Salvage Yards - Engine Builder Magazine

Salvage Yards

For more than 75 years, automotive recyclers have had a role in
the supplying of used parts to commercial repair operations including
body shops, new and used car dealers, auto and truck fleet businesses,
independent repair shops and garages. Through recycling more than
11 million vehicles a year with more than $5 billion in annual
sales, automotive recyclers have had an influence on many automotive
markets, including rebuilders. But in order to remain a partner
in the realm of the rebuilding industry, salvage yards themselves
must find what it takes to be profitable.

Susann Porter, public relations and marketing resources manager
for Automotive Recycling Association (ARA), said enhanced technology
and more sophisticated communication systems have improved the
partnership with the rebuilding industry. Porter said computer
software such as ADP’s recycler inventory program (also known
as the Hollander system) allows recyclers better inventory management
and improves selling capabilities to rebuilders, car dealers and
service shops. “Recyclers can now track more easily what
parts come in and which parts have sold, as well as determine
which parts are high in demand,” Porter said, adding ARA
surveys show about 80% of salvage yards are now computerized.

Another trend Porter sees is salvage yards are selling more to
each other. In the past, a customer would have to call many yards
to locate a part. Today when a rebuilder or service repair person
calls for a core or part that the recycler doesn’t have, the recycler
can use the Hollander system and locate a yard that does have
the part. The recycler can buy the part from its competitor and
then sell it to its customer.

Equipment technology improvements also have impacted the dismantling
of vehicles. “Today there’s much better engineering with
equipment, especially with the lifts that are being used and machinery
to remove fluids from the vehicle such as waste oil and engine
coolant,” Porter said. “These improvements allow the
recyclers to process more vehicles quicker.” And the sooner
a vehicle is dismantled, the sooner a rebuilder or installer can
obtain a part.

Another way some recyclers have increased profitability is by
rebuilding. Porter said the exact number of salvage yards who
are rebuilding engines, transmissions or small parts is unknown,
but it is occurring. “We aren’t sure of the numbers so we
can’t really say if it’s a trend or not, but some of our (ARA)
members do rebuild,” Porter said.

One such recycler is Arrow Automotive, an Akron, OH, salvage yard
which serves a market area of Northern Ohio, and remanufactures
about 1,000 engines a year. Julius Frost, president of Arrow,
said as with any engine rebuilder, availability of popular engines
is a concern. “We’ll even buy engines from core suppliers
when we’re short on some of the critical models and then we’ll
rebuild them here,” Frost said.

Frost, who entered in a family-operated automotive recycling business
at age 11 and is still involved 66 years later, said for many
years selling used engines to installers was not unusual. About
10 years ago, Arrow invested money in equipment and manpower to
rebuild most domestic car and light truck engines and automatic
transmissions. “Offering rebuilt engines was one of the best
changes we made,” Frost said. “Rebuilding today represents
a very substantial part of our business. It used to be just a
fractional amount of what we offered.”

Frost said vehicle improvements from the car manufacturers of
yesterday are making it harder to find good used engines today.
“You don’t have the rust buckets like you used to, so people
hold on to the vehicle longer. The new cars today are a better
quality product. As the numbers of years a car is on the road
adds up, so does its mileage. And the more mileage that’s put
on engines, the less the engine is worth. All of this is making
it more difficult in getting a good used engine,” Frost said.

Since Arrow has engine rebuilding capabilities, even bad or blown
engines are valuable. “We’ll conserve most of our engines
and sell them where there is a market,” Frost said. We don’t
sell many engines to core suppliers. In fact, we will buy some
engines from other yards.”

Frost said he can sell good used engines anywhere from $400 to
$500. His rebuilt engines, which come with a limited one-year
warranty on parts and labor, sell for about $800 to $1,000. No
labor allowance is available to remove or replace an engine.

Frost said Arrow began offering rebuilt engines as an option to
used because the company saw a decrease in the demand for used
engines. Frost said one trend is that installers don’t want to
deal with the risk that a used engine may not be within Environmental
Protection Agency (EPA) clean air guidelines. “The EPA is
getting stricter and there’s the issues of E-check. A lot of installers
don’t want this hassle,” Frost said.

