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March 2007

It’s just not fair, Ron!

I understand the implications of environmental issues, but it sounds like some recyclers believe that their business is suffering as a result. Their position is that because government officials enforce environmental laws in a lax way many yards choose to operate illegally. These illegal operators have lower costs because they do not have the added costs of compliance. As a result, these illegal operators can undercut legitimate recyclers who obey environmental laws, and increase their costs by being compliant.

BUT... it’s the right thing to do, even if you disregard the laws.

Although this argument is an interesting one, I believe it is not valid.

There is no doubt that it is harder to make money in the auto recycling business than it has ever been. Nevertheless, those business people who run their yards well still make 10% or more. Some exceptionally well run yards may make as much as 20%. The size of the yard isn’t what makes the difference: some have achieved these results with large operations and some have done well on smaller volume.

These business people have succeeded by handling the details of the business that are under their direct control with great skill. They have worked hard and experimented and adapted. They have paid close attention to the marketplace and cannibalized their own business products and services to add new ones when the opportunity presented itself. These successful yards pay close attention to costs, particularly their labor costs, and they have become FULLY engaged in buying to control their cost of goods.

Business people who are unafraid to innovate and to work smart and hard run the most successful yards. They have gutted old systems and processes, they have endured lots of pain and friction, but they have tasted hard-earned success in a tough business. They are successful because they love the auto recycling business.

Other operators are not succeeding and environmental regulations are not the real reason. No doubt occasionally a shady operator undercuts them, but they are only vulnerable to that because they are not fully engaged in running their enterprises and they are not willing to make the necessary changes to stay viable. Most are doing things just as they used to and that won’t get winning results in a world where the customer is a moving target.

The message of "these guys aren’t competing fairly" is a dangerous one. It leads people to focus on non-core issues, and it makes yard owners and managers devote precious time and energy to things they can't impact directly, much less control.

No one would disagree that our industry association should be the main impetus for fair regulation. It’s the right thing to do. However, many recyclers believe that somehow better enforcement of regulations will make them better able to be successful in the marketplace. These less successful recyclers believe that someone is going to save them or that their woes are someone else's fault. They talk constantly about their being too much competition or the competition being unfair. I've heard it for 25 years. That said, of course, we need everyone to push for fair enforcement of environmental laws.

The true costs of these controls? They aren’t material in most cases. Spend some money each year on improvements and modernization, say $2,000 to $3,000 for a smaller yard, one selling less than $100,000 per month; then a similar amount on annual compliance and reporting. In 10 years, you will have spent $20-30,000 on controls and such. The problem is when you spend nothing for years; it’s hard when it catches up to you.

How big a problem are the environmental regulations? I believe not nearly as big as some people would like to convince you. I don’t know of any recyclers that have been overly burdened by environmental controls. In fact, most yard owners embrace them and comply with them. Recyclers, like all other businesspeople, should be accountable for their own actions with regard to complying with environmental laws and their own financial results. And recyclers should support the Association in its duty to educate members on the full range of issues—some environmental and others not—that affect all of us in the recycling business today. Most of these are easy to see because we deal with them every day in our efforts to run our businesses successfully. We only need to stand in front of a mirror to see the real reason us aren’t doing well.

I do wish we could get all recyclers to join and support the State and National Association. Full participation would make the business better for everyone.


Don’t forget to subscribe to Ron's free monthly auto recycling e-newsletter, with news and tips, register at www.autosalvageconsultant.com.

Remember, only you can make BUSINESS GREAT!

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, and was recently reprinted. In June 2003, he joined the new ownership and management team of GreenLeaf. He also manages his real estate holdings and investments. You can learn more about him at WWW.autosalvageconsultant.com He can be reached at 5940 Eden, Haltom City, TX 76117, rons@rdsinvestments.com or 817-834-3625 ext 6#.

 

 

 

 


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