When Markets Drop, it’s Best to Have a Hedge
In the world of automotive recycling, where parts are not just components but potential assets, lies a realm of untapped potential that often goes overlooked. Paul D’Adamo, an expert in the industry, presents a groundbreaking perspective that challenges conventional notions of inventory management. He unveils the concept of the “partfolio”, which encapsulates the essence of investing in the parts and components that form the backbone of the auto recycling business.
What’s in Your Wallet?
I hope you like my twist on the word portfolio. Most of us purchase, or should I say invest, in vehicles for their “Parts” inventory. Based on my analysis of yard inventory data, most recyclers suffer from overstock and over-aged parts. This means we have invested labor into removing parts but have yet to recover our investment. I’m not talking about 30-90 days. Noooooo, I have revealed aged and overstocked inventory of 3,650 days or ten years to several recyclers. Their subdued reaction was not what I expected, almost like they denied it was a problem.
Precious time and labor were invested in identifying, removing, and storing these parts. Yet, even after ten years, owners are reluctant to sell them as cores because the prices are too low or for other emotional reasons. Granted, some parts have low core value due to lack of demand, but there are significant parts with a reasonable return on the dollar to warrant turning them into cash. When purchasing parts vehicles, cash is still King!
Auto Cores and Commodities
As we have all seen, the price of Converters has dropped like a lead balloon, primarily on the price of Rhodium. The price of scrap metal for our hulks has also tumbled. So, what’s left in your “partfolio” that sustains a value higher than scrap value and can return a consistent financial return: Auto Cores, Commodities, and Takata Recalled Airbags. I refer to these parts as the Bonds and CDs of your “Partfolio” as they provide consistent revenue, don’t have a lot of price volatility, and are a by-product of your current processes.
Pick and choose which parts will be included in your auto cores, commodities, and recall “partfolio.” The list is long; large cores such as engines and transmissions, small cores including brakes, steering, advanced electronics, electrical, hybrid batteries, converters, wire, scrap metal, aluminum wheels, and recalls.
It’s Not What You Make, It’s What You Keep
I have one piece of advice for the Owners and Managers to go along with this information. You must be able to measure this segment of your business. Your business demands good financial controls. Take the time to review your P&L Chart of Accounts with your bookkeeper and/or accountant. Track these income streams and summarize them as a group to determine the percentage of your gross and net income they return. Take the time to ensure your accounting software allows you to make sound financial decisions.
There is always time to change!
As a guy who organized a massive turnaround on an antiquated 50-year-old business, I might know something about “change.” Feel free to reach out if you need someone to tell you what you need to hear about the cost of falling behind in this industry.
Contact Paul, the “Core Hunter” at Rebuilders Automotive Supply. firstname.lastname@example.org or call 401-458-9080.