Auto Recycling At A Glance: Full-Service vs Self-Service: and How We Serve Our Customers pt.1

In the auto recycling world, there are two primary customer-oriented business models: full-service and self-service. Both models perform the essential task of recycling end-of-life automobiles, removing old cars from the road, selling usable parts, and turning the rest into scrap metal. Automobiles are the most recycled product globally, with the automotive industry consistently ranking among the top 10 largest industries worldwide. Consequently, automotive recycling businesses play a crucial role in the global economy.

The Importance of Automotive Recycling

Approximately 40% of new steel is produced from recycled metal. Annually, automotive recyclers recycle more than 14 million tons of steel alone from processing end-of-life vehicles, equating to more than 13 million cars! While full-service and self-service operations may seem similar from a distance, there are important differences, starting with their revenue models.

Revenue Models: Full-Service vs. Self-Service

A full-service business is a low volume/high margin operation. They purchase a few late-model vehicles and make thousands of dollars on each one. In contrast, a self-service business buys many cars and makes a few hundred dollars on each. Both models generate revenue from selling parts and scrap, but the primary source of income for a full-service yard comes from parts sales. The self-service model, on the other hand, generates 66%-75% of its revenue from selling the metals from the vehicles.

Customer Base Differences

Another major difference between the two models is the customer base. The late-model/full-service business primarily serves as a wholesale business, selling to body shops and repair shops that perform insurance company repairs. Conversely, the self-service business exclusively sells at retail. If another business wants to buy parts, they must pull them themselves and pay the same price as a regular customer. Retail customers are also more willing to buy more parts off the vehicles and accept used parts.

Economic Influences

The self-service business relies on an ever-changing global metals market. When the main source of income depends on the world economy, you pay more attention to global market trends. However, relying on a business customer to buy parts as a source of income is arguably less reliable than the global scrap markets. While the price of steel may fluctuate, it will always have value.

Maximizing Profits in Self-Service

The secret to making money in the self-service business is to avoid crushing the ZORBA. Zorba refers to the non-ferrous scrap generated from shredding automobiles, mostly aluminum and copper. Crushed cars are priced at about $0.10 per pound, whereas aluminum is closer to $0.60 per pound and copper is around $2.00 per pound. We never leave all the non-ferrous metals in the cars when they get crushed because that would mean giving away hundreds of dollars per car. If recyclers can efficiently pull out, process, and package all the non-ferrous metals, they can be sold on the global market, significantly boosting profits.

Conclusion

Mastering the art of harvesting non-ferrous metals from crushed cars results in making more money than the purchase price of the car, purely from the scrap. This means turning a profit on each vehicle, regardless of its condition. Any parts that your retail customer buys go straight to the bottom line. Ultimately, it’s about getting the cars in and extracting the metals. Sounds easy, right?

By understanding the distinct differences and advantages of full-service and self-service auto recycling models, you can make informed decisions that best serve your business and customers.

Next Steps

If you're considering transitioning from a full-service to a self-service model, stay tuned for our next article where we explore the benefits and strategies for making this shift. In the meantime, if you’re interested in seeing how YardSmart can support your transition and enhance your operations, schedule a demo with us today. Discover how a robust online end-to-end software solution can streamline your processes and boost profitability.