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Friday, November 30, 2007

Who consumes all those end of life vehicles?

Have you ever wondered who consumes all the end-of-life vehicles (ELV’s) in this province? If you have, you are not alone. About 1 million new automobiles are produced in the World each week, and in Ontario approximately 500,000 of them are put to rest each year.

An End-Of-Life Vehicle is one which has reached the end of the road by way of its age or collision write-off. The outcome is almost always the recycling of the vehicle for is scrap value however the processes used to achieve this differs widely. While some processes give ELV’s a respectable burial (utilizing proper equipment and care for its fluid removal) other processes do not. The issue of ELV’s is obviously an important one and Governments around the World are taking pro-active measures as they address the key issue of the environment. Much of the focus has been directed at the automakers to make their vehicles more recyclable. The ELV directive adopted last year requires all European Auto Makers to recycle or reuse 85% by weight of the metals and materials in each vehicle by 2006 and 95% by 2015. Significant progress is being made with the automakers but regardless of their efforts it does not solve the problem of what to do with the millions of vehicles that will eventually reach the end of the road.

At the Recycling Council of Ontario Roles and Responsibilities Forum, April 28, 1999 five distinct groups of businesses were identified that deal in the management of ELVs and irreparable vehicles.

Auto Dismantlers/Recyclers:
whose primary business is the sale of used auto parts. Material recovery is secondary. Fluid recovery is an integral part of processing each vehicle.

Salvage Yards:
whose primary business is metals recovery. The sale of used auto parts is secondary. Fluids are recovered if parts are to be removed. Scrap Metal Dealers/ Junk Yards: whose only business is metals recovery. Fluids generally are not recovered.

Car Dealers, Body Shops, Tow-Trucks:
This category includes backyard mechanics, and also auto thieves and organized international and domestic auto theft rings. Of the five distinct groups of businesses involved in the management of ELV’s only the Auto Dismantler/Recycler ensures fluid recovery as an integral part of the processing of each vehicle.

There has been some very interesting “shifts” that have taken place with the ELV. In years past it was safe to say that most vehicles were purchased by Auto Dismantlers/Recyclers for processing and then the to the scrap processors to carry on the recycling process. Today, this is not necessarily the case. Salvage yards and Scrap Metal Dealers do not incorporate the same processes as Auto Dismantlers to ensure that proper fluid evacuation and disposal of these fluids takes place.

The underground economy, which acquires vehicles from the public or at salvage auctions (where anyone with any business license can attend) also has a detrimental effect on the community in that parts are bought and sold for cash. The Government realizes no revenue from these transactions.

This fact, coupled with the realization that many salvage vehicles are being exported out of the country accounts for the reduction of available used parts for the public.

The benefits of recycling the ELV and the potential re-use of its parts is the only way to save our precious natural resources. It’s incredibly heartwarming to hear that 50% of parts bought in a Country like South Africa are used OEM parts. Wouldn’t it be nice if our country could top 10% and possibly 20% in the near future?

As for who consumes the ELV’s? There is no public agency keeping accurate records of vehicle disposal in this province. This may help explain why pro environmental fluid evacuation procedures have not been fully developed. You can’t fix what you don’t know is broken.

Hopefully, government agencies will get their act together and join the UCDA, OADA, Hamilton Auto Body Repair Association and the RCO to support the Ontario Auto Recyclers Association (OARA) initiatives of accreditation and licensing for our industry. OARA is here to help in the solution.

What does this mean to you? How can you help? Next time you are ready to scrap your vehicle, ensure that it goes to an accredited recycler, one that has the necessary equipment and facilities to properly handle that ELV responsibly.

By David Gold, Standard Auto Wreckers

Monday, November 26, 2007

Car-makers must reduce scrap from cars

Car manufacturers must do more to recycle cars for car-making to remain a sustainable proposition, according to a new report.

The study by Oxford Brookes University calls for new technologies, design approaches and better infrastructures to ensure cars generate less unusable waste.

The warning comes on the back of research which predicts that more cars will be built in the next 25 years than in the entire history of car-making to date - 1.48 billion by 2030 - thanks to a huge increase in demand from emerging economies.

That demand will see a massive increase in the amount of scrap generated by the industry, put at 3.5bn tonnes between now and 2030 - enough to fill Wembley Stadium more than 1,000 times.

Presently around 75% of material is recovered from scrapped cars, but plastics, rubber and glass are sent to landfill sites. By 2015 95% of all material used in cars must be recycled, according to EU legislation.

