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Monday, April 28, 2008

Solving the Recycling Puzzle

I'm not too old to fondly remember the hours I spent in my teenage years trudging around the local "junkyard" in search of the perfect parts to keep my '65 Pontiac Grand Prix running and looking good. It was fun looking through all those rows of cars and letting my imagination run wild as I wondered how those cars got there. I could see the unpolished diamond in all of them.

Imagination aside, I was there, rolling on the ground taking cars apart, because used parts were less expensive than new ones. I bought what I could afford. I didn't care that the parts weren't new, as long as they were in good condition. This simple scenario sums up why insurance providers want you, as a collision repair professional, to write for and use salvage (or in the vernacular created by the Automotive Recyclers Association [ARA] recyclable) parts as part of your normal repair methodology. It's common sense. It's also good for the environment. Using these parts is sound fiscal policy for all of us as consumers and policyholders. Having said that, are you aware of all that goes into effectively using these parts?

There are several areas of concern every time you consider using a recyclable part over a new part, whether it be OEM or aftermarket. In no particular order, these are:

condition/age of the vehicle you are repairing;
condition of the recyclable replacement part;
location of the recyclable replacement part;
integrity of the recycled parts vendor; and
cost effectiveness of using recyclable parts.

Let's examine each.

The recycling option
The first step in using salvaged parts is determining if a damaged component is repairable or if a replacement is warranted. Our assumption here is that the component is beyond repair and needs to be replaced. As far as I'm aware, all of the collision estimating programs available commercially today have the ability to perform a cost analysis regarding repair versus replacement.

These systems cannot perform this analysis with regard to a recyclable part at this time, so this determination has to be done manually by the user. We have to determine if a replacement is warranted in this particular scenario.

Considering using a recycled part?
You will need to collect information not yet available from your estimating system. One consideration here is the condition of the vehicle being repaired. For the most part, you probably would not consider using recyclable parts in a repair on a brand-new vehicle. Not only would it be extremely difficult to find a recyclable part in this instance, most direct repair agreements call for the use of brand-new OEM parts for a specific time period or mileage plateau on a vehicle. In some cases, a recycled part might do if a newer vehicle is in poor condition (while a new part might be preferable on an older vehicle kept in pristine shape). Use your best judgment when making this determination. Always follow your DRP guidelines and local laws before determining what type of parts need to be used in the repairs you are performing. Some states have laws that allow vehicle owners to make the final decision regarding the type of repair parts used on their vehicles. If this is the case for your location, make sure you are aware of the owner's wishes.

Determining cost effectiveness
Once you have determined that a recyclable part can be used, you must determine if it is cost effective. The first step here is to locate the recyclable part. The logistics of procuring the part have to play into your decision regarding its use.

A complete bumper assembly arrives. Before placing an order for a recycled part, check with the vendor for return policies and ask that hi-resolution photos of the part be e-mailed to you. For example, say you find through phone calls, Internet searches and estimating database searches, four of the same parts needed for your repair. One is local, and the other three range from 25 to 100 miles from your shop. The part you found locally is the most expensive on your list.

The other three suppliers will ship the part to you, which means you'll incur shipping costs. Two of the sellers want to charge your credit card up front since you don't have a relationship with them.

On top of these considerations, you also have to ask these questions: What if the part is in poor condition when you receive it, and the vendor won't take it back? Is the vehicle owner using a rental car? Would it be cheaper to get the part faster than pay additional rental?

Note how these parts have arrived in good condition and properly packed. Be sure to work out any shipping questions or problems with your recycled parts vendor. My suggestion here is simple. Determine if the parts are equal in grade and quality. Ask the vendors to e-mail you clear photos of the parts. It's possible the three vendors farthest away from your shop have lower graded parts than your local supplier, which would make your local vendor a wiser choice. You also should ask vendors about their return policies.

Lastly, call your DRP partner or customer and enlist their help in making this decision. It will make more sense to order the part locally if the cost is less when working in factors such as part condition, shipping and vehicle rental costs. In most cases, your DRP partner will agree with these decisions if you discuss them prior to placing the order. Clear, concise and timely communication is the key.

Communication: Using ARA grading system
Communication is, without question, the most important aspect of effectively using recyclable parts. Traditionally, repairers and recyclers haven't seen eye to eye on some of the most important aspects of utilizing recyclable parts. These aspects include realistic grading of the condition of the part and the amount of damage on a part. These issues have been long discussed at the Collision Industry Conference (CIC). The ARA has produced a universal grading system that can clear up some of the miscommunication.

At the CIC conference in October 2007, the parts committee discussed the grading system at length in an attempt to inform repairers, insurers and recyclers. The ARA guidelines help standardize parts conditions through a parts description code. The parts code includes these basic important facts about the part: part name; three-character part code; and part description line.

