Let's start off with our stand on government getting involved in "helping" businesses. I'm sorry to say that I have never seen a government do anything efficiently! Someone told me they are good at spending our money and I still defy you to find one thing they do efficiently. The government has no business getting involved in business. Most of the people in government have never signed the front of a paycheck and have no clue what is involved in running a business. To my knowledge, every program they have ever got involved in has created is a larger problem or they disrupt some other part of our economy. We all laugh at the comment "Hi, I'm from the government and I'm here to help you" because we know what a sad joke that is.
Ok, on to the issue at hand. If you run a full service recycling business, did you get in on the Clunker rage last fall? You know that deal where taxpayers subsidized people who were willing to get rid of a paid-for asset and go in debt for something they already had, which was a running vehicle. You know that program that cost the U.S. tax payers over $40,000 per vehicle. If you run a full service recycling business and wonder if you missed out by not jumping in on this deal, be at peace, you made the right decision. If metal had not gone up recently, it would have put a lot of recyclers out of business and it still may be the beginning of the whirlpool for others.
If you are wondering why I'm writing about something that has already happened, then be advised that the administration is thinking about doing this again! Therefore, I would like to see recyclers have a plan if this comes our way in the future.
Oh, it wasn't bad for all full service recyclers, especially, if you did not buy them. We've heard from several non-participants who appreciate that it kept their competitors so distracted for a couple months that they were not buying vehicles. These people's profits actually went up because of this program, simply because they did not participate.
Let's start with the fact that almost no planning went into the recycler's decision to take the vehicles. I believe most recyclers thought they were going to get something cheap and make huge profits. Yes, I've heard the argument that we would have been ok if congress had stopped with the first billion in wasted dollars, but when they made it 3 billion it was too much for us to handle. Still, I have yet to find a recycler who had a detailed business plan for dealing with the first wave. We believe most recyclers just ran out there and said, "I'll take them, I'll take them". In many markets recyclers were bidding against each other to get them. Shoot, if we're going to jump into unknown waters, let's jump from a high place!
Ok, let's run thru the issues and comments we have heard from recyclers so far.
We got too many:
Yes, we got too many, but the FIRST round was probably more than we needed. When congress decided to compound their mistake most recyclers should have stopped taking on more vehicles.
Keep in mind that anytime you suddenly take that many vehicles out of the market you upset the balance of supply and demand. The supply of parts went up very fast at the same time we were taking the very vehicles off the street that would need those parts. It flooded the market with parts that were previously hard to buy. So many parts hit the market that some lost ½ their value and some were so abundant they are no longer sellable.
It disrupted the normal flow of our business:
This was one of the worst problems that Clunkers created. Recyclers were paying overtime to handle vehicles which did not have our number one dollar producing part type, the engine. Many hired extra employees, and had extra. I actually saw what was normally the full-time buyer driving a fork lift. People were renting land to store these vehicles. Did I mention all this was going on to process a vehicle that did not have our top dollar producing part on it? Our expenses were going thru the roof at the same time the dollars of sellable parts was going down.
They cost too much:
The vehicles cost what YOU agreed to pay. For most full service recyclers they would not have produced a profit, even if they had received them free because the cost to process them exceeded the sales they produced.
They changed our product line suddenly and changed our customer base:
Clunkers lowered the average full service recycler's average year of vehicle which cause them to stop focusing on their core customers. They overwhelmed our systems so we had to stop buying the very product our regular customers depended on us to supply. Remember, when you get the call for a part and you say "no I don't have it" you are telling the customer to go find someone who does. Now you have to work hard to get the very market back that you had before clunkers.
They disrupted our ability to buy:
The influx of vehicles caused recyclers to stop whatever they normally did everyday and focus on the clunkers. This made it very difficult to buy the inventory that was needed to supply our normal customers. Also, our systems and warehouse became saturated with parts that were losing value because of oversupply. This makes it almost impossible to buy the engines we need and which produce more dollars of sales than any other part because we don't need the other parts on the vehicles that have the good engines.
Was the clunkers program good for anyone? Yes, most of the self-service part of our industry did, in fact, come out quite well since the price of metal jumped up about the same time they had to crush them. However, many self service recyclers incurred a lot of extra expenses and needed to be able to process the vehicles over a longer period of time. I still think it's was risky for them since the metal market could have gone down instead of up.
The bottom line is the bottom line. Most of the later model full service recyclers experienced reduced profits if they handled clunkers. (We define a late model recycler as one who processes vehicles with an average year of 2000 or higher)
In business as in the rest of life, hasty decisions are usually bad decisions. It wasn't the price of the clunkers that made the program bad for us, it was the volume in a such a short period of time and the fact that we could not sell the engines. The Canadians have a much less disruptive program called "retire your ride" which is spread out over a year and the vehicles cost about $50 delivered. Even with a low cost and the vehicles spread over a year the late model recyclers up north are still losing money processing them. Why, same reason we had, they can't sell the engine.
So, how could we handle them at a profit? For full service recyclers the answer appears to be "don't handle them". The self service businesses appear to have made good money on the vehicles provided they did not take too many. Even they could have been adversely impacted if the crush and scrap dollars had dropped suddenly.
It all gets back to the same issue I brought up at the beginning of the article. The government is not the solution, they are the problem.
Jim Counts
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