Resurrecting Auto Graveyards
You don't have one of those yards," asks Barry Isenberg, scanning his audience, "where you can't tell the yardman from the dog?" The room ripples with laughter. Isenberg leans forward, cocks his head, and screws his eyebrows into twin question marks that echo: "You do?" A second wave of guffaws enlivens the group.
Timing. Barry Isenberg, the messiah of the automobile salvage industry, knows the importance of timing. It sparks not only his jokes, it also sparked his career, and it will no doubt trigger his ambitious entrepreneurial plans for the near future.
For now, Isenberg asks for a show of hands. He stands at the base of a U-shaped conference table at the front of a meeting room at Harrah's Marine Hotel Casino in Atlantic City. To his right and left sit a dozen or so owners and managers of auto salvage yards. Many are from nearby in New Jersey, a few are from Pennsylvania and New York. Isenberg, a Californian, is wearing a short-sleeved, V-neck pullover with a prominent zig-zag pattern. A gold chain glistens around his neck. His thick brown hair is parted on the right and sweeps boyishly down across his forehead almost to his left eye. He looks a good 10 years younger than his age, which is 41, and when he smiles, he subtracts another eouple of years. He is just about to smile.
"How many of you have installed inventory systems like you quit smoking?" Isenberg inquires. His smile is knowing -- and contagious. Slowly, the hands go up, as, one by one, most of the salvage operators attending his three-day seminar sheepishly admit their inability to control the very heart of their businesses. Of such admissions Isenberg has carved out an opportunistic, hard-earned, and lucrative career as the premier consultant to a sleeping giant of an industry -- the $4 billion-a-year business of automobile salvage.
Not so long ago, only grease monkeys and the most ardent do-it-yourselfers visited auto graveyards in search of used parts for their cars. Little wonder: Junkyards were foreboding places, piled high with rusty hulks, awash in mud and dirt, and, more often than not, patrolled by a snarling dog. Business practices were nearly as grim. Chances are, the inventory system lay between a yard owner's ears: "I think she's out past that there puddle almost to the big stump." Customers often pulled their own parts -- and were as likely to pocket a few as they were to destroy others. Proprietors picked prices out of thin air, then jammed their take into the closest thing they had to a cash register -- a grimy back pocket. About the only available warranty was the standard 50/50 job: 50 feet or 50 seconds, whichever came first.
In recent years, several thousand of the nation's approximately 12,000 junkyards have been reborn as dismantling and recycling centers. The name change is no hollow euphemism. A new breed of auto salvage operators is indeed changing the way America buries its cars: Most salvable parts are no longer "stored" by inertia on wrecks littering the yard. Instead, in indoor bays, workers promptly remove them, clean them, test them, in some cases paint them, and then arrange them systematically. In a growing number of progressive yards, computers keep track of inventory. Call a progressive yard, and you may hear music while the counterman puts you on hold; quite a change from the old dropped phone and ear-piercing scream: "Harry, you seen any alternators for a '76 Mustang?" Visit a progressive recycler and you will probably step into a clean, well-lighted, and perhaps air-conditioned showroom marked by colorful displays, posted prices, and notification, typically, of 30or G0or 90-day warranties on most parts.
A handful of pioneers were quietly pursuing some of these advances in the 1960s, as were many state associations and the national trade organization. The Automotive Dismantlers and Recyclers Association (ADRA) has played a considerable role. But the most important catalyst unquestionably has been Barry Isenberg.
"The man is excellent," says Bill Ellis, owner of Southern Nevada Auto Parts, of Henderson, Nev., a $5 million-a-year business. "He's brought recyclers out of the Dark Ages." Although some criticism shadows his 12-year career as a consultant, Isenberg is widely recognized as the single person most responsible for modernizing perhaps the last major backward industry in America.
