2024 delivered a sharp turn in the trajectory of dealership service revenue.

According to industry data, OEM warranty revenue rose nearly 20%, reaching $28 billion, far exceeding WarrCloud’s original forecast of 8.4%. That kind of growth should be welcomed because it comes at a time when customer pay work is stagnating.

What’s driving this shift? The answer lies in the changing nature of vehicles themselves. The cars we’re selling today have evolved away from mechanical machines and into the digital realm.

They’re filled with sensors, processors, and complex software that change the entire service dynamic. Electric vehicles, in particular, require less regular maintenance but carry higher early-life warranty costs due to new platforms and component issues. As warranty claims rise, so does OEM reimbursement, but from an operations standpoint dealerships must be ready to capture that revenue.

The takeaway is clear: the rules of fixed ops are changing, and dealerships that cling to traditional models will struggle over time. To remain profitable and competitive, dealers must rethink how they staff, price, and prioritize their service departments. There are several strategies dealerships must consider adopting in order to maintain profitability.

Treat warranty work as core business driver

Warranty work has long been treated as a cost of doing business due to franchise agreements. Necessary but not strategic. That’s an outdated mindset. With warranty revenue now outpacing nearly every other area of service income, it’s time for dealers to start treating it as a growth engine.

Retooling your processes to drive faster, more accurate claims benefit not just your bottom line, but your OEM relationships. And since warranty repairs are typically non-optional for the customer, they provide repeat visits. Each of those visits represents a valuable opportunity to build loyalty that lasts beyond the warranty window.

The shift to EVs also creates new opportunities. While they may require fewer oil changes, they still suffer from early-life glitches. Battery management issues, sensor malfunctions, and software updates all fall under warranty, and all create customer touchpoints and revenue opportunities. The more capable and efficient a dealership becomes at handling these repairs, the more it benefits from the steady increase of EVs.

Modernize warranty claims operations

As OEM warranty costs rise, so does the need for attention to accuracy and compliance. Manufacturers are tightening standards, increasing audit frequency, and leveraging analytics to flag questionable claims. Dealers must be just as meticulous.

Warranty claims processing, still a largely manual task in many dealerships, needs to evolve into a more robust operational discipline. That includes technician training on story writing, robust documentation practices, and the use of tools that reduce administrative errors.

Dealers that get this right will not only reduce audit exposure but also recover more of the money they’re legitimately entitled to, quickly and cleanly. New technology platforms that are available today enable dealers to streamline the claims process and are designed with exactly that in mind. Whether using internal tools or external solutions, the goal should be clear: accuracy, efficiency, and compliance.

Take a more strategic approach to customer pay pricing

Customer pay revenue is evolving. With extended maintenance intervals, lower repair needs on newer platforms, and increased competition from national chains and mobile services, customer expectations around pricing are sharper than ever. Dealers should use local market data to price competitively, especially for high-frequency services like oil changes, brake jobs, and inspections.

Service menus should be simple, transparent, and built around customer value. Bundling services can increase the average repair order without appearing overpriced. And periodic menu audits help to ensure that pricing reflects both market realities and internal profit targets.

The goal is balance: competitive enough to attract and retain customers, structured enough to support sound warranty reimbursement rates, and smart enough to sustain long-term revenue growth.

The bottom line

The traditional balance between customer pay and warranty work is shifting fast. More complex vehicles, higher sales volumes, and EV growth are driving a rise in warranty claims that show no sign of slowing down. At the same time, routine maintenance opportunities are shrinking, and customers have more options than ever.

For dealers, this isn’t a crisis; it’s an opportunity. The only consideration is whether you’re willing to evolve. Prioritizing warranty as a strategic revenue stream, tightening operational processes, and refining your customer pay strategy are the keys to future-proofing your fixed ops business.

The service department of the future won’t look like the one of the past. The only question is whether your dealership will be ready when it arrives.

 

Jim Roche is founder and CEO of WarrCloud