First, I want to thank the Greater Midwest Automotive Recyclers Expo for being a wonderful host. I just returned from speaking at their convention in Kansas City where I met many old friends.
I continue to hear from folks who say their business is tougher than it has ever been. I always chuckle when I hear from a recycler that business in his area is off, after I’ve just spoken with another recycler in the same area that is having record sales and/or profits. How can this be?
First, it is tougher. I am not in denial. Cost of goods is continuing to rise, and I think if you are buying the same way you were a year ago, it has likely increased 5%. Some folks have made changes in their buying, but most haven’t. And, sadly, because folks haven’t cut their expenses, a similar % of their profit has gone away.
Most affected are those that are buying 5 year and newer vehicles, especially if the average cost is more than $1200 or so per vehicle.
The reality is that gross margins have declined for many reasons. It won’t do me any good to go over the reasons because we can’t change most of those factors. At conventions, I often hear a lot of discussion about increased costs but no discussion about solutions.
Here is the solution. You simply have to understand what is selling. You must know which parts to inventory and pull, and how to price your parts competitively. Also, maintaining your margins on the BEST parts must be protected. Pinnacle will make screen recommendations on holding prices and report on how well your salespersons follow those recommendations. AutoInfo and Hollander will provide you with some information in these areas, albeit not automatically. You need a good level of confidence in your pricing; don’t cut prices when it isn’t warranted, but slash them when appropriate. In the past we made these decisions off the seat of our pants, but that just doesn’t work anymore.
You MUST have your buyers go over the cars carefully and reconcile the potential purchases with your demand. Pinnacle does these functions automatically, but even with AutoInfo and Hollander, you can get some answers, although it is tedious and time consuming.
You simply must sit down and review your buying practices. Recyclers that are using the tools are protecting and even lowering their costs, while increasing turns and cash flow.
Don’t kid yourself- while you are wringing your hands, one (or more) of your competitors HAS figured it out, and they are slowly getting traction and market share at your expense.
Stop fretting and beating yourself up, or complaining about how the war and other factors are the real culprit. The real culprit is sitting in your chair.
Next month: More good stuff from Chapter 4.
Remember, only you can make BUSINESS GREAT!
Please email if you would like me to send previous articles.
Ron Sturgeon is past owner of AAA Small Car World. In 1999, he sold his six Texas locations, with 140 employees, to Greenleaf. In 2001, he founded North Texas Insurance Auction, which he sold to Copart in 2002. In 2002, his book “Salvaging Millions” was published to help small business owners achieve significant success. He now manages his real estate holdings and investments, and does limited small business consulting. You can learn more about him at WWW.rdsinvestments.com (Click on “Interested in more information on Ron Sturgeon”.) He can be reached at 5940 Eden, Haltom City, TX 76117, or firstname.lastname@example.org.