The shifting paradigm of automotive recycling

“The automotive recycling industry has a rich 76-year history serving a vital role in the world’s recycling efforts,” says Jonathan Morrow, M&M Auto Parts, Fredericksburg, Virginia, and president of the Automotive Recyclers Association (ARA), Manassas, Virginia. “As an industry, we have always endured change, and it has made us better. In my lifetime, I have not experienced a disruption, particularly in the U.S., that has rocked our industry’s core more than the ones being experienced today.”

“The professional automotive recycling industry is being squeezed on all fronts—from OEM repair standards, suppression of scrap prices and too many unlicensed operators,” says Scott Robertson Jr., owner of Robertson’s Auto Salvage, Wareham, Massachusetts, and ARA’s second vice president.

The most critical issue facing the industry is the misconception of its importance and inner workings, which has led to overarching policies that could severely impede business. Educating consumers and industry stakeholders of the critical role that recycled original equipment manufacturer (OEM) parts play in today’s automotive repair market has proved difficult, but that is something the ARA is working to change.

Position of strength

OEM repair guidelines and position statements contribute to industry misperception. Directed at mechanical and collision industry repair processes, these documents often outright prohibit the use of genuine OEM recycled auto parts. While the 2015 Fixing America’s Surface Transportation (FAST) Act included a provision requiring car manufacturers to provide automotive recyclers with original equipment (OE) parts data for recalled components, OEMs continue to deny auto recyclers access to that data—even though it is provided to all other related industries.

These two issues combined, as well as a drop-off in interchange numbers, are major obstacles for auto recyclers largely in the U.S. market.

The intent of OEM repair guidelines is to determine procedures sanctioned by automakers to make sure any technician performing auto repairs understands what it means to fix the vehicle correctly, according to the manufacturer. However, the underlying intent to mitigate the risk of a bad repair has resulted in blanket statements that have affected the automotive recycling industry. Guidelines sanction the use of only “new” OEM auto parts in repairs and explicitly restrict the use of “recycled” auto parts, which are lumped together with “aftermarket” parts.

Also, OEM position statements do not acknowledge that recycled auto parts are genuine OEM parts.

The average vehicle on the road is now 11.8 years old, and OEMs continue manufacturing replacement parts for an average of four years after a vehicle’s production. Negating the use of “recycled” auto parts leaves those vehicles exposed to premature insurance total-loss status.

obstacles and opportunities

While OEM repair standards are of concern, other aspects of business contain roadblocks and doors of opportunity.

With electronic connectivity, auto recyclers compete for product (salvage cars) on a global scale at significantly increasing prices. They experience more competition for parts sales and higher customer expectations. Where business relationships ruled the past, the new deal-makers are product availability, price, time of delivery and product delivered as expected or better (i.e., with little or no damage). This is driving down profit margins and forcing the industry to unify under standard processes and procedures.

E-commerce: Electronic parts procurement is growing, and eBay and Amazon are the platforms to watch. Smart auto recyclers maximize online accurate parts descriptions and show multiple parts images to set customer expectations. Recyclers unwilling to comply with this level of detail are at risk.

“Our industry is behind, but it is headed the right way,” says Bill Stevens, the CEO of Fenix Auto Parts, Hurst, Texas. “The way to get the client to call you is to correctly explain [online] that you have it. Then the phone rings.”

Process & procedure: As an industry, auto recyclers are maverick entrepreneurs. “While we all sell recycled auto parts and process scrap, our industry has many different business models,” Robertson says. “What we really need is to adhere to basic standards and processes to ensure our overall sustainability.”

As long as a recycler has product, price, delivery and parts as described, the playing field between large and small operations is leveled. But many are scrambling to catch up.

The cost of doing business: Margins are shrinking and costs are rising. This factor is driving some automotive recyclers to sell or close, and it is compelling others toward innovative growth. The bottom line: It costs more now to make less on recycled parts.

“The labor market is competitive, the cost of staffing and benefits has risen rapidly. The cost of salvage is staggering compared to the past,” Shannon Nordstrom, vice president and general manager of Nordstrom’s Automotive Inc., Sioux Falls, South Dakota, and chair of ARA’s Certification Committee, says. “Recyclers that do not smooth out the inefficiencies in their businesses will have a hard time finding consistent profitability.”

Positioning for growth

With an open mind, progressive auto recyclers are working to identify, inventory and sell more parts by expanding beyond traditional top parts. They are establishing core recovery programs and other profit models. As assemblies contain more parts, auto recyclers are selling more items separately, such as electronic sensors or LED lights, all to boost their bottom lines.

Trading groups, where a network of recyclers agrees to standards and shares inventory to fulfill orders, are trending. For smaller yards, it is a way to continue to compete with larger multilocation facilities and to not fall short of customer expectations.

Vehicle advancements: Auto recyclers still have time to understand advanced collision avoidance technology, but not much. The National Highway Traffic Safety Administration states, “Self-driving vehicles are a future technology concept rather than one that you’ll find in a dealership in the next few years. … A variety of technological hurdles must be overcome before these types of vehicles could be available for [wide] sale in the United States.” The agency estimates a slow rollout from 2025 to 2035, mostly focused in the Asia Pacific region.

Yet, advanced driver assistance systems (ADAS) should be watched now. The ADAS market is poised to increase from $32.5 billion in 2018 to more than $74 billion by 2025, according to Global Market Insights Inc., Selbyville, Delaware. Only those recyclers who maintain savvy training systems will capitalize on this market.

Certified for success: Certification is rising to a necessity for auto recyclers, yet it is still seen by most as a hindrance. When common standards are embraced, the industry will receive more widespread acceptance as a mainstream auto parts provider. As OEMs require more collision and mechanical repairers to be certified, it makes sense that parts suppliers will require similar qualifications.

ARA is establishing global standards to replace the NSF International Automotive Parts Certification Program that recently was withdrawn from the marketplace. Yet, since 1994, ARA has offered the Certified Automotive Recycler (CAR) and Gold Seal programs for the highest credentialing to automotive recyclers.

Certification is not about manufacturing for automotive recyclers; it is processes and procedures to ensure recycled auto parts are properly handled in dismantling, inventory, storage and shipping. A universal set of standards for consistency in quality, delivery and expectation ultimately will bring more opportunity.

“Certification is a long-term commitment. The industry must adhere to the basic CAR standards,” says Nordstrom, who leads the ARA’s initiatives. “We should not only follow the CAR as a baseline effort but [also] embrace procedures that assure the highest quality of results—the ARA Gold Seal standard. Certification has its highest impact when a third-party audit is in place, which Gold Seal requires.”

“As more advanced standards and processes are currently being written, I urge any auto recycler to see if they are a match to your business model,” Robertson says. “A chain is only as strong as its weakest link. ARA has made the certification process more streamlined to enable all recyclers to participate, which will help both individual business and our entire industry.”

It is becoming more evident that auto recyclers who come together, stay educated and share industry best practices with each other are best positioned for future sustainability and growth.

Caryn Smith is the editor of Automotive Recycling magazine, published by the Automotive Recyclers Association (ARA), Manassas, Virginia. She has covered the automotive recycling industry for more than 25 years. Visit www.a-r-a.org for more information on the ARA.