Automotive retail has never been primarily a car-sales business. In 2025, fixed operations and F&I together produced roughly 70% of US public dealer gross profit on just 18% of revenue, while new-vehicle gross margin fell from a pandemic peak of 11.8% in 2022 to 6.4% (Presidio). The three parts of the model do different work: new vehicles produce the volume, fixed operations provide the recurring earnings base, and F&I monetises the transaction. Germany shows the same concentration in sharper form: aftersales generates more than 60% of dealer contribution margin in a trade earning an operating return of roughly 1.1% overall (RAW-Partner via AUTOHAUS, 2025).

That recurring earnings base is now under pressure. Every combustion vehicle entering the parc has brought a predictable stream of routine maintenance work that funds the workshop, absorbs the overhead, and makes thin new-vehicle margins workable. That stream is the dealer's service annuity.

Two things happen at once, and they are not the same economic pool.

At the dealer, the annuity shrinks. Scheduled routine maintenance revenue per BEV runs at roughly 10 to 20% of ICE levels. Total workshop revenue and profit per BEV, including repair, tyres, warranty and bodywork, run 30 to 45% lower (Deloitte). In Norway, the one Western market where the transition is largely complete, aftersales profit per electric cohort settles 10 to 30% below combustion levels even after aggressive countermeasures (Accenture). Most of the decline occurs in routine maintenance. Complex repair work remains, and it requires more capital and training, not less.

Upstream, new recurring revenue is being built. GM booked 5.4 billion dollars in deferred connected-services revenue in 2025 and projects 7.5 billion for 2026. Stellantis targets 20 billion euros in annual software-enabled revenue by 2030. Ford reports more than 550,000 paying software subscribers at gross margins above 50%. These are three different metrics: contracted deferred revenue, an aspirational target, and current subscriber volume. This does not mean software revenue will replace lost dealer aftersales one-for-one. Some of that value will simply disappear. What they show is where the new recurring revenue is being built: primarily on the OEM side, at software margins. Dealers generally lack contractual participation rights in these economics at scale.

The imbalance is straightforward.

The imbalance is straightforward. Dealers are losing part of the recurring revenue generated by routine service, while many of the new recurring revenue streams are being built on the OEM side. At the same time, dealers continue to fund the facilities, technicians and equipment required to support the vehicle throughout its life. The way dealers are paid has not kept pace with where lifetime value is moving.

Dealer profitability has never rested mainly on selling cars. Fixed operations provide the recurring earnings base that makes thin new-vehicle margins workable, which is why it carries the dealer P&L. Electrification reduces that base at the source: each electric vehicle entering the parc generates a fraction of the routine service work of the combustion vehicle it replaces. At the same time, new recurring revenue from software, connected services and data-enabled products is being built largely on the OEM side, outside the dealer's contractual reach. No systematic redesign of dealer economics has addressed this shift. Record aftersales results from an ageing combustion parc are delaying it, and record network valuations continue to rely heavily on that earnings stream. Norway shows the vehicle-level outcome; China shows how quickly the model deteriorates without a mature service base. The open question in Western markets is whether dealer economics are redesigned deliberately, while the combustion parc still provides the funding, or by attrition after it fades.

Current results still look healthy, which makes the structural problem easy to underestimate. US dealer service and parts revenue hit a record average of 9.23 million dollars per store in 2025, up 33% in eight years (Cox Automotive). German workshops report that BEV-related shortfalls barely register yet. An ageing combustion parc, longer holding periods, rising labour rates and temporarily elevated early-BEV warranty work (roughly 970 euros per vehicle annually in Norway, projected to fall about 39% as the technology matures) keep workshops full and revenue rising.

These numbers are masking the transition rather than disproving it.

These numbers are masking the transition rather than disproving it. We call this the parc-lag anaesthetic: fixed-operations erosion lags EV sales share by roughly a vehicle generation, because the serviceable fleet electrifies far more slowly than the showroom. Reported revenue reflects today's parc; the vehicles replacing it will generate materially less routine service income.

Two additional effects also matter. First, dealers currently handle 67% of EV service visits, against 28% for ICE (Cox Automotive, 2026). That advantage is real but conditional. Today's EV parc is young, mostly under warranty and concentrated in authorised networks. As the fleet ages and independent workshops build high-voltage capability, that share is likely to come under pressure. Second, the investment requirements are reshaping the network itself. Roughly 47% of Buick's 2,000 US dealers gave up the franchise rather than fund 300,000 to 400,000 dollars in EV requirements, and about half of Ford's network declined certification tiers of 500,000 to 1.2 million dollars before the programme was ended in mid-2024. Better-capitalised groups are gaining share in a service market that will be smaller but more technically demanding. Higher tyre wear and other additional work do not close the gap: tyres add less than 3 percent of total revenue, and no dealer-controlled revenue stream has yet been shown to replace routine maintenance across a vehicle cohort.

