Auto Dealership Profit Centers Many automobile dealers divide their businesses into two major divisions:

(a) parts and service and

(b) vehicle sales. The gross profit of the parts and service activity is looked upon as the amount that is supposed to “cover” all parts and service overhead plus all general overhead of the dealership. If this goal can be achieved, the gross profit of the vehicle division can be regarded as “gravy”—as net profit. In other words, the contribution margin of the parts and service activity is looked upon as a cost recovery, whereas the vehicle sales are regarded as the profit-making mechanism.

Evaluate the merits of this approach. If you were managing an automobile dealership, would you view your operations any differently? How?

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