Ironically, his influence began quite by accident. There came first a timely telephone cnll. When the phone rang in October 1968 in the San Francisco offices of Price Waterhouse & Co., high in the Bank of America building, Barry Isenberg was the only available consultant. Then 26, Isenberg was a senior management consultant and head of the firm's industrial-engineering department in the San Francisco area. The caller introduced himself as the executive director of the National Auto and Truck Wreckers Association (an ADRA antecedent) and announced that he wanted someone to speak for three hours at a workshop.
Isenberg took on the assignment. Considering it pretty standard stuff, he placed the requisite call to the Price Waterhouse library in New York and made his request: cost-control material for auto wreckers, enough for a three-hour presentation. Similar requests for other industries typically brought boxes of materials -- old speeches to crib from, slides for illustration, and reams of documentation. So Isenberg turned to other projects and waited for the standard avalanche of reference material. He received instead a telephone call from the partner in charge of the library who said that, for the first time in 20 years, he had "struck out." Neither the firm's huge business library nor even the New York Public Library had any listings for auto wrecking or any similar heading. His parting words to Isenberg: "Sorry, kid, you're on your own."
Fortunately, Isenberg had at least brushed with the industry before. As a young boy he had visited a number of northern California junkyards, accompanying his father, who was a "core buyer" based in Oakland. As such, the elder Isenberg scoured local salvage yards for such parts as alternators, carburetors, brake shoes, and transmissions, that could be wholesaled in bulk to parts-rebuilding companies. Isenberg can vividly recall riding with his father and, with a grimace, the chore of carrying generators, which always smeared the front of his shirt with grease. "I remember being appalled by the yards," Isenberg says. "They were totally disorganized. Everything was eash, there were no receipts. Money went straight into the owner's pocket, and, if somebody suddenly made a big sale that made his week, he would knock off for the rest of the day and get drunk." He came to know, too, that most owners were not crooks; they were just swamped, in some cases literally, by their own inefficiencies. And he also came to know much of the vocabulary of the salvage business. So years later, Isenberg might have been "on his own," but he had at least a walking start on his research.
There was another factor in his favor. Isenberg has always been known as an instant expert. In fact, that was his nickname at Price Waterhouse, he says. It wus also his modus operandi in school: At California Polytechnic State University in San Luis Obispo, where he received a BS in engineering; at California State University in San Jose, where he studied beyond a masters degree in Western philosophy; and at the University of Santa Clara, where he received his MBA. Many times, he recalls with a mischievous grin, his textbook would impart an audible crack when he perused it on the way to an exam.
With his speaking date fast approaching, Isenberg rustled up a few familial connections with the auto salvage industry and toured a couple of yards. He applied to what he gleaned standard management principles and cost-cutting strategies and fleshed out a three-hour presentation. He arrived early to the day-long program and took a seat in the audience among hundreds of auto wreckers. He wanted to listen -- and learn -- from speakers scheduled before him. Isenberg was particulurly impressed by the trade association's Washington lawyer, a well-spoken man in a three-piece suit who looked impressive behind the lectern and gave an authoritative talk on warranties. Glancing up from his note pad, Isenberg happened to look around him. Except for a couple of yard owners who were doodling, he was the only person with a pen in his hand. Everybody else was bored silly, he realized.
Isenberg felt a wave of fear grip him. He considered his own talk: authoritative and a bit stuffy. And he looked down at his three-piece suit. He made a snap decision. He darted upstairs to his hotel room and changed out of his suit and into the garb of his listeners -- casual pants and an openneck shirt. He scrapped many of his notecards and reworked a much more casual approach. Minutes later, when he was introduced, he stepped out in front of the lectern and spoke without a microphone. Occasionally, he let fly with n "bit of coarse language," and he made knowing references to some of the indelicacies of running a cash business. People sat up and listened. Afterwards, a number of yard owners told Isenberg he was the first person who seemed to understand their business.
"That really started me thinking," Isenberg recalls. "Here was a major industry no one was interested in. There wasn't anything published on it. The trade association had only about 175 members nationwide. It was a true orphan industry. A real goldmine."
