For Anthony Wahl, owner of Wahl to Wahl Auto Parts in Cooperstown, New York, automotive recycling was fairly strong going into the COVID-19 pandemic.
“We had been in heavy growth mode for the last eight years with a lot of major investments. We had one of our best months in our company history going into the start of our state shut down in New York,” Wahl said. But like many auto recyclers, that status changed very quickly when New York was shut down for non-essential workers.
“Fortunately, we are an essential business,” Wahl said. “But with fewer cars on the road, there have been fewer accidents, less people needing parts and less salvage vehicles available at the salvage pool.”
Greg Dixon, chief executive officer of Smart Recycling Management, agrees that prior to the pandemic, the automotive recycling industry was, generally speaking, in great shape. The overall economy at that time was good and business in general was positive.
“There were some challenges due to changes in international trading that impacted some recycling items but that happens from time to time,” Dixon said. “Now I think the biggest change has been no customer traffic at most locations. With local governments placing restrictions, many in the salvage and auto recycling world had to stop letting the general public in the front door.”
This has made for a dramatic decrease in availability of scrap and has pushed the auto yards to become more online entities.
“Most are now adapting to the new policies, but in order to meet new guidelines, businesses will have to adjust for their walk-in customers,” Dixon said.
Sean Pour, co-founder of SellMax, a car buying and auto recycling company, said that prior to the COVID-19 crisis, the prices of scrap metal were rising again, and people were spending money on parts.
“The pandemic has had an odd effect on the auto recycling industry,” Pour said. “First of all, used parts are becoming more valuable as not much new manufacturing is occurring. So, parts that we may have just scrapped for the metal are actually being resold and put back into cars. We’ve seen the price of scrap metal dip a bit because people aren’t building and manufacturing so it’s not in high demand.”
During the last two months of the economic shutdown, Wahl and his team have made a lot of modifications. One area they have been focusing on is paying down debt as well as having as much cash on hand as possible.
“We are not going to be making many major investments for the rest of the year and we are trying to have plenty of cash on hand to be better prepared to handle the rest of this year and next year,” Wahl said.
From talking with other auto recyclers, a common theme Wahl is hearing is the uncertainty of the future – namely the uncertainty of how long the shut downs will last, about whether the virus will come back to hit the country again, and the uncertainty of the overall economy and how the economy will be affected by the shutdowns.
“I believe there will be ripple effects that have not been considered by many people yet,” Wahl said. “We are currently holding onto metals until prices improve. But we can’t do that long term, even though it is a by-product of our main business, it is a major part of our overall sales and cashflow.” While online sales have been strong for Wahl to Wahl Auto Parts during this pandemic, as the company experienced one of its best months in online sales in March, it has been making up for the big downturn in sales to local repair and body shops and not selling much in scrap and cores.
Pour is seeing some salvage yards scrambling to use Internet sales sites to quickly get their parts listed online. “Many of the local salvage yards are old fashioned and have not fully embraced online technology and others have begun putting their parts for sale on eBay as well, which may be a new marketing channel,” Pour said.
Mistakes to Avoid
Wahl advised other auto recyclers avoid stretching themselves too thin and not holding a decent amount of cash on hand. “Nobody knows what the rest of this year will look like. There might be another major economic downturn, there might be a lot of buying opportunities, and we might go right back to normal,” Wahl said. “Either way, having plenty of cash flow to weather any storm is a strategy I would embrace for the near term.”
Indeed, Dixon agrees that cash is king and those who have been conservative in their growth, expansions and inventories will survive. “Those who have been aggressive and are leveraged even with cheap money, will suffer,” Dixon said. “I always refer back to the family business that has been around for a long time – they may not have the latest and greatest of something, but they are financially sound, understand the business and utilize their conservatism to their advantage during these times.”
Preparing for Unchartered Territory
Wahl stressed that auto recyclers that quickly adapt to the changing times and find ways to fill their customers’ needs will do well during this economic downturn. He predicts that those recyclers that are not quick to change and keep doing things they have always done, will have a more difficult time in our “new economy.”
“For example, when the pandemic started and New York State shut down, we put up a drive through window. We have hand sanitizer and a cashier at the window to continue to serve our customers and sell parts to customers when they arrive,” Wahl said. “We no longer allowed customers into our building. This one simple change has actually worked out great. Our customers say they like it, our sales staff love it, and we are able to get our customers their parts and get them on their way faster and safer than ever. That is one small change we made to adjust to the times, that we have already decided we will keep after all of this is over.”
Dixon envisions that in both auto and recycling facilities we will see some closures and a reduction in employees. “On the recycling side we have seen layoffs and some people let go to curtail costs during this time,” Dixon said. “Any time you have a downturn like this, it will force companies to reevaluate their strategies and long-term planning.”
Pour agreed. “I think this is going to help push the industry forward in terms of technology,” Pour said. “The car recycling industry has always been old fashioned. However, I think ‘mom and pop’ junkyards and salvage yards will realize the importance of being digital from now on.”
Published in the June 2020 Edition