Dealerships don't make the majority of their money on the sales side. The real case resides in the back of the store, where cars and trucks are serviced. In fact, the best dealers are said to make enough money on service to pay the bills, with vehicle sales providing the profit. Mercedes dealers were pulling in money hand over fist five years ago; not because the German luxury vehicles were flying off the shelf, but because they were breaking down regularly. The strain on Mercedes Benz to pay the massive warranty costs cut into profits, but the dealers were raking in the big bucks.

Customers that buy vehicles that break down regularly don't tend to stay loyal, and the folks at Daimler headquarters know this. Mercedes has been working hard to improve quality, and the proof shows in the form of less traffic at M-B's service centers. While that's great for customers, it's bad news for dealers, as warranty work has gone down by 30% or more in some places. For now, dealers are left scrambling for ways to add revenue to their shifting business model. Fortunately, Mercedes' quality leap will result in more satisfied customers, which means the dealerships will be able to continue to work on their core business: selling vehicles.

[Source: Automotive News - Sub. Req.]