Janesville54.6°

Automobile recycling business has changed dramatically

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JAMES P. LEUTE
November 10, 2007
— As Gary Ackerman approaches through a hallway at LKQ Star Auto Parts, there’s no confusing him with Redd Foxx, who played the role of Fred Sanford in the 1970s sitcom “Sanford and Son.”

And there’s certainly no confusing the multimillion-dollar automotive recycling business that Ackerman runs on Janesville’s south side with the junkyard Sanford and his son labored over in Los Angeles.


Parts still may be parts, but the process of getting them from one user to another is radically different.


Founded in 1973, Star Auto Parts started with a handful of employees and a couple of acres of land. In 1998, Ackerman sold the company to LKQ, the nation’s largest provider of aftermarket collision replacement products and recycled and refurbished products from original equipment manufacturers.


The publicly traded LKQ operates nearly 300 facilities serving tens of thousands of collision-repair businesses, mechanical service shops and vehicle dealerships in the United States and Canada.


Instead of LKQ acquiring Star, Ackerman prefers to think of the 1998 sale as him buying into a company that would ensure a long-term future for his employees in Janesville.


“I hated to sell the business, but this was a great way to keep it going for our people,” he said. “It was a good deal for us, and our employees are better off.”


In addition to its massive inventory, LKQ has a customer base that includes a huge network of collision-repair businesses and the insurance companies who send customers their way.


“I really couldn’t market nationally, and when you dismantle a car and sell the parts, you need a presence in every market,” said Ackerman, an LKQ regional vice president with responsibilities for nine Midwest facilities.


“Now we can leverage our inventory and distribution.”


These days, that inventory and distribution are controlled heavily by technology.


With $25 billion in annual sales, auto recycling has evolved into a sophisticated market and technology-driven industry that constantly changes to keep up with innovations, not only in how vehicles are assembled, but also in how vehicles are disassembled for the recycling markets.


Instead of just crushing wrecked, abandoned and mechanically disabled vehicles, facilities such as LKQ Star have an operational scheme that maximizes the vehicle’s true market value.


That starts in regional auction lots, where LKQ buyers will input a car’s good parts into a handheld computer. Those parts instantly are matched to LKQ’s inventories of similar parts, and the buyer can place a bid that makes sense to the company.


“As an independent, there was no way I could physically adjust prices every day,” Ackerman said. “The new system helps us tremendously on pricing.”


Trucks roll into LKQ Star every day, and employees get to work inventorying, dismantling, storing and shipping parts. That driver’s side door from the a Chevy Cobalt that was bought at an Ohio auction yesterday could be on its way to a body shop in La Crosse today.


Two years ago, LKQ Star built a new warehouse and made other improvements at its Beloit Avenue property to store more parts inside and improve product flow. The company has nearly 70 employees in Janesville, with another 300 or so under Ackerman’s watch around the Midwest.


The company is working to develop its own computer systems to better control inventory, shipping and invoicing. Just-in-time delivery to customers, which often means overnight, is guiding the transformation.


“Our technology sucks,” Ackerman said. “There are only two or three systems out there. They’re best for the independents with one, two or three facilities.


“The system doesn’t let us control what we want to control, so we’re building our own.”


In a blockbuster deal earlier this month, LKQ bought Keystone Automotive Industries, which had been the nation’s largest supplier of aftermarket products. Analysts said the Keystone acquisition is a perfect complement to LKQ’s top spot in the recycled parts marketplace.


The deal pushed LKQ’s market capitalization over the $2 billion mark and positioned it solidly as the go-to company for both recycled and aftermarket parts.


“Insurance companies these days are in somewhat of a pinch,” Ackerman said. “They need to save money, and they can do that with recycled and aftermarket parts.


“The last thing they want to spend money on is that original equipment, genuine GM replacement part. We’ve positioned ourselves for the total alternative market, and the trends seem to be working in our favor.”



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