The report has been issues by DRIVENet – the UK Network for the design for dismantling, reuse and recycling in road vehicles, which is led by Oxford Brookes university.

Prof Allan Hutchinson, who co-authored the report - said: "How to dispose of vehicles more effectively may not be the most glamorous part of the motor industry, but it may well ultimately be the most important for a sustainable one.

"We believe this work can provide the basis for the extensive research necessary to develop new technologies together with the automotive industry to ensure its obligations can be met in a timely manner."

Friday, November 16, 2007

Clean Air Foundation wins the Gold Award in the Climate Change category for Car Heaven at the 2007 Canadian Environment Awards

Canadian Environment Awards – June 4, 2007

You may think of your ancient auto as a near-classic, but science is less sentimental. While your car may still have some roadworthy kilometres left, its fuel efficiency and emissions technologies don't compare to the sweet rides built today. Indeed, since you drove your circa 1991 car off the lot, the auto industry has reduced smog-forming vehicle exhausts by almost 90 percent, which means the longer old faithful stays on the road, the more harm it is doing to the environment.

And that's where the angels at Car Heaven can help. Car Heaven wants to give your old car the best afterlife possible — one that treads lightly on the Earth. "We're trying to connect the dots from the issue to a solution," says Fatima Dharsee, manager of the Toronto-based program. "We want to make it easy for people to do the right thing and deliver tangible environmental results in the process."

One of several environmental initiatives developed by the Clean Air Foundation, Car Heaven was launched in the Greater Toronto Area nearly seven years ago with private and public sector support. By the end of this year, it will be available in all 10 provinces. "Our goal is to link education and incentives to public action," explains Dharsee. "We try to work our idea into the auto recyclers' business models, using the best environmental practices."

A free tow, a tax-deductible donation to the charity of your choice, free transit passes and bicycle-buying rebates are among the incentives to get clunkers off the road for good. Plus you might be eligible to receive a $1,000 credit toward the purchase of a new GM vehicle. "After the first few years of the program, we saw that too many people were replacing their donated cars with other used vehicles," says Dharsee, "so we added the new-purchase incentive in 2005." At the auto recycler, your old beater is drained of its fluids, mercury switches are removed, any salvageable components are reclaimed and all remaining parts and materials, from engine to bumper, are stripped and slated for recycling or safe disposal.

With more than 47,000 vehicles marked RIP, Car Heaven is making Earth a little more like paradise for us all. Car Heaven is run in conjunction with the Automotive Recyclers of Canada and is member associations.

Friday, November 09, 2007

European Update

EGARA, the umbrella auto recycling association in Europe, meets next week in Brussels. As a prelude to the meeting they issue country reports providing status reports, new initiatives, etc. I have extracted a few of the germane concepts to show what our European brethren are dealing with. We seem to be all "suffering" from high scrap prices, unfair competition, and porous regulatory schemes.

• Illegal operators allowed to continue in business - affecting trading conditions.
• Vehicle salvage is still a sought after commodity, particularly 3 to 7 year old vehicles, pushing prices higher.
• Illegal activity of non-licensed sites is being pursued by the EA (Government). We at the MVDA believe this should be more energetic, with more resources thrown at these sites, rather than the ‘softer’ option of visiting those sites who want to comply, and are already licensed.
• Shortage of naturally arising ELV’s going to dismantling sites, we feel many go straight to the shredder
• Working with the Department of Trade and Industry (DTI) and the Environment Agency (EA) to determine the official text defining the moment a motor vehicle becomes an ELV.
• Unlicensed sites – reporting known ones to the EA for action to be taken
• Putting pressure on government for changes to UK legislation re: COD's (Certificate of Destruction). There will be only 946,000 COD’s issued but 2 million vehicles reaching end of life this year!

• High scrap metal prices but the future is uncertain and there is a risk that we will see many abandoned ELVs.

• In Poland 80% of ATFs (Authorized Treatment Facilities) now use shredders. ATF send scrap metals directly to steelworks.
• In Poland we have still problem that a lot of cars are not treated in ATF (90%)
• Every year, more than 100,000 ELVs cross the border and are dismantled by grey area in Poland.
• Control of flow cars between countries are needed.
• We need a control of number deregistered cars and number of ELVs treated by ATF to be sure that all car are treated by recycling system.

• 23 members of the Danish association are now ISO 9001:2000 Quality Certfication approved by the authorities and many of them for the third time!
• Our problems in Denmark are still the high prices when buying cars on the insurance internet-platforms.

