Service profits cushion the blow of falling vehicle margins
- ABG sells new and used vehicles, but the profit story is moving toward Parts & Service.
- In Q1 2026, Parts & Service was 50.2% of gross profit, up from 47.3% a year earlier.
- The company recently reached 70% completion on its Tekion software rollout, showing early efficiency gains.
- Management shifted its used car strategy in mid-2026 to focus on volume over strict margin protection.
- Finn ranks the company relatively low because service strength battles margin pressure, high leverage, and legal risks.
Service is the shock absorber
Asbury Automotive Group is trying to offset fading vehicle margins with more profitable service work and internal efficiency. The easy money in new vehicles is going away as supply returns. In Q1 2026, same-store new vehicle gross profit per unit fell 10% from last year. At the same time, Parts & Service rose to 50.2% of total gross profit, taking on the burden of defending earnings.
The bull case points to early wins in technology and scale. Management crossed the 70% completion mark for rolling out a new dealership software system in Q2 2026. Stores using the new platform showed concrete productivity gains in June, with an average 12% increase in units per salesperson and a 10% increase in dollars per technician. This gives the company a path to lower operating costs by late 2027. Management is also buying back stock aggressively, using current valuations to create an earnings floor, even if it means pushing net leverage up to 3.4x.
The bear case remains focused on vehicle margins and regulatory risks. New vehicle margins are still normalizing. The company recently pivoted its used vehicle strategy to chase volume ahead of an expected wave of off-lease cars, which could pressure profit margins per car in that segment. A major Federal Trade Commission case over add-on product sales also remains unresolved, creating a persistent headline risk.
The next major test is the final phase of the software rollout. The last 30% of stores will switch systems in the third quarter of 2026. Prior rollouts caused short-term disruption in fixed operations, and investors will watch closely to see if the company can manage this transition without losing momentum.
Dealerships with a service tail
Asbury owns franchised auto dealerships across 14 states. A customer can buy a new vehicle, trade in a used one, arrange financing, buy insurance protection products, and return for repair work. The same store can touch the customer many times over the life of the car.
Revenue mostly comes from selling vehicles. Profit is more balanced. In Q1 2026, Parts & Service was the largest piece of gross profit, followed by Finance & Insurance, new vehicles, and used vehicles. That matters because vehicle sales are cyclical and sensitive to interest rates, while service work tends to be steadier.
Total Care Auto is the company's internal provider of finance and insurance products. It sells items like extended service contracts, gap debt cancellation, and prepaid maintenance through Asbury dealerships. Capturing more of the product chain improves economics, but the rollout changes revenue timing and draws legal attention. The FTC case focuses closely on these add-on product sales practices.
The company builds its moat on scale, brand relationships, local franchise laws, and service capacity. As of the end of 2025, Asbury operated 223 new vehicle franchises representing 36 brands. Those advantages become liabilities if manufacturers push for direct sales, buyers pull back, or large software and store integrations disrupt local operations.
What ABG sells
New vehicles
Asbury sells new cars, trucks, and SUVs from luxury, import, and domestic brands. This segment drives traffic, but gross profit per unit is falling.
Used vehicles
The company sells used vehicles at retail and wholesale. Management is currently prioritizing volume over strict margins to capture incoming off-lease supply.
Parts & Service
This includes maintenance, repair, warranty work, collision repair, and parts. It made up roughly half of Q1 2026 gross profit.
Finance & Insurance
Asbury arranges customer financing and sells add-on protection products. The segment is profitable but faces revenue deferrals and regulatory scrutiny.
Total Care Auto
TCA is the in-house finance and insurance product provider. It captures a larger share of the profit pool than third-party options.
Profit mix, not just sales mix
The segment shares shown here use Asbury's Q1 2026 Dealerships gross profit mix. Total Care Auto is a separate reporting segment, but its products also flow through the Finance & Insurance line.
What could go wrong
New vehicle margins keep falling
High impact · High oddsAsbury is still giving back the high new vehicle margins it earned when inventory was tight. Same-store new vehicle gross profit per unit fell 10% in Q1 2026. If this drop continues, other segments must grow just to hold total profit steady.
Software rollout disruption
Medium impact · Medium oddsThe final 30% of the Tekion dealership software rollout happens in Q3 2026. Earlier phases caused short-term friction in parts and service operations. A rough transition in this final phase could hurt fixed operations revenue when the company needs it most.
Used car volume pivot hurts margins
Medium impact · High oddsManagement shifted its used car strategy in mid-2026 to focus on driving volume rather than protecting margins. The goal is to capture more off-lease vehicles. If volume fails to offset lower per-car profits, overall earnings will suffer, especially heading into a weaker fourth quarter.
Elevated leverage limits flexibility
Medium impact · Medium oddsThe company chose to buy back stock aggressively in the first half of 2026, pushing net leverage to 3.4x. Management pushed its target of returning to 3.0x back to 2027. Higher debt levels make the business more sensitive to any sudden drop in consumer spending.
FTC case changes F&I economics
High impact · Medium oddsAn ongoing Federal Trade Commission proceeding focuses on add-on product sales practices, including claims tied to hidden fees and unauthorized products. An adverse outcome could mean fines, mandatory operating changes, or lower attachment rates for lucrative finance and insurance products.
In one breath
How does Asbury Automotive make money?
The company sells new and used vehicles, repairs vehicles, sells parts, arranges financing, and sells protection products. Vehicle sales bring in a lot of revenue, but Parts & Service and finance products are key profit drivers.
Why is Parts & Service so important for Asbury?
Service work can repeat for years after a car is sold and often carries better margins than selling the car. In Q1 2026, Parts & Service made up over 50% of gross profit.
What is TCA at Asbury Automotive?
Total Care Auto is the company's in-house provider of products like extended service contracts, gap debt cancellation, and prepaid maintenance.
What is the biggest risk for the stock?
The biggest risk is that new vehicle margins keep falling while service growth slows or the new dealership software rollout causes disruptions.
