Consolidation is making inroads in the auto recycling industry. Here’s what you can do to offset any need to be acquired by the big guys.
With the 4th of July just passing and with independence being on my mind, it got me to thinking…are the days of being independent numbered? If you look at all of the news lately, there has been a lot of interest in our industry and a lot of consolidation. More and more auto recyclers are being bought up by consolidators recently.
So, who are these consolidators, what is their end game, and what as independents can we do to remain relevant and viable?
First of all, we’ll take a look at these consolidators and who they are. Primarily, most are private equity, and there are several new ones that have come on the scene. The main ones are obviously LKQ, Fenix, Aesop, and Road Tested. With LKQ being around the longest, going on 20+ years now, they haven’t been part of these recent acquisitions.
With these new consolidators, what is their endgame?
Typically, with private equity, they buy up blocks of businesses in a particular industry with the hopes of making them more efficient and more profitable. They hope to be able to sell them off at a profit within three to five years, (kind of like flipping houses: clean them up, fix them up, and sell them at a profit).
Why have so many auto recyclers been selling their businesses?
1. Uncertainty of the future of this industry: All of the changes that are upon us and the pressure to change and evolve to stay current and viable.
2. They may see their business as trending downward as I said before about the “roller coaster ride.”
3. Succession: Some of these businesses are multi-generational and the current owners do not have a plan in place for someone to take over. No matter who you are, we all grow old and we all get tired.
4. Money: Remember, everything and everyone has a price.
As independents, what can we do to compete and remain relevant and viable?
1. Be willing to invest the time, work, and money to stay ahead of the game and change and evolve.
2. Invest in your business. This not only means inventory, it also means investing in your most valuable asset, which is your employees.
3. Never be satisfied with the status quo. Always stay hungry and strive to be better.
4. Training and education. Know this: While this industry can be as primitive or sophisticated as the owners want to make it, it is becoming more and more clear that the recyclers that will remain will be the ones that run their businesses professionally. In any profession, training is always constant and ever-present. I remember years ago when I was a teenager, my boss told me that you either get educated or you get left behind with the other dummies.
5. Be environmentally and safety compliant. Some will say that this means a lot of work and a big investment to get their businesses ship-shape, but I can tell you right now that from all of my experiences, compliance and profitability come hand in hand.
So, obviously these consolidators have some advantages over us independents. They also have disadvantages.
Advantages: They have more stores, they can buy more product, and they can service more customers.
Disadvantages: They are bigger. Because of their size, changes will affect them more than us. We can react much faster than they can. If you look at what I said a few months back about there being less market opportunity for our industry with things getting back to normal, as independents, obviously, we can change and adapt to this much easier than they will. While a 20% downturn in revenue can have a bad effect on a small guy, the bigger you are, the more devastating this can be.
Competition: As I am a hockey player, I am competitive by nature. I believe that with all things being equal, if I can’t come out on top, it’s my own fault.
Lastly, where can we get help?
Your Association, ARA, has developed current and great training modules. This is one of the many benefits of being an ARA Member.
Support your State and Local Associations! Support ARA!
The ARA Mission: To Train, Educate, and Advocate.
Marty Hollingshead has been in the auto recycling business since 1973 and is the owner of Northlake Auto Recyclers, Inc., Hammond, Indiana, since 1984. Marty is on the ARA Executive Committee, currently serving as Immediate Past-President. He is a board member of the Indiana Automotive Recyclers Association. Both Marty and Northlake have received numerous awards and recognition for excellence in the industry and the community. Reach Marty at 219-937-3960 or visit www.narparts.com.