Let’s face it, your single biggest expense is cars. Your second largest expense is labor. It’s important that you have all your people on pay for performance so that you can get more performance with fewer people, and we’ve discussed this point in prior recent articles.
I know it’s hard to implement, but it’s imperative in today’s times.
I know for years you have bought cars and you bought them the same way you’ve always bought them. You have an idea about what you need, and you know about what you can pay, but you see people at auction paying what you think is crazy money for cars.
Now, ask yourself how is it that they can be there week after week, month after month, year after year, paying what seems like, excessive prices for cars. It’s obvious that they’re still in business, and, in most cases, probably doing OK. It’s counterintuitive that they can pay so much more than you, yet still be in business for years.
It’s important to note that they have probably spent a lot more time trying to figure out what they can buy and how much they can pay for it than you have. I know you think you do the same thing, but you probably don’t. It’s important that you look at every car closely and discern which parts are salable and which parts are not.
Without doing that work, how can you know how much you can afford to pay for the car, based on what those parts cost?
I know. I know. It’s a lot of work, and it’s a little bit too detailed, but it’s what it takes to compete in today’s market. That person that you think is paying too much for their cars is in fact targeting the specific cars that they need, and you’ve noticed that because, in most cases, they’re buying cars that you don’t think you can afford.
The reason you can’t afford it is because you have three of the engines in stock and they have none. You have three because you’re probably asking too much for them, so when you buy the new car, you think the engine is worth nothing. You have three in stock, why would you want another one? But just think if you didn’t have any in stock you could pay hundreds more for that car because you need the engine.
In a prior article, I discussed how you could pay more for your cars, sell your parts for less and keep everybody wondering what you were doing. It is very possible and the best-performing yards with the best buyers are doing it every day. They’re paying more for their cars and selling their parts for less. I know it sounds counterintuitive, but when you get your pricing right and your merchandise moves at the proper speed, you really can pay more for your cars.
We call it days-to-break-even in our world. That means the days it takes for you to recoup your cost. So, if you pay $2,000 for a car, how many days does it take you to get $2,000 worth of parts sales off that car? Anything below 100 days is pretty good. If it’s taking you more than 100 days to recoup, it’s probably not so good. Buyers often don’t give enough attention to the prices they pay for their cars and/or take 200 days to get their money back. You can learn a lot about your buyers and their buys and methods by studying the cars that do best and those that do the worst.
It’s important in today’s brutal environment that you have the right pricing, that you pay attention to what you’re buying and calculate all, correctly.
Remember, only you can make BUSINESS GREAT!
This article was provided by autosalvageconsultant.com, which was formed in 2001 by recyclers for recyclers, to help them improve their businesses.
Published in the July 2022 Edition