WITH the new financial year underway, Australian dealers have a timely opportunity to reset their operating model for profitability.

The industry has moved beyond the period in which supply shortages, strong demand, and reduced discounting helped support front-end margins. Those conditions have normalised, and the structural pressures within the dealership model are once again becoming apparent.

OEM stocking policies, target-based margin programs, high facility standards, and rising customer experience expectations continue to add cost and complexity. At the same time, Australia remains a relatively small, highly competitive, and increasingly fragmented market.

Steve Bragg

With more than 70 active brands competing for around 1.2 million new vehicle sales, and more entrants still arriving, dealers can no longer rely on new vehicle volume alone to deliver sustainable profitability.

The next phase of dealer performance will be determined by the parts of the business dealers can control.

Service, parts, finance and insurance (F&I), used vehicles and disciplined customer relationship management (CRM) must move from supporting roles to the centre of the dealership profitability model.

The key question is no longer simply how many vehicles were sold. It is whether the dealership retained the customer, captured the ownership lifecycle, and converted that activity into sustainable profitability.

Fixed operations will be particularly important.

A retained service customer generates repeat labour revenue, parts sales, accessory opportunities, future used vehicle supply, and a lower-cost pathway back into the next vehicle transaction.

A lost service customer is often a lost future sale.

Dealers that allow low-gross work, poor workshop loading, weak booking discipline, and low hours per repair order to consume workshop capacity will struggle to achieve the absorption required to withstand pressure on new vehicle margins.

EV uptake makes this even more urgent.

Battery electric vehicles accounted for around 20 per cent of Australian new vehicle sales in May 2026, while electrified vehicles were approaching half the market when hybrids and plug-in hybrids were included.

As more EVs enter the vehicle parc, the traditional servicing model will be challenged by fewer moving parts and different maintenance requirements.

Dealers need to secure the customer relationship from the outset through prepaid servicing or ownership plans, then actively manage those customers through tyre replacement, accessories, software updates, charging solutions, cosmetic repairs, recalls, finance renewal, and replacement timing.

This is where CRM becomes critical.

Too often, CRM is treated as little more than a database rather than an operating system. A strong CRM process should trigger service reminders before a customer becomes overdue, follow up declined work, identify vehicles moving into positive equity, flag finance contracts nearing renewal, and prompt the sales team when a service customer is likely to become a changeover opportunity.

Used properly, CRM turns the customer base into a daily operating plan.

F&I is also becoming a more important profitability driver again, much as it was before COVID. As front-end gross normalises, finance penetration, compliant processes, early business manager engagement, and renewal discipline become increasingly important.

The greatest opportunity exists where F&I is integrated with sales, used vehicles and service retention rather than treated as a late-stage handover at vehicle delivery.

The same discipline applies to property. Facility investment must be measured against commercial output.

Rent, display space, service bays and customer transactions should all be assessed against the gross profit they generate. If a facility consumes more than it produces, the dealership is carrying a structural profitability problem that volume alone will not solve.Best practice for FY27 should be framed around clear operating targets: approximately 15 per cent gross profit; 12 per cent expenses-to-sales; and three per cent net profit-to-sales, supported by stronger service retention, better parts capture, disciplined F&I penetration, improved used vehicle stock turn and tighter property efficiency.

These KPIs should not simply appear in a monthly report after the result is known. They should shape daily operating decisions.

The bottom line is straightforward.

Dealers that focus this year on service, parts, F&I, CRM, EV retention and property productivity will be better placed to build sustainable profitability. Those that continue to rely on front-end volume without retention, absorption or gross discipline will remain exposed to a business model that prioritises activity over economics.

By SteveBragg