Two years later, Isenberg left his $40,000-a-year job at Price Waterhouse and his view of the bay, and set up a one-man consulting shop in the guest house behind his home. The first year he didn't even clear $1,000 and reached a low point one evening in Pittsburgh -- his credit cards spent to the limit and only $5 in his pocket -- when he had to close a seminar by asking the roomful of auto salvage operators if anybody was headed near the airport. But he never despaired. "I've got a Pollyanna-like attitude," he says. "Sometimes it's to my detriment, but I can't believe anything I do won't be successful."
Success came on the fly. Isenberg jumped in boldly, drafting flashy brochures and headlines for seminar topics. "Things your CPA won't tell you," he plugged. "Practical money-making ideas. " Then he would do the legwork to back such claims. He traveled incessantly, seeking out the most progressive yards in the country, noting what worked for them, and adding his own thoughts. Sometimes he would conduct as many as three seminars in as many cities in one weekend. He was a "regular" at the snack counter at O'Hare International Airport's United Airlines terminal. And he pre-sorted his seminar slides by holding them up to the scanty light offered by airplane windows.
"I spent two years killing myself," he says. "Then one morning I woke up overcome with euphoria. It felt like I was floating over the bed. Suddenly, it dawned on me: I'll never work for anybody again. I can make it on my own. I'll never have to take a paycheck. I can live on my wits."
Over the years, Isenberg says, probably 4,000 industry companies have been represented at his various one-day and three-day seminars. He boasts a reenlistment of 50%. His business has expanded to Canada, Mexico, and overseas to Europe, Scandinavia, Australia, and New Zealand. His training materials include a 31-volume cassette course ($39.95 per volume), and he says he has shipped "tens of thousands" of three-cassette volumes. At upwards of $125 an hour, he consults with individual recycling companies. Finally, his corporation, Isenberg Associates Inc., of Cupertino, Calif., has brought some 400 yards into the computer age. As with many of Isenberg's operations, the marriage is symbiotic: Salvage operators, for a fee, receive detailed inventory and accounting data; and Isenberg, at no charge, receives vital nationwide statistical data that buttress his seminars and enlighten and guide his forthcoming schemes. All told, Isenberg reports, his company grosses "in the low seven figures."
Beyond financial success and the gratification of "living on his wits" as his own boss, Isenberg takes considerable pride in the extent of his influence. "It's a source of satisfaction for me. I have had a major impact on a major industry. Because of me, literally thousands of buildings have been built and millions of people have parts that weren't available to them before," he says.
Few recyclers or knowledgeable industry observers dispute this. "I went to one of Barry's first seminars and we all laughed at him," recalls Don Beagell, owner of Don's Auto Parts in Binghamton, N.Y. "His concepts were so far in advance of our thinking as junkyard operators. He was telling us we would pre-dismantle all cars, that we would store the dismantled parts indoors, and that we would actually merchandise them. Of course that is exactly what happened." Jim Seamans, a former yard owner and now owner of Recyclers' Supplies & Services, of Cape Coral, Fla., puts a finer point on the praise: "No one has done more to revitalize the recycling industry in the last 10 years than Barry Isenberg." Russ McKinnon, ADRA's executive vice-president, agrees.
There is not, however, unanimous acclaim for Isenberg. Some recyclers, especially the more independent types in a notoriously self-reliant industry, still brand him an outsider. Some carp that all he really did was steal the best ideas from the sharpest yard owners and spread them around. Others feel his presentations have gone a bit stale lately, that the industry needs fresh ideas. Notes Don Rouse, of AIM Systems Inc., of Jenison, Mich., the developer of a widely used inventory control system: "Overall, Barry Isenberg has helped the industry tremendously. But some consider him a bit eontroversial. I'm not sure what it is. Maybe his personality." Detailing his business operations, Isenberg has been known to boast that his favorite way of providing references is to tell somebody to "open up a telephone book and call 10 people." (A test, by the way, using auto salvage listings in 10 bigcity phone books, generated the following results: "Never heard of him." -- eight; "Can't say for sure." -- one; and one "Sure I know Barry, he's even stayed at my house.")
