Parts are sold in one of three categories:
- As a part sale to replace a damaged or non-functioning part,
- Sold to a core buyer to be refurbished or rebuilt, or
- Sold by weight.
Bullet number one is what we hope for and buy the vehicle for. We will place into inventory somewhere between 40 and 90 parts. We will sell somewhere between 15 and 25 parts per vehicle. This is not to indicate that we didn’t have some activity on the other 20 to 70 parts. Most of the time we do have activity on parts that we end up not selling. Customers are looking for these parts, call about these parts, but our sales force is not able to close the deal.
In order to get into the market, you must price your parts in the range of what the market is. If you do this you have a great opportunity to get interest in the parts you have for sale. If not, then you will miss these opportunities. Once you get the phone to ring then it is up to the sales person to convert this contact into a customer. To paraphrase an old saying:
“You can lead a horse to water, but it is up to the sales person to get them to drink.”
We need much more focus on what isn’t sold than on what is sold. There are many parts per vehicle that could have been sold if a well-trained and well-managed sales person receives the call. Many sales people simply answer the phone, give a price, and never ask the customer for the sale. It is amazing to hear this over and over again.
Bullet number two is the second most lucrative place to sell parts. There are many parts that we know at the time of inventory are best identified and sold to a core buyer. Those parts should be harvested at the time of dismantle and not put into the warehouse or vehicle and then sold later. Think of it this way:
- Your sales history and inventory level tells you this is a part that has little or no value and/or you already have too many of them. The most important thing to do at this point is to harvest this part and sell it to the core buyer the first time you handle it. This is almost always during the dismantling process.
- If I offered to give you a $100 today or the same $100 in 365 days which choice would you make? The core industry needs all the cores they can get for which there is a market. Otherwise, these parts become aftermarket parts and compete directly with our used parts.
Bullet number three is the last and least profitable place where parts end up. Again, the key here is to make this harvest — this scrap value — within the first year. There is a concept called “Dollar Cost Averaging” used in the investment world. What I take from that idea is that for many auto recyclers it makes dollars and sense to apply the practice of number of vehicles in equals the number vehicles out.
Most vehicles produce their sales in the first year or less of their life in the salvage yard. Once they are done producing sales and you have sold their cores then the most value left is related to their weight. So, by rotating your end of life yard stock you continue to keep fresh inventory in your yard and you bring in cash to purchase the fresh inventory.
That fresh inventory dollar will produce two to three times the value of the vehicle scrapped. As I said above around 85% of sales comes in the first 365 days. Many of the parts, especially the valuable parts like engines, transmissions, transfer cases and rear end assemblies are off the car. So there really isn’t much of value left on the “hulk” setting in the yard. For example, the value of five vehicles scrapped will purchase a vehicle that will produce at least $2,500 in future sales plus some core and
scrap value.
What are the main take-aways:
1. Almost always it is most profitable to sell a part when you have a customer on the phone.
2. Core prices rarely rise over their time in your facility. So, harvest the core part when you first see or handle it, and
3. Reinvested inventory dollars (scrap) is usually more profitable over the long haul than setting on it and waiting for the uptick in scrap prices.