With this code, a repairer should be able to get a clear description of the part, including the amount and type of any existing damage (in units and not repair hours) and the location of the damage. A unit corresponds to a damage area roughly the size of a credit card. Once the recycler determines the units of damage on a particular part, it grades the part with an A, B or C.

An A grade part has one unit or less of damage. B grades have more than one unit and up to two units. Any part with more than two units is a C grade.

The different types of damage are described by simple one-letter codes, for example:

B = Burn
D = Dent
F = Finish
H = Hail
J = Rip/Crack
P = Parking Lot Dings
R = Rust
S = Scratch/Surface
* = Not Specified
Use the standard ARA damage locater as your starting point. If you do not have a copy of this document, you can obtain one through the ARA Web site.

Let's assume you just priced a door from a local supplier. The parts description code on the door reads as follows: Left front door shell 4P1 A grade.

Translation: The left front door shell is an A grade part, with four parking lot dings, covering one unit of damage.

If you do not receive a part as advertised, notify the recycler immediately and voice your complaints.

Study and have your staff study and understand the ARA guidelines. The ARA has a Web site dedicated to this training:

If repairing, returning or reordering the recyclable part will delay the repair process, inform your customer and DRP partner right away.

Choosing a vendor
Choosing a quality vendor to partner with is extremely important. Do not align yourself with a vendor strictly on the basis of pricing. A reputable vendor sometimes can help you get a quality recyclable part with less damage more quickly than an OE vendor could send you a new one.

Once a relationship is established, vendors often go to great lengths to find parts, even those they don't stock. More than likely, they also will price match with competitors.

You play an important part in the success or failure of this relationship. Pay your bill on time. Be reasonable with your repair labor times (labor units). Be clear on the type of part you need when ordering. Offer to send photos of hard-to-describe parts.

To find a good recyclable parts vendor, start by asking your peers. Check with industry organization Web sites and insurance company appraisers. The ARA Web site offers a members link that lists all recyclers registered as ARA members. Call the Better Business Bureau (BBB), and ask about service issues with potential vendors.

When you order a part, track the "cycle time" of the order. Document that time, and compile a record that you can share with a vendor. Measure the performance of your vendors, and discuss it with them in regular meetings. Be proactive with problems. Admit when your staff makes an ordering mistake.

Conclusion: Communication is key
I can't stress this point enough. Communication resolves many issues. Effective communication requires effort from everyone involved. There are significant rewards you will see. Bottom line: If you develop a solid relationship with a great vendor you won't have to worry about salvaging your future or your customers.

Crackdown call on UK scrap rogues

Rochdale Euro-MP Chris Davies is urging the Government to crack down on dodgy dismantlers who are ruining the environment.

Mr Davies says a huge increase in scrap metal prices is causing more unlicensed operators to flout environmental laws when disposing of scrap cars across the UK.

The Lib Dem environmental spokesman is concerned that more than half of all cars going for scrap are not being depolluted properly meaning UK recycling targets are not being met.

The End-of-Life Vehicles Directive, which became UK law in 2003, requires potential contaminants such as oil, brake fluid and airbags to be removed from cars before they are scrapped.

Old cars must be taken to one of 1,200 approved treatment facilities, licensed by the Environment Agency, with owners issued with a Certificate of Destruction to prove it’s been depolluted, lawfully scrapped and road tax is no longer due.

But illegal dismantlers are undercutting legitimate companies with as many as 1.1million old cars unlawfully collected this year.

Those who have invested in depolluting equipment are being forced out of business by the rogue traders, who are cashing in on scrap metal prices rising from £4 per ton to £140 in five years.

Mr Davies blames the DVLA for refusing to adjust vehicle licensing paperwork to take account of the new legal requirement.

Mr Davies said: “Ministers are allowing criminals to run rings around them at the expense of the environment and allowing legitimate businesses to go to the wall.

“This law is good news for the environment but the entire scheme is undermined if these people can simply carry on letting oil and brake fluids wash down the nearest drain.”

Car owners can claim they have scrapped the car themselves simply by ticking a box on their vehicle registration document.

Mr Davies wants this loophole closed.

Andy Kenny, from the End-of-Life Vehicle Recyclers Association, said: “Many operators just aren’t getting enough cars because they are being intercepted by the illegal operators.

“Genuine dismantlers face financial ruin if this situation is allowed to continue.”

Tuesday, April 08, 2008

ARA University

Who would have thought that Auto Recyclers would have there own University?

Thanks to the ARA Educational Foundation, Auto Recyclers can attend school 24/7 and learn cutting edge procedures and information to keep them way out in front.

Check out the Parts Grading module.

Canadian auto recyclers want vehicles processed prior to shredding

While 95 percent of the approximately 1.2 million cars that are retired annually in Canada are sent to shredding operations, about 500,000 of those vehicles do not pass through automobile recyclers and subsequently, are shredded with the various fluids and mercury switches intact.

