixed Ops Should Carry Dealerships
Service Drive Revolution
Hosts: Chris Collins, Hogi, Adam Krey
In This Episode
- Why fixed operations revenue is staying flat while front-end sales and grosses decline
- The real reason dealerships are losing customer-pay market share to independent repair shops
- How technician capacity constraints and long booking lead times create warranty inversions
- Why AI phone systems, kiosks, and tablets fail to improve service drive retention
- The impact of large dealer group consolidation on customer experience and drive innovation
- Practical steps for Fixed Ops Directors to increase effective labor rates and absorption
Opening & Summer Reflections
Chris Collins: Welcome everybody to the big show. We’re coming at you live this Wednesday mid-morning. Super excited for anybody who is hanging out with us. We are going to have some sort of chat function where if you ask questions in the chat, we will be able to answer you hopefully. So encourage you to do that.
Adam is here. Hogi is here. They are in an Airbnb in beautiful Indiana. The reason why they’re in an Airbnb is because I am not there. They were just talking about grime in their coffee cup or something before we went live. I wanted to follow up on that really quick. Their coffee cups aren’t clean in the Airbnb? Is that what you guys were saying?
Adam Krey: Yeah, it’s for added flavor. It builds character as we said before.
Chris Collins: So gross. No extra charge; it’s complimentary. But can you imagine the savages that stayed there the night before you guys and what they did to those coffee cups?
Adam Krey: I’m surprised, though, because there’s a sign everywhere you turn here on what to not do and what you should do—whether it’s the bathroom, the sink, or the entryway. It’s kind of like when we were talking about certain gyms.
Chris Collins: Yeah, the signs don’t work. I’m going to tell you that right now. You should know that from what we do. You could put a stop sign 50 feet in front of them and they still don’t stop. So funny.
Today we’re going to be talking about why aren’t fixed ops saving dealerships? It’s a fascinating conversation that I really want to unpack with the boys. Just briefly setting it up for you: sales are down in dealerships, grosses are down on the front end, but fixed ops are flat. And in a world where fixed ops should be up when sales are down—that’s how it’s historically been—that is not happening. It’s actually going the other way, and we’re going to unpack that and why we believe that is happening from what we see out in the field.
Also, I want to talk about AI a little bit. But off the top, very sad that summer is coming to an end. I don’t feel like I really experienced summer the way that I wanted to. Every summer, that’s the thing—I want to go to the lake more, write more, read more. And then life happens and you just don’t get to do it, and then it’s fall.
Hogi: Football is here, and that makes it speed up even faster. It is nuts how it just zings by without any warning. With my kids, my oldest daughter is a senior this year, and I find myself putting my hands on the shoulders of parents with young kids telling them, “Enjoy it while you can; it goes by fast.”
Chris Collins: You’re looking over at parents with a Tasmanian devil throwing stuff saying, “Enjoy it while you can!” That reminds me of a Jerry Seinfeld skit where he says with little kids, everything is “slow down, calm down,” and when they get older, it’s “speed up, keep going, go faster!” So true.
Motorsports, Boats, and Seasonal Tech Challenges
Chris Collins: Next Monday, my boats are coming out for Labor Day. It’s interesting to me that Sea-Doo launches their new products now. Going into winter, especially in America, nobody is buying. I’m thinking about a boat for next year, but I’m not going to buy it now.
They’re just so likable and so, you know, they just have like a glow about them, and you know, they work very hard at that. It isn’t by accident that those kids are the way they are, but they’re not leaving it to chance. They, you know, go to crazy lengths to give them experiences, to educate them, and we talk about that on the interview a lot.
Chris Collins: You know what kind of boat I want, Hogi? It’s made in Tennessee and it’s called a Montara. It’s the only pontoon boat I’ve found that has an inboard engine. I think it’s really weird when pontoons have the engine hanging off the back. I’d much rather have an inboard where it’s underneath so you can swim off the back without the engine in the way.
Right now I have a Sea-Doo Switch, but that thing is a dog—it has no power whatsoever. You can barely pull an inner-tuber. I want something that can pull a skier, last 10 years, anchor out, and have a good stereo.
Hogi: I’m looking them up on my phone. They’re tritoons with the inboard, and those things are really nice.
Chris Collins: I’m going to start looking into that this winter and see if I can get one made before next year. But it’s so funny to me that a lot of these boat and jet ski dealerships are nowhere near water. There are no test drives—just buy and go! I’m literally buying something blind off YouTube reviews.
Adam Krey: There’s no 24-hour guarantee or trial period?
Chris Collins: You buy it, you get it. When I bought my boat, it took two weeks just to get it PDI’d! They don’t have techs. The tech shortage in motorsports has got to be worse than in automotive or heavy truck.
