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Surviving in Times of Consolidation

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By George Metos

What is consolidation and why is it happening? Per Investopedia: Consolidation is a phase in an industry where competitors begin to merge. Companies often consolidate to gain a larger portion of overall market share and to take advantage of synergies.

Powerful

LKQ was the first to show us how consolidating several, then dozens, then hundreds of yards is powerful. PRP became a network of 150 yards in response. Cross Dock sprang up in Florida, then, Georgia and Alabama as a solution based on shared warehousing. Fenix has 14 full-service yards in the East and appears poised to add more. Strong independent operators around the country have acquired or started their 2nd and 3rd locations strategically placed to take advantage of additional territories. These consolidators have multiplied the number of parts they can quickly deliver to customers.

The strong are getting stronger

Auto recyclers are under siege from auto parts retailers (AutoZone, NAPA, O'Reilly, etc.), OEM price matching, unlicensed operators including online sales, and even self-service yards. With consolidation, the strong are getting stronger, and it is difficult for the small to medium sized operators to survive. I've not heard anyone say that the pressure is going to ease up.

Combatting the trend

There are several ways to combat this trend, even if you're not in position to acquire a 2nd yard. You could join one of the above networks if you qualify. Brokering with other auto recyclers within trucking distance of you or across country can help. Using e-commerce tools from URG, Pinnacle, Hollander and Car-Part can increase sales. It might be easy to say that a bigger wallet helps buy better inventory, but this is not feasible for everyone. Some recyclers have done well to add repairs or towing to the services they offer, but this can also be a distraction in some cases.

Most realistic approach

Just being better at what you do in your existing operation may be the most realistic approach for many, and there are several good consultants in this industry who know how to help you with efficiencies. Many of them write articles in this very magazine. I'm not that type of consultant, by the way.

These consultants can help you adjust the type of vehicles you buy, how you buy it, how you determine which parts are best to inventory, how to motivate and pay your staff, and so on. Many of them have peer review groups that meet with a dozen operators at a time, from geographically diverse parts of the country to eliminate concern of competition. Participants learn from one another.

Industry shows

Going to the regional auto recycler shows and national ARA shows can be helpful. Knowing how your operation compares with others is vital. ARA and URG

have lots of resources that may help.

If you want to sell

If it appears that nothing is working, or you just want to let it go, then you may want to sell your operation. Your business and/or real estate may be of value to another recycler in the industry. You may want to assess this before you consider liquidating. The value of any business is the real estate plus assets and goodwill, or the real estate plus adjusted profit times a multiplier. Go to my web site for articles on this. You may want to determine whether you have a permitted use, which will allow the buyer to continue operations. If you're “grandfathered” you may think this is good, but it is only good for you, not the next buyer. Check with your municipality.

Be informed!

In summary, it is all about being informed. You may have a business that would survive and even thrive with a few adjustments. Learning from the many industry resources is vital to determining your next step. The worst thing you could do is ignore these resources and let consolidation sweep you away. You don't want to be like the taxi companies that got swept away by Uber and Lyft because they ignored the clear signals of change in the industry.

George Metos

George Metos

George Metos runs GM Consultants, a business brokering and valuation agency specializing in auto recyclers and towing companies. He coaches operators as to their current company worth, and how to increase it over time. He can be reached in Salt Lake City, Utah at 801-440-3176 or GeorgeMetos@aol.com, www.BusinessBrokerGeorge.com