• Norway has a wreck deposit system where the last owner receives approximately 190€ ($260 Cdn) when the car is delivered to an approved ATF (a wreck deposit receipt is then being issues and the car is then defined an ELV). The wreck deposit system has been organised by the government since it was implemented in 1978 and has been very successful.
• The high scrap metal prices attract new actors to the business. The competition is getting harder.
• The concern however is that new actors do not focus on reuse. We have made an inquiry to the Ministry of the Environment to specify stronger in the Norwegian regulation for ELV the priority of reuse before recycle.

• With the high scrap price, a large number of illegal operators are running after ELVs who would disappear if the prices were going down. They affect trading conditions.
• There is lack of elvs and more precisely salvage cars.
By the end of the year, the government has planned to re-start a take-back action of older or more polluting cars in exchange of a premium which could reach 1000€ ($1,390 Cdn)

• All dismantlers have to get their licence to continue their activities. This licence has a time limit of maximum 5 years. After this period you have to apply again for it. Important: You must be audited by a third party = certification is compulsory. VASSO-Recycar-Cert is recognized as a valid certification. Dismantlers with no certification have to stop their business immediately.
• As an effect of unbelievable high scrap prices we have too much dealers in our country. They can live from this alone. They will disappear as soon the prices will go down. In them moment it is almost impossible to get enough cars. Even not for very good prices. Spare-part-business runs well, but there is a lack of supply in longer terms.

• Shredders have abruptly risen up the price for cars they paid directly for the last car owners. This way we get fewer cars as before. We do not believe they can treat the cars for recycling according the Directive.

Across Europe, scrap prices are in the $180 to $220 Cdn range.

Recycled parts? With the right incentive…

Using more recycled OE parts may be good for the environment, and good for the insurer’s bottom line, but it is not always good for repairers yet. To get collision shops choosing recycled more often, insurers need to make recycled parts a more profitable option.

Auto recyclers have a role to play in helping to ensure collision repairers and insurers are profitable. Increasing the use of recycled OEM parts is often seen as one of the last frontiers for insurers managing their costs and repairers lowering the incidence of total loss vehicles.

In reality, most auto recyclers today are in the parts business, not the business of recycling vehicles for profit. Every vehicle has its share of recyclable metals for the scrap industry, and cores for the rebuilding industry, but the cost to get at these elements generally can’t cover the cost to buy, tow, catalogue, disassemble, drain, or crush the vehicle.

So today’s recycler is really in the re-use business; all the processing activity is geared to get at those valuable parts for re-use, and to do so in an environmentally sustainable manner.

Changing dynamics between recyclers, repairers and insurers
Auto recyclers interact with collision repairers and insurers in two fundamental and intertwined ways -– we acquire total loss vehicles as our basic inventory supply, and we sell recycled OEM parts. Recycled parts are also referred to as LKQ (like kind and quality) or salvage parts.

This positive cycle of re-using total loss vehicles to decrease claims severity has been going on for decades. But subtle events have changed the dynamics within these inter-related industries, leaving each party grasping for solutions.

- Insurers across Canada have been clamoring for the increased use of “alternative” parts, meaning recycled or aftermarket parts, in order to control their costs. At the same time their asset managers want to maximize the return on vehicles sold as salvage.
- Repairers have seen an unprecedented rise in total loss vehicles leaving their facilities, resulting in fewer repair opportunities.
- Recyclers are starved for inventory, or better stated, starved for the right inventory at the right price, resulting in lost sales and redundant inventory.

Traditionally, there has been precious little dialogue between these industry stakeholders to solve collective problems. Some jurisdictions have better success than others. While this is not a call for public insurance, it does seem that provinces with a single insurer are better able to address industry-wide solutions. But we can all learn from these unique and somewhat controlled circumstances.

As an example, in Manitoba, Manitoba Public Insurance (MPI) funds the operation of the Recyclers Central Office (RCO). The RCO functions as a data clearinghouse between the auto recyclers and MPI. Every claim is transmitted to the RCO, which re-broadcasts the part requirements to members of the Automotive Recyclers of Manitoba association. The recyclers reply to the RCO within a set time period, listing the availability of the requested parts; prices are not involved.

The RCO sends the responses to MPI, and where recycled parts are available, they are written in to the estimate. The repairers are paid 60% of OEM price for each part (assembly pricing is not utilized) over 10 years old, 45% for 11 years and older.
Recyclers sell parts to repairers at 25% less than this 60%/45% compensation rule.