Hogi: Because it’s so seasonal. Powersports dealers have to carry lawnmowers, side-by-sides, ATVs, boats, and snowmobiles under one roof just to try to cover all four seasons and keep techs busy.
Chris Collins: I ran into these Harley dealerships up in Canada that store bikes for customers in the winter. I asked why they don’t service or modify them during slow times, and they said customers cancel their insurance six months out of the year! So the bikes sit uninsured.
Powersports is so seasonal. You can’t keep 12 technicians busy all year round, so it’s total feast in the summer and nothing in the winter. And when you hire seasonally for technicians, you aren’t getting top quality because the really good techs stay somewhere permanent.
Hogi: Powersports also gets hit harder during economic downturns than automotive. If automotive is down, people certainly aren’t buying jet skis, dirt bikes, or dune buggies.
Chris Collins: A listener in our live chat just noted that the average powersports dealer runs a 35% to 50% fixed absorption rate. That’s tough. In automotive, extreme weather causes breakdowns year-round, but powersports is deeply cyclical.
Hogi: Reminds me of a truck service manager training session we held in Quebec. The manager told us they had to shut down their satellite service location in the spring because “there is no road.” Once the ice thawed, you couldn’t drive out there until it refroze in the winter!
The AI Bubble and Customer Connection
Chris Collins: Let’s talk about AI for a minute. When AI really became prominent three years ago, the narrative was that it was going to replace advisors and BDCs. Companies even laid off staff in anticipation—Salesforce famously laid off thousands, and Ford laid off hundreds of quality engineers, only to turn around and urgently rehire them when automated quality systems missed subtle design defects.
On the front lines in dealerships, we see this constantly. Years ago, people said digital inspection tablets on the drive were going to replace human interaction and make service faster than McDonald’s. That didn’t work—sales just went down. Kiosks came and went in six months. Video inspections sound great, but if you can’t execute the basics with paper, software won’t fix it.
Hogi: The AI phone system bubble is popping hard right now. Dealers tried them, got burned, and realized the AI bots refuse to transfer customers to a live person. They wanted them as a backup, but customers got trapped in loops. They are backing far away from those systems now.
Chris Collins: Exactly. Where AI is useful is internal operations. What our software developer Mike does internally with our coaching dashboards used to require external coders, cost hundreds of thousands of dollars, and take 60 days for a single feature update. Now Mike can tweak code and update financial projection models in 10 minutes. That backend leverage is incredible.
But on the human interaction side, AI fails. Look at my Oura ring saga—it was delivered to an address I lived at 20 years ago, the AI support bot sent me to a dead 404 link, and there is no phone number to call a human. My only recourse is disputing the charge with American Express.
The competitive advantage in today’s marketplace is genuine human connection. Our process on the service drive is about making friends, validating customers, taking away decision fatigue, and making them feel important. AI is never going to do that.
Hogi: AI should be used as a leverage tool for research and amplification, not a total replacement. If you use AI in a field you already master, it speeds you up. But if you enter as a novice, you’ll end up completely lost.
Chris Collins: Clay mentioned in the YouTube chat that “the value of an advisor is indexed to the experience and relationship.” I totally agree. Matt added that while AI may fail on the drive, it’s changing search and brand discovery. That’s true—AI search is replacing Google, and ranking in AI search queries is the future of digital discovery.
Main Topic: Why Aren’t Fixed Ops Saving Dealerships?
Chris Collins: Now let’s tackle the main topic: why aren’t fixed ops saving dealerships?
Historically, fixed operations was designed to carry the dealership. When Ford and GM were scaling decades ago, manufacturers faced cash flow bottlenecks waiting for dealers to sell cars. So they created floorplan lines of credit so dealers paid for cars immediately upon delivery. To sell dealers on this risk, manufacturers granted exclusive local rights to parts and service, highlighting that fixed ops could cover 100% of dealership overhead (fixed absorption). If vehicle sales dried up during a recession, fixed ops kept the doors open.
Fast forward to today: vehicles on the road are older than ever (averaging 14 years and over 100,000 miles), air travel is expensive, and people are driving more. Yet, while front-end dealership grosses dropped 16% in Q2, fixed ops revenue across major dealer groups remained flat. Service is failing to save struggling stores.
1. Technician Capacity Constraints & Warranty Inversion
Chris Collins: The first major reason is technician capacity. Dealerships are booked out two to three weeks, turning away customers who then go to independent shops.
The telltale indicator of this problem on a financial statement is when warranty repair order count equals or exceeds customer-pay repair order count. Dealerships hold a monopoly on warranty work—a Honda owner cannot take warranty repairs to an independent shop. When a shop lacks capacity, warranty jobs wait in line because owners have no choice, while customer-pay clients leave and never return. Over time, customer-pay volume bleeds away, leaving a low-margin warranty mix.