Yet overall, the praise all but eclipses the criticism. The words of Nevada yard owner Bill Ellis are typical: "I can't say anything bad about the man. With his help my business shot up from $60,000 a month to better than five times that. How much was he responsible for? I'd say at least 30%. And almost entirely because of him, I went after retail business. From 30%, it now constitutes 40% of my trade." Numbers like these, batted around the industry grapevine, have also helped make Isenberg's reputation, and they are no small part of the "pull" of seminars like the recent one in Atlantic City.
"I'd argue for totally predismantling an incoming vehicle," says Isenberg, about to hammer away at one of his central themes. The concept is no longer revolutionary, but just the same he receives some incredulous stares from a couple of recyclers seated to his right. The incredulity, in all likelihood, spurs him on. "Any part you believe you're going to sell -- remove it when the car comes in. In the long run you'll use half the labor, you'll provide faster service to your customers, and you'll sell higher-quality parts. How much more valuable is that Cadillac engine sitting clean on your shelf than still in the car out in the yard? By predismantling you'll avoid weather damage and vandalism.
"The disadvantages, you say? Yes, you'll need an excellent inventory system to be able to keep track of all those parts. And you'll need inside facilities -- racks and bins and pallets for storage. Let's look at how cheap it is, though." Quickly running through the necessary capital expenditures, Isenberg arrives at a figure of $9 per year to store a single engine. "If you control your purchasing, it's maybe 30 days before you sell that engine. An engine takes, say, 18 cubic feet to store. Now a starter is maybe 1/4 of a cubic foot, 1/72 as much space. . . about 14 per month to store indoors. Now is that worth it, to have those parts inside, cleaned and ready to go, instead of saying to a customer, 'Maybe I can have it for you Friday'?"
Intrigued, but still skeptical, one New Jersey yard owner chimes in: "This can't relate to everybody."
"Why not?" Isenberg shoots back. "Are you, excuse the expression, a junkyard? Or are you a producer or warehouser of automobile parts who is marketing them to the public? A basic criticism I have of dismantlers is that they don't think of themselves as merchants. If you were selling microwave ovens, would you ask your customers to walk over mud and gravel and into an old trailer body?"
A few minutes later Isenberg is running through some of the 1,500 slides he has brought along and evoking the kinds of "oohs" and "aahs" one typically hears at fireworks displays. "Here's a great operation, Vintage Auto Parts Inc., in Woodinville, Wash.," Isenberg announces. Vintage specializes in special-interest and classic cars and stores some of its smaller, more precious parts behind the counter in drawers lined in green velvet. "Now this is a true auto dismantler, a distributor of used auto parts, not a junkyard." Marv's Auto Dismantling in Sun Valley, Calif., explains Isenberg, always dismantles a wreck within two weeks of its delivery. No hulks litter the grounds, because once stripped of parts, they are carted to the shredder. "You've heard me say 'unseen, unsold.' Well, take a look at this." The next batch of slides displays a spacious showroom as spotless as a doctor's waiting room. On the far wall, painted yellow and blue in the geometric patterns of the company's logo, hangs a four-foot by eight-foot pegboard. On it hang a number of small parts -- wheel covers, FM radios, arm rests, and sun visors -- displayed much like socalled impulse items along supermarket check-out lines.
"Four by eight," laughs a yard owner from Brooklyn. "That's about the size of my entire display room."
Still more slides show ingenious racking systems for compactly storing engines, or tires, or window glass. An operation with extensive dismantling, Isenberg explains, can save as much as 25% on materials handling. The visual tour continues, accompanied by a singular voice-over, one that ricochets from the nitty-gritty of dismantling -- of right-angle air ratchets and water-pump regulators -- to key marketing and management strategies and from unit costs to profit margins.