Second, he sees that the DIYer is becoming extinct. Frost said
engines today are harder to work on and the equipment to diagnose
problems is too expensive for the DIYer and even some independent
mechanics. “The backyard or independent garage or similarly
skilled mechanic doesn’t have the equipment or knowledge to handle
late-model installation jobs,” Frost said.

And finally, Frost said certified mechanics are less likely to
install used parts because of the chance they may not function
properly. “It costs too much in labor to reinstall a bad
part,” he said. Frost said even his business, which handles
some engine installations, doesn’t install used units. Instead
they install remanufactured engines.

Frost said today a vehicle owner is somewhat limited in the purchase
of a used engine. “A vehicle owner will buy a used engine
or transmission if he can install it themselves or have it installed
by an independent repairman.

“But a remanufactured engine can go many different ways.
It can be sold to an individual and installed by either an independent
or certified installer. Or it can go to a garage or car dealer
which are our biggest buyers,” Frost said.

Still, there are some smaller garages around who will install
used items like foreign transmissions and engines. “Because
of the high cost of rebuilt or lack of availability on some of
the foreign items, there’s no recourse but to use a used part,”
Frost said.

Although Arrow remanufactures engines, automatic transmissions
and driveline products, they do not rebuild or offer rebuilt small
parts like alternators, water pumps, starters, etc. “Selling
these rebuilt products is highly competitive. We don’t cater to
the garage trade for that type of merchandise,” Frost said.

On the other hand, Giant Auto Parts, another Akron-based salvage
yard, has found rebuilding some small parts to be a successful
niche opportunity. Art Krakauer, operations manager, said although
Giant sells most of its inventory as used parts, they do offer
some in-house rebuilt products.

Krakauer said to stay successful and remain in business, Giant
focuses on three different areas. “It’s all a matter of diversification.
We feel you don’t want to put all of your eggs in one basket.
That’s how a lot of small yards died out over the years.”
Krakauer said Giant’s first priority is to serve its customers
by operating as a salvage yard. “We buy salvage cars and
sell the parts and hopefully make a profit,” Krakauer said,
adding they specialize in vehicles with less than 40,000 miles
on them.

Secondly, with its nine service bays, Giant provides installation
service for used engines, used and rebuilt transmissions, and
other small used and rebuilt parts. And third, Giant specializes
in rebuilding radiators. “The radiator industry has changed
considerably over the years and many of the small radiator repair
shops have folded. We are still able to provide a good price,
and that’s why we’ve stayed competitive with manufacturers like
Modine,” Krakauer said. “We can buy what’s considered
junk and turn it into a good product. You could say rebuilding
radiators is our niche.”

But Krakauer said rebuilding products isn’t always profitable.
For several years, the salvage yard had a full-time transmission
rebuilder. But Krakauer said that business was just breaking even,
so the full time position was eliminated a few years back. “We
still rebuild transmissions, but now it’s only on an as need basis
or if the customer wants their original transmission,” he
said. “Normally if I have a good used one, we’ll just use
that.”

And Giant does on occasion rebuild and sell alternators and starters
– parts that they also offer as used. “Normally the customer
is looking for price. In a majority of cases for us, selling the
used part is more profitable than rebuilt; but there’s always
exceptions.” Krakauer said Giant, for example, may offer
a rebuilt alternator that carries a six-month parts warranty for
$65. Using the APD inventory system, however, he may find that
a competitor is offering the same alternator model used for $40.

“Price is the name of the game,” said Krakauer. “You
have to be aware of what it costs in new parts and labor to rebuild
a unit, as well as what it cost you to originally buy the unit.
When rebuilding, you obviously want to get your money out of it,
so sometimes it may not be worth it to rebuild. Normally it’s
the judgment of the rebuilder.”

Krakauer said Giant offers rebuilt lines because of how it markets
its products. “Our business is unique in that we sell 80%
to 90% of our parts retail,” Krakauer said, crediting the
fact that Giant has been located on a main city street since 1948
and that it does a lot of advertising focused on the DIY market.

