JANUARY 2009

Staying afloat in troubled times
Tips for auto recyclers from auto recyclers on surviving the tough new economy

Maintaining bouyancy in the current economic climate can be challenging for a    recycler. American Recycler provides advice for weathering the downturn.

During a recession the classic business model is to cut operating costs, build a capital reserve to see the business through the lean period and aggressively seek new receivables to replace lost income. Since the needs of each business vary there is no universal formula. Most good businesses know what they are doing, but perhaps some of the following may be helpful reminders:

Good people are hard to find

When business slows down and there’s wide-spread talk of a recession, many businesses think they must cut jobs immediately. This may be a necessary solution. A veteran auto recycler in the Washington DC area said, “I’ve let three people go and probably another three this week. We don’t need bank loans to keep us going, we can weather the storm.” There may be some “dead wood” in a labor force that should have been pruned when business was flourishing, but was tolerated. That’s a good place to start, but closely reevaluate each employee, or consider temporary across-the-board salary cuts until business improves. The majority of auto-recycling companies, however, are family-owned businesses. As such, employees are often considered to be part of an extended family. This makes terminations or salary reductions decisions difficult. Trim labor carefully and cautiously because you never know when business will pick up. Remember, competitors may be cutting jobs, too. It may be an opportune time to recruit better workers at lower costs.

Examine expenses

If business slows down, take time to put your payable register under a microscope. There are always things businesses can do without. “I just made up my mind I’m not going to waste any more money, because this will be money I will be looking for six months from now,” said a small auto recycler in New Jersey. “I’m going to park most of my equipment and may keep a loader or crusher and a tow truck. I’m not going to tear up equipment when I cannot afford to work on it or fix it,” he added. Talk to suppliers and ask for ways to help reduce costs or extend payments. If you have been a good customer, suppliers will go out of their way to cooperate. Get competitive bids on your liability insurance. Decreased volume, restricted activity, less equipment in operation and fewer employees means reduced exposure to risk and lower premiums. Even without changes in businesses circumstances, the competitive marketplace will offer savings on everything from auto insurance to IT services to telephone to energy. Suppliers are especially eager in tough times to hold onto customers, or gain new ones. It may be time to find ways to lower energy costs permanently. Utilities offer rebates for conservation investments, for insulation for instance, that save long term. Solar companies are beginning to offer leased photovoltaic systems that require not a penny out-of-pocket and guarantee 10 to 15 percent savings on electric bills.

Sub-contracting

There are likely tasks that are more efficiently handled by a subcontractor, or outsourced, or better handled by automation. If you have employees, consider turning them into sub-contractors. We spoke to a few auto recyclers who found it more cost effective to park or sell their flat-bed and tow-trucks and contract the service, as needed, thereby eliminating the cost of drivers, insurance and maintenance. “I’m laying-off drivers and hiring tow companies,” said a Philadelphia area scrap yard owner. This may apply to deliveries that are more efficiently handled by UPS or Federal Express Ground. Contracted bookkeeping, cleaning services and secretarial services are also options that may cut costs.

Bean counting

Company finances are critical during recessions. Many business managers get in a comfortable rut with their accountant or CPA and develop personal relationships. It may be time to get some free, fresh opinions. Confidentially call in several firms and pick their brains. There may be new ideas and better, cheaper ways to access capital or tax opportunities being overlooked. If you need cash, talk to your banker, or find a more agreeable one. You may have equity in equipment or property that can be collateralized into cash. The unavailability of credit has been somewhat exaggerated by the media – credit can be found if a business looks hard enough.

Bad debts

In a recession, avoiding bad and doubtful debts is a genuine challenge. Having credit insurance is protection, but increasing coverage may be necessary as exposure grows. Consider offering discounts for those that pay on time. Before you turn business away because you think the risk too great, offer a discount for paying upfront. Phasing a sale by allowing the customer to buy smaller amounts and pay as they go is another option.

Watch inventory

When business is booming, inventory control often goes on a back burner. For parts recyclers in lean times, a pack-rat mentality may come into play, resulting in wasted labor and storage space, or “make work” stocking marginal items. One parts recycler interviewed has a 365-day rule. If it sits on a shelf that long, it’s gone. If you sell a product, and you believe your sales are going to decrease, it might be a good idea to reduce inventories and not restock to the same level. This is a risky strategy so be sure you know how long it will take to restock inventories when business picks up. “I haven’t been saving parts up until about a month ago. I’ve been doing it all my life, but I kind of got away from it for five or six years while the scrap market was rolling. Stocking parts is my new job!” said a recycler in Ohio.

Be stingy

Be stingy and save money in every area. Make employees realize that every time they spend company money, they should think of it is as their own. Ask employees for ideas to save money and involve them in the solution. Turning lights off when not in use and keeping thermostats down sends a message that every penny is important. Make and mend equipment. Use 800 numbers wherever possible. Conserve office supplies and look for bargains. Save coupons and shop at bulk retailers. Don’t be a scrooge when it comes to expected holiday parties or company picnics. Morale is important during hard times. A San Francisco area recycler we interviewed said, “Company events are also good opportunities to invite customers and build stronger personal ties.”

Advertising and promotion

You need new business more than ever, so don’t stop advertising or promoting. Instead, become more aggressive and be creative for more cost-effective spending. Cutting the advertising budget is easy because it can be done immediately. It’s a proven fact, that smart businesses increase advertising in a recession, even if aimed at discounting to move inventories and spur cash flow. During the last recession, McDonald’s almost tripled their advertising budget while competitors cut back and thereby increased their market share and profits appreciably. Tough economic times weeds out competition, especially weak ones with overly-bearish attitudes. Be positive. If you act and look like you are going out of business, you may. The pie may be shrinking, so promote more to get a bigger piece. If you are a small and efficient business, there may be an opportunity to leapfrog a larger competitor because a larger competitor may have higher costs. Conversely, larger companies may be able to promote economies of scale. Find your unique selling point. The recession is a great opportunity to emphasize strengths. Consider forms of direct marketing where you can specifically test several promotional strategies on a small scale at low cost to find what brings the best returns.

Quality: Always in demand

Don’t skimp on quality customer service or product quality and undermine your marketing efforts. Quality has value no matter the economic climate. Treat your best customers like gold, because they are.