The result? MPI saves millions every year, and Manitoba has the highest recycled part utilization in Canada.

Profitability is built in
There are several reasons this model works. Self-policing with regard to quality is built in to the system -– recyclers selling junk are weeded out early because they are responsible for freight and warranty claims, and can ultimately be removed from the system. All order cancellations or returns require a cancellation number which is tracked and auditable. Parts can’t be returned on the whim of a repairer.

Technology is also a factor -– having every estimate scanned for recycled parts ensures accurate information is delivered to the right person at the right time. Similar technological tools exist in every part of Canada, such as the Allied system in BC, Audatex’s Real Steel Download,, Mitchell’s QRP, in Quebec, etc.

I believe the truly unique thing about the Manitoba situation is that the profitability of using recycled parts is built in to the system, and has been for some time. Once the right economic incentives are in place for a repairer to make a fair return, the other “issues” with using recycled parts tend to solve themselves.

Let’s face it, we are all in this game to generate a profit, for our shareholders, for ourselves, or just to keep the doors open. Operational decisions, including what parts we use, are fundamentally economic decisions. Of course there are quality issues, safety issues, CSI issues, cycle time issues, but often these mask or are a proxy for profitability issues.

Private insurers turning to incentives
Some private insurers are also getting on board and generating increased recycled parts usage by allowing a higher markup on recycled parts. These markups bring the profitability closer to that of new parts and they help to compensate repairers fairly. The messaging is pretty powerful: “We want you to use more recycled parts to save us money, so we are going to pay you accordingly.”

I know of two insurers who are allowing 25% and 30% markups respectively, and they are willing to look at higher markups because the response has been so dramatic. To be fair, those insurers are also looking at program-wide changes with full consultation with recyclers and repairers, so they are playing with the full tool set – pricing, education, knowledge, communication, targets, etc. But if you talk to a shop on the program, they repeat the obvious: “We make more money now using recycled parts.”

Allowable markups are but one part of the equation in recognizing recycled parts profitability. Again, if insurers want more recycled parts usage, they need to look at the suite of options available to them.

Insurers shoot themselves in the foot by refusing to add time, or limiting the extra time, for clean up and prep. We sell used auto parts – “road tested” in the marketing vernacular. They’re made to factory OEM specs (because they are factory installed), they come with all the extras, and they fit, but they can require clean up and prep. This needs to be recognized in the estimating software and by insurers policies. You can probably predict how far ahead the mantra of “Use more used, but I’m not going to pay you for it” will get any of our three industries.

Recycled parts have other profitability angles. They can positively impact cycle time as they are readily available for same or next day delivery in most cases (quality recyclers are spread throughout Canada. Recycled parts generally come as assemblies, thus saving on total part cost, labor time and cycle time. A good example of all of benefits is a quarter panel with a wheel housing assembly. If total cost is considered, this part should be included in a repair because it would be better quality, faster, cheaper, and readily available.

How do we make this happen?
So you’re saying, “Great, the guy who represents auto recyclers in Canada wants my shop to make more money using his product.” Great, as a shop owner, I’m convinced. I want to make more money using recycled OEM auto parts too. How do we make this happen?

Public insurers have been working on this for years, and in my opinion are way ahead. Private insurers, because of the nature of the business, tend not to share this type of information. For those insurers who are using market-based pricing models, take note -- the market has changed regarding how other insurers are approaching recycled OEM parts. All insurers need to look at their total compensation package for recycled parts and make sure they are sending the right messages.

For repairers who are not receiving those higher markups, tell insurers that a new benchmark exists in the industry. Recycled OEM parts are part of a smart, safe, productive repair and you deserve the right type of compensation to make sure they are included in every estimate.

Let’s make new OE parts the alternative, not the standard. But make sure shops’ bottom lines don’t bear the brunt of this transformation, or it will never happen.

Recycled parts are a “green” solution – for your business and the environment.
Good recyclers (and yes that does imply there are bad recyclers – but that’s another article) provide the last owner of a vehicle free stewardship for the numerous potentially hazardous materials in today’s vehicles. We properly drain, store and dispose of oils, gasoline, tires, mercury switches, CFCs, antifreeze, windshield washer fluid, etc.

In a time of increased sensitivity about environmental matters and climate change, recycled OEM parts are about as green as it gets. Increasing their usage is not only good for an insurer’s bottom line, but with the right policy changes and incentives it could be good for repairers – leading to a greener tomorrow for us all.

Steve Fletcher, Managing Director, Automotive Recyclers of Canada