Automotive recyclers discuss the growing impact of commodity sales on the bottom line.
By Senter Smith and Gary Wilkins
During last year’s 73rd Annual ARA Convention & Expo in Baltimore, Maryland, a panel of professional automotive recyclers came together to share their experiences and progressions in their individual businesses and how they have grown their bottom line. There were different views on how to get there, but the goal was the same for this session – a strong commodity sales program can provide an additional 10 percent or more of total revenue. Becky Berube, United Catalyst Corporation, moderated and contributing panelists were recently revisited to collect some general thoughts on the session.
“During the panel session, it was clear that not one of the recyclers on the panel ran the exact same core program. It’s not a one size fits all,” says Dale Bevell, Wayne Auto Salvage Inc., Goldsboro, NC. The reason for this varied due to available time/expense, yard management system, owner/management involvement, core vendors used, and of course the processes implemented in the core program itself. Even among the panelists, there were some who liked working with one core company and others preferred using multiple vendors. Jonathan Morrow, M&M Auto Parts, Inc. Stafford, VA, and Zane Malcom, H&H Auto Parts, LLC, Cozad, NE, both felt strongly that assigning one person to oversee your core program is important for the sustainability and increasing profitability. However, Jeff Matlock, Matlock’s Used Car & Parts, Inc., Cleveland, NC, and Dale Bevell didn’t feel compelled to have one person designated as a “core guy.” Instead they compartmentalized it using existing staff; again emphasizing one size doesn’t fit all.
All the panelists stressed and agreed that you cannot have a successful commodity sales program without the owners buy-in to this type of program. There was a common theme that designing a program takes a lot of thought and it is important to let your key people help determine how a commodity sales program will best fit into your business. Shannon Banks, A&P Auto Parts, Inc., Cicero, NY, said, “You have to be thorough for what types of commodities you want to sell, how often do you want to ship them, what type of space do you have to house the program, and what man power do you want to put toward the program.”
Panelists all agreed that a yard management system and the ability to integrate other programs and core vendor sites are imperative for the core program to run smoothly.
Moving inventory (cores) in a timely manner is important because they can become stale and lose value if you hold onto them too long. Shannon Banks said, “It is not always about waiting on getting the greatest value for that core but for the quickest ROI. Sometimes it’s better to make less money sending it to a frequently used vendor than to sit on it and wait to build enough to send elsewhere for more money – the name of the game is Turns!” Dale Bevell added to moving product vs. holding, “Generally speaking, we do not hold cores, but instead move them in and out quickly so the value doesn’t fluctuate from what we are expecting on the return for it. We have found there is no value in holding cores and doing that.”
All panelists conveyed the benefits of having a commodity sales program that is a measurable entity. If you cannot measure it then it is virtually useless. Dale Bevell said, “We are constantly striving to find more value in our vehicles without incurring any (or little) additional expenses and a viable core program is vital. A wise man once used the analogy that the vehicle is a “box” full of parts. Some parts have value and some do not. It is our job when putting a core program together to determine first what part to core, second, which parts to inventory, and third what parts are we missing the value on.
“Allowing employees to help with this empowers them to implement and continue to running a viable core program.” Brian Dean, J.C. Auto & Truck Parts, Monroe City, MO, said, “One of the biggest benefits that we have seen from the core program that we have put together is that it allows us to be more competitive at the auction. Also, the process of coring excess parts out of dismantling not only allows us to maximize our warehouse space, but it reduces our labor and handling costs when we crush the car.” Brian went on to say, “I would urge anyone that does not currently have a core program in place to contact one of the core vendors and have them show you the potential dollars that you have in your inventory that will probably never sell across your counter that they can turn into immediate cash for your business.”
The panel outlined a variety of single and multi-vendor commodity sales programs and how they implement them at their recycling facilities. The main take-aways from our panelists were two-fold: First, recyclers are measuring their commodity sales. Second, these sales as a percentage of overall revenue is growing from 6 to 15 percent (including converter sales) in recent years. Picking reputable vendors and leveraging the sale of these parts is becoming an increasingly important revenue stream for turning cash quicker, competing at auction, and growing the recycler’s bottom line.
Senter Smith and Gary Wilkins serve the automotive recycling industry at United Catalyst Corporation, a North American processor of scrap catalytic converters and precious metals management company.