Automotive recyclers embrace self-service salvage yards
It takes a lot for an industry with more than 8,000 businesses and $22 billion in annual sales to change direction. That’s what’s happening now in automotive recycling, where self-serve salvage yards that permit customers to remove their own parts from scrapped vehicles are beginning to supplant traditional full-service operations.
Thus far, there are only about 200 pure self-service yards, estimated Dimitri Gerontis, principal at S3 Software Solutions, a Salt Lake City provider of software for self-service auto salvage operators. “But there are probably upwards of 400 to 500 of what would be considered a hybrid yard, bordering between self-service and full-service,” Gerontis said. “And everyone’s looking in that direction.”
Gerontis thinks the number of self-service yards is increasing by 20 percent to 25 percent per year. About half of those are new salvage yards opened up specifically to be self-service. The balance are full-service yards converting to self-service operation.
Self-service offers salvage yards a number of appealing features compared to the usual full-service yard, where yard workers remove parts for customers. For Chris Mantas, CEO of Tear A Part, a self-service yard in Salt Lake City, the big draw was self-service’s ability to increase the number of customers visiting a salvage yard. “We saw the advantages of more walk-in traffic compared to full service,” he said. “It intrigued us so much we got into it.”
In addition to expanding the market for a salvage yard’s offerings, self service provides the ability to embrace a significantly different business model. Full-service yards typically buy fewer vehicles and keep them longer than self-service facilities, Gerontis said. A full-service salvage operator will attempt to sell all or most of the valuable parts on a vehicle before taking the step of shredding the hulk and selling it to a processor to recycle the commodities.
Self-service yards, by comparison, buy more cars, sell fewer parts off each and are quicker to move vehicles on to the next stage, shredding. While a typical full-service yard might handle 100 cars a month, a typical self-service yard might do 800 per month, Gerontis said. “In this business, it’s all about volume,” he said. The rapid turnover of inventory creates significant opportunities for self-service operators.
One such advantage is apparent at the auctions where operators purchase cars for inventory. While a full-service operator, who intends to keep a car until a large percentage of its parts have been sold, might want and buy only one particular year and model of a vehicle, a self-service operator might buy dozens of the same type of car, often paying less per vehicle. Then the self-service operator will keep the vehicles only for a few weeks or months, selling only a portion of the valuable parts, before sending them off to the shredder.
Because the self-service operator is buying the vehicle at a price justified by the commodity market, he can afford to significantly undercut the full-service yard on in-demand, high-cost items like engines.
Also, income from shredding rises with the number of vehicles sold for shredding. This income has increased in recent years as the value of the steel and other commodities has risen. Today, the sales revenue from the sale of cars for shredding gives self-service yards an important revenue source in addition to retail parts sales. “The diverse revenue stream is what makes the self-service model so attractive to people,” Gerontis said. “That’s why it’s trending the way it is.”
The self-service business model is difficult for many veteran full-service salvage yard operators to appreciate, Gerontis continued. Having taught themselves to hang on to car bodies that still contain high-value parts, they are reluctant to send cars to the shredder after only a short time on the lot. Yet studies show most parts from a salvage vehicle sell in its first few weeks on the lot. “After that, activity drops off 75 percent,” he said. “You’re better off replacing that vehicle with another one.”
Shredder operators are attracted to self-service yards as an adjunct to their existing operations. Some shredders are looking at self-service yards, with their high monthly volume, as a good source for car bodies to feed their shredders. By opening their own self-service yards, shredding companies are cutting out the middleman and assuring themselves of a steady, low-cost supply of vehicles.
Dealing with customers is also very different, and has important implications for yard layout, staffing and customer policies. Yards have to be laid out with plenty of space for customers to pass through, and the vehicles have to be accessible to allow customers to remove parts themselves. Individual vehicles have to be set up so that they can’t fall on a customer, for instance.
Safety is a critical component of a self-service facility. Customers are usually barred from bringing certain sorts of tools, usually including jacks and air-powered tools, into the yard. Yards also have to obtain adequate liability insurance, which can be costly and require some searching as not all companies offer the coverage.
However, overall, costs can be lower, as self-service yards require fewer and less-experienced employees. Along with added revenues from sending more cars to the shredder, this can make self-service yards more financially appealing than their full-service cousins. “It’s a lot easier to make a go of it with a self-service yard,” Gerontis said. “There is more margin for error because of the commodity income.”