A World of Opportunities and Challenges

by Michael E. Wilson, ARA CEO in Recycling Today Magazine

As chief executive officer and part of the leadership of the Automotive Recyclers Association (ARA), it is an honor to assist our organization in its mission to be a vibrant international association that represents the interests of all of our worldwide members. In the past four years, I have been fortunate to visit such countries as Australia, Canada, Great Britain, Hungary, Malaysia, Switzerland and Mexico and to converse with leaders in the recycling community about the important global developments occurring in automotive recycling sector.

Established in 1943, the ARA represents an industry dedicated to the efficient removal and reuse of “green” automotive parts and the proper recycling of inoperable motor vehicles. ARA represents more than 4,500 auto recycling facilities in the United States and 14 other countries around the world. ARA members continue to provide consumers with quality, low-cost alternatives for vehicle replacement parts while preserving our environment for a “greener” tomorrow.

With the development of emerging countries around the world, the importance of and opportunities for the automotive recycling industry are growing exponentially. According to the auto industry researcher Ward’s, the global car population topped 1 billion in 2010. Stephen Lacey at Climate Progress cites a report from the International Transport Forum that estimates a global vehicle fleet of 2.5 billion in 2050.

The international market—that is the supply and demand for salvage cars throughout the world—presents opportunities that know few boundaries. However, this also presents significant challenges to ensure that untrained and unscrupulous individuals do not handle these vehicles improperly.

International Markets
In previous generations, buying salvage cars in the U.S. was managed more closely. A salvage dealer had to be physically present at the vehicle auction with a bid card in hand, and the bidding was against other licensed buyers in the region for the purpose of buying vehicles to supply area salvage yards. Since bidders were only able to bid on the vehicles being auctioned at that single location, it was most economical for bidders to be local or regional competitors.

Those parameters have disappeared. Today with the Internet, a salvage dealer can attend auctions anywhere, anytime—another opportunity that brings with it huge challenges, however, because virtually everyone else in the world can now compete against buyers of all types, regulated and nonregulated. The professional automotive recycler is competing for the same salvage vehicles with others who have a much different business model.

Complicating this already piecemeal approach is that the largest salvage auction pools also have set up departments to solicit and accommodate international bidders by providing brokerage and export services.

The Internet also, of course, has allowed for online interactive shopping sites, such as eBay, Craigslist and others. The convenience and supply of parts/vehicles offered through sites such as eBay is tempered by the fact that product warranties and regulated buyers/sellers are not guaranteed, at times leaving the consumer with a potentially unsafe part of questionable value.

ARA is working with eBay and others to ensure that vehicles and auto parts that are being sold have been appropriately registered in a federal database—another opportunity being pursued that evolved from a challenge.

We all know that the international market is big business. Profit is a strong motivator for companies that facilitate the sale of salvage-branded vehicles, whether the auto auctions or private companies buy directly from insurance companies, banks and dealers specifically for exporting.

High Demand
In the U.S, fleet operators and insurance companies incur more than 5 million “total loss” vehicles each year because of accidents and thefts. Salvage auctions remarketed more than 60 percent of the more than 5 million “total loss” vehicles in 2007. The growth in “total loss” declarations by insurance companies in the U.S. reflects vehicles equipped with costly options (air bags, xenon headlights and electronics) that push repair costs above the wholesale value of the vehicle.

According to estimated calculations based on public records provided by the larger auction companies, about 1 million of the 3.5 million cars salvaged each year, however, are exported outside of the United States. American salvage vehicles are usually very appealing because they tend to be between six and 10 years old. In many countries, this is considered a new car, and newer model, rebuilt salvaged vehicles can fetch quite a sum, especially those considered luxury models.

The fact that a vehicle’s salvage title branding does not stay with a car that is exported from the United States also is appealing to international buyers. Once a salvage vehicle enters another country, the U.S. title brands are not relevant, and the repair of such vehicles is rarely subject to inspection.

Further complicating the issue is that not all countries have the high repair standards that the United States has adopted, which provides buyers from less-regulated countries other opportunities for revenue on salvaged cars apart from parts. In most countries around the world, it is legal to repair such vehicles and inexpensive to do so in light of low labor costs. Once repaired, they sell the cars and, even factoring in the export fees and the inflated cost to purchase the salvage, repairers still make a profit.

Add to this the fact that the U.S. dollar has softened in recent years because our Federal Reserve has kept interest rates artificially low and we have had a slower-than-expected recovery in our jobs market. As a result, the U.S. salvage market is attracting a wider range of international buyers who can get more for their money than they can at home. That uptick in interest has strengthened salvage values.

Indeed, there are opportunities for profits to be made on American salvage cars internationally, but foreign governments should be concerned for the safety of the salvaged car consumer as well. It is this type of challenge that leads to a global opportunity to establish a worldwide standard, and one need only to look to what the ARA has already developed as a basis for action.

Certification Programs 
ARA, since its beginning, has adopted standards of practice for its members. These measures, which include best management practices for safety, environment and quality for recycled parts, provide recycling businesses with the ability to effectively compete in the marketplace while focusing on sustainability. These standards can affect the life of a motor vehicle; and, conversely, the absence of standards subjects the recycler, consumer and the environment to unfair, improper and even dangerous consequences.

Specifically, the Certified Automotive Recycling (CAR) Program was established in 1994 and produced a set of general business practices as well as environmental and safety standards that recyclers must follow. Another standard that the ARA offers is its Gold Seal Program, which is endorsed by the Automotive Service Association, the largest trade association representing the collision repair industry. This program was established to help maintain and enforce reputable, quality business practices throughout the automotive recycling industry. Gold Seal customer service goals are based on the highest professional and ethical business practices established and adhered to by “Best in Class” automotive recyclers.

Green Marketing 
ARA also is stepping up our efforts to help enhance the public’s perception of the industry by developing a wide range of marketing tools to brand the automotive recycling industry as a professional organization selling green, economical and safe recycled parts.

The new marketing initiatives will enable ARA member companies to link to the consumer information website, www.greenrecycledparts.com, and will provide access to professionally produced radio spots, online ads, print ads and video commercials—all fully customizable for each automotive recycler to brand its facility. Furthermore, this member marketing package will include the use of the newly trademarked “Green Recycled Parts®” logo on all automotive recycling facility materials.

The consumer information site, www.greenrecycledparts.com, noted above will help to explain the automotive recycling industry to consumers, offering educational information and connecting consumers with our members, who sell quality recycled automotive parts. We want to educate consumers about all the good that we do.

We know these ever increasing numbers of vehicles on the streets and highways around the globe will at some point face end-of-life processing decisions. It is important that standards—demanding specific environmental and economical behaviors—be adopted worldwide so that the automotive recycling industry can ensure that recycled auto parts are indeed safe and retain their utmost value. It is only when this happens that the automotive recycling industry can take its rightful place among the most successful businesses across the globe.

The author is CEO of the Automotive Recyclers Association, Manassas, Va. He can be contacted at michael@a-r-a.org