Norway shows what electrification does to aftersales economics at vehicle level. Even with full countermeasures, aftersales profit per electric cohort settles 10 to 30% below combustion levels, and alternative profit pools, tyres, bodywork and connected services, do not close the gap at dealer level.

China shows how quickly dealer economics deteriorate when front-end margin collapses and there is no mature service base to absorb it. In 2025, 55.7% of Chinese dealerships operated at a loss, up 14% points in a year, with 82% selling new vehicles below wholesale cost (CADA). The network lost roughly 650 stores in six months. Zhongsheng, the largest group, guided to a loss of up to 2 billion yuan against a 3.2 billion yuan profit the year before, and dealer satisfaction with OEMs fell to 60.8 points, the lowest since 2011. China's crisis is a price-war crisis rather than an aftersales crisis, which is what makes it instructive. Its young, heavily electric parc never built the service base that is currently masking front-end weakness in the US and Germany, so the weakness of the model shows immediately. Chinese survivors are responding by leaning harder on aftersales, Yongda at a 40.35% maintenance margin and 84.2% service absorption, at exactly the point where each new NEV entering the parc generates less of it.

Norway and China show two different weaknesses in the dealer model.

Norway and China show two different weaknesses in the dealer model. Norway shows the reduction in aftersales economics as the vehicle parc electrifies. China shows how exposed a dealer network becomes when new-vehicle margins collapse without a mature service business to stabilise earnings. Western markets still have that stabilising layer, but it will weaken as the combustion parc declines.

Dealer compensation has not been redesigned. We found no evidence of a systematic, disclosed redesign of dealer economics specifically addressing EV-driven fixed-operations erosion. Isolated incentives and confidential arrangements may exist; a coherent redesign does not appear to. Distribution has been restructured for sales control, not for who owns recurring revenue. Warranty disputes in several US states over EV diagnostic time are an early sign of this tension, and China shows where unresolved conflict between OEMs and dealers can lead. OEMs that address the issue early will have a more stable network that dealers are willing to continue investing in, and repricing is cheaper before conflict than after.

Agency removes inventory financing, residual-value exposure and discounting risk.

Agency does not resolve it. Agency removes inventory financing, residual-value exposure and discounting risk. That is a real benefit. But in the European agency models implemented to date, the agent retains the property, staff, workshop and EV-readiness investment, while holding a fixed commission of roughly 5 to 7 percent and losing the pricing and F&I levers a franchise dealer would use to manage a declining service base. Unless the commission structure explicitly reflects the shrinking service annuity and the capital the agent still carries, agency makes the problem worse rather than solving it. The 2025 retreat, Stellantis suspending its European rollout, Ford dropping its plans, Mercedes delaying Spain, suggests OEMs have recognised the sales-side problems without yet addressing the service-side one.

The valuation question. The US buy/sell market set an all-time record with 478 transactions in the twelve months to March 2026, 114% above the pre-pandemic average, and the Kerrigan Blue Sky Index reached 178, 78% above 2019, even as industry earnings declined year on year (Kerrigan). Fixed operations were the dominant contributor sustaining dealer earnings and therefore valuations (Haig). Public groups' average purchase price per acquired dealership reached nearly 200 million dollars in Q1 2026, a quarterly figure skewed by large multi-store luxury transactions, but indicative of the premium being paid at the top of the market. High valuations are not necessarily wrong. Strong franchises, scarce territories, real estate and consolidation benefits can justify significant premiums. But buyers need to model how each network will earn money once the combustion service base starts to decline. Trailing fixed-operations performance is no longer sufficient for valuing a dealer business. The valuation gap between Toyota and Lexus at record levels on one side, and Nissan and Infiniti below pre-pandemic marks on the other, suggests that buyers are already pricing differences in brand strength and future earnings quality.

Markets are moving at very different speeds. Norway is largely through the transition, China is in the middle of its crisis, Germany is protected for now by an ageing but still profitable combustion parc, and Southeast Asia and the GCC are a decade or more behind. Yet EV-authorisation standards and facility programmes are typically set globally; Australia's dealer body estimated more than 1 billion Australian dollars of system-wide charging capex across roughly 3,100 franchises. Applying the same investment requirements across markets with very different EV adoption and parc profiles will overburden parts of the network. Investment requirements and dealer compensation need to reflect the local parc and the actual speed of EV adoption, rather than a single global brand standard.