If you love cars and tinkering an auto junkyard might be the best business for you to start. The auto salvage yard business are not quite as popular as the used to be. While they do promote recycling and sustainability, they can be hard to turn a profit and they require some good inventory and real estate. With popular shows like Rust Valley Explorers more car enthusiasts have been interested in what it takes to open an auto junk yard business. While I have never done this myself, I have visited and spoke with many salvage yard owners and did extensive research on what it takes.
So what does it take to start an auto salvage yard business?…first let’s establish the basics of what the business does.
Basic Auto Salvage Yard – How it Operates…
Auto salvage yards deal in decommissioned vehicles from individuals, insurance companies, businesses, and government entities. The salvage yard is kind of like a temporary storage facility that holds the vehicle before it is scrapped. The general idea is that a vehicle has it’s parts stripped and sold and once it is extracted of all it’s value, what remains gets sold for scrap metal.
Now that we have established a baseline of what this business is, let’s see if it is the right fit for you…
How to Start an Auto Salvage Business
First You Need a Plan…
Without getting caught up in the “How to Start a Business” legal part of it, we are going to focus on the basics. If you were considering starting an auto salvage what do you need to consider. How would you plan that out? Well just like any other business by answering some basic questions:
- How much are my startup and recurring costs?
- Who is my target customer?
- How much money can I make?
- Where Do I Get Inventory From?
As an entrepreneur having a clear plan is essential to setting up this style of business. Some of these questions will be easy answer and others you may be searching for answers along the way.
I have started answering many of these for you to help you plan this out and get your brain thinking…
What are the Costs of Starting an Auto Salvage Yard Business?
After talking to many salvage yard owners, you may be surprised to find out many started with very minimal start up capital.
Property is The Biggest Challenge…
The most expense part is getting a few acres of land. There is a catch though…not just any plot land will do. A salvage yard is a business and needs to be on land that is commercially zoned. One more catch your land must be Environmental Protection Agency (EPA) approved as well. You can’t have a junkyard without EPA approval.
Why the EPA approval is Needed for Property:
Auto salvages have to work with hazardous materials and they need to to know how you could potentially pollute the ground water, soil, and local eco system.
When your land is established in a commercially zoned area, there are certain expenses you will need. Some states will actual require some of these items below:
- Fencing – This establishes your perimeter and will help prevent people from stealing parts from you.
- Security – Motion detectors and cameras to prevent theft in off hours. Some yards still use a dog.
- Shop, Garage or Warehouse – You need a place for dismantling vehicles. When vehicles come into your business you can’t just put them out. You need to drain fluids and strip parts the corrode quickly so that you can sell them at their best quality. Your building should have enough ventilation and be able to have enough room to store parts and separate recycling. Ideally you want enough space for an administrative office as well.
- Equipment – Some of the equipment you will need is tools, a car lift, an engine lift, forklift, and a car crusher. Might as be worth is to have a good yard truck as well for hauling parts around.
- Equipment for customers – A few wheel barrels, some spare tools, straps, etc…
- Business Office Equipment – A computer preferably with an inventory management, customer management, and finance software installed.
Costs of Initial Inventory
Getting your inventory together is the next step. Some of the best auto yard owners say they only spent $2,500 on start-up inventory. You can try finding vehicles on Craigslist, Ebay or other salvages. The best place in my opinion is salvage auctions, where you can try and bid on “lots” of vehicles. Here is where you can find good repo and police auctions.
What are the Recurring Costs?
Without question your largest costs will be around the salvaging process. Purchasing decommissioned vehicles, disassembling them, recycling liquids, and all the labor associated with those tasks. Other recurring costs will be taxes, insurance (which you need plenty of), marketing expenses, and other general administrative costs for office work.
Who is the Target Customer?
Your target customer is anyone who is looking for cheap auto parts as an alternative to fix their vehicle. For this you really need to conduct market research and it will vary based on the area you are in. There are many opportunities for marketing to mechanics, construction companies, used car dealerships, as well as the local community.
How Does an Auto Salvage Yard Business Make Money?
An auto salvage works like a buyer and a reseller. The idea is to buy a decommissioned for cheap and then sell off the parts in pieces for a profit. A successful auto salvage owner MUST be able to properly assess the value of a junked vehicle. Knowing things like how much the vehicle is worth in scrap metal and what specific parts sell for on the second hand market will serve you well. If you can not assess a junked car for it’s potential value, it will be hard to turn a profit. It is critical to get vehicles for the lowest possible cost because you need to cover your overhead like facility and labor costs.
One thing some salvos do really well is flip cars. They bring in a car with a salvage title, fix it up, and then sell it with a rebuilt title or sell it auction. Some of vehicles that insurance companies deem as totaled are not beyond repair. This creates a great opportunity for profit.
How Much Can You Sell Parts For?
You certainly can’t sell parts for the same price as new parts. Typically used auto parts go for well below the cost of new. You can look here to see how some auto parts places near me charge. Prices will vary be region, condition, and of course demand. When you figure out what to charge, you need to consider your operating expenses in your decision.
If you run a specialized junkyard, like one that specializes in Jeeps or farm equipment, you may be able to increase prices as you serve a particular niche audience.
How Profitable are Automobile Salvages?
This is hard to estimate being that size of yards vary and location and region impact profitability. Folks I have spoken with have told me anywhere from a few thousand dollars a month profit for a small yard to six figures for a large one.
Thinking Outside the Yard…How to Increase Profits
The most successful yards do two things: They have a website with their inventory and they sell parts online. Now even if you don’t have a website you can sell parts on eBay Motors. Other best practices are knowing how to get paid for things other then parts. For example the most successful yards sell the vehicles for scrap metal once they are stripped off parts. They may even strip non-ferrous metals, like lead, copper, aluminum, and brass and sell those metals.
One of the best tips I was given was that a savvy salvage yard holds their scrap metal and watches the market. They store metals and watch the daily prices and wait until they can get the best profit for their metals. If the prices are low, they stockpile, but if high they unload it all.
Other Advice for Starting an Automobile Salvage
In the beginning it may be ok for you to be the mechanic, administrator, yard organizer, etc…but to scale you need people. Find people who know about cars, even if they don’t how to dismantle one. It saves you the explaining of how to organize parts and it will be better for your customers.
Develop Your Parts Organization Structure Early
When parts start accumulating it can get out of hand quickly. Decide right from the beginning how you will organize your parts and stick to it. So many yards are poorly run because they don’t follow a system. Ideally you want a system in place that makes it easy to label and store parts for fast picking later. The best run yards use a computer system to tag, label, and log their parts.
Establish Partnerships With Companies That Purchase Scrap
Having relationships with scrap yard buyers will help you move scrap metal faster when you have too much on hand. You don’t want to wait until you have to sell scrap metal to then go and find a buyer. Establishing an exclusive partnership for a certain supply could also yield you a higher return.
Crush Your Own Cars
When a car is stripped down to the frame it needs to be crushed. By crushing the cars yourself and stacking them you can make more room on your lot for new inventory. These machines can be really expensive, but you can always buy one used to start out. You may also want to consider a crane so you can move the cars around a lot easier.
Start an Auto Salvage Yard Business – Final Thoughts
Starting an auto salvage can be pretty daunting. There is alot that goes into starting it from the ground up. The other option you may consider is buying a yard that is for sale. This way you start with property, inventory, assets, a garage, etc.