Some of the loftier concepts may be too far out for some of the people attending the seminar, especially those who never finished high school. Over the years, Isenberg has tried hard to scale down his vocabulary and his methods, as necessary. He once used a cigar box to prove the importance of warranties to a Cleveland salvage dealer. The owner, like many reluctant salvage operators, feared that offering a 30-day warranty on most parts would cost him plenty. Isenberg suggested an experiment: Start with motors, raise prices, say, 5% or 10% to cover the returns, and put those "surcharges" in a cigar box. Then, pay all refunds or warranty-related labor costs out of that box. At the end of the year, the contents of the cigar box spoke loudly. "I proved it to him, without a fancy accounting system," Isenberg says.
The slides and the talk hit home. The undercurrent of chatter boils up in the words of a struggling yard owner named Bob: "My wife wants a Seville, and I tell you, if I could have done this stuff five years ago we'd both have one by now."
Isenberg mentally notes those words. He has his mark. A bit later he breaks his eye contact with members of the group and glances downward in front of his lectern, to the carefully arranged set of bluebound cassette courses that stretch encyclopedia-like for a couple of feet. Isenberg explains that he doesn't want to get a hernia lugging those binders all the way to Springfield, Ill., his next seminar stop. Wouldn't it be nice if somebody would take them off his hands, somebody like Bob, for instanee? How badly, he asks, does Bob want that Seville? Pleading poverty, Bob tries to sidetrack the issue and the stares of his colleagues. His hook set, Isenberg tactfully eases up, insisting only that he will sell the cassettes to somebody by the end of the third day.
Over dinner that night, in a private conversation, Isenberg lays a bit of groundwork before he reveals an ambitious plan that would open the auto recycling industry to outside entrepreneurs. "I've come to a couple of conclusions," he says. "The first is, this is, in fact, a high-profit industry. The gross profit is much higher than almost any other retail business. You can easily triple or quadruple your money. You can run at 25% to 35% cost of sales. You can buy a car for $300 and sell the parts on it for $1,000. I have clients that do better than 50% net profit on sales.
"Secondly, it's a business that is shockingly simple to run, although most dismantlers won't tell you that, because of the way they run things. The man works his ass off. He's got two phones in his hands. He's yelling all the time. Most people succeed in spite of themselves. In the entire industry I can't name more than a dozen people I'd consider truly competent businessmen and managers. The industry is basically populated with people who are intelligent, hard-working, hard-driving, sales-oriented mechanics -- guys who used to own body shops, or towing services, or garages."
Isenberg then explains that he has recently decided to vary his approach -- by no less than 180 degrees. "I'd rather take a businessman and teach him the art of dismantling than take a dismantler und try to teach him the art of managing," he says. He launches into his plans for the near future:
In partnership with a number of existing salvage operators, a nationwide network he is beginning to line up, Isenberg will purehase failing junkyards. They often sell far below their real value, because buyers are scarce. The few parts of value will go to Isenberg's partner. The key purchase will be the land and the zoning approvals for a salvage business, all but impossible to secure nowadays for new yards. The yard will be bulldozed and a modern dismantling facility erected. Isenberg will then advertise for entrepreneurs with around $50,000 in venture capital to enter a state-of-the-art recycling business. He may not mention automobile recycling in his initial ads, because of the stigma that still hounds the industry.
According to his plan, Isenberg would lease the facility, perhaps with an option to buy. Training would come from two sources: His partners, the local yard owners who helped target the sites, would handle the day-to-day training, especially the intricacies of bidding on wrecked cars at insurance auctions. As he has done for years, Isenberg would conduct compreInensive seminars and provide complete, computerized inventory and accounting systems.
"I'm turned on to this. I need it as a challenge," Isenberg says of his plan to franchise auto salvage yards much like fast-food outlets. "I think it will provide a much higher level of management sophistication."
