The complexities of the two avenues of auto recycling help define how today’s auto recycling businesses operate.
By Troy Webber
In the auto recycling world, there are two types of customer-oriented business models, full-service, and self-service. They perform the same basic business of recycling end-of-life automobiles, by taking old cars off the road, selling the parts, and turning the rest into scrap metal. Automobiles are the most recycled product in the world. Because the automotive industry ranks consistently in the top 10 largest industries worldwide, automotive recycling businesses plays a key role in the global economy. Approximately 40% of new steel is made with recycled metal. Annually, automotive recyclers recycle more than 14 million tons of just steel alone from processing of end-of-life vehicles. That is more than 13 million cars!
While full-service and self-service operations may look alike from 10,000 feet, there are important differences – starting with our revenue models. A full-service business is a low volume/high margin operation. They buy a few late model vehicles and make thousands of dollars on each one. A self-service business buys many cars and makes a few hundred dollars on each one. We are both making money from selling parts and scrap, however, the primary source of income for a full-service yard comes from selling parts. The self-service model makes 66%-75% of their revenue by selling the metals from the vehicle.
Another major difference between the two, is the customer base. The late model/full-service business is primarily a wholesale business selling to body shops and repair shops which perform insurance company repairs. The self-service business is exclusively selling as retail. If another business wants to buy parts, they must pull it themselves and pay the same price as a regular customer. Retail customers are also willing to buy more parts off the vehicles and accept a used part.
The self-service business also relies on an ever-changing global metals market. When the main source of income depends on the world economy, you do pay more attention to the price of tea in China. However, I would argue that relying on a business customer to buy parts as a source of income is not as reliable as the global scrap markets. The price of steel may go up and down, but it will always be worth something.
The secret to making money in the self-service business is don’t crush the ZORBA, which is the non-ferrous scrap generated from shredding automobiles, mostly aluminum and copper. Crushed cars are priced at about $.10 per pound. Aluminum is priced at closer to $.60 per pound and copper is closer to $2.00 per pound. We never leave all the non-ferrous metals in the cars when they get crushed because we would be giving away hundreds of dollars per car. If recyclers can find a way to pull out, process and package all the non-ferrous metals efficiently, they can be sold on a global market; thus, greatly expanding the profit earned as a result.
In other words, mastering the art of harvesting non-ferrous metals from crushed cars results in making more money than what you paid for the car, just from the scrap. This means a recycler is making a profit on each vehicle, regardless of its condition. Any parts that your retail customer buys go right to the bottom line.
Finally, it is just a matter of getting the cars in and getting the metals out. Easy right!?
Founder and CEO of YardSmart, Troy Webber, created a new paradigm for the auto recycling industry, due to an ability to predict what was needed, in order for his business to survive. YardSmart is the only cloud based software of its kind, worldwide. As a result of his background and experience, he successfully designed custom yard management software for the industry, beta tested it with his competitors for two years and now operates a SaaS company offering YardSmart. He is proud to be the third generation to own the auto recycling business and hopes one day to pass it on to the fourth generation to help serve the industry that his grandfather created in Richmond, VA 75 years ago.
