Down for the Count

The "Cash for Clunkers" program has generated a significant amount of attention during its short life span. Ostensibly designed to boost new auto sales and to lessen emissions from older, less fuel-efficient vehicles, the program worked, at least in terms of stimulating sales, more effectively than anticipated.

The Car Allowance Rebate System (CARS), commonly referred to as "Cash for Clunkers," has spurred the sale of new automobiles while retiring many older, less fuel-efficient automobiles to the scrap yard through the use of rebate checks of up to $4,500 per vehicle. After the initial outlay of $1 billion was spent in less than two weeks, Congress allocated an additional $2 billion to keep the program running until Labor Day. However, the popularity of the program meant the additional funding evaporated by Aug. 24.

While CARS has resulted in a surge in new auto sales, many auto recyclers have had to navigate some tricky issues.

DESTINED FOR DESTRUCTION

To be eligible to participate in CARS, an auto recycler must participate in the End of Life Vehicle Solutions (ELVS) program, which manages programs to collect, transport, retort, recycle or dispose of elemental mercury from automotive switches, and must be able to crush or shred motor vehicles on its premises. Participating facilities must certify that they have the capacity to crush or shred vehicles on site and must process the vehicles within 180 days of receiving them from dealers or salvage auctions. Furthermore, the recycler must certify that it will not transfer any vehicles to other disposal facilities before the vehicles are crushed or shredded.

While consumers were able to purchase vehicles until 8 p.m. Aug. 24, dealers, auto recyclers, scrap metal recyclers and auto shredders will likely be involved with CARS for the next six months or so.

Depending on who’s doing the talking, the program has been a success or a disaster. On one side, new auto sales have definitely increased thanks to the $3 billion in rebates. However, the impact CARS will have on auto recyclers is less certain.

Some dealers who have taken part in CARS also have misgivings about the program, as the federal government has been slow to reimburse dealerships. As a result, a number of auto dealers are holding onto the automobiles that were purchased using the CARS rebate as they wait to see if they can collect their payments from the federal government.

Therefore, a number of older automobiles have yet to work their way through the recycling system.

 A key component of CARS is the permanent removal of older vehicles from service, and processors have six months to do so from the time they purchase the vehicles. This runs counter to the approach auto recyclers take to their business. A cornerstone of the program, and one that has created the biggest disappointment for recyclers, has been the decision to render the engine permanently inoperable. As part of the CARS program, auto dealers are required to pour silicate into vehicle engines to prevent them from being sold for parts.

While this provision poses a problem for auto recyclers, the situation could have been worse.

Michael Wilson, executive vice president of the Automotive Recyclers Association (ARA), Manassas, Va., says the original bill sought to render the engine as well as the drive train—two of the most valuable components of a vehicle—unmarketable.

Despite the compromise, in requiring the engine to be rendered unusable, auto recyclers are losing the most valuable component of a vehicle.

Sandy Blalock, former president of the Automobile Recyclers Association and head of Trucks and Parts Inc., a New Mexico full-service auto recycling operation, says it can cost as much as $1,200 to collect, deliver and process an automobile. The expenses include transporting the vehicle, draining all fluids and removing any mercury switches the vehicle may contain.

As a result of CARS, it is more challenging for auto recyclers to profit from the individual automobiles when the most sought after (and typically most valuable) component is disabled.

Steve Levetan with the self-service auto recycler Pull-A-Part, Atlanta, says while CARS has spurred auto sales, at least for the moment, "We are disappointed on the resale of some parts."

Blalock says the the overall impact of the program will be known within the next six months. With so many vehicles—perhaps as many as 700,000—essentially taken out of the stream of commerce, it will be a challenge to cost-justify parts reuse. She says she guesses that roughly 50 percent to 60 percent of the vehicle’s value is rendered obsolete by eliminating the engine from resale opportunities.

Wilson says the National Motor Vehicle Title Information System (NMVTIS) requires an auto recycler to report to the Department of Justice within seven days of taking in an automobile through the CARS program, while companies acquiring vehicles outside of the program are required to report every 30 days.

While recyclers have been reporting information on cars they take in for a while, the penalty for failing to provide the requested information is significant—up to $15,000 per each violation.

The goal of the fine, Wilson says, is to prevent fraud similar to what has transpired in other countries, notably Germany, where some cars that were to be shredded reportedly ended up in Africa.

Levetan notes that while Pull-a-Part is in favor of reporting VIN (vehicle identification) numbers, the original concept was to upload that information to a government entity. However, the program has instead opted to use outside vendors. At press time, there are three companies through which auto recyclers can report their NMVTIS information. Levetan says, "There weren’t supposed to be any costs in either the draft or the final rules."

However, the three companies in question are charging a per-record fee that ranges from between 35 cents to 75 cents per record. The individual costs may not seem significant, but as larger numbers of vehicles start to flow into auto recycling yards, the aggregate costs will climb.

A complaint that many auto dealers have also could significantly affect the auto recycling industry. The sheer volume of automobiles that have been turned in has overwhelmed the agency handling dealer payments. While dealers present their customers with rebate checks at the time of purchase, they are waiting for the federal government to issue them the money to cover the rebates. In some cases, automobiles are waiting on dealers’ lots to ensure that the funds will be available and that the dealer will be reimbursed. Wilson estimates that perhaps as many as 90 percent of the automobiles sold through the CARS program were being held by dealers as of late August until they receive payment from the federal government.

While many auto recyclers are chagrined about the loss of potential income, auto shredder operators are seeing opportunities. Ben Eisbart with recycling company OmniSource Corp., Fort Wayne, Ind., notes that the shredder network the company operates is seeing an 8 percent increase in flow to its facilities. "Conceptually, it is a great idea. The public had a pent-up demand, and that demand has turned into purchases," Eisbart says.

As for the silicate that is poured into the engine blocks, Eisbart says the silicate does not affect the quality of the shredded metals produced.

However, several recyclers say they have expressed some concern that the oil that is drained from the vehicles may be problematic for oil recyclers. Blalock says, "I am not sure how it will affect our fluids. We will take extra time with our fluid management."

Right now, she says, her company is being paid for the oil it extracts from end-of-life vehicles. However, when the silicate is included, she wonders if that will change.

Cash for Clunkers may have halted Aug. 24, but among auto recyclers, there still remains a significant amount of uncertainty about how the program will affect the industry. With as many as 90 percent of the vehicles to be disposed of through the program still tied up at auto dealerships, once the money for the automobiles starts to flow and the vehicles start to hit the auto recycling yards in larger numbers, many of the potential concerns will be answered.

"Once the cars start flowing, it will be fast and furious," Blalock notes. "Some regions are spread out and it will be a challenge getting the cars in," she adds.

Finally, balancing the short-term increase in end-of-life automobiles through the CARS program with the vehicles that are obtained outside of this program can be a logistical challenge for auto recyclers.

And, even for those scrap metal recyclers who expect the flow of material eventually coming through their doors to increase, Blalock says to be careful of the end game.

While the automotive and the steel industries have benefited from the increase in activity caused by the "Cash for Clunkers" program, without a sustained, improved economy, "I can tell you that scrap will drop dramatically when all the steel mills finish up."

The author is senior and Internet editor for Recycling Today and can be contacted at dsandoval@gie.net.

UNCERTAINTY RULES

STALLED ENGINE