Car recyclers see market rebound

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After a 2011 that represented a rebound from the lows of the recession years, auto recycling industry members and suppliers are hoping for a return to stability and greater prosperity. The near future, according to interviews with executives in the field, will be driven by new markets, new technologies and the ultimate replacement of the country’s aging fleet of automobiles.

“2011 was not a record-breaking year, but it was close,” said Curt Spry, scrap sales manager at Al-Jon Manufacturing, Ottumwa, Iowa, which manufactures metal recycling and landfill compaction equipment. “And we look for 2012 to be the same.”

At OverBuilt, Inc., a maker of car crushers and baler-loggers in Huron, South Dakota, sales manager Jeff Hebbert said 2011 continued a trend from 2010 of modest recovery from the lows of 2009. “Predicting how long that’s going to last is like predicting the stock market,” Hebbert said. “But all indications are that the people in the recycling industry are very optimistic about 2012.”

That’s not to say the industry doesn’t face challenges. Competition from foreign buyers and unregulated domestic salvage operations continues to drive up prices for salvage vehicles. Meanwhile, manufacturers of new parts are, in some cases, matching prices for used parts, catching recyclers in something of a bind.

However, auto recycling remains an estimated $23 billion industry with more than 8,000 participants. The Vehicle Recycling Partnership (VRP) of the United States Council for Automotive Research, a joint technology research venture by Chrysler Ford General Motors, said Americans discard approximately 13 million end-of-life vehicles (ELV) each year. About 95 percent go through some form of recycling, resulting in the recycling of about 84 percent by weight of each vehicle, according to VRP.

Auto recycling’s impact on the environment and economy is considerable. The typical passenger car consists of about 65 percent steel and iron, about 25 percent of which has been recycled, noted Rob Wagman, president and CEO of LKQ Corporation, a $3 billion sales, Chicago-based public company that is the largest supplier of aftermarket and recycled collision replacement parts. LKQ removes usable parts from salvage vehicles for sale to body shops and recycles the rest as scrap. Each recycled ton of steel conserves 2,500 lbs. of iron ore, 1,400 lbs. of coal and 120 lbs. of limestone, Wagman noted. And the savings are repeated each time a car is scrapped.

“Steel is one of the few materials than can be recycled repeatedly without loss of strength,” Wagman said. “And more steel is recycled annually than all other materials, including aluminum, glass and paper combined.”

Recycling Rules

Regulation is one of the forces shaping auto recycling. Hebbert said, for instance, that tighter restrictions on shipping crushed automobiles have in the last several years greatly increased demand for baler-loggers that compress scrap cars into neat packages.

New environmental rules about water runoff are of concern to Eric Schulz, chief financial officer of AAA Auto Salvage in Rosemount, Minnesota. “The biggest change is storm water sampling that we never had to do before,” he said. “We have to take storm water samples every year and meet the benchmarks that are set by the EPA as to what’s contained in that storm water.”

Despite the tightening regulations, auto recyclers report that they don’t see them as unduly burdensome at this point. “I think it’s all good,” Wagman said. “It protects the environment and holds people accountable. So as a company, we fully support legislation and make sure people do all the right things.”

Auto Markets

Demand for recycled automobiles is strong, so for recyclers the challenge is in obtaining salvage cars. Schulz said people who buy and rebuild salvage vehicles for resale is one important source of competition. Another consists of car dealers, who are driving up prices for used vehicles of all types, he said.

One of the biggest reasons for the tight market for salvage cars, according to Wagman, is that ordinary drivers are simply holding on to their cars longer. This is good for sales, he noted, because people need parts to keep their older cars on the road. But it makes it difficult to get a supply of used parts.

The trend toward people driving cars longer is a relatively recent development, however, and he doesn’t expect it to last forever. “We’ll see that come around,” he said. “People are going to have to get new cars. There’s got to be a tipping point where it’s not economical to put more money into a car.”

Recycling’s Road Ahead

While foreign buyers are often blamed for driving up prices for American salvage cars, international customers are important sources of sales for companies that supply recycling equipment. Both Al-Jon and OverBuilt report good markets in Canada and Mexico, and Spry said Al-Jon is in discussions with a Chinese firm about a large purchase of equipment for crushing and containerizing cars for shipment to China.

Longer-term, auto makers are expected to begin having a greater impact on recycling. The VRP shifted much of its focus from end-of-life vehicle recycling processes to designing vehicles for recycling and promoting use of more recycled materials in the manufacture of new vehicles.

The recent popularity of hybrid vehicles, which employ gasoline engines in combination with electric motors powered by battery packs, is one design innovation that affects recycling. Wagman said recyclers must actively take precautions when working with hybrids and all-electric cars.

In general, the auto recycling industry can look forward to ever-greater demand for the recycled materials and parts that are its end products, and also to increasingly sophisticated business practices. Computer systems now help auto recyclers source parts quickly and accurately for customers, for instance. Wagman said they need more automated ways to recover bulk materials from scrap cars, much as the tire recycling industry did for rubber and steel from old tires. They also need to find more uses for post-shred glass, plastics, textiles and fluids.

By improving recycling techniques and finding new markets for their products, auto recyclers hope to squeeze even more utility from scrap and salvage cars. “Eighty-four percent of a car can be recycled now,” Wagman said. “I know we can get to 90 percent.”