Auto dealerships generate revenue from new and used vehicle sales, finance and insurance products and aftersales service. The service and parts segment is the most stable and highest-margin part of the business, recurring regardless of new vehicle market conditions. New vehicle sales are tied closely to consumer credit availability, financing rates and inventory levels — the pandemic supply shortage demonstrated that constrained inventory with inelastic demand could actually improve per-unit margins significantly. Used vehicle economics operate differently, with auction prices and trade-in values creating their own margin dynamics independent of new vehicle pricing. Digital sales channels are reshaping the business model, with direct-to-consumer approaches from manufacturers like Tesla putting pressure on the traditional dealership model, particularly for EV brands. For investors, publicly listed dealer groups offer diversified geographic exposure, significant service revenue and opportunistic capital returns, but remain cyclical and sensitive to financing conditions and the ongoing shift in distribution models.
