COVID - What We've Learned, and What Happens Next.

With COVID still in full swing and mutating into different forms, auto recyclers across the world are adjusting to a new paradigm. COVID has brought with it both challenges and opportunities for auto recyclers. In this interview with Chris Daglis of Auto PARTnered Solutions, a globally recognised consultant to the automotive industry and second-generation automotive recycler himself, we will look at what these changes have meant for auto recyclers around the world.

Q: Chris, your consulting work spans Australia, New Zealand, the UK and the USA. How have you seen COVID impact the industry in each region?

A: COVID has impacted auto recycling in different ways depending on the region. In Australia and New Zealand, there are some auto recyclers facing tough times, while others are recording record growth. The auto recycling industry in the UK has felt a lot of pressure from COVID, as they were in a very heavy lockdown for a good part of late 2020 and early 2021. Collision repair claims, for example were down by >60% in the UK as people were simply not driving. While auto recyclers in the USA have been able to adapt and grow their businesses.

Q: What are you seeing in your interactions with auto recyclers where COVID brought a silver lining?

A: There's no denying that there is a lot of uncertainty right now in regions where there has been a hard lock-down approach to dealing with COVID. Examples of this are my home state of Victoria and more recently NSW, but we've seen a lot of people come together and collaborate to make the industry work better. This attitude has been really refreshing to see after COVID became 'real'.

Q: Why has COVID impacted the hard lock-down regions more than others like the USA?

A: COVID has been a challenge for auto recyclers in the UK and Australia, with many stakeholders feeling like they are in limbo. In these regions, auto recycling businesses have often felt the need to be more conservative than aggressive, whereas auto recyclers in the USA have had some time to build up their defences against COVID.

The fact that the USA has remained open to business has led to a 'business as usual' approach there. Yes, salvage inflation has been clearly evident and as a result has posed challenges to their Cost of Goods. At the end of the day, if you pay more for inventory, and you forget to adjust your part pricing then your bottom line will shrink. We have seen this in the numbers of many of our exactstats clients. We drill down into the detail of their numbers and it is clear that they have not adapted, but luckily, we are able to fix this with them.

In the UK, Australia and New Zealand though, hard lockdown has been really tough for some - less cars on the road, less servicing, less need for replacement parts, less accidents... and auto recyclers have been in a stop-start, on-off trading environment for a year and a half now. This is the nature of COVID, it requires you to adjust in order to survive!

Q: What are the plusses and challenges of handling business post-COVID for auto recyclers you interact with?

A: The auto recycling industry is changing, but we must remember what made auto recycling successful in the first place. It's all about logistics - being able to handle a wide range of parts and types at a price point that is attractive to the consumer. I think it is important to remember that the recycled part is genuine, it is produced by the vehicle manufacturer, it has incredible environmental benefits if used instead of producing a new part and is super cost effective in most cases.

The auto recycler needs to have a robust business model that makes sense in today's environment. It helps if they're vertically integrated, but the market is so competitive that it's not always enough just to be good at one thing - you need more than one string to your bow.

Let me be specific here and focus on online sales. COVID has fast tracked this sales channel which is quickly becoming one of the fastest growing channels available to sellers. I consult to eBay UK who are driving aggressively into the B2B market with their eBay for business Green Parts strategy. eBay sales growth in the past 12 months has been well above standard. What is interesting about this, though, is that auto recyclers are only a small part of the market - it's clear to see why eBay UK are investing heavily in this segment.

Q: You mention that some recyclers though have done very well during COVID? What has driven this progress for them?

A: COVID has made auto recyclers more aware of their cost base, and the importance of planning for future risk. It is not enough to just react to what happens in today's market - you need a solid plan that will see your business thrive for years into the future.

The recyclers that have found a 'silver lining' in these challenging times had planned well. Call it luck or good strategic planning, their systems and process were such that they could adapt quickly to the changing models they needed to pivot to. In fact, you could say the situation played into their hands.

For example, those that had a strong online presence, that is, those that had good eBay stores, that had their products listed there with excellent feedback scores, were able to provide a click and collect service even in the eyes of a hard lock-down. I have some clients whose eBay sales have doubled and now makes up a good proportion (>50%) of total sales.

Others were not so lucky: they either didn't have the know-how or systems in place or the ability to react quickly enough. It takes time to build your online presence, so saying I will start listing product onto eBay and just sell parts there, let's face it, it just doesn't work that way. The investment to return equation is not linear, rather it is quite a hockey stick deal. So those that had done the hard yards, that had invested, that did have all the foundations in place, they experienced the hockey stick growth.

