It seems that the pandemic is officially over. Now that things are getting back to normal, what do the next twelve months hold in store for us? What should we expect, and how should we plan for it?
2022 was a great year for Auto Recyclers. For most of us, it was our best year ever…Even better than 2021. If you did not have record sales during this time, you have cause for concern. With business being great, everyone was upbeat, fat, and happy. For all of us, it has been a roller coaster ride with us only going up. While this is exciting, there comes a time when you reach the top. Now, being at the top and looking down, that’s when fear sets in. From a business standpoint, we are now thinking, “Was this as good as it gets,” and “Will we ever see this again?”
As 2022 progressed, we saw things starting to get back to normal.
With that, we also saw demand normalize. Economics 101 tells us that when supply is down and demand goes up, price goes up. The flipside of that is, when supply is up and demand is down, price goes down.
So, now what should our expectations be for the next twelve months?
Let’s take a look at salvage vehicles, we are starting to see prices getting back to normal levels. Used car prices have also seen this correction. Prices are down 30 percent currently, which puts them back to a normal range. On the Brightside, new vehicle production is still lagging for some. For the short-term, with people keeping their vehicles longer, this will mean diminished quality of product for us in the near future. On the bad side, the economy is slowing down, interest rates are higher, and this is now a dark horizon for borrowers. For companies that rely on bank financing, the cost of money has gone up substantially. This lowers companies’ profit margins, and they are concerned about this. They are paying more attention to their bottom lines now.
Many companies that were over-aggressive in hiring are now shedding staff. What this will mean is that it will no longer be an employee’s market. The days of looking for help and being able to hire are getting back to normal now.
So, let’s look at realistic expectations for sales and revenue.
The best approach would be that you should look at the past 3 years and average them out. What you will probably see is a 20 percent decrease vs. 2022. The market demand will probably be close to what it was before the pandemic. What this will also mean, is that because we will not be getting over-inflated prices for our parts, our average invoice will also go down by that amount. So, if you want to keep sales at the same level, it stands to reason that you will have to write 20 percent more invoices.
With supply outpacing demand, this will create price point pressure, force prices lower, and could very well start the proverbial “race to the bottom,” which is not good for any of us. What needs to be understood here, is that we need to have realistic expectations and take a more cautious approach. Stay the course and be consistent about what you do and how you do it. Plan accordingly; look at today and plan for tomorrow and ahead. This is the ideal time to focus on your company and improve your process, procedures, and product, in order to position your company for what is coming next.
Now, more than ever, training and certification are going to be crucial going forward.
Just look at the changes in the past two years in regards to vehicles, and the evolution of engineering and technology. ARA is a great resource with the Certified Auto Recycler Program and ARA University. These are great tools to help train your people, as well as new hires. The Certified Auto Recycler Program helps to raise the bar, and sets the standard for excellence in our industry.
These are challenges for sure, but with challenges also come opportunity.
For those that want to invest the time, work, and money in their business to change and evolve, they will be best positioned to survive and thrive.
I remember many years ago something a very wise person told me. He said, “You either get educated and learn, or you get left behind with the other dummies.” Which one do you want to be?
The choice is yours.
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