Hardly a Loss Leader: With a Profit Margin of 35%, Oil Changes Make a Difference
Oil and lubrication service sales represent $1.6 billion in revenue for independent tire dealers every year, or $60,651 per dealer.
That averages out to $39.18 per oil change, according to Modern Tire Dealer’s most recent Automotive Service Survey, well above the average advertised price for an oil change in the aftermarket (see sidebar). In addition, the average profit margin per job is 35%.
To call the service a loss leader would be inaccurate. By offering the service, an average dealer earns an additional $21,228 annually.
There are a number of ways to increase that amount. You could raise the price of a standard oil change, or push full synthetic oil changes. You could dedicate bays and technicians to the service.
You could also recommend an oil change every 3,000 miles. But that could prove more costly in the long run. Five years ago, Jiffy Lube International Inc. was the target of a $5 million class-action lawsuit in California related to its 3,000-mile/three-month oil change interval recommendation. Was this false and misleading advertising?
Mike Mavrigian, editor of MTD’s sister publication Auto Service Professional, says no. “Yes, oils do exist that feature improved chemistry that in theory will provide proper lubrication for far-extended periods. But the reality is variables exist that potentially negate the benefits of extended oil change intervals.”
All engines do not function in textbook-perfect conditions, he says, “and oil contamination is certainly a possibility.”
The Los Angeles Superior Court evidently felt the same way as Mavrigian, and the lawsuit was ultimately dismissed.
You can’t go wrong following the vehicle manufacturer’s recommended oil change interval, which is as high as 20,000 miles in some cases. But it also can’t hurt to explain why oil changes are so important in the first place, despite their reputation as a loss leader. ■
Oil ch-ch-ch-ch-changes: Advertised prices are down 6%
Advertised oil changes continue to entice people into automotive service facilities. Over the last five years, the aftermarket price for a standard oil change has actually dropped 6%. Fortunately, crude oil prices have dropped close to 50% over that same time frame.