Q: Chris, what is your prediction for the future opportunities available to the auto recycling industry?

A: Well auto recyclers are really well placed. It's difficult when you're dealing with all these changes and the uncertainty that comes in a COVID world. But funnily enough, therein lies the 'secret sauce' as I like to call it.

Don't get me wrong, I am in no way trivialising the devastation COVID has had on millions of people and their families around the world - I feel for them and would not wish this pain and suffering on anyone.

But let's talk a little about the 'secret sauce' and its ingredients - change, uncertainty and economic vulnerability in the broader community.

1. Change - most people DO NOT LIKE CHANGE. It scares them, which is why we have sayings like 'better the devil you know than the devil you don't' or 'a bird in the hand is better than two in the tree.' So people are trying to create some normality in their lives and for things to stay as much as possible the same as they have always been.

2. Uncertainty - change breeds uncertainty and when we feel this way, we are very cautious. This means that we probably will not go out and spend money on new cars, a holiday, or expensive toys just, in case things get worse.

3. Economic Vulnerability - when we feel that our livelihood could be affected or even taken from us, we become very conservative. Big spending usually retracts, and we try to do with as little as possible so that we keep something in the bank 'for a rainy day'.

So, all that said, this is, one could argue, the perfect storm for a very strong level of demand for the automotive recycling industry for some time to come. You see, every time we encounter economic or social uncertainty, people keep their cars longer and that in turn leads to more maintenance and the need to more affordable parts.

Q: Are there any specific markets that you see auto recyclers can grow into?

A: I have been a strong advocate for the supply of recycled parts into the collision repair industry for a very long time. The insurers I work with today all have commercial, quality, key to key and environmental objectives, so in this context, they really need a strong supply chain of quality recycled parts.

Again, I will reference the eBay for business Green Parts program I have been consulting on in the UK. We have been working very closely with all top 5 insurance brands in that market. All are looking for a high quality, independently certified supply chain to work with. Repair costs are increasing, labour, as you know, is not getting any cheaper, parts costs are increasing, parts availability is deteriorating so affecting repair cycle times and repair costs which in turn are leading to less satisfied policyholders. As I have stated in a blog post over a year ago, insurers and collision repairers are looking for a solution, so if I were to pinpoint just one segment that auto recyclers should be focussing on, then the collision repair segment is undoubtedly the one!

There is a need and a willingness. Auto recyclers now need to provide a viable solution to that growing need for high quality genuine parts.

Q: What advice would you give to those that are faced with uncertainty?

A: Well, the first thing I would say is, if you do not already have one, have a plan. This means you will need to invest in the future by 'working on your business, NOT in your business'. Time is not only scarce, but also finite. We cannot make any more of it, so the time you do have available at work should be spent strategically rather than operationally. At APS we always ask ourselves when building a new product or service, will this help our customer 'save time and make more money'? If the answer is yes, then there will be demand for it because it adds value. All our products and services do just this, so you too should be asking the same question of your activity.

Q: What are the plusses and challenges of handling business post-COVID for the recyclers you interact with?

A: Well, to be clear I am not an expert on COVID. What I do know is that uncertainty breeds uncertainty which leads to economic vulnerability. Given this scenario it would seem logical that there will soon be a correction of sorts. But remember, while there is uncertainty in the broader community, automotive recyclers should be looking at the opportunities this presents to them. The auto recycling industry bucks the trend, it is counter-intuitive in this sense.

Q: So how do you respond to this? Do recyclers look to mitigate their risk by maybe slowing down on their buying, or laying a few people off just in case something goes wrong (like many companies are doing out there)?

A: NO! This is the time to be investing in inventory. It is the time to be investing in systems, your people, your processes. It is a time to make sure that your parts are visible to everyone because, as stated earlier, your parts are and will be in higher demand than ever before.

Q: Chris, in conclusion, what happens next?

A: COVID is mutating and looks like it will have a long tail. This is apparent everywhere and it will be interesting to see what happens next, but one thing I am certain about are the opportunities for those who remain committed to their customers' needs and to investing in their automotive recycling business.

Those that are smart about it, those that build for the future, those that think differently, embrace change and the uncertainty it brings with it, will find that the next five years may well be the most profitable they have seen in a very long time.

• Article first appeared in ARA Automotive Recycling Magazine 2021.