Staying Focused

It’s uncommon to see auto parts operators investing in the scrap business, some auto dismantlers say. "For one thing the financial requirement out there to start a scrap business is prohibitive for most auto recyclers," says Michael Wilson, executive vice president, Automotive Recyclers Association (ARA), Fairfax, Va. Wilson adds that auto dismantlers also may have problems generating the volume needed to start a scrap recycling operation.

These aren’t the only factors keeping auto dismantlers from starting their own scrap recycling businesses. Steve Levetan, senior vice president of Pull-A-Part, Atlanta, says the company’s owners, the Cohen and Kogon families, have been involved in both the scrap recycling and auto parts industries and they say being in both at the same time doesn’t work. (For a profile of Pull-A-Part, see "Super Model" in the September 2007 issue of Recycling Today.)

"Our philosophy is that we stay very focused on what we do and don’t jump back and forth and side to side," Levetan says in regard to companies entering the scrap industry because of high scrap prices. Levetan also says that as a result of its focus on dismantling, Pull-A-Part now operates 23 locations throughout the United States and has no desire to re-enter the scrap business.

Those auto dismantlers that handle scrap do so because the material is already coming into their facilities and not because of the price increase in scrap metals, auto dismantlers say. Gary Beagell’s company, Gary’s U-Pull-It, Binghamton, N.Y., dismantled around 12,000 cars last year. He says his company is involved in scrap metal because of his customers’ needs.

Along with cars, Beagell’s customers also wanted him to take long and short steel. Today he also collects white goods and nonferrous material, purchasing two scrap handlers, a baler and a portable shear to process incoming material.

"Even though we do a fair amount of scrap metals, cars and parts are still our

Beagell usually sells his scrap to local or regional scrap yards and has only recently started exporting scrap to China via a broker. "Sometimes the direct price to China with a container is better," Beagell says. On average, Beagell ships one container of nonferrous material to China every two months.

Brookfield Resource Management Inc., Elmsford, N.Y., is one of the companies that initially started as a used auto parts business and over time moved into the scrap business. The reason for the move came from the large amounts of scrap the company was claiming from its vehicle dismantling operations. Today the bulk of the company’s business is scrap and it has a separate business focused on dismantling commercial vehicles for the wholesale distribution of driveline components.

From President Tom Malone’s perspective, he says it’s easier for used auto dismantlers to get into the scrap business than it is for scrap processors to get into the used auto parts business. "It’s easier for auto recyclers [to get into scrap recycling] because they are already generating scrap through the nature of the business," Malone says.

On the scrap side, Malone says the average scrap yard probably handles somewhere between 30 to 50 products and if they got into the used auto parts business the number of inventory categories would increase into the thousands.

Schnitzer Steel Industries Inc., based in Portland, Ore., is one recycler that has successfully entered the auto dismantling industry. Schnitzer Steel entered into a joint venture with Pick-n-Pull, Rancho Cordova, Calif., in the 1990s as a way to secure more scrap for its metals recycling business. After seeing the value being extracted prior to scrapping the vehicles, the company eventually acquired the entire business, says Tom Klauer, president of Schnitzer’s auto parts business.

Today, Pick-n-Pull and its sister company Arlington, Texas-based GreenLeaf Auto Recyclers LLC (a full-service chain) make up the auto parts business unit within Schnitzer Steel. The auto parts business continues to grow, according to Klauer, and it has recently acquired three more self-service used auto parts businesses.

The automotive dismantling industry has seen an emergence of more locations featuring the self-service model.

In a typical self-service yard, customers pay an admission fee to gain access to the yard. Klauer adds that once a customer has found the part he or she is seeking, the customer removes the part and takes it to the cashier. The price of the part often represents a significant value compared to a rebuilt or new part.

However, service is not the only differentiator between full- and self-service yards. Klauer says the self-service segment primarily processes older end-of-life vehicles (ELVs) and targets do-it-yourself retail customers, while the full-service segment focuses on processing newer vehicles, and its customers are primarily professional auto body and mechanical repair shops.

Pull-A-Part is strictly a self-service facility that specializes in end-of-life vehicles. "We saw it as a different part of the business we could get into," Levetan says. "It is totally different from the late model full-service parts companies."

Levetan emphasizes that self-service yards are not a substitute for full-service facilities and that in most cases Pull-A-Part is not a direct competitor to full-service yards. "Each one appeals to its own kind of customers," he says.

Since returning to the automotive recycling industry a year ago, Wilson says he has noticed a large push toward self-service yards vs. full-service yards. "Paying a small entry fee and picking your own parts is the retro craze out there," Wilson says.

Gary’s U-Pull-It has been in business since 1979, and Beagell says it is one of the oldest self-service auto parts facilities in the industry.

Beagell also has to explain the difference between full-service and self-service auto dismantlers to people who frequently ask him if he competes with his brother’s full-service facility next door. "We do compete somewhat, but I tell people we both buy cars, we both sell parts, but everything we do in between is completely different," Beagell says.

"However, the businesses are complementary to one another, as a self-service customer who doesn’t find what he is looking for might be sold a part that has already been dismantled from our full-service operation," Klauer says.

Auto dismantlers are optimistic about the future of the used auto parts industry. Beagell says he sees the self-service model continuing to spread into larger cities. He also predicts more consolidation by the bigger players.

Levetan sees self-service and full-service auto dismantlers, as well as the scrap industry, all becoming stronger. "By a strong scrap industry, that doesn’t necessarily mean prices have to remain at these levels," he says.

However, Levetan cautions companies about expanding from one segment into the other. "Scrap, full service and self service can all be very good businesses, but just because you’re good at one doesn’t mean you’ll be good at the others," Levetan says.

Klauer says it is difficult to determine whether other scrap processors will enter into the used auto parts business. "Schnitzer already has the expertise in operating this type of facility, which others may not have, and expansion of the auto parts business continues to be a core part of the company’s growth strategy," he says.