But will it work? Is the timing right, he is asked in light of several clouds currently hanging over the industry (see box, below). "I know it's a cliche, but I don't think there's any such thing as problems, only opportunities," Isenberg responds. "If you consider that probably 99% of the current operators manage by the seat of their pants, the more dark clouds that appear, the more advantages the good managers will have. Now may be precisely the time for the more sophisticated managers to come in."
But will top-flight business school graduates and worldly venture capitalists want to sully themselves in what Isenberg himself refers to as "the last frontier?" Isenberg concedes there are a few unsavory characters and "chop shops" to steer clear of, but in the next breath he emphasizes that a well-run operation need no longer be dirty. His trump card: The bottom line will be too good to ignore. A number of yard owners agree. "I think you'll see it more and more as the years go on. Our field is already starting to attract a more educated crowd," says Bill Ellis, the Nevada yard owner. "Two of my 22 employees have college degrees." Stuart Willen, owner of Triplett Auto Recyclers Inc., in Akron, Ohio, concurs. Willen belongs to a local country club, where he has been known to refer io his occupation as automotive reclamation engineer. He does this, he says, more in the line of jest than camouflage, adding, "Money speaks for itself."
Isenberg has another vision of the future, one he shares with his seminar group on the final afternoon. "What if some large company decided to go into recycling?" he asks. "What if it set up a disassembly plant similar to an auto assembly plant, one with extreme econoinies of scale thnt could handle 1,000 cars a day? There would be a central computer to keep track of the inventory at the facility and the 50 to 100 storefront sales outlets this facility supplied. Now, let's say all the parts had bar codes on them, and, like at the supermarket, the cash registers at the storefront outlets could read those codes. Based on the VIN (vehicle identification numbers), the computer knows every part on that car. It knows the new selling price, the average used selling price. It knows the overhead attached to labor. It knows the core value. The computer decides whether or not to take that part off."
Isenberg pauses to let that thought sink in, and, true to his expectations, a bit of seat-squirming begins. "Inside the huge facility," he continues, "it would be like an assembly line in reverse: Dismantled parts would go onto conveyors, some to the rebuilding department, others to be cleaned and tested and packaged and labeled. At the other end of the building, the hulks would go straight to the shredder as scrap. Huge trucks would deliver these prepackaged, prepriced parts to the storefronts. It would all be vertically integrated. Any dummy could run one of these places. For a customer coming in it would be like going to a supermarket in search of pimento-stuffed olives. And you know what? Every component of this scenario is already available somewhere in the world."
The room is quiet. Then a bit of nervous chatter erupts. "Maybe we could get jobs there," says Ed, a Brooklyn salvage operator. "This could put everybody out of business," says Bob, his voice strangely faltering. "Would something like that be legal?" asks somebody else.
"I hope I didn't ruin your day," Isenberg says. "Point is, there are going to be some radical changes coming. It's going to happen. I'll tell you when: as soon as the general economy picks up and interest rates drop and companies are looking more boldly to new ventures."
In part, no douht, to pick up everybody's spirits, Isenberg restarts his slide show, which unexpectedly mixes in a dash of cheesecake with a disassembled door frame. There are also more inspiring photos of well-run, progressive operations and some catchy slogans -- "You Get the Piece without the Grease" -- possibly for the yard owners to emulate.
Shutting off the projector light, Isenberg distributes a stack of evaluation forms and then takes up his final order of business. A theatrical sweep of his hands -- from Volume 1 to Volume 30 -- restates his objective. He turns and looks Bob right in the eye. Bob has won $150 at the casino blackjack tables only the night before; he promptly spent most of it on a sweater for his wife -- perhaps, in case word got out, as a defense against just this confrontation.
"I tell you what, Bob," begins Isenberg. "I'll make you an offer you can't refuse. I'll let you take all of the cassettes home with you. Listen to them all. And then buy any you want at a 25% discount. Just send the rest back to me."
"That sounds fair enough," Bob says, as a sly smile sweeps boyishly across Isenberg'sface.
Barry Isenberg, self made-consultant on auto turns his back on the old ways.