recycling industry reaches $25 billion a year
While many might view the auto recycling industry
as thousands of small dismantling facilities located throughout
the country, the multi-billion dollar industry is changing.
“It’s actually a large industry,”
said George Eliades, executive vice president of the Automotive
Recyclers Association. “I think the perception of the industry
has changed and is changing because there is a big focus on recycling
The auto recycling industry is a $25 billion a
year industry, according to the trade association group based in
Fairfax, Virginia making it the 16th largest sector in the United
States employing more than 46,000 people. The trade group estimates
that there are more than 7,000 legitimate automotive recycling companies
across the nation.
The auto recycling industry currently serves approximately
14 percent of the auto parts market, Eliades said. The market share
has been fairly constant over the past few years. “The potential
for growth is greater now because people are paying attention to
improving the environment. I think the consuming public is also
more concerned about the cost of replacement parts and quality recyclable
OEM parts are an attractive alternative.” Eliades said.
“As more people become publicly aware
of the availability, quality, and the advantages to using quality
recyclable OEM parts, I think we definitely will increase our share
of the market. We’re committed to and encourage the reuse
of recycled parts.”
While the auto recycling industry is growing,
the number of individual recycling companies across the country
is shrinking. “There is more consolidation today then in the
past. I think that trend will continue because it makes sense for
a lot of companies to join into some kind of group in order to help
themselves in the market,” Eliades said.
The largest nationwide provider of recycled
auto products and related services is LKQ Corp., headquartered in
Chicago. It operates over 100 facilities across the country, offering
customers a broad range of replacement parts. LKQ has acquired more
than 30 operations since its founding in 1998. It has acquired nine
businesses just this year.
LKQ acquired Transwheel Corp., an aluminum
alloy wheel refurbishing and distribution business with facilities
in Indiana, Connecticut, Maryland, Florida, Michigan and Illinois,
in January. Transwheel recorded revenue of $28.5 million in 2005.
In February, LKQ acquired Michael Auto Parts
in Orlando. It serves the professional repair market and generated
$12 million of revenue in 2005. LKQ also purchased two retail businesses,
one near Charleston, South Carolina and one near Baton Rouge, Louisiana.
Combined, the firms generated less than $3 million of revenue.
LKQ also acquired two businesses in April
consisting of three facilities in Oklahoma and three facilities
in Michigan with revenue of $9 million. In June and July, LKQ acquired
two retail oriented business that generated revenue of $24 million
with facilities in Houston and Daytona Beach, Florida and a facility
Revenues at LKQ increased 43.4 percent to
$195 million in the second quarter ended June 30, 2006. Organic
growth increased 10.8 percent. Net income increased 52.9 percent
to $11.7 million compared with $7.6 million during the same quarter
last year. “We once again achieved a record revenue quarter
with impressive revenue growth,” said Joe Hosten, LKQ chief
executive officer, following release of the quarterly results.
LKQ is expected to make more acquisitions
this year. Craig Kennison, an analyst for Robert W. Baird &
Co. Inc. in Milwaukee, said in a research report that LKQ has approximately
$45 million remaining on its current credit authorization. “We
believe the company easily could expand its facility by an additional
$100 million.” Kennison said.
Kennison said he expects 15 percent to 20
percent earnings per share growth on 10 percent to 12 percent organic
sales growth during the next three years. He said LKQ plans to complement
organic growth with acquisitions that could add an additional 5
percent to 10 percent to sales and earnings per share growth during
the same period.
Many owners of smaller recycling companies
are selling because they are getting a good price said Eliades of
ARA. He added that timing is also a factor for owners considering
retirement. “While I think there are fewer companies, the
industry is not getting smaller. It is, in fact, expanding. With
fewer companies, those that continue are stronger entities.”
The single biggest issue facing automotive
recycling today is salvage, Eliades said. “If we don’t
get salvage, we won’t have recycling companies and none of
the other issues will matter. We’re trying to keep repairables
and get a higher percentage of the vehicles not exported for legitimate
reasons and others sold to unscrupulous buyers for parts. This helps
automotive recycling and the environment.”
Recycling automotive parts also saves valuable
landfill space, Eliades said. “The auto recycling industry
is all about saving raw materials,” Also, the more recycled
parts the less need for manufacturing new parts. “Recycled
parts saves energy and are less costly to the consumer than brand
new parts,” Eliades said.
Metal makes up about 75 percent of a motor
vehicle. About 85% of it is recycled, Eliades said. The industry
recycled around 14.5 million tons of steel in 2004.
Other parts, like carpets, plastics, and
tires, are also recyclable. About 10 percent of recycled tires end
up in new tires. In total, around 95 percent of cars retired from
use are recycled, making autos the most recycled consumer product
in the world today according to Eliades.
“What we’re trying to do is
encourage recycling and reuse so that there is no waste left over,
if that is possible,” Eliades said. “Automotive recyclers
are some of the most entrepreneurial people on the planet. If there
is value in any part of that vehicle, they’ll find it, recycle
it and make it available for reuse.”