The Automotive Recyclers of Canada (ARC) is looking to reduce that number considerably and with the help of federal, provincial and territorial governments, to establish a system that would see nearly every vehicle pass through a recycling process to ensure that fluids are drained; mercury switches, acid batteries, gas tanks and recyclable parts are removed.

Steve Fletcher, the managing director of the ARC, says this would bolster the revenues of automotive recycling operations with additional re-used parts.

With scrap steel in serious demand, Fletcher says that automotive recyclers and those seeking to sell directly to shredders are competing to acquire vehicles.

“In a normal environment, there is not a lot of friction between the two parties,” he says, “but with scrap at almost historic highs, there tends to be competition for the car on the street. In Ontario, there is an absolute glut of vehicles because everybody is chasing after that car.”

He added that the rate of auto recycling tends to be higher on the Canadian west coast, with Ontario below average and Quebec having an average rate.

There are about 10 shredders in Canada, with 5 in Ontario and the remainder in urban centers and ports. Because shredding operations tend to be located adjacent to major ports and transportation hubs, in isolated areas such as Alberta, vehicles sold to shredders may receive $100, while those in Ontario pay $150 per vehicle.

“In Alberta you have a surplus of cars and it’s only recently that we’ve heard of people going to Alberta looking for scrap – this is a good thing for our industry,” says Fletcher. “Many shredders need to buy the vehicles in bulk to get them over the mountains into British Columbia. The more we can prevent abandonment, where it is not worth the effort for the last owner to pay someone to take the car, we at least end with a revenue neutral situation.”

There are no automotive recycling operations in Canada’s northern territories, but Fletcher notes that municipal dumps are now making efforts to have scrap dealers make visits to acquire those vehicles.

Environment Canada, an arm of the federal government, is currently funding five different vehicle scrappage programs for about $500,000 per program. These are ‘early retirement’ incentive programs out of Calgary, Winnipeg, Vancouver, Halifax and Montreal.

In March 2007, the Feds earmarked $36 million to create a national scrappage program, with $30 million for incentives for a person to retire their vehicle and $6 million to create the program’s infrastructure and promote it.

Fletcher says this could either lead to the strengthening of existing regional programs or a national program where Canadians could contact a single organization.

“This will result in lowering green house gas (GHG) emissions because the odds are that a person retiring a pre-1995 vehicle will purchase a newer car with better emission controls,” he says. “Basically 1995 and older cars have very poor environmental controls. It is estimated that 15 percent of the cars on the road are pre-1995 and they generate 50 percent of GHG emissions of the total fleet.”

In terms of incentive, owners could receive $500 worth of public transit passes. The existing program uses a $1,000 incentive to buy a new vehicle, and that program retires 20,000 vehicles per year.

With the car retired, the ARC wants those vehicles routed to an auto recycler. ARC represents 420 of the approximately 1,700 operations in Canada.

“They should go through a system so that the vehicle does not become a waste hazard should it fall into the wrong hands,” says Fletcher. “When you are crushing a car without draining the fluids and removing the mercury and lead, you are contaminating the automobile shredder residue, making it a hazardous material that contaminates the landfills, as well as the shredding operation itself.”

He stresses that there is little or no government oversight when it comes to recycling and shredder operations.

“Part of this national program is to implement a code of practice for our industry to ensure that the vehicle is properly handled,” says Fletcher.

Unlike the United States, there is no mandated program for the removal of mercury switches. A voluntary program was announced last December that places the onus on the auto manufacturers and steel producers to develop programs.

“They won’t have the plans in place until July,” says Fletcher. “But the manufacturers have said they will not pay for the removal. We told them they would have lower recovery rates compared to the United States.”

Steel mills would prefer to not have mercury in the scrap steel they process because that results in emissions of mercury and the need to install expensive scrubbers that have not been proven effective. Mills have some leverage by paying more for green hulks versus a standard hulk, but they still accept contaminated steel.

“This is part of the message that we are giving to the insurance companies, garages and general public,” says Fletcher. “A reused part is an environmentally responsible part. Alternators, transmissions and engines can be rebuilt. An engine is worth $30 as metal, but a reused engine is worth $500.”

The ARC would like to see more shredders refuse undrained vehicles and those with hazardous parts.

Markets are developing for drained fluids. In Ontario, a liter of oil is worth five cents and most provinces have stewardship programs for tires, batteries and oil. Ontario does not have any.

“This gives us good leverage,” Fletcher says. “With good working models that point to successes, it helps to persuade legislators to pass legislation.”

The ARC is hoping that future car design allow for easier dismantling at the end-of-life stage and that discussions with the auto industry in North America and governments will reach the level that has been achieved in Japan and Europe.

Fletcher stresses that legislation is not enough.

“We need certain things from the manufacturers and you need governments to help push those things,” he says. “If you just pass legislation, unintended consequences are rampant. But if you encourage dialogue and cooperation, which is kind of the Canadian way of going about things, benefits can occur faster and better.”

by Irwin Rapoport, American Recycler April 2008

Saturday, April 05, 2008