Hogi: When dealers complain they can’t hire techs because their current techs aren’t efficient, they miss the basic business principle: you must add capacity ahead of the constraint. Adding technicians is the prescription to making the rest of the shop efficient.
2. Losing Market Share to Independent Shops
Chris Collins: Franchised dealers used to hold 30% of the customer-pay market share; now it has slipped to 25% or lower. Independents aren’t winning on price—their pricing is similar to dealers. They are winning on availability and convenience.
Ironically, independent shops have a much harder time finding technicians than dealerships do. An independent tech must diagnose every make, model, and vintage on the road. A dealership tech only needs to master one brand’s specific engines and models, making dealership technician training infinitely faster and easier.
Hogi: Dealerships have home-field advantage, but leadership is completely disconnected from the customer experience. Dealership principals need to mystery-shop their own service departments. Call in for an appointment and see if your BDC quotes a four-day wait while the service drive claims they have open bays.
Chris Collins: Clayton asked a great question in the chat: “If a dealership could increase service sales by 30% by meeting demand, but had to hire technicians that reduced gross margins by 10%, is that trade-off worth it?”
What I would tell Clayton is: the customer pays for the technician! You set the labor rate. In a free market, high demand dictates price. If you need to raise your posted labor rate by $10 or $15 to cover higher technician pay, the market will bear it. Most dealerships are booked out a month while sitting on an effective labor rate of $105 when competitors are charging $150 to $200. Pass the labor cost to the consumer and capture the overall volume.
3. Consolidated Groups & Antiquated Systems
Chris Collins: The third issue is consolidated dealer groups running antiquated systems. Wall Street consolidators and private equity groups buy stores and run them strictly via spreadsheets from out-of-state headquarters. They care about short-term return on investment, not the local community or customer experience.
They trim expenses, squeeze advisor pay plans, and fail to reinvest in drive infrastructure. Over the last 20 years, public consolidators have introduced zero meaningful innovations in fixed ops that actually benefit the consumer. They run the exact same dispatching and write-up methods used 100 years ago.
When dealers were local business owners, advertising dollars went back into local high schools, civic clubs, and technician sponsorship programs. Consolidators eliminated that community connection.
If a public dealer group truly modernized their service drive processes, prioritized hospitality, and expanded technician capacity, all ships would rise. It would act as a force multiplier for vehicle sales. Instead, when stores lose money, consolidators simply close or sell off locations.
4. Lack of Fixed Ops Representation in Executive Roles
Chris Collins: Finally, most general managers and dealership owners came up through front-end vehicle sales. They don’t understand fixed operations, viewing service as a “necessary evil.” We constantly hear GMs say, “If I could close the service department and just sell cars, I would.” That mindset prevents investments in service drive growth.
Wrap-Up
Chris Collins: Fixed ops can save dealerships, but only if leadership addresses technician capacity, eliminates antiquated systems, re-establishes human customer connections, and focuses on 100%+ absorption.
Thanks everybody for hanging out with us on YouTube Live! We’ll see you next week on Service Drive Revolution!
Chris Collins (Outro): I know from experience that a lot of dealer owners won’t invest in training for fixed ops, but eight service managers in our coaching group have been promoted to general manager—something that doesn’t happen enough in our industry. Proof that when you’re given the right tools and mentorship, you can do amazing things.
I’d like to personally invite you to join our live Fixed Ops Academy, mentorship, and community. Anyone can afford it, and anyone can invest in themselves. Learn more at chriscollinsinc.com!
About Service Drive Revolution Academy
I know from experience that a lot of dealer owners won’t invest in training for fixed ops — but eight SERVICE MANAGERS in our coaching group have been promoted to general managers. That doesn’t happen enough in our industry. It’s proof that when you’re given the right tools and the right mentorship, you can do amazing things.
I’d like to personally invite you to something that should exist already, but unfortunately doesn’t: a live Fixed Ops Academy — a mentorship, a community. It’s a Service Drive Revolution Academy. Anybody can afford it; anybody who wants to invest in themselves can join. We teach what we know about running a healthy fixed-ops service business. Our average coaching client performs well above the industry average, and a handful are in a league completely their own — if I told you their numbers, you wouldn’t believe it.
🔗 Related Resources
- Who Should Join SDR Live Academy? A Fixed Ops Guide
- Think Like a Dealership Owner in Fixed Ops
- Fixed Ops Process Improvement: Dealership Success Roadmap
Feel free to explore the linked articles above for deeper insights into each strategy. If you have any further questions or need additional resources, don’t hesitate to ask!
