Margin compression is forcing many companies to evaluate their processes and procedures in auto recycling.
By Mike Kunkel
Buy vehicle – inventory vehicle – dismantle vehicle – sell vehicle parts – collect money – repeat process – speed the repeating of the process.
That is the story of the world of auto recycling. There are a wide range of business models with different salvage profiles which, in turn, lead to servicing different customers. How many cars can I buy and how long will it take to consume those same vehicles? Once again, the business model determines the speed that all these things happen from part sales to commodity metals recovery.
The auto recycling industry has been seeing some slowdowns in some markets and segments within the business models. Catalytic converters are down significantly, car bodies are sideways, and the core commodity market is all over the map. This volatility should lead to downward pressure on vehicle pricing but in the short term, we all know that salvage does not seem to be more abundant or less expensive.
The Profit Team works with a lot of salespeople, and they all seem to feel that part pricing is coming down from the high points we hit during the height of the pandemic. The numbers that we look at in the peer groups say that is true. If you add the increase in vehicle acquisition costs with commodity and part price decrease, you have margin compression in its truest definition.
There are a number of things that can be done to deal with margin compression. Cost containment, increase in vehicle cost to improve dollar margin per unit, increase in quantity of vehicles produced, increase in quantity of parts sold per unit, and pricing are a few that come to mind.
If you add the increase in vehicle acquisition costs with commodity and part price decrease, you have margin compression in its truest definition.
Education is another thing that we must look at as a potential opportunity to improve efficiency. There are articles elsewhere in this issue that all have something to do with an opportunity to do something that improves efficiency.
The electronic line of site/visibility of used auto parts is something that is of the utmost importance to each of us. The loss of a data feed negatively affects sales in a hurry. That translates to the fact that there are very few non-computerized auto recyclers left in the world. Most of us are technically challenged, but need to get a better understanding of how to unlock more of the potential in the software systems that we use to operate our operations. We are taught how to use them to some extent and then left to learn the nuances on our own.
We have also seen an alignment that has allowed many auto recyclers to increase their ability to say “yes” to their customers and expand their sales to other recyclers over the last year or so. This is a huge opportunity but not without a cost and expectation for performance. A term that TEAM PRP championed is being focused on “operational sameness.” That is something that is vital to being able to portray your part as my part and have confidence to sell it to my customers.
All these forces, concepts and ideas that are being presented in this issue will be expanded upon with significantly more detail at both major industry events, URG/TEAM PRP Conference & the ARA 81st Annual Convention & Expo. We have had a great stretch of success as auto recyclers. There is not a reason to think that things need to change, but the amount of effort applied may need to change. The approach and business model might be some adjusting.
There is not a better place to see more qualified industry experts that are open to sharing their stories with the intimate details of how to execute to a high level of sustainable success. The auto recycling industry looks and behaves differently than it did 10 to 20 years ago. We have the ability to continue to push the future further past the high levels of success we have already achieved. Are you planning on attending the industry events that will help point you to a path of continued growth in sales? And, more importantly, attending these events can spur profits, even when a number of people feel that the overall sense of business is slowing.
You have the ability to make business great; are you doing what you need to remain successful?
Mike Kunkel is an automotive industry lifer having grown up in his family’s new auto supply, paint body & equipment and machine shop. Following his college graduation, he entered the salvage industry as an installer for Auto Info. His love of the industry led to a successful career in building a large recycling facility in Fort Worth, Texas while being instrumental in the formulation and growth of the TEAM PRP program. Mike is a frequent speaker at industry events in various countries. Mike uses a basic and proven platform to analyze businesses. He provides an honest assessment of where a facility is and what steps need to be taken to grow both sales and profits. Mike is a proven leader who is highly regarded in the automotive industry.
