Margin Call

May 1, 2022 | Trending

By Marty Hollingshead

It’s spring here in the Chicagoland area and the flowers are starting to bloom, and the snow is falling, (typical for us)! The good news is things are finally starting to get back to normal. It has been so nice to travel to see and be with others again. I finally got to visit Canada in person for the Ontario Automotive Recyclers Association conference, although driving across the border was quite the adventure for me (a story for another day). They had a great turnout, and the contents of the meeting were great. I even got to acquire a piece of Canadian hockey history that I will wear at the Automotive Recyclers of Michigan (ARM) conference in May at Morris Rose Auto Parts in Kalamazoo, MI.

Executive Director Barb Utter and the folks at ARM always put on a great conference, and this year is especially significant as they celebrate 50 years as an association. Our association is always hard at work to represent the interest, and concerns of our industry. Our mission at ARA is and always will be to train, educate, and advocate. Let’s all do our part to make our industry the best it can be!

Where is Your Focus? We all focus on sales and growth, but with current events, inflation, and the overall cost of doing business, 
we have to say to ourselves, “is more really more?”

Since the pandemic, if you are an auto recycler and you haven’t seen a dramatic increase in sales, you need to take a serious look at your business. With supply-line shortages, we have all seen an increased opportunity for sales that we would not have seen before, as well as a very nice increase in prices on our commodities. We all have two things in common: we are all shorthanded and business is good.

Now, with what is going on in the rest of the world we have seen a huge jump in gas prices and transportation costs (as of this writing, the price of an overseas container has quadrupled).

Everything is Going Up!

There are post-pandemic labor shortages, which I don’t understand. Where did all of these workers go? Either way, we have to pay higher wages to compete with all others for the same employees, not to mention our cost increases to keep our current staff.

I have even heard that in the collision industry, there are 
certain companies that are poaching other shops’ best help. They are looking at their current staff and giving substantial raises only to the ones they want to keep. They are then going to their competition and offering their best guys the same. For the independent shop owner, this is bad news. They may have only one certified technician and are caught between a rock and a hard place when this tech tells them that they can make $8 more per hour going to work for the next guy. The shop now doesn’t have much of a choice. He either pays him or he loses him. If they lose him, they may not be able to take on most jobs.

I remember speaking to someone a few months back, and they were working on a budget for labor for the following year. They asked me what I felt my increase in labor costs would be? I jokingly said, “twenty percent.” I think with inflation being what is now and what it will be going forward, I might not be far off the mark.

Everything is going up. The cost and competition for salvage has gone through the roof, along with everything else. So, like everything else, we have to figure out how to pass these costs on to our customer. For right now, with the shortages, we may be able to do this, but what will happen when things get back to normal? Remember, the cost of 
salvage may go down, but our labor cost and other expenses will probably remain the same (or go up).

So, this brings me to my point. Is more really better?

You really have to keep an eye on your expenses and your profit-margin. It is really easy to get caught up in increasing sales, only to find out afterwards that you actually made the same amount of net profit, or less with doing all of this extra work. It is also a slippery slope if you have a downturn in sales. You can get into trouble very easily if you don’t keep an eye on expenses. There have been many companies that have had record years, only to go out of business because of this. Sales and profit have to be manageable, controllable, and sustainable. It’s not what you make, it’s what you keep. All I’m trying to say is keep an eye on your bottom line, but focus on what drives your numbers. Support your state associations! Support ARA! Their mission: Train, educate and advocate. Get trained and get certified because changes are coming. Get educated to stay relevant and in business!

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 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. Visit www.narparts.com.

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