NOVEMBER 2008

Auto recyclers report increase in sales
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With the economy in the midst of an ongoing slump, self service auto recyclers are enjoying a boom in sales, while some full service centers are experiencing declines in revenue.

“People are holding on to their cars longer and as a result, they need parts,” says Steve Levetan, a senior vice president with Atlanta, Georgia-based Pull-A-Part, LLC, “and to that extent, we are able to help people by providing parts very inexpensively. We’ve seen a steady growth in our business. I don’t know how much can be attributed to the economy versus our own growth as we go into new markets and expand.”

Pull-A-Part, which is strictly self-service, purchases vehicles from various sources and has not experienced any problems in acquiring vehicles that are usually 10-years-old plus.

“We pay competitive prices and we are able to acquire adequate numbers of vehicles,” says Levetan. “We do buy vehicles from individuals as long as they have the appropriate paperwork.”

Cars at Pull-A-Part facilities are generally processed within 30 to 90 days. The firm does not remove tires, gas tanks and other parts. However, these parts are dealt with when the car is processed before being sent to shredding operations.

“We support strong and effective environmental laws for the industry,” says Levetan, who notes that many government jurisdictions see auto recyclers as a partner in the implementation of public policy. “We work very closely with local governments and environmental agencies.”

Pull-A-Part works with the EPA and is a part of the EPA’s Performance Track program.

Companies enrolled in the program are subject to on-site inspections, and, as well, must provide independent audits and evaluations conducted at each facility.

A key issue for the industry, says Levetan, is for states to enact legislation to ensure the sale of used parts and the recycling of older vehicles.

“Very often there are issues with titles not being available with older cars – papers that have been lost or misplaced,” he says. “We are working with title agencies and law enforcement to make sure there are appropriate means for the legitimate owner of the vehicle to be able to sell them for parts or scrap. There has to be an adequate mechanism to deal with that.

Stakeholders working with state government continue to yield positive results, said Levetan, who has been involved in government affairs for the past 30 years.

“Everyone recognizes that cars have to go somewhere – there are 13.5 million cars that reach the end-of-life stage annually,” said Levetan. “They can be handled properly or improperly or left as derelicts.”

Many full-service auto recyclers have noticed that sales of used car parts are not increasing in these distressed economic times, a contradiction when tough periods generally see such sales skyrocket.

“This is not just an economic downturn - this is actual economic devastation,” said Jim Watson, a co-owner of Chicago area-based ABC Auto Parts and an Auto Recycler Association past president. “It is not limited to us. The cost for material in the self-service sector has increased, just as the cost for the full-service sector. Five years ago scrap was probably one-third of our retail business, now it is on par with that. We’ve seen scrap prices increase threefold or more and the parts have not seen a similar increase in value.

“The pressure that we have to increase our prices is causing a lot of purchase resistance,” he adds. “We’re dealing with parts that are a good choice in the repair of damaged vehicles and the way in which those parts are searched for is moving them towards commodity pricing.”

Watson, who has a 25-acre site, has both full service and self service operations. The company expects to process between 4,500 and 5,000 vehicles in 2008. He said that his self-service operation is doing well and that similar to a situation 10 years ago, the trend is to develop more self-service operations.

“The growth of the full service industry is maturing,” he said, “and there has been a change in the market – we are forced more than ever to differentiate ourselves as individual businesses and businessmen from our competition by focusing on the value-added services we can perform.

“By competing with other best-in-class businesses, we now have to do things that we never dreamed about years ago – we have to prove quality,” he adds. “We have to assure quality in the product we are selling – which 10 to 15 years ago was not the case.”

The full service operation deals with cars two to eight years old and is experiencing industry-wide problems, such as the request for later model car parts from body repair shops.

“I told my guys that they can expect requests from shops, that normally deal with 2002-2004 cars, for parts that are two years older,” said Watson. “They looked at me and told me it already started. People are fixing up some of these older cars, but the problem with these older donor cars is the age and mileage of the parts. It is very difficult to find and provide quality parts off older vehicles that pass all of our quality checks. Many of us don’t want to lower quality and performance standards because after the downturn, you don’t want your reputation to be that of selling junk.”

Adding to the problem is that scrap processors are paying more money for their raw materials and buying vehicles directly from companies, abandoned vehicle programs, and gypsy towers. These processors recycle the complete car and do not remove the parts.

When asked if the value of parts outweighs scrap, Watson replied: “You would think so.”

Exporting vehicles is also reducing the supply of parts.

“Some of the companies say that 30 percent of their vehicles are going to foreign buyers,” said Watson. “That’s a huge hit for the United States economy because here is a product and material that should be processed and sold in the United States, whether it be to create jobs or whether it is going to lower repair cost and allow for people’s cars to be fixed at a lower price.”

Cars are being exported to emerging markets in Asia, South and Central America, and Eastern Europe. Because of the price of labor and limited access to vehicles, Watson said, “A lot of vehicles go to Central America. It was such a problem that the Mexican government passed a law and put a moratorium on the importation of certain classes of vehicles.”

Watson is also concerned about the growing number of states that allow members of the public to attend and participate in salvage pool auctions, and purchase salvaged vehicles from insurance companies.

“Insurance companies are attempting to break down laws and rules in specific states that manages and tracks the buyers, as well as states which regulate who can buy these total loss salvage vehicles,” he said. “This is happening across the country and auctions and insurance companies are saying to individual states ‘this is an Internet sale and it’s outside of your jurisdiction – you have no control over who we sell these cars to.”

The auto recycling industry, said Watson, needs to be protected and promoted because it regulates the end-of-life stage for millions of vehicles and ensures that they are processed in an environmentally sound way.

“Those businesses that are appropriately trained, licensed and regulated should be the entities that are able to purchase those vehicles or legitimately able to have those titles transferred to them,” he said. “Once they process these vehicles, they go the shredder. To eliminate all regulation on the transfer and purchase of Total Loss Vehicles is a travesty and the government no longer has any ability to protect the consumer, the environment and safety of individuals on the road.”