But Frost said most salvage yards have not or do not plan to add
rebuilding to their services. Rather, many focus on selling wholesale
to rebuilders, body shops or core suppliers. “Most of the
salvage yards stay with the used parts. In general, there’s not
many salvage yards who sell rebuilt parts,” Frost said.

Frost said, adding installers and vehicle repairmen have grown
accustomed to buying rebuilt parts from jobbers and automotive
parts stores. “They (repairmen) can get any connectors, wires
and other items right there at the jobber store.”

Gary Ackerman, CEO for Star Auto Parts, Inc., Janesville, WI,
a salvage yard which also offers engine machine work, agreed.
“I don’t see more yards adding rebuilt parts to their inventory,”
Ackerman said, adding, offering rebuilt (small parts) lines to
sell with used parts doesn’t look promising either. “The
majority of yards already see the retail market as fading away
for ever. The cost of operations prohibits yards from successfully
marketing rebuilt parts. We don’t have the national image that
attracts retail customers. We are servicing different clients
for the most part,” Ackerman said.

Jim Bebesi, Jr., vice president of J and J Auto Wrecking, Inc.,
Marshallville, OH, said his three-generation, family-operated
salvage yard does not plan to offer rebuilt or remanufactured
parts. “We don’t get much requests for rebuilt or remanufactured
parts,” Bebesi said. “Some salvage yards may handle
rebuilt parts because it gives the vehicle repairman or installer
another option. For example, it may be a Friday afternoon and
the installer may be running against the clock to get a customer’s
car repaired. So if you don’t have the used unit, having a rebuilt
unit will usually just save the installer some time.”

Bebesi said because of its rural location about 25 miles south
of Akron, J and J sells only about 20% to DIYers. About 80% of
its parts are sold as wholesale to dealerships, installers, rebuilders
and core suppliers. J and J specializes in used parts from wrecked
late-model vehicles from 1988 to today. Bebesi said much of the
used parts, whether it be an engine, electrical part or transmission,
are in good enough condition to be sold as a replacement part.

But buying late model cars has both benefits and problems. Bebesi
said on the one hand, newer model body parts sell quickly to body
shops and dealerships.

But the used units like electrical parts are harder to sell to
repair shops or other customers because the parts may still be
under the vehicle manufacturer’s warranty.. “We will sell
these parts off to core suppliers,” said Bebesi. “Even
though we don’t make as much money as they’re worth, it’s a way
to keep them moving.” Bebesi said the core suppliers then
will hold onto these parts until there is a demand for them by
the small parts rebuilders.

Bebesi said parts prices are usually based on the availability
of new and rebuilt lines of the same product, as well as his competition’s
prices. Bebesi said when a repair shop or installer needs a late
model part and there is no new replacement parts available, he
is able to ask more for that part. Bebesi said he prefers to keep
at least five of each model type of part on hand. Once he acquires
more than five, he sells off the units that have been in stock
the longest to core suppliers.

Ackerman said wholesale salvage yards will continue to be the
norm. “As time passes, you will see less retail trade buying
from salvage yards,” Ackerman said. “‘Shade tree’
or ‘backyard mechanics’ will become like the dinosaurs because
they lack the knowledge, equipment and the skills necessary to
repair the cars that are manufactured today.”

“Selling of cores is still a profit center for yards and
I see more salvage yards moving to the wholesale environment.
Retail users have new sources like Auto Zone, Pep Boys O’Reilly,
Big A and others for their small parts needs of alternators, starters,
ECMs, power steering pumps, etc.,” Ackerman said.

Ackerman said as a recycler, he expects the overall number of
salvage yards to decline. “In the big picture, I see scrap
dealers with the least problem going into the future. They simply
need to keep up with what’s being used to manufacture a vehicle,
find out what’s recyclable, be resourceful and discover a market
to sell the product.” Ackerman said. “Only the well-organized,
well-financed and marketable salvage yards will go past the year
2000.”

Ackerman said manufacturers’ changes in design and materials also
will impact the recycler. “To make a prediction on how much
can be retrieved as resellable or coreable from the cars of tomorrow
is yet to be discovered. Only as new cars are produced, wrecked
and dismantled will we know,” he said.

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